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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23560
XcelleNet, Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-1749705
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
5 CONCOURSE PARKWAY, SUITE 850, ATLANTA, GEORGIA 30328
(Address of principal executive offices)
(770) 804-8100
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant (assuming, for purposes of this calculation, without conceding,
that all 10% shareholders, executive officers and directors are "affiliates")
was $105,752,810 at March 9, 1998, based on a closing market price of $20.25 for
the Common Stock on such date, as reported by the Nasdaq National Market.
The number of shares of registrant's Common Stock, $.01 par value per
share, outstanding at March 9, 1998 was 8,372,670.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on April 28, 1998 (the "Proxy Statement") are
incorporated by reference in Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
FORWARD LOOKING STATEMENTS
In addition to historical information, this Form 10-K contains forward-looking
statements. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in these forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section
entitled "Business - Risk Factors." Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
opinions only as of the date hereof. The Company undertakes no obligation to
revise or publicly release the results of any revision to these forward-looking
statements. Readers should carefully review the risk factors described in other
documents the Company files from time to time with the Securities and Exchange
Commission. RemoteWare and XcelleNet are registered trademarks and RemoteWare
Express is a trademark of XcelleNet, Inc. All other brands and product names
are the tradename, trademark or registered trademark of their respective owners.
BUSINESS
XcelleNet, Inc. ("XcelleNet(R)" or the "Company"), founded in 1986, provides
systems management solutions for remote users. Its RemoteWare(R) brand of
products enables system administrators to more effectively manage remote PCs,
thereby reducing total cost of ownership ("TCO") and increasing end-user
productivity. The Company's systems management tools address five key areas:
software distribution; asset and configuration management; diagnostics and
recovery; event and alarm management; and content and applications management.
The Company's products, based on a unique client/agent/server architecture, are
specifically designed to overcome the challenges inherent in managing remote
systems that are intermittently connected to the enterprise and complement the
solutions of enterprise systems management vendors who are primarily focused on
the management of LAN/WAN-attached systems.
In 1989, the Company introduced its flagship RemoteWare product family, which
is targeted to companies with large numbers of remote or mobile users and was
originally based on the IBM(R) OS/2(R) server platform ("RemoteWare for OS/2").
In 1996, the Company introduced a version of RemoteWare based on the
Microsoft(R) Windows NT(R) server platform ("RemoteWare for NT"), which was
significantly enhanced with the release of the RemoteWare Managed Client in
December 1997. Also in 1997, the Company released RemoteWare Express(TM), which
is designed for web-based systems management. As of December 31, 1997, the
Company had licensed RemoteWare directly or through its Solution Provider
Resellers to approximately 1,700 organizations and approximately 650,000 users.
The Company's products have been sold to companies with large numbers of sales
and field force personnel, branch offices or store locations in a variety of
industries, including manufacturing, pharmaceutical, financial services,
insurance, healthcare and retail.
The Company's objective is to be the leading provider of systems management
software for remote users. Important features of the Company's strategy are as
follows:
. Focus efforts on systems management for remote users;
. Partner with enterprise systems management providers to extend their
capabilities to remote users;
. Leverage direct sales efforts with OEM and co-marketing relationships;
. Expand systems management functionality of RemoteWare; and
. Leverage Microsoft technologies.
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INDUSTRY BACKGROUND
In an effort to better serve their customers, companies continue to deploy
more remote workers. These include branch office workers, retail store managers
and mobile professionals and, with the growing deployment of corporate
intranets, increasingly may include suppliers, distributors, customers and sales
prospects. According to industry analysts, the cost of managing the PCs, laptops
and other devices used by this growing constituency are significantly higher
than for LAN-based computers. This higher cost is primarily due to the greater
burden these systems place on administrative and technical support resources.
One of the biggest challenges for Information Technology ("IT") executives is
to control the high costs of managing PCs and servers. Companies that deploy
systems management solutions effectively can reduce technical support and system
administration expenditures, deploy staff to new projects and positively impact
end-user productivity. Reflecting the growing desire on the part of IT
professionals to better manage and contain costs, the IT investment in systems
management solutions is projected by Gartner Group to grow from $4.5 billion in
1997 to over $9 billion by 2001.
The leading suppliers of traditional systems management solutions either
ignore or provide minimal services for users who connect intermittently to
enterprise networks, focusing instead on managing LAN/WAN-attached systems where
connections are continuous and high-speed. In this environment, management
tasks scheduled for execution at specific times can be readily accomplished as
the target systems are available and connected to the network. However, as the
number of remote users increases, a growing number of remote PCs remain outside
of and isolated from the management domain. Disconnected for the majority of
the time, these systems typically contend with low-bandwidth and unreliable
connections when they do connect. Coupled with the fact that IT professionals
cannot physically access the remote systems, these conditions present major
challenges to IT organizations.
THE XCELLENET SOLUTION
The Company's remote systems management products are designed to address this
growing need for tools to consistently manage dispersed PCs and laptops from a
central location. The Company believes that the need for its products is
primarily driven by three key dynamics: 1) the number of remote and mobile users
is growing; 2) companies are increasingly investing in systems management
solutions to reduce the rising costs of managing PCs and servers; and 3)
traditional systems management tools inadequately address the unique challenges
of and higher costs associated with managing large numbers of dispersed PCs.
The Company's flagship product, RemoteWare, relies on a unique architecture,
which is highly scalable and specifically optimized for remote users. These
users typically connect only intermittently with network resources and rely on
slow (typically 28.8KB) and unreliable connections. In comparison, enterprise
systems management solutions are architected assuming high-bandwidth (at least
10MB) and continuous connections. RemoteWare's unique queued event architecture
("QEA") addresses the difficulties inherent in monitoring and maintaining remote
users' hardware and software when the user is not continuously connected to the
enterprise network. The three-tier, client/agent/server design of the QEA
architecture automates the staging of various types of system- and user-
initiated events.
System-initiated transactions, tailored to a particular remote user or group
of remote users, are queued at the central site server, awaiting the next client
connection. These events may include commercial or custom software upgrades, new
virus signature distributions, document distributions and updates to data used
by field-based applications. In the field, while remote users work offline,
events are also staged on the user's remote system. These events may include
incremental backups to key data, results of offline hardware and software
inventory scans, requests for documents and the sending and receiving of
electronic mail. When the RemoteWare connection is made, the queued events are
executed, servicing all applications and performing systems management tasks in
a single session--all without requiring user intervention. Resulting updates,
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installations and reports are automatically completed offline, after the
connection is terminated, to minimize connect time, lower communication costs
and boost remote user productivity.
The Company's products are architected to make the connection between the
client and the server as efficient as possible. Optimization features include:
. Efficient compression of data and application files, both before and during
the connection;
. Criteria checking to ensure that specified criteria are met before updates
to remote systems are attempted;
. Incremental updates, transferring only missing or updated files to minimize
data transfer volumes;
. Differencing technology to transmit only changed bytes of files rather than
transmitting entire files; and
. Checkpoint restart, to resume failed transfers at the point of failure,
rather than from the beginning.
PRODUCTS
The Company has two primary product lines: RemoteWare and RemoteWare Express.
REMOTEWARE is marketed to companies with large numbers of remote users.
Originally based on the IBM OS/2 server platform, the Company released a version
of RemoteWare based on Microsoft Windows NT in March 1996. While the Company
continues to sell and support its RemoteWare for OS/2 product, sales of
RemoteWare for NT constituted the majority of the Company's license fee revenue
in 1997. Additionally, many of the Company's RemoteWare for OS/2 customers have
been shipped the code necessary to migrate to RemoteWare for NT. The Company
expects migration to be an ongoing process in 1998, with the number of customers
who complete it increasing.
RemoteWare consists of two components: the RemoteWare server software
installed at the central site and the RemoteWare client software installed on
the remote system. The RemoteWare server provides a powerful set of management
utilities giving administrators the ability to easily manage a large and
dispersed set of assets from a central location and includes the following:
. Advanced scripting capabilities enabling file and directory level
management;
. Robust and flexible scheduling module to support the scheduling
of communications sessions that are initiated either from the server or
the client system;
. Support for multiple transports (e.g., Internet, VSAT, and POTS);
. Support for multiple protocols (e.g., asynchronous serial communications,
TCP/IP, IPX/SPX and NetBios); and
. Comprehensive logging and reporting capabilities.
The RemoteWare client software is available in three primary offerings: the
RemoteWare Basic Client, the RemoteWare Managed Client, and the RemoteWare
Extended Client. The RemoteWare Basic Client enables basic systems management
services to the RemoteWare server, with support for a variety of platforms
including Windows (Windows NT, Windows 95(R), Windows 3.1), DOS, OS/2 and
SCO UNIX.
The RemoteWare Managed Client, introduced in December 1997, provides a rich
set of functionality that extends RemoteWare's basic remote systems management
capabilities for Windows-based systems. It is made up of the following four
components, which are also sold as separate add-ons to the RemoteWare Basic
Client:
RemoteWare Software Manager. Provides system administrators with the tools
needed to automate the distribution, installation, and management of
commercial and custom-built software applications for remote users. Rules-
based distribution allows administrators to specify the criteria under which
software can be installed and operated (ie., available hard disk space,
installed memory, operating system). The system verifies that criteria are
met on a remote PC before files are transferred to it. During every
subsequent client/server connection, Software Manager performs file-level
incremental updates (if necessary) to replace missing, corrupted or out-of-
date files that are part of the distributed software package.
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RemoteWare Inventory Manager. Automatically scans for and retrieves detailed
information on hardware and software resident on remote systems. Scans can
occur on-line during a client/server connection, or can be specified to occur
offline with the resulting inventory information retrieved during a subsequent
connection. Inventory information is deposited centrally into an ODBC-
compliant relational database, ensuring that system administrators have a
comprehensive repository of information on remote assets prior to performing
hardware and software updates, troubleshooting, or performing other
administrative tasks.
RemoteWare Backup Manager. Represents a powerful tool for automating and
controlling the backup of remote system files to a central location. Both the
end user and the system administrator have separate access to file backup and
restore functionality and to the management of multiple backup sets. Volumes
of data moved from the client to the server are greatly reduced through the
incorporation of byte-level differencing technology that detects changes in
files and backs up only the necessary data to bring a previously archived file
up to its current state.
RemoteWare AntiVirus Manager. Allows system administrators to automatically
and transparently distribute, install, maintain, and execute McAfee's
VirusScan(R) software on remote systems. AntiVirus Manager checks VirusScan(R)
configuration parameters during every connection and resets them to system
administrator-specified values if necessary. Results of both forced and
scheduled virus scans are retrieved and deposited centrally into an ODBC-
compliant relational database for further review and action.
The RemoteWare Extended Client includes the RemoteWare Basic Client
functionality and the following three components:
RemoteWare Subscriber. Offers information subscription and publishing features
that support both administrator-initiated ("push") and user-subscribed
("pull") distribution methods, enabling businesses to customize enterprise-
wide information distribution strategies.
RemoteWare Workshop. Allows system administrators to centrally create, manage
and distribute password-protected graphical application menus to insulate
users from the complexities of the client operating system.
RemoteWare Web Offline. Allows system administrators to collect and distribute
web content for offline viewing by remote users.
In addition, the Company introduced RemoteWare Plus for Tivoli(TM) during the
first quarter of 1998. This certified TME 10 Plus(TM) module allows Tivoli users
to take advantage of RemoteWare's functionality by extending enterprise
management capabilities to remote and mobile users. The product allows Tivoli
users to manage the RemoteWare server from the Tivoli Enterprise Management
Console.
REMOTEWARE EXPRESS is based on the Windows NT server platform and is marketed
to and designed for companies who want to manage software distribution and
content delivery to users via corporate intranets. Using a centralized
transmitter, RemoteWare Express allows system administrators to define delivery
channels for software or information distribution. Through the RemoteWare
Express Channel Administrator, channels can be made available for user
subscription ("pulled") or can be "pushed" to users by the system administrator.
The user can view the information from a browser, through the RemoteWare Express
Channel Viewer, or within the context of customer applications through the
RemoteWare Express API.
The RemoteWare Express product line consists of two products: Software Manager
and Session Manager (formerly known as SessionXpress). Software Manager
provides system administrators with the tools needed to automate the
distribution, installation, and management of commercial and custom-built
software applications. Session Manager is a robust scripting tool that allows
administrators to automate complex communications sessions and events, which
eliminates the need for user intervention.
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Services
In addition to its product offerings, the Company provides a software
maintenance program, help desk support, systems integration services, and
training. Revenues from services comprised 36%, 28% and 25% of total revenues
for the periods ended December 31, 1997, 1996 and 1995, respectively.
Payment of maintenance and support fees entitles an XcelleNet customer to
enhanced versions of a product released during the maintenance period and
telephone support. Such fees are an important source of recurring revenue to
the Company, and the Company invests significant resources to provide new
product versions and telephone support. These services are important to those
customers who require prompt problem resolution because of their dependence on
the products to enable mission-critical business processes. Annual fees for
this program are based on the cumulative software license fees paid by the
customer.
Through 1996, the Company relied primarily upon Solution Providers to provide
application development and systems integration services to RemoteWare customers
and prospects. In mid-1996, the Company established its own integration
services group to offer a range of consulting and integration services required
by large customers. In January 1997, the Company acquired XcelleNet Integration
Services, Inc., formerly Electronic Commerce, Inc., a systems integrator that
had been one of the Company's Solution Providers. This acquisition significantly
expanded the Company's ability to provide integration services directly. The
Company focuses its integration services on new, large accounts as well as on
customers migrating from RemoteWare for OS/2 to RemoteWare for NT.
PRODUCT DEVELOPMENT
The Company's products have been primarily developed by its internal product
development staff, which has from time to time included a number of independent
development contractors. The Company's product development staff consisted of 72
full-time employees and nine independent contractors as of December 31, 1997.
The Company licenses certain third-party technologies that are incorporated into
the Company's products and which, in some cases, substantially reduce the
product's time-to-market or increase its competitive position and market value.
Since its inception, the Company has made substantial investments in product
development. These expenditures totaled $9.8 million, $8.6 million and $5.4
million in fiscal 1997, 1996 and 1995, respectively. In accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed," the Company
capitalizes software development expenditures once a product has established
technological feasibility until such time as the resulting software product is
available for commercial sale.
The Company believes that Microsoft's Windows NT environment is emerging as
the predominant enterprise-computing platform. By leveraging Microsoft's
enterprise platform, the Company believes that its RemoteWare for NT products
will be applicable to a broader range of customers than RemoteWare for OS/2.
Consistent with that belief, during 1997 the Company's development efforts
consisted primarily of the following:
RemoteWare for NT. Beginning in 1995, the Company substantially increased
its product development expenditures in order to develop its RemoteWare for NT
products. These efforts included the development and release of RemoteWare for
NT 3.0 and RemoteWare for NT 3.1 in 1996 and were substantially completed with
the May 1997 release of RemoteWare for NT 3.2.
RemoteWare Managed Client. The Company expended significant development
resources to enhance the systems management capabilities of RemoteWare for NT.
These efforts resulted in the December 1997 release of Software Manager,
Inventory Manager, Backup Manager and AntiVirus Manager, collectively known as
the RemoteWare Managed Client.
RemoteWare Express. Based on the Windows NT server platform, RemoteWare
Express incorporates certain key features of RemoteWare and is designed for
companies who want to manage software distribution and content delivery to users
via a corporate intranet. This product was first available in 1997.
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RemoteWare Plus for Tivoli. A certified TME 10 Plus module, RemoteWare Plus
for Tivoli allows system administrators to manage both LAN-based and remote
clients from the Tivoli Enterprise Management Console. This product was first
introduced in the first quarter of 1998.
During 1998, the Company's product development efforts will continue to
leverage Microsoft technologies. Current plans include further enhancements to
RemoteWare and RemoteWare Express and integration with Microsoft's Systems
Management Server, Windows NT 5.0, Zero Administration Windows and Management
Console. The Company also currently plans to further enhance Tivoli integration
and to build interfaces with other network systems management framework
consoles.
SALES AND MARKETING
The Company's sales and marketing efforts target companies with large numbers
of remote and mobile users. The Company relies predominantly on its direct sales
force to qualify and sell to prospective customers. The Company also has a
network of Solution Providers who provide reselling and integration services to
RemoteWare customers and has forged OEM relationships with Sterling Commerce,
Inc. and Norand Corporation, both of whom private label RemoteWare. The Company
receives license fees and service revenues from end-user customers and in some
cases through Reseller Solution Partners. In 1997, no Solution Provider
accounted for more than 3% of the Company's total revenues and no customer
licensed directly by the Company accounted for more than 2% of the Company's
revenues.
The Company's direct sales force is divided into four regional teams in North
America and an international team responsible for Europe, the Middle East,
Australia and New Zealand. In addition, the Company has a telesales function to
augment its direct selling efforts. In 1997, 73% of the Company's license fee
revenues were attributable to sales made by the Company's direct sales force.
The Company intends to strengthen its direct selling efforts in 1998 by
expanding its direct sales program, establishing a major account sales function
to manage large multi-division accounts, and continuing its telesales efforts.
The Company's presence internationally is expanding with the introduction of a
new sales team in Germany that is focused on selling local-language versions of
RemoteWare.
The primary function of its Solution Providers is to assist the Company's
customers with implementing RemoteWare by providing systems integration
services. Certain Solution Providers are authorized to remarket the Company's
products in connection with providing their services. The Company's recruiting
efforts are focused on Solution Providers who provide implementation services
for enterprise systems management vendors.
In support of direct and indirect selling efforts, the Company conducts
targeted marketing programs to generate sales leads, which include advertising,
direct mail, public relations, seminars, trade shows and telemarketing. The
increased interest in and awareness of systems management solutions has
increased the efficiency of the marketing programs, allowing tighter targeting
of key systems management decision makers and influencers.
The Company has established marketing relationships with key technology
vendors intended to promote awareness of the Company's products among potential
customers and to provide leads for the Company's direct sales force. These
relationships involve leaders in their respective markets and include systems
management vendors such a Tivoli Systems Inc. and Microsoft Corporation, network
security and management vendors such as Network Associates, infrastructure
vendors such as 3Com Corporation and ANS Communications, Inc., sales force
automation vendors such as Vantive Corporation, Aurum Software, Inc. and Siebel
Systems Inc., and retail vendors such as MICROS Systems Inc. and KPOS Computer
Systems Ltd.
INTERNATIONAL OPERATIONS
The Company conducts business on a global basis. The Company's European
headquarters are located in High Wycombe, England. The Company also has offices
in Canada and Germany. The Company's foreign subsidiaries accounted for
approximately 14%, 9% and 9% of consolidated revenues for the years ended
December 31, 1997, 1996 and 1995, respectively. For information regarding
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amounts of revenue, operating income (loss) and identifiable assets
attributable to foreign operations, see Note 1 to the Consolidated Financial
Statements.
COMPETITION
The systems management market in which the Company competes is highly
competitive and characterized by rapidly changing technology and evolving
standards. Many software vendors offer products that are competitive with some
aspect of the products offered by the Company. These competitors vary in size as
well as in scope and breadth of their offerings and include: (1) enterprise
systems management vendors such as Tivoli Systems, Inc., Computer Associates
International, Inc. and Hewlett Packard Company; (2) desktop management vendors
such as Microsoft Corporation, Intel Corporation and Seagate Software, Inc.; (3)
Internet "push" start-ups, such as Marimba, Inc. and BackWeb Technologies, Inc.;
(4) remote access software and hardware vendors such as Microsoft Corporation,
Shiva Corporation and Citrix Systems, Inc.; (5) application software vendors who
incorporate data synchronization capabilities in their software such as Siebel
Systems, Inc. and Aurum Software, Inc.; and (6) custom software-based solutions
developed by internal management information system personnel or third-party
professional service organizations.
INTELLECTUAL PROPERTY
The Company's products consist primarily of proprietary technology owned by
the Company. The Company relies on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary technology. The Company licenses rather than sells its
software and generally requires licensees to sign license agreements that impose
certain restrictions on licensees' right to use the software. The Company seeks
to avoid disclosure of its trade secrets, including but not limited to,
generally requiring those persons with access to the Company's proprietary
information to execute confidentiality agreements with the Company and
restricting access to the Company's source code. The Company seeks to protect
its documentation and other written materials under trade secret and copyright
laws. In addition, the Company has been granted two patents in the United
States and has a patent application pending in the United States. There can be
no assurance that the pending patent will be issued or that such patents would
survive a legal challenge to their validity or provide significant protection to
the Company.
The Company licenses certain third-party products that are integrated or
bundled with the Company's products. These components include, but are not
limited to, remote backup utilities, anti-virus software, remote control
software, inventory tracking modules, a scripting engine, and a document viewer,
some of which perform key functions within the Company's products. The Company
licenses the code for portions of its products from third parties where there is
no advantage to the Company in developing equivalent technology. If any of
these current or future third-party vendors were to terminate their relationship
with the Company or to materially increase the cost to the Company for their
products, or if a material problem were to arise in connection with any of the
software products licensed from them, the Company would be required to license
an alternative product from another third party or to develop a replacement for
the function of the licensed software. The loss of or inability to maintain any
of these technology licenses could result in interruptions in the availability
of the Company's existing products and delays in the introduction of new
products and services until equivalent technology, if available, is identified,
licensed or developed, and integrated. There can be no assurance that an
alternative source of a suitable product would be available or that the Company
would be able to develop an alternative product in sufficient time or at a
reasonable cost.
EMPLOYEES
As of December 31, 1997, the Company had 270 full-time employees, consisting
of 72 in product development, 61 in sales, 37 in marketing, 62 in customer
service, and 38 in finance and administration. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage.
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RISK FACTORS
Change in Competition. The Company operates in a rapidly changing computer
software industry that is intensely competitive and involves numerous risks,
some of which are beyond its control. Within this industry there has been a
trend toward consolidation for several years, which the Company expects to
continue as companies attempt to strengthen or hold their market positions. The
Company sells its products in the systems management market for remote users,
which is not yet mature and may be impacted by emerging technology such as the
Internet, on-line services and electronic commerce. Within that market, there
are several large vendors that do have a presence through their enterprise-wide
systems management applications and do have significantly more financial and
technical resources than the Company. In addition, vendors of network systems
management software, desktop management software, and network operating system
software may enhance their products to include some or all of the functionality
currently provided by the Company's products, which could render the Company's
products obsolete or unmarketable. The Company also expects that competition
will increase as current and potential competitors have established, or may
establish, cooperative relationships among themselves or with competitors. The
adoption of new technology and the introduction of new competitive products from
these large vendors could have a material adverse effect on the Company's
business, results of operations and financial condition.
The Company believes that the principal competitive factors affecting the
market it serves include vendor and product reputation, product architecture,
functionality and features, scalability, ease of use, quality of product and
support, performance, price, brand name recognition and effectiveness of sales
and marketing efforts. Although the Company believes that its products currently
compete favorably with respect to such factors, there can be no assurance that
the Company can maintain its competitive position against current and potential
competitors. The Company believes its principal competitive advantages are its
focus on, and experience with, the management of dispersed systems that are
intermittently connected, its product architecture, and its extensive customer
base. Competition will continue to intensify as the market for its products and
services develops and competitors focus more clearly on that market's specific
requirements. There can be no assurance that other companies will not develop
experience, products and marketing approaches that will be more successful than
those of the Company. In addition, competitors through combinations with third
parties may increase the ability of their products to address remote computing
needs. Accordingly, it is possible that new competitors, alliances among
competitors, or alliances between competitors and third parties may emerge and
rapidly acquire significant market share. If this were to occur, it would have a
material adverse effect on the Company's business, operating results of
operations and financial condition.
Change in Market. The strength and profitability of the Company's business
depend on the overall demand for computer software and growth in the computer
industry. A softening of demand for computer software caused by a weakening of
the economy or otherwise, may result in decreased revenues or declining revenue
growth rates for the Company. An unexpected decline in the growth rate of
revenues without a corresponding and timely slowdown in expenses could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Dependence upon Product Development. The market for the Company's products is
characterized by rapid technological advances in hardware and software
development, evolving standards in computer hardware and software technology and
frequent new product introductions and enhancements. Product introductions and
short product life cycles necessitate high levels of expenditure for research
and development. To maintain its competitive position, the Company must enhance
and improve existing products, continue to introduce complementary new products
and new versions of existing products, position and/or price its products
appropriately, successfully complete installations, keep pace with technological
developments and satisfy increasingly sophisticated customer requirements.
Failure to achieve these criteria, material defects or undetected errors in its
products or delays in new products or new versions of a product may affect
market acceptance of the Company's products and could have a material adverse
effect on the Company's business, results of operations and financial condition.
Dependence on Proprietary Technology; Risk of Infringement Claims. The
Company's success is dependent upon its proprietary technology. Despite the
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Company's efforts to protect its intellectual property rights, it may be
possible for unauthorized third parties to copy certain portions of its products
or to reverse engineer or obtain and use technology or other information that
the Company regards as proprietary. In addition, the laws of certain countries
do not protect the Company's proprietary rights to the same extent as do the
laws of the United States. Accordingly, there can be no assurance that the
Company will be able to protect its proprietary technology against unauthorized
third-party copying or use, which could adversely affect the Company's
competitive position. The Company expects that software products will
increasingly be subject to claims of infringement by third parties of patent and
other intellectual property rights as the number of products and competitors in
the Company's market grows and the functionality of products overlaps.
Regardless of its merit, responding to any such claim could be time consuming,
result in costly litigation and require the Company to enter into royalty and
licensing agreements, which may not be offered or available on terms acceptable
to the Company. If a successful claim is made against the Company and the
Company fails to develop or license a substitute technology, the Company's
business, results of operations and financial condition could be materially
adversely affected.
Dependence on Third-Party Technology; Risk of Infringement Claims. The
Company also includes software and other intellectual property licensed from
third parties in its products. It may be necessary in the future to seek or
renew licenses relating to various aspects of its products. While the Company
believes that based upon past experience and standard industry practice, such
licenses generally could be obtained on commercially reasonable terms, it can
offer no guarantee and failure to do so could have a material adverse effect on
the Company's business, results of operations or financial condition. The
Company believes that the same issues regarding infringement claims against its
proprietary technology also exist for this third-party technology. Because of
the existence of a large number of patents in the software industry and the
rapid rate of issuance of new patents, it is not economically practical for the
Company to determine in advance whether a product, or any of its components,
from a third party may infringe the rights of others. The Company does request
infringement indemnification from such third parties.
Dependence on Key Employees. The Company's continued growth and success
depend to a significant extent on the continued service of its senior management
and other key employees and the hiring of new qualified employees. Competition
for highly skilled sales, business, product development, technical and other
personnel is intense. There can be no assurance that the Company will be
successful in continuously recruiting new personnel and in retaining existing
personnel, and the Company may experience increased compensation costs in order
to attract and retain skilled employees. The loss of one or more key employees
or the Company's inability to attract additional qualified employees or retain
other employees could have a material adverse effect on the Company's business,
results of operations and financial condition.
Expansion of Distribution. The Company historically has relied heavily on its
direct sales force. The Company's ability to achieve revenue growth in the
future will depend in large part upon its success in recruiting, training and
retaining sufficient direct sales personnel. Although the Company is presently
committing significant resources to expand its sales force, the Company may at
times experience difficulty in recruiting qualified sales personnel and it is
anticipated that there will be a delay before such personnel become productive.
The Company also has indirect and other distribution channels, including OEM
reseller relationships with Sterling Commerce, Inc. and Norand Corporation.
Although the Company has not relied significantly on revenue from these
channels, the Company does plan to continue to pursue opportunities to grow
them, with no assurance that it will be successful in doing so. Any failure by
the Company to expand its direct sales, or the failure by the Company to
increase revenues commensurate with its expansion, would have a material adverse
effect upon the Company's business, operating results and financial condition.
Fluctuation in Pricing. Pricing in the systems management market is highly
competitive, which may put pressure on the Company to reduce prices on certain
products. This pricing risk could worsen if certain systems management vendors
or other competitors offer deep discounts in an effort to capture market share.
In addition, the bundling of software products for promotional purposes or as a
long-term pricing strategy by certain of the Company's competitors could have
the effect over time of significantly reducing the prices that the Company can
charge for its products. Any such price reductions and resulting lower license
revenues could have a material adverse effect on the Company's business, results
of operations and financial condition, particularly if the Company cannot offset
these price reductions with a corresponding increase in sales volumes.
-10-
<PAGE>
Changes with International Conditions and Operations. Some of the Company's
revenues are derived from international sales and and therefore subject to
risks, including the general economic conditions in each country, import and
export licensing requirements, trade restrictions, changes in tariff rates, the
overlap of different tax structures, the difficulty of managing an organization
spread over various countries, changes in regulatory requirements, compliance
with a variety of foreign laws and regulations and longer payment cycles in
certain countries. Additionally, changes in the value of foreign currencies
relative to the value of the U.S. dollar could adversely affect net revenues and
operating results since the Company does conduct business in foreign currencies
and would be affected by gains and losses through currency conversion. The
Company could experience slower growth in certain international countries,
primarily as a result of weaker economies relative to the rest of the world,
slower adoption of information technology, a strong U.S. dollar and personnel
changes. There can be no assurance that the Company will be able to successfully
address such challenges in each international market, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Fluctuations in Quarterly Operating Results; Seasonality. The Company's
revenues in general, and its software license fee revenues in particular, are
difficult to forecast and vary from quarter to quarter due to various factors,
including: (1) the size and timing of individual license transactions,
particularly since customers have historically tended to make buying decisions
near the end of the quarter; (2) the timing of the introduction of new products
or product enhancements by the Company or its competitors; (3) the potential for
delay or deferral of customer implementations of the Company's software; (4)
changes in customer budgets; and (5) seasonality of technology purchases and
other general economic conditions. Accordingly, the Company's quarterly results
are difficult to predict, and delays in product delivery or closing of sales
near the end of a quarter can cause quarterly revenues and net income to fall
significantly short of anticipated levels. The Company's software license fee
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter. Because the Company's operating expenses are based on
anticipated revenue levels and because a high percentage of the Company's
expenses are relatively fixed, a delay in the recognition of revenue from even a
limited number of license transactions could cause significant variations in
operating results from quarter to quarter and could cause net income to fall
significantly short of anticipated levels.
Volatility of Stock Price. The market price of the Company's common stock has
experienced significant fluctuations and may continue to fluctuate
significantly. The market price of the Company's common stock may be
significantly affected by factors such as the announcement of new products or
product enhancements by the Company or its competitors, technological innovation
by the Company or its competitors, quarterly variations in the Company's or its
competitors' results of operations, changes in prices of the Company's or its
competitors' products and services, changes in revenue and revenue growth rates
for the Company as a whole or for specific geographic areas, business units,
products or product categories, changes in earnings estimates by market
analysts, speculation in the press or analyst community and general market
conditions or market conditions specific to particular industries. The stock
prices for many companies in the technology sector have experienced wide
fluctuations, which often have been unrelated to their operating performance.
Such fluctuations could adversely affect the market price of the Company's
common stock.
Future Acquisitions and Managed Growth. The Company has a history of rapid
growth, and its future operating results will depend on its ability to manage
growth, continuously hire and retain significant numbers of qualified employees,
continue to implement additional internal management systems, forecast
revenues and control costs. In order to accomplish its business strategy, the
Company may acquire or invest in businesses that offer complementary products,
services and technologies. Any acquisitions or investments will be accompanied
by the risks commonly encountered in acquisitions of businesses such as the
difficulty of assimilating the operations and personnel of the acquired
businesses, the potential disruption of the Company's ongoing business, the
inability of management to maximize the financial and strategic position of the
Company, the maintenance of uniform standards, controls, procedures and policies
and the impairment of relationships with employees and clients as a result of
any integration of new management personnel. These factors could have a material
adverse effect on the Company's business, results of operations or financial
condition. Consideration paid for future acquisitions, if any, could be in the
form of cash, stock, and rights to purchase stock or a combination thereof.
Dilution to existing stockholders and to earnings per share may result to the
extent that shares of stock or other rights to purchase stock are issued in
connection with any such future acquisitions.
-11-
<PAGE>
Year 2000. The Year 2000 issue is pervasive and presents both technical and
business risks that may affect much of the Company's business and industry. The
Year 2000 issue refers to the various problems that may result from improper
processing of dates and date-sensitive functions by computers and other
equipment before, during or after January 1, 2000 ("Millennium Date") with
respect to the change in century. The Company has already begun to address this
problem by examining the code in its products, communicating with vendors
regarding their handling of the issue and notifying customers of its preliminary
findings on the issue through Product Notes and otherwise. The Company expects
the Year 2000 issue to be an ongoing risk through and beyond the Millennium Date
that may require a significant investment of time and resources to correct. The
Company is unable to speculate as to the magnitude of the costs that may be
incurred at this time, to eliminate the risk and can offer no guarantee that
such efforts will be successful given the breadth of this worldwide issue.
Failure to successfully address the Year 2000 issue could have a material
adverse effect on the Company's business, results of operations and financial
condition.
-12-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
Jeanne N. Bateman 43 Vice President - Finance and Human Resources,
Treasurer and Secretary
Stefanus F. Coetzee 45 Senior Vice President - North American Customer
Operations
Dennis M. Crumpler 45 Chairman of the Board, Chief
Executive Officer and Director
Scott L. Duma 35 Vice President and General Counsel
Jethro J. Felton, III 42 Vice President - North America Sales
David F. Held 36 Chief Financial Officer and
Assistant Secretary
Shereef W. Nawar 38 Chief Technical Officer and Director
W. Michael Parham 44 Senior Vice President - Business Development
Corey M. Smith 41 President and Director
</TABLE>
Ms. Bateman joined the Company in December 1993 as its Vice President and
Treasurer, and has been the Secretary of the Company since January 1995, the
Vice President - Finance since April 1995 and the Vice President - Human
Resources since July 1997. Prior to joining the Company, Ms. Bateman was
employed by HBO & Company, a healthcare information systems company, from
December 1985 until August 1993, and served as its Vice President and Treasurer
from March 1993 to August 1993 and its Assistant Treasurer, Investor Relations
from January 1991 to March 1993.
Mr. Coetzee joined the Company in April 1992 as its Managing Director,
XcelleNet Ltd., served as the Company's Vice President - International from
January 1995 until August 1995 and Vice President - Global Customer Operations
from August 1995 until April 1996, and Vice President - North American Customer
Operations from April 1996 to July 1997 and has served as the Senior Vice
President - North American Customer Operations since July 1997. From 1983 until
1992, he was employed by Dun & Bradstreet Europe Ltd., a business information
services company.
Mr. Crumpler is a co-founder of the Company and has served as Chairman of
the Board, a director and Chief Executive Officer since its inception in 1986.
Mr. Crumpler also served as President of the Company from September 1986 to
October 1992 and from September 1996 to January 1997.
Mr. Duma joined the Company in February 1998 as Vice President and General
Counsel. Prior to joining the Company, he held the positions of Corporate
Counsel at Medaphis Corporation from 1996 to 1998, Associate General Counsel at
Attachmate Corporation from 1994 to 1996 and Associate at the law firm of Ford &
Harrison from 1992 to 1994.
Mr. Felton joined the Company in 1992 as a District Sales Representative.
He held the position of Area Sales Manager from October 1994 through June 1996
-13-
<PAGE>
and National Sales Director from July 1996 through June 1997 prior to becoming
Vice President - North American Sales in July 1997. Prior to joining XcelleNet
Mr. Felton held several sales and sales management positions at several
applications software companies, including Triad Systems Corporation and
Enterprise Computer Systems.
Mr. Held joined the Company in July 1994 as its Controller, and has been
the Chief Financial Officer and Assistant Secretary of the Company since July
1997. Prior to joining the Company, Mr. Held was employed as Controller of
Promega Corporation, a biotechnology company, from April 1992 until July 1994.
From 1989 through March 1992, Mr. Held held several financial positions with
Rohr, Inc., an aerospace company.
Mr. Nawar, a co-founder of the Company, has served as the Company's Chief
Technical Officer since October 1992. Mr. Nawar served as the Company's Vice
President of Development from 1987 until October 1992.
Mr. Parham joined the Company in November 1988 as its Director of Sales,
served as the Vice President - Sales from December 1990 to April 1996, served as
the Vice President - North American Sales from April 1996 to July 1997 and has
been the Senior Vice President - Business Development since July 1997.
Mr. Smith is President of the Company, a position he has held since January
1997. He joined the Company in September 1996 as its Executive Vice President
responsible for marketing. Prior to joining the Company, Mr. Smith was the
President of Decision Point Data, a human resources decision support software
company, from October 1995 until September 1996. He served as President and
Chief Executive Officer of Creative Multimedia, Inc., a consumer CD-ROM
multimedia company, from December 1993 until September 1995. In July 1992, Mr.
Smith founded Legacy Venture Capital and served as its President and General
Partner from July 1992 until September 1994 and continues to serve as General
Partner. From 1988 until May 1992, Mr. Smith was the President and Chief
Executive Officer of Central Point Software, Inc., a personal computer utilities
software company.
ITEM 2. PROPERTIES.
The Company's corporate headquarters are located in Atlanta, Georgia, in a
leased facility consisting of approximately 99,000 square feet of office space
under a lease expiring September 1, 2000. The Company sub-leases approximately
32,000 square feet of the corporate headquarters through signed lease agreements
expiring August 31, 2000. The Company leases 2,700 square feet in Raleigh,
North Carolina for XcelleNet Integration Services, Inc. under a lease expiring
in October 1999. The Company also leases an additional 2,500 square feet in
High Wycombe, England for its European direct sales and service support site
under a lease expiring in 2006. Additionally, the Company leases direct sales
offices with square footage ranging from 150 to 400 square feet and lease terms
of one to two years, including locations in Manhattan Beach, Newport Beach,
Pleasanton and Sunnyvale, California; Orange, Connecticut; Englewood, Colorado;
Boston, Massachusetts; Rolling Meadows, Illinois; Okemos, Michigan; Eden
Prairie, Minnesota; St. Louis, Missouri; Marlton and Princeton, New Jersey;
Columbus, Ohio; Dallas, Texas; Issaquah, Washington; Markham,
Canada; and Frankfurt, Germany.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to legal proceedings and claims that have arisen in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
-14-
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of XcelleNet has been traded on the Nasdaq National Market
under the symbol "XNET" since the Company's initial public offering in April
1994. The following table sets forth the range of quarterly high and low sale
prices of the Company's common stock for each full quarterly period within the
two most recent fiscal years:
<TABLE>
<CAPTION>
Common Stock Information
Year Ended December 31, 1996 High Low
- ------------------------------------------------------------------------
<S> <C> <C>
First Quarter $ 15 1/4 $ 8 3/4
Second Quarter 15 1/2 9 1/2
Third Quarter 14 1/2 8 3/4
Fourth Quarter 20 13 1/2
Year Ended December 31, 1997 High Low
- ------------------------------------------------------------------------
First Quarter $ 23 1/4 $ 15 3/4
Second Quarter 19 1/4 11 3/4
Third Quarter 16 1/4 7 3/4
Fourth Quarter 14 1/8 9 3/8
</TABLE>
At the close of business on March 9, 1998, there were 209 holders of record
of the Company's common stock.
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future
earnings for use in its business and does not anticipate paying cash dividends
in the foreseeable future.
On January 2, 1997, XcelleNet acquired all of the outstanding shares of
XcelleNet Integration Services, Inc. (f/k/a Electronic Commerce, Inc.) a system
integrator based in Raleigh, North Carolina, for consideration that included
50,000 unregistered shares of the Company's common stock issued in reliance
upon Regulation D promulgated under the Securities Act of 1933, as amended.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Summary of Selected Financial Data
(in thousands, except per share data)
Year Ended December 31,
- ----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Software license fees $ 34,320 $ 30,703 $ 25,612 $ 21,399 $ 14,222
Software upgrade fees and services 19,259 11,948 8,487 5,490 3,191
- ----------------------------------------------------------------------------------------------------
53,579 42,651 34,099 26,889 17,413
Costs and expenses 49,492 43,585 29,331 21,707 14,484
- ----------------------------------------------------------------------------------------------------
Operating income (loss) 4,087 (934) 4,768 5,182 2,929
Other income, net 877 934 1,264 748 162
- ----------------------------------------------------------------------------------------------------
Income before income taxes 4,964 - 6,032 5,930 3,091
Provision for income taxes 1,819 - 2,230 2,375 1,149
- ----------------------------------------------------------------------------------------------------
Net income $ 3,145 $ - $ 3,802 $ 3,555 $ 1,942
- ----------------------------------------------------------------------------------------------------
Net income per share - basic $ 0.39 $ - $ 0.51 $ 0.55 $ 1.18
Net income per share - diluted $ 0.36 $ - $ 0.45 $ 0.45 $ 0.30
Weighted average shares outstanding - basic 8,035 7,229 7,387 6,493 1,648
Weighted average shares outstanding - diluted 8,692 7,915 8,480 7,833 6,450
(in thousands) December 31,
- ----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term
investments $ 29,289 $ 12,744 $ 18,419 $ 23,505 $ 4,381
Working capital 37,066 23,198 24,968 28,815 7,689
Total assets 55,583 36,683 33,461 36,144 12,208
Long-term debt - - - - -
Total shareholders' equity 46,258 31,130 29,849 32,473 9,869
</TABLE>
-15-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Annual Report on Form 10-K contains forward-looking statements that
involve risks and uncertainties. The statements contained in this document that
are not purely historical are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including without limitation statements regarding the
Company's expectations, beliefs, intentions or strategies regarding the future.
All forward-looking statements included in this Annual Report on Form 10-K are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements.
Actual events and outcomes could differ materially from those anticipated in
these forward-looking statements as a result of many factors, including those
set forth in the risk factors described in Item 1 of this Annual Report on
Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues of the line items in the Company's Consolidated Statements of
Operations and the percentage changes from the preceding periods:
<TABLE>
<CAPTION>
As a percentage Percentage changes
of revenues year-to-year
- ------------------------------------------------------------------------------------------
1997 1996 1995 1996-97 1995-96
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues
64% 72% 75% Software license fees 12% 20%
36 28 25 Software upgrade fees and services 61 41
- ------------------------------------------------------------------------------------------
100 100 100 Total revenues 26 25
Costs and expenses
5 5 5 Costs of software license fees 31 9
14 9 7 Costs of software upgrade fees and services 99 63
41 51 43 Sales and marketing 3 49
16 15 15 Product development 37 26
13 14 16 General and administrative 16 12
2 8 -- Non-recurring charges (71) --
- ------------------------------------------------------------------------------------------
92 102 86 Total costs and expenses 14 49
- ------------------------------------------------------------------------------------------
8 (2) 14 Operating income (loss) 538 (120)
2 2 4 Other income, net (6) (26)
- ------------------------------------------------------------------------------------------
9 - 18 Income before income taxes 100 (100)
3 - 7 Provision for income taxes 100 (100)
- ------------------------------------------------------------------------------------------
6% -% 11% Net income 100% (100)%
- ------------------------------------------------------------------------------------------
</TABLE>
REVENUES
Total revenues were $53.6 million, $42.7 million and $34.1 million in 1997,
1996 and 1995, respectively, representing increases of 26% from 1996 to 1997 and
25% from 1995 to 1996. These increases in total revenues were due to increases
in both license fees and software upgrade fees and services revenues, both
domestically and internationally. The Company's international operations
accounted for approximately 14%, 9% and 9% of consolidated revenues for the
years ended December 31, 1997, 1996 and 1995, respectively. See Note 1 in the
Notes to Consolidated Financial Statements.
The Company recognizes revenue in accordance with the Statement of Position
91-1 on "Software Revenue Recognition" issued by the American Institute of
Certified Public Accountants. Software license fees are recognized when a
noncancelable license agreement has been signed, the product has been shipped
and all significant contractual obligations have been satisfied. Effective for
periods beginning after December 15, 1997, the American Institute of Certified
Public Accountants has issued Statement of Position 97-2, "Software Revenue
Recognition." The statement sets new guidelines for the recognition of
software revenue. The adoption of the standards in this Statement of Position
is not expected to have a significant impact on the Company's consolidated
financial statements.
The Company licenses its products directly to licensees and through Solution
Providers. All licensees, whether licensed directly or through Solution
Providers, are referred to throughout this document as the Company's customers.
Revenue related to software licensed to a customer through a Solution Provider
is recognized net of the discount to the Solution Provider. Software upgrade
fees and services revenues are primarily derived from fees paid for rights to
upgrades and updates ("maintenance"), telephone support, system integration
services, and training. Revenues from the maintenance program are recognized
proportionately over the term of the agreement which is typically 12-months.
Revenues for training and systems integration services are recognized as such
services are performed.
Software License Fees. The Company currently derives all of its software
license fees from noncancelable license agreements for its RemoteWare products.
Software license fees were $34.3 million, $30.7 million and $25.6 million in
1997, 1996 and 1995, respectively, representing increases of 12% from 1996 to
1997 and 20% from 1995 to 1996. Software license fees as a percentage of total
-16-
<PAGE>
revenues were 64%, 72% and 75% in 1997, 1996 and 1995, respectively, reflecting
the growth of software upgrade fees and services revenues associated with the
larger installed base, the high rate of participation in the maintenance
program, as well as the January 1997 purchase of a systems integration company,
XcelleNet Integration Services, Inc. ("XIS"), formerly Electronic Commerce, Inc.
Software license fees from RemoteWare for NT products accounted for 71% and
18% of total license fee revenues for 1997 and 1996, respectively, reflecting
increasing market acceptance of RemoteWare for NT products released beginning in
1996. While the Company intends to offer and support its RemoteWare for OS/2
products, the Company anticipates that sales of RemoteWare for NT will continue
to constitute an increasing proportion of total software license fees.
Software license fees from new customers were $14.6 million, $13.3 million and
$11.1 million in 1997, 1996 and 1995, respectively, representing 43% of total
software license fees for all three years. The Company added 320, 296 and 301
new customers in 1997, 1996 and 1995, respectively. The average initial
RemoteWare purchase for these new customers was $46,000, $45,000 and $36,000
during the same three years. Average initial purchase size varies as a function
of the number of clients and servers included in the sale, whether the sale was
direct or through a Solution Provider, and the specific products and options
licensed.
Software license fees from existing customers were $19.7 million, $17.4
million and $14.5 million in 1997, 1996 and 1995, respectively, representing 57%
of total software license fees for all three years. Existing customers that
purchase additional RemoteWare products do so to complete deployment of an
initial pilot or limited production implementation and to extend RemoteWare to
additional clients and projects within the enterprise.
Software license fees generated by Solution Providers represented 27%, 38% and
48% of total software license fees in 1997, 1996 and 1995, respectively. During
the second half of 1996, the Company implemented changes to its Solution
Provider channel to place greater emphasis on Solution Providers who offer
substantial RemoteWare integration services. These changes, and additional
program changes that became effective January 1, 1997, have resulted in fewer
Solution Providers that are authorized to remarket RemoteWare and remarketing
discount rates that generally range from 20% to 30%, compared to 30% to 40% in
prior years. As a result, software license fees generated from Solution
Providers have decreased. During 1997, the Company took steps to leverage its
direct sales model by signing OEM agreements with two companies that private
label RemoteWare. These agreements have not yet resulted in significant
revenue.
Software Upgrade Fees and Services. Software upgrade fees and services
revenues were $19.3 million, $11.9 million and $8.5 million for 1997, 1996 and
1995, respectively, representing increases of 61% from 1996 to 1997 and 41% from
1995 to 1996. The percentage of total revenues derived from services increased
to 36% in 1997 from 28% in 1996 and 25% in 1995. The growth in software upgrade
fees and services revenues is due primarily to the Company's growing customer
base and their significant rate of participation in the maintenance program.
Because a significant portion of the Company's installed base is composed of
customers of the RemoteWare for OS/2 products, the software maintenance revenue
that may be received from those customers in the future will depend in large
part on the Company's ability to introduce updates to or migration paths for its
OS/2 products that encourage these customers to continue their participation in
the Company's software maintenance program. There can be no assurance that such
services revenues will not decline in the future.
Software upgrades fees and services revenues also include field engineering
and systems integration services that are focused on selected RemoteWare
customer implementations and that facilitate Solution Provider development,
certification and quality assurance. The revenue generated from these activities
totaled $3.3 million, $438,000 and $343,000 in 1997, 1996 and 1995,
respectively. Systems integration revenues increased in 1997 due to the
acquisition of XIS.
Costs and Expenses
Costs of software license fees. Costs of software license fees consist
primarily of amortization of capitalized software development costs, packaging
and documentation materials and royalties. Costs of software license fees were
-17-
<PAGE>
$2.6 million, $2.0 million and $1.8 million in 1997, 1996 and 1995,
respectively, representing 8%, 6% and 7% of software license fees for those
years, respectively. These increases in absolute dollars are due primarily to
the increased amortization of capitalized software associated with the
RemoteWare for NT products and the increased royalties associated with new
products.
Costs of software upgrade fees and services. Costs of software upgrade fees
and services consist primarily of personnel costs for field services, customer
support and training. In addition, a portion of packaging and documentation
materials and personnel costs for shipping are allocated to costs of software
upgrade fees and services for upgrades and enhancements shipped to customers
participating in the maintenance program. Costs of software upgrade fees and
services were $7.6 million, $3.8 million and $2.3 million in 1997, 1996 and
1995, respectively, representing 39%, 32% and 28% of software upgrade fees and
service revenues in those years, respectively. The 1997 increase is primarily
due to the Company's January 1997 acquisition of XIS, which expanded the
Company's system integration business. The 1996 increase was primarily due to
increased personnel costs for field engineers, systems integration personnel and
trainers.
Sales and marketing. Sales and marketing expenses consist primarily of
salaries and commissions of direct sales and marketing personnel and marketing
program costs. These expenses were $22.2 million, $21.6 million and $14.5
million in 1997, 1996 and 1995, respectively, representing 41%, 51% and 43% of
total revenues in those years, respectively. During 1997 sales and marketing
expenses decreased as a percentage of total revenues primarily due to lower
marketing personnel costs and lower marketing program costs resulting from a
more focused marketing campaign. The increase in sales and marketing expenses,
in absolute dollars and as a percentage of total revenues, in 1996 was due
primarily to a new advertising campaign initiated in 1996, personnel additions
and investments in Europe. Advertising expenses were $1.9 million, $2.0 million
and $194,000 in 1997, 1996 and 1995, respectively.
Product development. The table below summarizes product development
expenditures:
<TABLE>
<CAPTION>
Twelve Months Ended
December 31,
(in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Product development expenditures $9,810 $8,559 $5,447
Less: capitalized software development costs (970) (2,108) (319)
- --------------------------------------------------------------------------------------------
Net product development expenses $8,840 $6,451 $5,128
- --------------------------------------------------------------------------------------------
As a percentage of revenues:
Product development expenditures 18% 20% 16%
Less: capitalized software development costs (2)% (5)% (1)%
- --------------------------------------------------------------------------------------------
Net product development expenses 16% 15% 15%
- --------------------------------------------------------------------------------------------
Capitalized product development rate 10% 25% 6%
- --------------------------------------------------------------------------------------------
</TABLE>
Most product development costs are personnel-related. Product development
expenditures (expenses plus capitalized software development costs) were $9.8
million, $8.6 million and $5.4 million in 1997, 1996 and 1995, respectively,
representing increases of 15% from 1996 to 1997 and 57% from 1995 to 1996.
Beginning in 1995, the Company substantially increased its product development
expenditures in order to develop its RemoteWare for NT product. These costs
were primarily personnel-related and included a number of independent
contractors. The RemoteWare for NT development efforts were substantially
completed with the May 1997 release of RemoteWare for NT 3.2.
In accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed" ("SFAS 86"), the Company capitalizes certain costs incurred in
developing computer software products. These rules require capitalization of
certain product development expenses from the time technological feasibility is
established for a new product or significant enhancement of an existing product
until it is generally available for all customers. The Company defines
technological feasibility as the release of product to selected customers for
testing. Thus, capitalization levels each year depend on product development
cycles. The Company amortizes capitalized software development costs on a
product-by-product basis over periods not exceeding three years, with such
amortization included in costs of software license fees.
Capitalized software development costs were $970,000, $2.1 million and
$319,000 in 1997, 1996 and 1995, respectively. The majority of the capitalized
software development costs in all three years related to the Company's
development of RemoteWare for NT, which was substantially completed in May 1997
with the release of RemoteWare for NT 3.2.
-18-
<PAGE>
General and administrative. General and administrative expenses consist
primarily of personnel costs for general management, finance and administration,
information systems and human resources. General and administrative expenses
were $7.2 million, $6.2 million and $5.5 million in 1997, 1996 and 1995,
respectively, representing increases of 16% from 1996 to 1997 and 12% from 1995
to 1996. General and administrative expenses as a percentage of revenues were
13%, 14% and 16% in 1997, 1996 and 1995, respectively. The absolute dollar
increase in these costs during 1997 was primarily due to additional personnel
costs and the amortization of goodwill associated with the January purchase of
XIS.
Non-recurring charges. The Company recorded non-recurring charges of $1.0
million during the third quarter of 1997 due primarily to severance and
facilities costs associated with the Company's organizational streamlining and
tighter focus on its remote systems management strategy. During the fourth
quarter of 1996, the Company purchased the WorldLink product line from The
NetPlex Group, Inc. for approximately $3.0 million in cash. The purchase price
of the WorldLink technology was allocated to goodwill as of the acquisition date
and written off as a non-recurring charge in the fourth quarter due to
uncertainties regarding its recoverability. In addition, during 1996, the
Company recorded non-recurring charges of $459,000 primarily representing
severance and hiring costs associated with certain key employees. See Note 6 to
the Consolidated Financial Statements.
Provision for income taxes. The effective tax rate was 37%, 0% and 37% in
1997, 1996 and 1995, respectively. The effective tax rate varies from the
statutory tax rate of 34% due primarily to state income taxes, losses from
foreign operations, research and development tax credits and tax-exempt interest
income. The effective tax rate in 1997 and 1995 exceeded the statutory rate due
primarily to state income taxes. Since the Company reported no taxable income
in 1996, no provision was made for income taxes.
Year 2000. The Year 2000 issue is pervasive and presents both technical
and business risks that may affect much of the Company's business and industry.
The Year 2000 issue refers to the various problems that may result from improper
processing of dates and date-sensitive functions by computers and other
equipment before, during or after January 1, 2000 ("Millennium Date") with
respect to the change in century. The Company has already begun to address this
problem by examining the code in its products, communicating with vendors
regarding their handling of the issue and notifying customers of its preliminary
findings on the issue through Product Notes and otherwise. The Company expects
the Year 2000 issue to be an ongoing risk through and beyond the Millennium
Date, that may require a significant investment of time and resources to
correct. The Company is unable to speculate as to the magnitude of the costs
that may be incurred at this time to eliminate the risk an can offer no
guarantee that such efforts will be successful given the breadth of this
worldwide issue. Failure to successfully address the Year 2000 issue could have
a material adverse effect on the Company's business, results of operations and
financial condition.
LIQUIDITY AND CAPITAL RESOURCES
Since 1994 the Company has financed its operations primarily through the
public sale of its common stock in its initial public offering in 1994 and its
follow-on public offering in 1997 and cash generated from operations. At
December 31, 1997, the Company had $29.3 million in cash, cash equivalents and
short-term investments, $37.1 million in working capital and no long-term debt.
Net cash provided by operating activities was $10.3 million, $1.7 million, and
$5.0 million in 1997, 1996, and 1995, respectively. In 1997, cash provided by
operating activities resulted primarily from net income, depreciation and
amortization, and increases in current liabilities and deferred revenue. In
1996, net cash provided by operating activities resulted primarily from
depreciation and amortization, the write-off of the WorldLink product line, and
an increase in liabilities, offset primarily by an increase in trade
receivables. In 1995, net cash provided by operating activities consisted
primarily of net income plus depreciation and amortization, offset by an
increase in trade receivables.
Net cash used in investing activities was $22.5 million, $1.5 million, and
$2.0 million in 1997, 1996, and 1995, respectively. In 1997, the net cash used
in investing activities resulted primarily from the investment of the proceeds
-19-
<PAGE>
of the Company's public sale of its common stock in short-term investments and
fixed asset additions. In 1996, net cash used in investing activities resulted
primarily from the purchase of the WorldLink product line from The NetPlex
Group, Inc., fixed asset additions and capitalized software, offset by a
decrease in short-term investments. In 1995, the net cash used in investing
activities resulted primarily from fixed asset additions offset by a decrease in
short-term investments. The Company expects that its capital expenditures,
primarily for computer workstations and file servers, will remain approximately
the same or increase as the Company's employee base grows.
Net cash provided by financing activities was $10.1 million and $1.1 million
in 1997 and 1996, respectively. Net cash used in financing activities in 1995
was $6.4 million. Net cash provided by financing activities in 1997 consisted
primarily of the net proceeds from the issuance of common stock and in 1996
consisted of the proceeds from, and income tax benefits associated with, the
exercise of stock options. Net cash used in financing activities in 1995
resulted primarily from the Company's purchase of treasury stock.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk.
Management expects that, in the future, cash in excess of current requirements
will be invested in investment grade, interest-bearing securities.
The Company's principal commitments consist primarily of leases on its
headquarters facilities. See Note 4 of Notes to Consolidated Financial
Statements.
The Company believes cash flows from operations and existing cash and
investments will be sufficient to meet its cash requirements over at least the
next two years.
-20-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Public Accountants:
To the Board of Directors of XcelleNet, Inc.:
We have audited the accompanying consolidated balance sheets of
XCELLENET, INC. (a Georgia corporation) AND SUBSIDIARIES as of December
31, 1997 and 1996 and the related consolidated statements of operations,
shareholders' equity, 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 XcelleNet,
Inc. and subsidiaries as of December 31, 1997 and 1996 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
January 22, 1998
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(in thousands, except share data)
December 31,
- -------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 8,478 $10,587
Short-term investments 20,811 2,157
Trade receivables, less allowance for doubtful accounts of $552 and $503
at December 31, 1997 and 1996, respectively 14,395 13,306
Prepaid expenses and other current assets 1,535 1,049
Income tax receivable - 793
- -------------------------------------------------------------------------------------------------------
Total current assets 45,219 27,892
- -------------------------------------------------------------------------------------------------------
Furniture, fixtures, and equipment, net 4,733 5,378
Capitalized software development costs, net of accumulated amortization of
$2,785 and $1,566 at December 31, 1997 and 1996, respectively 1,982 2,231
Intangible assets, net of accumulated amortization of $349
at December 31, 1997 2,415 -
Deferred income tax assets 895 754
Other noncurrent assets 339 428
- -------------------------------------------------------------------------------------------------------
$55,583 $36,683
- -------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 632 $ 1,207
Accrued bonuses and commissions 1,525 1,375
Sales tax payable 353 360
Note payable 400 -
Deferred revenue 2,063 184
Other current liabilities 3,180 1,568
- -------------------------------------------------------------------------------------------------------
Total current liabilities 8,153 4,694
- -------------------------------------------------------------------------------------------------------
Long-term liabilities 1,172 859
Commitments and contingencies (Note 4)
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, $.01 par value; 30,000,000 shares authorized,
8,300,421 shares issued and outstanding in 1997 and
7,537,876 shares issued and 7,380,337 outstanding in 1996 83 75
Additional paid-in capital 33,798 24,211
Retained earnings 12,377 9,232
Treasury stock at cost, no shares in 1997 and 157,539 shares in 1996 - (2,388)
- -------------------------------------------------------------------------------------------------------
Total shareholders' equity 46,258 31,130
- -------------------------------------------------------------------------------------------------------
$55,583 $36,683
- -------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Operations
(in thousands, except per share data)
Year Ended December 31,
- -------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Software license fees $34,320 $30,703 $25,612
Software upgrade fees and services 19,259 11,948 8,487
- -------------------------------------------------------------------------------------------
53,579 42,651 34,099
- -------------------------------------------------------------------------------------------
Costs and expenses
Costs of software license fees 2,592 1,986 1,816
Costs of software upgrade fees and services 7,582 3,806 2,340
Sales and marketing 22,231 21,628 14,500
Product development 8,840 6,451 5,128
General and administrative 7,222 6,218 5,547
Non-recurring charges 1,025 3,496 -
- -------------------------------------------------------------------------------------------
49,492 43,585 29,331
- -------------------------------------------------------------------------------------------
Operating income (loss) 4,087 (934) 4,768
Other income, net 877 934 1,264
- -------------------------------------------------------------------------------------------
Income before income taxes 4,964 - 6,032
Provision for income taxes 1,819 - 2,230
- -------------------------------------------------------------------------------------------
Net income $ 3,145 $ - $ 3,802
- -------------------------------------------------------------------------------------------
Net income per share - basic $ 0.39 $ - $ 0.51
Net income per share - diluted $ 0.36 $ - $ 0.45
Weighted average shares outstanding - basic 8,035 7,229 7,387
Weighted average shares outstanding - diluted 8,692 7,915 8,480
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
- --------------------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 3,145 $ - $ 3,802
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,496 3,202 2,373
Writeoff of Worldlink product line - 3,037 -
Issuance of restricted stock - 124 -
Change in assets and liabilities, net of acquisition
Increase in trade receivables (689) (5,215) (1,601)
Increase in prepaid expenses and other current assets (484) (335) (55)
Decrease (increase) in income taxes receivable 793 (271) 494
Increase in deferred income tax assets (141) (754) -
Increase in deferred revenue 1,879 64 114
Increase (decrease) in current liabilities 1,469 1,852 (191)
(Decrease) increase in long-term liabilities (146) 25 18
- --------------------------------------------------------------------------------------------
Total adjustments 7,177 1,729 1,152
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,322 1,729 4,954
- --------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
(Increase) decrease in short-term investments (18,654) 6,958 1,655
Purchases of furniture, fixtures, and equipment (2,166) (3,051) (3,260)
Additions to capitalized software development costs (970) (2,108) (319)
Purchase of Worldlink product line - (3,037) -
Purchase of XIS net of cash acquired (719) - -
Increase in long-term investments (47) (225) (35)
Other 39 (77) (12)
- --------------------------------------------------------------------------------------------
Net cash used in investing activities (22,517) (1,540) (1,971)
- --------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net
of related costs 10,889 635 505
Income tax benefits related to exercise of stock options 333 480 1,131
Repayment of XIS assumed liabilities (388) - -
Repayment of XIS note payable (800) - -
Purchase of treasury stock - - (8,000)
Other 52 (21) (50)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 10,086 1,094 (6,414)
- --------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (2,109) 1,283 (3,431)
Cash and cash equivalents, beginning of year 10,587 9,304 12,735
- --------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 8,478 $10,587 $ 9,304
- --------------------------------------------------------------------------------------------
Supplemental disclosures:
Interest paid $ 72 $ - $ -
Income taxes paid $ 486 $ 887 $ 1,253
Non-cash investing activities:
The Company purchased all of the capital stock
of XIS. In conjunction with the acquisition,
liabilities were assumed as follows (in
thousands):
Fair value of non-cash assets acquired 687
Amount paid in excess of fair value 2,565
Less: purchase price
Cash paid, net (719)
Common stock issued (775)
Note payable issued (1,200)
----------
Total purchase price (2,694)
=======
Liabilities assumed $ 558
=======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
(in thousands, except share data)
Common Stock Treasury Stock Additional
------------------------------------------ Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 7,151,939 $71 - $ - $26,972 $ 5,430 $32,473
Purchase of treasury shares (527,879) (8,000) (8,000)
Exercise of stock options 385,937 4 17,100 259 37 300
Employee stock purchase plan shares issued 12,544 190 15 205
Income tax benefits related to exercise
of stock options 1,131 1,131
Net income 3,802 3,802
Unrealized loss on short-term investments (50) (50)
Foreign currency translation adjustment (12) (12)
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 7,537,876 75 (498,235) (7,551) 28,093 9,232 29,849
Exercise of stock options 299,905 4,544 (4,282) 262
Employee stock purchase plan shares issued 30,791 467 (94) 373
Restricted stock issuance 10,000 152 (28) 124
Income tax benefits related to exercise
of stock options 480 480
Net income - -
Unrealized loss on short-term investments (21) (21)
Foreign currency translation adjustment 63 63
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 7,537,876 75 (157,539) (2,388) 24,211 9,232 31,130
Exercise of stock options 122,623 1 52,995 803 (406) 398
Purchase of XIS 50,000 758 17 775
Employee stock purchase plan shares issued 38,513 1 464 465
Income tax benefits related to exercise
of stock options 333 333
Net income 3,145 3,145
Sale of stock in public offering, net of expense 601,409 6 54,544 827 9,193 10,026
Unrealized gain on short-term investments 54 54
Foreign currency translation adjustment (68) (68)
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 8,300,421 $83 - $ - $33,798 $12,377 $46,258
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<TABLE>
<CAPTION>
Quarterly Financial Information
(in thousands, except per share data)
(unaudited)
Three Months Ended
-----------------------------------------------------------------------------------------------------------------------------
Mar. 31, Jun. 30, Sep. 30, Dec. 31, Mar. 31, Jun. 30, Sep. 30, Dec. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues
Software license fees $ 6,931 $ 7,381 $ 6,133 $10,258 $ 8,871 $ 7,695 $ 7,214 $10,540
Software upgrade fees and services 2,519 2,745 3,227 3,457 4,479 4,344 4,969 5,467
- -----------------------------------------------------------------------------------------------------------------------------
9,450 10,126 9,360 13,715 13,350 12,039 12,183 16,007
- -----------------------------------------------------------------------------------------------------------------------------
Costs and expenses
Costs of software license fees 477 524 387 598 570 566 715 741
Costs of software upgrade fees and services 731 856 938 1,281 1,688 1,812 2,055 2,027
Sales and marketing 4,368 5,471 5,384 6,405 5,407 5,938 4,867 6,019
Product development 1,341 1,561 1,500 2,049 2,041 2,363 2,259 2,177
General and administrative 1,489 1,393 1,506 1,830 1,867 1,666 1,712 1,977
Non-recurring charges - - 384 3,112 - - 1,025 -
- -----------------------------------------------------------------------------------------------------------------------------
8,406 9,805 10,099 15,275 11,573 12,345 12,633 12,941
- -----------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1,044 321 (739) (1,560) 1,777 (306) (450) 3,066
Other income, net 288 265 204 177 90 250 249 288
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,332 586 (535) (1,383) 1,867 (56) (201) 3,354
Provision (benefit) for income taxes 466 223 (160) (529) 738 (24) (69) 1,174
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 866 $ 363 $ (375) $ (854) $ 1,129 $ (32) $ (132) $ 2,180
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share - basic $ 0.12 $ 0.05 $ (0.05) $ (0.12) $ 0.15 $ - $ (0.02) $ 0.26
Net income (loss) per share - diluted $ 0.11 $ 0.05 $ (0.05) $ (0.12) $ 0.14 $ - $ (0.02) $ 0.25
Weighted average shares outstanding - basic 7,129 7,204 7,238 7,345 7,467 8,160 8,218 8,282
Weighted average shares outstanding - diluted 7,852 7,883 7,238 7,345 8,352 8,160 8,218 8,860
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
Years Ended December 31, 1997, 1996 and 1995
1. Summary of Significant Accounting Policies
Organization
The accompanying consolidated financial statements include the accounts of
XcelleNet, Inc. and its wholly owned subsidiaries (the "Company"). The Company
develops, markets and supports remote systems management software that enables
systems administrators to more effectively and efficiently manage large numbers
of remote systems from a central site. The Company conducts business worldwide
primarily in all regions of the United States as well as the United Kingdom,
Germany and Australia.
Basis of Presentation
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
-21-
<PAGE>
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Recent Accounting Pronouncements
Effective for periods ending after December 15, 1997, the Financial Accounting
Standards Board ("FASB") has issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share" ("SFAS 128"). This statement sets out
new guidelines for the calculation and presentation of earnings per share. The
Company adopted SFAS 128 effective in the 1997 fourth quarter. All prior period
earnings per share data were restated to conform with the provisions of SFAS
128. The per share amounts reported under SFAS 128 are not materially different
from those calculated and presented under Accounting Principles Board Opinion
No. 15, "Earnings per Share."
Effective for periods beginning after December 15, 1997, the American Institute
of Certified Public Accountants has issued Statement of Position 97-2, "Software
Revenue Recognition." The statement sets new guidelines for the recognition
of software revenue. The adoption of the standards in this Statement of
Position is not expected to have a significant impact on the Company's
consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. SFAS 130 is effective
for the Company's fiscal year ending December 31, 1998. Management does not
expect SFAS 130 to have a significant impact on the Company's consolidated
financial statements.
Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 requires companies to determine reporting segments based
on the manner in which management makes decisions about allocating resources to
segments and measuring their performance. Disclosures for each segment are
similar to those required under current standards, with the addition of certain
quarterly disclosure requirements. SFAS 131 also requires entity-wide
disclosure about the products and services an entity provides, the countries in
which it holds material assets and reports material revenues, and its
significant customers. SFAS 131 is effective for financial statements for the
Company's fiscal year ending December 31, 1998. The Company does not expect
that SFAS 131 will require significant revision of prior disclosures.
Cash, Cash Equivalents, and Short-term Investments
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Short-term investments
consist of the following:
<TABLE>
<CAPTION>
- ---------------------------------------------------------
in thousands At December 31,
1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Municipal securities $18,846 $1,658
U.S. Government agencies 500 499
Corporate notes, bonds and securities 1,465 -
- ---------------------------------------------------------
Short-term investments $20,811 $2,157
- ---------------------------------------------------------
</TABLE>
The fair value of financial instruments is estimated based on quoted market
prices. Differences between the fair value and the cost of investments are
recorded as unrealized gains or losses in additional paid-in capital. All
investments are considered available for sale and have effective maturities of
less than one year.
Furniture, Fixtures, and Equipment
Furniture, fixtures and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the related
assets ranging from three to five years. Maintenance and repairs are charged to
expense as incurred. Replacements and improvements are capitalized. Furniture,
fixtures and equipment consist of the following:
-22-
<PAGE>
<TABLE>
<CAPTION>
in thousands At December 31,
- ------------------------------------------------------------
1997 1996
- ------------------------------------------------------------
<S> <C> <C>
Computer and other equipment $ 9,378 $ 7,982
Furniture and fixtures 3,223 2,540
Leasehold improvements 729 676
- ------------------------------------------------------------
13,330 11,198
Less: accumulated depreciation (8,597) (5,820)
- ------------------------------------------------------------
Furniture, fixtures, and equipment, net $ 4,733 $ 5,378
- ------------------------------------------------------------
</TABLE>
Capitalized Software Development Costs
In accordance with SFAS No. 86, "Accounting for the Costs of Computer Software
to Be Sold, Leased, or Otherwise Marketed," the Company capitalizes certain
software development costs when a new or enhanced product is released for
customer testing and ceases capitalization when the product is released for
sale. Software development costs of $970,000, $2,108,000 and $319,000 were
capitalized in 1997, 1996, and 1995, respectively. Amortization of capitalized
software development costs begins as products are made available for sale, with
annual amortization equal to the greater of the amount computed using the ratio
that current gross revenues bear to the total of current and anticipated future
gross revenues for the product or the straight-line method over the remaining
estimated economic life of the product, which is a maximum of three years.
Amortization expense is included in costs of license fees. Amortization totaled
$1,219,000, $644,000, and $332,000 in 1997, 1996, and 1995, respectively.
Long-Lived Assets and Intangible Assets
The Company assigns the carrying values to long-lived assets and certain
identifiable intangible assets based on expectations of undiscounted future cash
flows and operating income generated by the long-lived assets or the tangible
assets underlying the identifiable intangible assets. These values are
periodically assessed to determine whether they are recoverable.
Revenue Recognition
The Company's revenues are generated from the licensing of its software
products; from fees paid for and rights to upgrades and updates ("maintenance")
of the software products; and from training, installation, implementation,
support, and consulting services related to such software products. In
accordance with AICPA Statement of Position 91-1, "Software Revenue
Recognition," the Company recognizes revenue from software licenses upon the
execution of a license agreement and delivery of the product to a customer,
provided the Company has no significant future obligations and collection of the
license fees is probable. Maintenance fees are recognized on a straight-line
basis over the period covered by the related contract. Beginning in 1997
maintenance fees were billed annually. In 1996 and 1995 they were billed
quarterly. Service revenues are recognized when the specific service is
performed.
Advertising
The Company expenses the production costs of advertising at the time incurred,
except for direct-response advertising, which is capitalized and amortized over
its expected period of future benefits. Direct-response advertising consists
primarily of advertisements in business, financial, and software magazines and
newspapers. The cost of each advertisement is amortized over the four-month
period following the issuance of the publication in which it appears.
Advertising expenditures totaled $1,768,000, $2,171,000 and $194,000 for 1997,
1996 and 1995, respectively. Advertising expense was $1,912,000, $2,027,000 and
$194,000 for 1997, 1996 and 1995, respectively. Unamortized advertising costs
included in prepaid expenses were $0 and $144,000 at December 31, 1997 and 1996,
respectively.
-23-
<PAGE>
Other Income, Net
Other income consists primarily of interest income. Interest income was
$925,000, $911,000, and $1,256,000 in 1997, 1996, and 1995, respectively.
Income Taxes
Deferred income tax assets and liabilities are recorded based on the differences
between the financial reporting and income tax bases of assets and liabilities.
Net Income Per Share
Basic net income per share is computed based on net income and the weighted
average number of common shares outstanding. Diluted net income per share
reflects the assumed issuance of common shares under incentive and stock option
plans. The computation of diluted net income per share does not assume exercise
of securities that would have an antidilutive effect on net income per share.
The shares assumed issued related to stock options were 657,000, 686,000, and
1,093,000 in 1997, 1996, and 1995, respectively.
Foreign Currency Translation
Non-U.S. assets and liabilities are translated into U.S. dollars using the
balance sheet date exchange rates. Revenues and expenses are translated at
average rates during the period. Foreign currency translation adjustments are
reflected as increases (decreases) in additional paid-in capital and were
$(68,000), $63,000 and $(12,000) in 1997, 1996 and 1995, respectively.
Cumulative foreign currency translation adjustments were $8,000 and $76,000 at
December 31, 1997 and 1996, respectively.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Domestic and Foreign Operations
The Company's foreign subsidiaries accounted for approximately 14%, 9% and 9% of
consolidated revenues for the years ended December 31, 1997, 1996 and 1995,
respectively. The Company operates in a single industry segment, the computer
software industry. A summary of the Company's operations by geographic area is
presented below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
in thousands NORTH AMERICA OTHER CONSOLIDATED
- -------------------------- -----------------------------------------
1997
<S> <C> <C> <C>
Revenue $46,149 $7,430 $53,579
Operating income 3,350 737 4,087
Identifiable assets 52,372 3,211 55,583
Depreciation expense 2,704 194 2.898
Capital expenditures 2,068 98 2,166
1996
Revenue 38,422 4,229 42,651
Operating loss (590) (344) (934)
Identifiable assets 33,882 2,801 36,683
Depreciation expense 2,400 158 2,558
Capital expenditures 2,656 395 3,051
- ---------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1995
Revenue 31,072 3,027 34,099
Operating income or loss 4,916 (148) 4,768
Identifiable assets 31,811 1,650 33,461
Depreciation expense 1,887 154 2,041
Capital expenditures 3,156 104 3,260
- ---------------------------------------------------------------------------
</TABLE>
The information presented above may not be indicative of results if the
geographic areas were independent organizations. Intercompany transactions are
made at established transfer prices.
2. Shareholders' Equity
Follow-On Offering
On April 1, 1997, the Company successfully completed a follow on public offering
of its common stock. The offering was comprised of 655,953 shares issued by the
Company (which included 54,544 shares issued from treasury stock) and 777,047
shares sold by existing shareholders at an offering price of $17.00 per share.
The net proceeds to the Company (after underwriting discounts and commissions
and other related costs ) totaled approximately $10,000,000.
Preferred Stock
At December 31, 1997 and 1996, 10,000,000,000 shares were authorized with a par
value of $.01 and none were issued or outstanding.
Stock Options
The Company maintains three stock option plans: the 1987 Stock Option Plan
("1987 Plan"), the 1994 Stock Option Plan for Outside Directors ("Director
Plan") and the 1996 Long-Term Incentive Plan ("LTIP"). The 1987 Plan provides
for the issuance of incentive stock options ("ISOs"), nonqualified stock options
("NQSOs"), and stock appreciation rights ("SARs") to employees and officers of
the Company. The Director Plan provides for the issuance of NQSOs to non-
employee members of the Company's Board of Directors who are not prohibited by
their employer from receiving options under the Director Plan. The LTIP provides
for the issuance of ISOs, NQSOs, SARs and other stock-based awards to employees,
officers and directors of the Company. Additionally, the Company has granted
NQSOs to non-employee directors and consultants on an individual basis and not
under a plan. A total of 725,453 options were exercisable at December 31, 1997.
Under the 1987 Plan, ISOs, NQSOs, and SARs to purchase a total of 2,650,000
shares were authorized for issuance, of which 942,058 options were outstanding
and 440,237 options were exercisable at December 31, 1997. Due to the expiration
of the 1987 Plan during 1997, there were no options available for grant at
December 31, 1997. All options have been granted at the fair market value of
the Company's common stock at the date of grant. The ISOs and NQSOs are
generally exercisable beginning one to three years from the date of grant, after
which options vest over a period not to exceed ten years from the date of grant
and terminate ten years from the date of grant. No SARs have been granted under
the 1987 Plan.
During 1994, the Company adopted the Director Plan, under which 300,000 shares
were authorized for issuance. Under the Director Plan, the Company automatically
grants NQSOs to purchase 40,000 shares of common stock, at the fair market value
of the Company's common stock at the date of grant, to each eligible non-
employee member of the Company's Board of Directors. These options vest over a
four-year period and terminate five years from the date of grant. There were
55,000 options available for grant at December 31, 1997. A total of 237,500
options were outstanding, of which 127,500 options were exercisable at December
31, 1997.
During 1996, the Company adopted the LTIP, under which 3,000,000 shares were
authorized for issuance, of which 1,700,650 options were available for grant,
1,299,350 options were outstanding and 57,804 were exercisable at December 31,
1997. All options have been granted at the fair market value or higher of the
Company's common stock at the date of grant. The ISOs and NQSOs are generally
exercisable beginning one year from the date of grant, after which options vest
over a period not to exceed ten years from the date of grant and terminate up to
ten years from the date of grant. No SARs or other stock-based awards have been
granted under the LTIP.
-25-
<PAGE>
The Company has granted NQSOs to purchase shares on an individual basis and not
under a plan, on terms similar to the 1987 Plan. At December 31, 1997, 99,912
options were outstanding and exercisable.
Changes in all outstanding options are as follows:
<TABLE>
<CAPTION>
Price Range Shares
- ---------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1994 .07 - 14.50 1,845,447
Granted 15.50 - 30.25 488,500
Exercised .07 - 11.00 403,037
Forfeited .47 - 23.50 197,071
- ---------------------------------------------------------------
Outstanding at December 31, 1995 .07 - 30.25 1,733,839
Granted 10.00 - 19.00 1,172,007
Exercised .32 - 10.00 347,831
Forfeited .47 - 30.25 451,137
- ---------------------------------------------------------------
Outstanding at December 31, 1996 .07 - 23.50 2,106,878
Granted 8.25 - 20.50 1,139,325
Exercised .07 - 16.25 177,618
Forfeited 1.08 - 23.50 489,765
- ---------------------------------------------------------------
Outstanding at December 31, 1997 .07 - 23.50 2,578,820
- ---------------------------------------------------------------
</TABLE>
In 1997, 1996 and 1995, the Company recognized income tax benefits of $333,000,
$480,000 and $1,131,000, respectively, related to disqualifying dispositions of
ISOs, NQSOs and Employee Stock Purchase Plan option exercises. These benefits
were recorded as increases to additional paid-in capital.
Stock - Based Compensation
During 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") which defines a fair value-based method of accounting
for an employee stock option plan or similar equity instrument. However, it also
allows an entity to continue to measure compensation cost for those plans using
the method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25"). Entities electing to
remain with the accounting in APB 25 must make pro forma disclosures of net
income and earnings per share, as if the fair value-based method of accounting
defined in the statement had been applied.
The Company has elected to account for its stock-based compensation plans under
APB 25. The Company has computed for pro forma disclosure purposes the value of
all options granted during 1997, 1996 and 1995 using the Black-Scholes option
pricing model as prescribed by SFAS 123 using the following weighted average
assumptions:
Year Ended December 31,
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk free interest rate 6.13% 6.17% 6.48%
Expected dividend yield 0% 0% 0%
Expected lives (years) 4.2 - 5.8 4.2 - 5.8 4.2 - 5.8
Expected volatility 72.9% 73.6% 73.6%
</TABLE>
-26-
<PAGE>
The total fair value of the options granted during the years ended December 31,
1997, 1996 and 1995 were computed as approximately $5,642,000, $7,580,000 and
$4,938,000 respectively, which would be amortized over the vesting period of the
options. If the Company had accounted for these plans in accordance with SFAS
123, the Company's reported pro forma net income (loss) and pro forma net income
(loss) per share for the years ended December 31, 1997, 1996 and 1995 would have
been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- ----------------------------------------------
(in thousands) 1997 1996 1995
- ----------------------------------------------
<S> <C> <C> <C>
Net income (loss):
As reported $3,145 $ - $3,802
Pro forma 1,024 (2,027) 2,817
Basic EPS:
As reported .39 - .51
Pro forma .13 (.28) .38
Diluted EPS:
As reported .36 - .45
Pro forma .12 (.28) .33
</TABLE>
Because the SFAS 123 method of accounting 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.
The following table summarizes information about fixed - price stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ ----------------------------
Weighted-Average
Actual Number Remaining Number
Range of Outstanding Contractual Life Weighted-Average Exercisable Weighted-Average
Exercise Prices at 12/31/97 In Years Exercise Price at 12/31/97 Exercise Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ .07 - $.07 40,362 .6 $ .07 40,362 $ .07
.32 - .47 69,048 2.9 .42 69,048 .42
1.08 - 1.08 104,085 4.5 1.08 104,085 1.08
2.33 - 2.33 19,746 4.6 2.33 13,248 2.33
4.00 - 4.00 173,562 5.7 4.00 138,717 4.00
7.50 - 11.25 1,115,000 7.5 9.14 166,427 10.22
12.25 - 18.00 862,292 7.8 13.52 165,901 13.45
18.88 - 23.50 194,725 8.6 20.84 27,665 21.94
- -------------------------------------------------------------------------------------------------
$ .07 - $23.50 2,578,820 7.2 $10.39 725,453 $ 7.26
- -------------------------------------------------------------------------------------------------
</TABLE>
Restricted Stock
During 1996, the Company issued 10,000 shares of restricted stock to an
executive officer at no cost. The fair market value of the stock at the date of
issuance was $12.375 per share and the Company recorded compensation expense of
$123,750 related to the stock issuance.
Employee Stock Purchase Plan
During 1995, the Company established an employee discount stock purchase plan
for eligible employees of the Company and designated subsidiaries and authorized
300,000 shares for issuance under this plan. Participants may use up to 10% of
-27-
<PAGE>
their compensation to purchase the Company's common stock at the end of each
six-month plan period for 85% of the lower of the beginning or ending stock
price in the plan period. At December 31, 1997, there were 218,152 shares of
stock reserved for issuance under this plan. The weighted average fair value of
the purchase rights granted in 1997, 1996 and 1995 was $13.49, $14.42 and $18.49
respectively.
Treasury Stock
In November 1995, the Company's Board of Directors approved the repurchase of
527,879 shares of its common stock from Motorola, Inc. at a negotiated price of
approximately $15.15 per share. The closing price of the Company's common stock
on the date of the transaction was $15.50. After the transaction, Motorola, Inc.
owned 731,047 shares of the Company's common stock. Motorola, Inc. subsequently
sold these shares in the Company's follow-on public offering effective April 1,
1997. Additionally, on October 27, 1995, the Company's Board of Directors
authorized a common stock repurchase program of up to 350,000 shares. The stock
repurchase plan authorizes the Company to periodically purchase shares in the
open market or through privately negotiated transactions to meet the
requirements of its stock-based compensation plans. To date, no shares have
been purchased under the plan.
Shareholder Protection Rights Agreement
On November 21, 1997, the Company entered into a Shareholder Protection Rights
Agreement pursuant to which one preferred stock purchase right was distributed
with respect to each outstanding share of the Company's common stock. When the
rights first become exercisable, unless a person or group has acquired 15% or
more of the Company's common stock, each right will entitle holders of a share
of common stock to purchase one one-hundredth of a share of a new series of
junior participating preferred stock of the Company at an exercise price
initially equal to $75.00. Each such fractional share of preferred stock is
equivalent in voting power to one share of the Company's common stock and would
be paid dividends at least equal to the dividends paid on each share of common
stock, if any. The rights initially will trade together with the Company's
common stock and will not be exercisable unless certain triggering events occur.
Until exercisable, the rights will not have a dilutive effect on earnings per
share.
The rights will be exercisable only if a person or group acquires beneficial
ownership of 15% or more of the Company's common stock, or announces a tender or
exchange offer upon consummation of which such person or group would
beneficially own 15% or more of the Company's common stock. The rights are not
triggered by beneficial holders of 15% or more of the common stock at November
21, 1997, unless they subsequently increase their beneficial holdings. Following
the acquisition by any person or group of 15% or more of the Company's common
stock and control of the Company's Board of Directors, but prior to the
acquisition by such person or group of 50% of the common stock, the Board of
Directors may elect to exchange each outstanding right for one share of the
Company's common stock. If a person or group acquires 15% or more of the
Company's common stock, the rights may become exercisable for common stock of
the Company having a market value of two times the right's exercise price. Under
certain circumstances the Company is acquired in a merger or other business
combination transaction and the rights have not been redeemed, each right not
previously exercised will entitle its holder to purchase, at the right's then
current exercise price, a number of the acquiring company's common shares having
a market value at the time of twice the right's exercise price.
The Company will be entitled to redeem the rights at one cent per right at any
time prior to the close of business on the tenth business day following an
announcement by the Company that a person or group has become the beneficial
owner of 15% or more of the Company's common stock. The rights will expire on
November 21, 2007 unless earlier exchanged or redeemed.
3. Income Taxes
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------
in thousands 1997 1996 1995
- ------------------------------------------
Current:
<S> <C> <C> <C>
Federal $1,257 $ 621 $ 1,792
State 330 113 303
Foreign - 33 -
-----------------------------------------
1,587 767 2,095
- -------------------------------------------
</TABLE>
-28-
<PAGE>
<TABLE>
<S> <C> <C> <C>
Deferred:
Federal 193 (663) 128
State 39 (104) 7
Foreign - - -
- ------------------------------------------
232 (767) 135
- ------------------------------------------
$1,819 $ - $ 2,230
- ------------------------------------------
</TABLE>
The Company's effective tax rate varies from the statutory federal income tax
rate as a result of the following items:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34% 34% 34%
Losses from foreign operations (3) 25 1
State income taxes, net of federal benefit 4 3 3
R&D tax credits (5) (35) (3)
FSC tax benefit - (2) -
State tax credits (1) (9) -
Nondeductible goodwill 2 - -
Tax exempt interest income (2) (19) (2)
Other, net 8 3 4
- ----------------------------------------------------------------
Effective tax rate 37% -% 37%
- ----------------------------------------------------------------
</TABLE>
-29-
<PAGE>
The sources of the difference between the financial reporting and income tax
bases of the Company's assets and liabilities that give rise to the deferred
income tax liabilities and assets and the tax effects of each are as follows:
<TABLE>
<CAPTION>
At December 31,
- -----------------------------------------------------------------------
in thousands 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Deferred income tax liabilities:
Capitalized software development costs $ 759 $ 832
Prepaid marketing expense - 55
Other 321 83
- -----------------------------------------------------------------------
1,080 970
- -----------------------------------------------------------------------
Deferred income tax assets:
Software acquisition (1,081) (1,115)
Net losses from foreign subsidiaries (291) (533)
Deferred lease credits (256) (302)
Allowance for doubtful accounts receivable (186) (181)
Deferred revenue (166) -
Other (286) (126)
- -----------------------------------------------------------------------
(2,266) (2,257)
- ------------------------------------------------------------------------
Valuation allowance for deferred income tax assets 291 533
- -----------------------------------------------------------------------
Net deferred income tax assets $ (895) $ (754)
- -----------------------------------------------------------------------
</TABLE>
Net income (loss) from the Company's foreign subsidiaries was $596,000,
$(258,000), and $(190,000) in 1997, 1996, and 1995, respectively. The income tax
benefit related to losses since inception of $291,000 and $533,000 at December
31, 1997 and 1996, respectively, has been offset by a valuation allowance due to
the uncertainty of realization.
-30-
<PAGE>
4. Commitments and Contingencies
Operating Leases
The Company leases certain office space and equipment under noncancelable
operating lease agreements, which expire at various dates through 2001. In 1997,
1996, and 1995, rent expense under these agreements totaled $2,358,000,
$1,754,000, and $1,131,000, respectively.
For financial reporting purposes, rent expense and lease incentives related to
the corporate headquarters office lease are being recognized on a straight-line
basis over the term of the lease. The lease incentives and accrued lease costs
resulted in deferred credits of $739,000 and $885,000 at December 31, 1997 and
1996, respectively, the majority of which are included in long-term liabilities
in the accompanying balance sheets.
Future minimum payments due under all noncancelable operating lease agreements
at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31
in thousands,
- -----------------------
<S> <C>
1998 $1,354
1999 1,317
2000 907
2001 41
2002 -
Thereafter -
- -----------------------
$3,619
- -----------------------
</TABLE>
Employment Agreements
The Company has entered into an agreement with its Chief Executive Officer
("CEO") that permits the CEO to obtain, at no cost, a license to use the full
range of the Company's products at one central site, and on up to 250 nodes for
his own internal business, charitable, or educational purposes. The CEO's
license right commences when his employment with the Company, any subsidiary of
the Company, or any 40% shareholder of the Company, is terminated other than for
cause, or in the event the CEO resigns from employment following a change in
control, as defined. This agreement has a term of twenty years following the
CEO's termination of employment.
The Company has entered into change in control employment agreements with
certain officers. An agreement becomes effective upon a change in control, as
defined in the agreement, or termination of employment in conjunction with or in
anticipation of, a change in control if such event occurs within the initial
two- or three-year term of the agreement or any one-year renewal period. Once
an agreement is effective, an officer is deemed to have either a two- or three-
year employment period with the Company, depending upon the agreement. If, at
any time during the employment period the officer is terminated by the Company
without cause or resigns for good reason (i.e. relocation or change in job
responsibilities), as such terms are defined in the agreements, or resigns
during the 30-day period after the first anniversary of the effective date of
the agreement, then the officer is entitled to receive a severance payment. The
payment would be equal to the officer's base salary through the date of
termination, a prorata bonus (as defined in the agreements); one or two times
the officer's base salary and bonus, depending on the agreement; unpaid deferred
compensation and vacation pay; a contingent payment based upon 1.2 times the
difference between the fair market value of the securities issuable upon
exercise of certain of the the officer's unvested stock options at the date of
termination that otherwise would have vested within eighteen months or three
years of the date of termination, depending on the agreement, or acceleration
of those unvested options to a date not later than the date of termination; and
certain continued employee benefits.
-31-
<PAGE>
Legal Proceedings
The Company is subject to legal proceedings and claims that have arisen in the
ordinary course of business. In the opinion of management, the amount of
potential liability with respect to these actions will not materially affect the
financial position or results of operations of the Company.
5. Related Party Transactions
On January 2, 1997, the Company completed the acquisition of XcelleNet
Integration Services, Inc. ("XIS", formerly Electronic Commerce, Inc.) for a
total consideration comprising cash, future payments and stock of approximately
$2,675,000. The transaction was accounted for as a purchase. The excess of the
purchase price over the tangible assets acquired totaled $2,565,000 and is being
amortized over 10 years. The operating results of XIS since the date of
acquisition are included in the accompanying financial statements.
Prior to January 1997, Electronic Commerce, Inc. ("E-Comm") remarketed the
Company's software to end-user customers and was partially owned by the brother
of the Company's CEO. During 1995, the Company's CEO personally loaned E-Comm
$200,000 that was outstanding at December 31, 1996, in the form of an unsecured
note for working capital purposes. In conjunction with the acquisition of E-Comm
by the Company, this loan was paid back in full.
During 1996 and 1995, E-Comm purchased software from the Company totaling
$734,000 and $852,000, respectively, of which $734,000 and $664,000 were
remarketed to end-user customers and the balance was used internally. All of
these transactions were at the Company's standard terms and conditions. At
December 31, 1996 and 1995, $107,000 and $243,000, respectively, were receivable
from E-Comm and related to remarketing activities.
6. Non-recurring Charges
During the third quarter of 1997, the Company recorded non-recurring charges of
approximately $1,025,000 consisting of severance and facilities costs associated
with the Company's organizational streamlining and tighter focus on its remote
systems management strategy.
During the fourth quarter of 1996, the Company acquired all tangible and
intangible WorldLink software rights from The NetPlex Group, Inc. under the
terms of an asset purchase agreement for a total consideration of approximately
$3,037,000. The acquisition was accounted for as a purchase in accordance with
Accounting Principles Board Opinion No. 16, "Accounting for Business
Combinations," and accordingly, the purchase price was allocated to goodwill as
of the acquisition date. An amount equal to the purchase price was included in
non-recurring charges on the Company's statement of operations due to
uncertainties regarding its recoverability.
In addition during 1996, the Company recorded non-recurring charges of $459,000
primarily representing severance and hiring costs associated with certain key
employees.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-32-
<PAGE>
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT.
Information with respect to this item may be found in the sections
captioned "Nominees for Director" appearing on pages 2 and 3 of the
Company's Proxy Statement to be delivered to shareholders of the Company
in connection with the Annual Meeting of Shareholders to be held April
28, 1998 (the "Company's Proxy Statement"), and "Section 16 (a)
Beneficial Ownership Reporting Compliance" appearing on page 15 of the
Proxy Statement. Such information is incorporated herein by reference.
Certain information regarding the executive officers of the Company is
included in Item 1 of Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
Information with respect to this item may be found in the sections
captioned "Executive Compensation and Other Benefits" appearing on pages
7 through 11 of the Company's Proxy Statement, "Other Information About
the Board and Its Committees" appearing on pages 3 and 4 of the Company's
Proxy Statement, and "Compensation and Stock Option Committee Interlocks
and Insider Participation" appearing on page 13 of the Company's Proxy
Statement. Such information is incorporated herein by reference. In no
event shall the information contained in the sections captioned
"Compensation and Stock Option Committee Report on Executive
Compensation" on pages 11 and 12 of the Company's Proxy Statement, or
"Performance Graph" on page 14 of the Company's Proxy Statement be
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to this item may be found in the section
captioned "Common Stock Ownership of Management and Certain Beneficial
Owners" appearing on pages 5 and 6 of the Company's Proxy Statement. Such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to this item may be found in the sections
captioned "Certain Relationships and Related Transactions" appearing on
page 15 of the Company's Proxy Statement and "Compensation and Stock
Option Committee Interlocks and Insider Participation" appearing on page
13 of the Company's Proxy Statement. Such information is incorporated
herein by reference.
-33-
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)1. LISTING OF FINANCIAL STATEMENTS.
The following financial statements of XcelleNet, Inc. are set forth herein
in Part II,
Item 8:
Consolidated Balance Sheets as of December 31, 1997 and 1996
Consolidated Statements of Operations for the Years Ended December 31,
1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows for the Years Ended December 31,
1997, 1996 and 1995.
(a)2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted because they are not
required or the required information is included in the financial statements or
notes thereto.
(a)3. EXHIBITS
The following exhibits are filed herewith or are incorporated by reference
to exhibits previously filed with the Commission. The Company shall furnish
copies of exhibits for a reasonable fee (covering the expense of furnishing
copies) upon request.
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------- -------------------
<C> <S>
3.01 Amended and Restated Articles of Incorporation of the Registrant.
3.02 Amended and Restated Bylaws of the Registrant.
4.01 Specimen Stock Certificate for the Common Stock of the Registrant (Incorporated herein by
reference to Exhibit 4.01 to Registration Statement No. 33-76012).
4.02 See Exhibits 3.01 and 3.02 for provisions of the Amended and Restated Articles of Incorporation
and Amended and Restated Bylaws of the Registrant defining the rights of holders of the
Common Stock of the Registrant.
4.03 Shareholder Agreement dated June 22, 1990 as amended by the Amendment to Shareholder
Agreement dated February 11, 1994 (the "Amendment") among the Registrant and the persons
listed on Exhibit A to the Amendment (Incorporated herein by reference to Exhibit 10.12 to
Registration Statement No. 33-76012).
4.04 Shareholder Protection Rights Agreement effective November 21, 1997 (Incorporated herein by
reference to the Company's Form 8-K filed November 24, 1997).
10.01 Lease Agreement, First Amendment to Lease Agreement, Commencement Date Agreement,
Second Amendment to Lease Agreement and Third Amendment to Lease Agreement between
the Registrant and Concourse V Associates dated August 17, 1990, September 30, 1992, January
27, 1993, August 10, 1993 and September 9, 1993, respectively (Incorporated herein by
reference to Exhibit 10.01 to Registration Statement No. 33-76012).
10.011 Fourth Amendment to Lease Agreement, Commencement Date Agreement and Acceptance of
Premises and Fifth Amendment to the Lease Agreement between the Registrant and Concourse
V Associates dated August 15, 1994, January 18, 1995 and March 2, 1995, respectively
(Incorporated herein by reference to Exhibit 10.011 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.012 Sixth Amendment to the Lease Agreement between the Registrant and Concourse V Associates
dated March 26, 1996 (Incorporated herein by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.013 Seventh Amendment to the Lease Agreement between the Registrant and Concourse V
Associates dated July 1, 1996 (Incorporated herein by reference to Exhibit 10.013 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).
</TABLE>
-34-
<PAGE>
<TABLE>
<S> <C>
10.014 Eighth Amendment to the Lease Agreement between the Registrant and Concourse V Associates
dated November 24, 1996 (Incorporated herein by reference to Exhibit 10.014 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).
10.02 Underlease between XcelleNet Limited and Grant Thornton Nominees dated December 15, 1995.
(Incorporated herein by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1995).
10.03 Q+E Database Library Distributor License Agreement between the Registrant and Q+E Software,
Inc. effective as of July 1, 1993 (Incorporated herein by reference to Exhibit 10.03 to
Registration Statement No. 33-76012).
10.04 XcelleNet, Inc. 1994 Stock Option Plan for Outside Directors (Incorporated herein by reference
to Exhibit 10.04 to Registration Statement No. 33-76012).
10.041 First Amendment to XcelleNet, Inc. 1994 Stock Option Plan for Outside Directors adopted by
the Board of Directors on March 24, 1995 (Incorporated herein by reference to Exhibit 10.041
to the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10.05* XcelleNet, Inc. 1987 Stock Option Plan, as amended (Incorporated herein by reference to Exhibit
10.05 to Registration Statement No. 33-76012).
10.051* Tenth Amendment to XcelleNet, Inc. 1987 Stock Option Plan dated March 24, 1995
(Incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995).
10.06* Written description of XcelleNet, Inc. Key Employee Loan Program, as amended (the
"Program") together with Form of Installment Note and Form of Pledge Agreement executed by
participants in the Program.
10.07* Form of Agreement to License Software between the Registrant and Dennis M. Crumpler dated
March 29, 1994 (Incorporated herein by reference to Exhibit 10.07 to Registration Statement No.
33-76012).
10.08 Form Non-Qualified Stock Option Agreement for individual options granted to directors of the
Registrant in connection with their service as directors and not under any option plan of the
Registrant (Incorporated herein by reference to Exhibit 10.08 to Registration Statement No. 33-76012).
10.09 Form Non-Qualified Stock Option Agreement for individual options granted to directors of the
Registrant in connection with their service as consultants to the Registrant and not under any
option plan of the Registrant (Incorporated herein by reference to Exhibit 10.09 to Registration
Statement No. 33-76012).
10.10* Form Indemnity Agreement (Incorporated herein by reference to Exhibit 10.10 to Registration
Statement No. 33-76012). In addition to the individuals identified in Schedule 1 to this Exhibit,
the following have entered into a form Indemnity Agreement with the Registrant substantially
identical to this exhibit:
Geoffrey A. Moore
Corey M. Smith
David F. Held
Jethro J. Felton III
Scott L. Duma
10.11 Form Employment Agreement (Incorporated herein by reference to Exhibit 10.11 to Registration
Statement No. 33-76012).
10.12 Shareholder Agreement dated June 22, 1990 as amended by the Amendment to Shareholder
Agreement dated February 11, 1994 (the "Amendment") among the Registrant and the persons
listed on Exhibit A to the Amendment (Incorporated herein by reference to Exhibit 10.12 to
Registration Statement No. 33-76012).
10.13* Compensation Plan for W. Michael Parham January - June, 1997.
10.131* Compensation Plan for W. Michael Parham July - December, 1997.
10.14* Compensation Plan for Jethro J. Felton, III July - December, 1997.
10.15* Written Description of XcelleNet, Inc. Performance Compensation Program.
</TABLE>
-35-
<PAGE>
<TABLE>
<S> <C>
10.16 Investment Management Agreement between the Registrant and Wells Fargo Bank, N.A. dated
October 25, 1994 (Incorporated herein by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.17 Investment Management Agreement between the Registrant and Morgan Stanley & Co. Inc.
dated October 24, 1994 (Incorporated herein by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.18 Linguistic System Licensing Agreement between the Registrant and Proximity Technology, Inc.
effective as of December 14, 1994 (Incorporated herein by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10.19 North American OEM Program License Agreement between the Registrant and Retix effective
as of March 31, 1994 (Incorporated herein by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.20 The Registrant's Software License Agreement and Software License Agreement Schedule A
(Incorporated herein by reference to Exhibit 10.20 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.201 The Registrant's Software and Services Agreement.
10.21 XcelleNet, Inc. 1995 Employee Stock Purchase Plan dated March 24, 1995 (Incorporated herein
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
10.22 Basicscript Licensing Agreement between the Registrant and Summit Software Company
effective as of February 27, 1996 (Incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.23 Visiodbc Licensing Agreement between the Registrant and Visigenic Software, Inc. effective as
of December 18, 1996 (Incorporated herein by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.24* XcelleNet, Inc. 1996 Long-Term-Incentive-Compensation-Plan adopted by the Board of
Directors on October 16, 1996 (Incorporated herein by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).
10.25* Form of Change in Control Employment Agreements between the Company and Messrs. Dennis
M. Crumpler, Corey M. Smith, Shereef W. Nawar, W. Michael Parham, David F. Held and
Stefanus F. Coetzee (Incorporated herein by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.26* Restricted Stock Award Agreement effective September 17, 1996 between the Company and
Corey M. Smith (Incorporated herein by reference to Exhibit 10.26 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997).
10.261 OEM Software License Agreement Between the Registrant and McAfee Software, Inc. effective
as of June 17, 1997 (Incorporated herein by reference to Exhibit 10.26 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.27 System Integration Remarketer Agreement Between the Registrant and Avalan Technology
effective as of May 5, 1997 (Incorporated herein by reference to Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.28* Form of Change in Control Employment Agreements between the Company and Mr. Jethro J.
Felton and Ms. Jeanne N. Bateman (Incorporated herein by reference to Exhibit 10.28 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).
10.29* Form of Change in Control Employment Agreement between the Company and Mr. Scott L. Duma.
11.01 Statement re: computation of per share earnings.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule.
27.02 Restated Financial Data Schedule for the quarter ended March 31, 1997.
27.03 Restated Financial Data Schedule for the quarter ended September 30, 1997.
</TABLE>
(10). Indicates executive officer compensation plans and arrangements.
-36-
<PAGE>
(b)3. REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 1997.
Form 8-K dated November 21, 1997:
Reporting under Item 5 that the Company entered into a shareholder
protection rights agreement.
-37-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
XCELLENET, INC.
By: /s/ Dennis M. Crumpler
__________________________
Dennis M. Crumpler
Chairman of the Board and Chief Executive Officer
Date: March 30, 1998
------------------------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Dennis M. Crumpler Chairman of the Board and March 30, 1998
- ------------------------------- Chief Executive Officer
Dennis M. Crumpler (Principal Executive Officer)
/s/ David F. Held Chief Financial Officer and March 30, 1998
- ------------------------------- Assistant Secretary (Principal
David F. Held Financial and Accounting Officer)
/s/ Shereef W. Nawar Chief Technical Officer and March 30, 1998
- ------------------------------- Director
Shereef W. Nawar
/s/ Corey M. Smith President and Director March 30, 1998
- -------------------------------
Corey M. Smith
/s/ Stephen P. Bradley Director March 30, 1998
- -------------------------------
Stephen P. Bradley
/s/ Donald L. House Director March 30, 1998
- -------------------------------
Donald L. House
/s/ Richard C. Marcus Director March 26, 1998
- -------------------------------
Richard C. Marcus
/s/ Geoffrey A. Moore Director March 30, 1998
- -------------------------------
Geoffrey A. Moore
/s/ Richard L. Nolan Director March 30, 1998
- -------------------------------
Richard L. Nolan
/s/ Jeffrey P. Parker Director March 30, 1998
- -------------------------------
Jeffrey P. Parker
</TABLE>
-38-
<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------
EXHIBITS
TO
ANNUAL REPORT
ON
FORM 10-K
- -------------------------------------------------------------------------------
XCELLENET, INC.
(Exact name of registrant as specified in its charter)
===============================================================================
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
- ------- -------------------
<C> <S>
3.01 Amended and Restated Articles of Incorporation of the Registrant.
3.02 Amended and Restated Bylaws of the Registrant.
4.01* Specimen Stock Certificate for the Common Stock of the Registrant (Incorporated herein by
reference to Exhibit 4.01 to Registration Statement No. 33-76012).
4.02 See Exhibits 3.01 and 3.02 for provisions of the Amended and Restated Articles of Incorporation
and Amended and Restated Bylaws of the Registrant defining the rights of holders of the
Common Stock of the Registrant.
4.03* Shareholder Agreement dated June 22, 1990 as amended by the Amendment to Shareholder
Agreement dated February 11, 1994 (the "Amendment") among the Registrant and the persons
listed on Exhibit A to the Amendment (Incorporated herein by reference to Exhibit 10.12 to
Registration Statement No. 33-76012).
4.04* Shareholder Protection Rights Agreement effective November 21, 1997 (Incorporated herein by
reference to the Company's Form 8-K filed November 24, 1997).
10.01* Lease Agreement, First Amendment to Lease Agreement, Commencement Date Agreement,
Second Amendment to Lease Agreement and Third Amendment to Lease Agreement between
the Registrant and Concourse V Associates dated August 17, 1990, September 30, 1992, January
27, 1993, August 10, 1993 and September 9, 1993, respectively (Incorporated herein by
reference to Exhibit 10.01 to Registration Statement No. 33-76012).
10.011* Fourth Amendment to Lease Agreement, Commencement Date Agreement and Acceptance of
Premises and Fifth Amendment to the Lease Agreement between the Registrant and Concourse
V Associates dated August 15, 1994, January 18, 1995 and March 2, 1995, respectively
(Incorporated herein by reference to Exhibit 10.011 to the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10.012* Sixth Amendment to the Lease Agreement between the Registrant and Concourse V Associates
dated March 26, 1996 (Incorporated herein by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.013* Seventh Amendment to the Lease Agreement between the Registrant and Concourse V
Associates dated July 1, 1996 (Incorporated herein by reference to Exhibit 10.013 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).
10.014* Eighth Amendment to the Lease Agreement between the Registrant and Concourse V Associates
dated November 24, 1996 (Incorporated herein by reference to Exhibit 10.014 to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997).
10.02* Underlease between XcelleNet Limited and Grant Thornton Nominees dated December 15, 1995.
(Incorporated herein by reference to Exhibit 10.02 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1995).
10.03* Q+E Database Library Distributor License Agreement between the Registrant and Q+E Software,
Inc. effective as of July 1, 1993 (Incorporated herein by reference to Exhibit 10.03 to
Registration Statement No. 33-76012).
10.04* XcelleNet, Inc. 1994 Stock Option Plan for Outside Directors (Incorporated herein by reference
to Exhibit 10.04 to Registration Statement No. 33-76012).
10.041* First Amendment to XcelleNet, Inc. 1994 Stock Option Plan for Outside Directors adopted by
the Board of Directors on March 24, 1995 (Incorporated herein by reference to Exhibit 10.041
to the Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10.05* XcelleNet, Inc. 1987 Stock Option Plan, as amended (Incorporated herein by reference to Exhibit
10.05 to Registration Statement No. 33-76012).
10.051* Tenth Amendment to XcelleNet, Inc. 1987 Stock Option Plan dated March 24, 1995
(Incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.06 Written description of XcelleNet, Inc. Key Employee Loan Program, as amended (the
"Program") together with Form of Installment Note and Form of Pledge Agreement executed by
participants in the Program.
10.07* Form of Agreement to License Software between the Registrant and Dennis M. Crumpler dated
March 29, 1994 (Incorporated herein by reference to Exhibit 10.07 to Registration Statement No.
33-76012).
10.08* Form Non-Qualified Stock Option Agreement for individual options granted to directors of the
Registrant in connection with their service as directors and not under any option plan of the
Registrant (Incorporated herein by reference to Exhibit 10.08 to Registration Statement No. 33-76012).
10.09* Form Non-Qualified Stock Option Agreement for individual options granted to directors of the
Registrant in connection with their service as consultants to the Registrant and not under any
option plan of the Registrant (Incorporated herein by reference to Exhibit 10.09 to Registration
Statement No. 33-76012).
10.10* Form Indemnity Agreement (Incorporated herein by reference to Exhibit 10.10 to Registration
Statement No. 33-76012). In addition to the individuals identified in Schedule 1 to this Exhibit,
the following have entered into a form Indemnity Agreement with the Registrant substantially
identical to this exhibit:
Geoffrey A. Moore
Corey M. Smith
David F. Held
Jethro J. Felton III
Scott L. Duma
10.11* Form Employment Agreement (Incorporated herein by reference to Exhibit 10.11 to Registration
Statement No. 33-76012).
10.12* Shareholder Agreement dated June 22, 1990 as amended by the Amendment to Shareholder
Agreement dated February 11, 1994 (the "Amendment") among the Registrant and the persons
listed on Exhibit A to the Amendment (Incorporated herein by reference to Exhibit 10.12 to
Registration Statement No. 33-76012).
10.13 Compensation Plan for W. Michael Parham January - June, 1997.
10.131 Compensation Plan for W. Michael Parham July - December, 1997.
10.14 Compensation Plan for Jethro J. Felton, III July - December, 1997.
10.15 Written Description of XcelleNet, Inc. Performance Compensation Program
10.16* Investment Management Agreement between the Registrant and Wells Fargo Bank, N.A. dated
October 25, 1994 (Incorporated herein by reference to Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.17* Investment Management Agreement between the Registrant and Morgan Stanley & Co. Inc.
dated October 24, 1994 (Incorporated herein by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.18* Linguistic System Licensing Agreement between the Registrant and Proximity Technology, Inc.
effective as of December 14, 1994 (Incorporated herein by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1994).
10.19* North American OEM Program License Agreement between the Registrant and Retix effective
as of March 31, 1994 (Incorporated herein by reference to Exhibit 10.19 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.20* The Registrant's Software License Agreement and Software License Agreement Schedule A
(Incorporated herein by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-
K for the year ended December 31, 1994).
10.201 The Registrant's Software and Services Agreement.
10.21* XcelleNet, Inc. 1995 Employee Stock Purchase Plan dated March 24, 1995 (Incorporated herein
by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995).
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.22* Basicscript Licensing Agreement between the Registrant and Summit Software Company
effective as of February 27, 1996 (Incorporated herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
10.23* Visiodbc Licensing Agreement between the Registrant and Visigenic Software, Inc. effective as
of December 18, 1996 (Incorporated herein by reference to Exhibit 10.23 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1996).
10.24* XcelleNet, Inc. 1996 Long-Term-Incentive-Compensation-Plan adopted by the Board of
Directors on October 16, 1996 (Incorporated herein by reference to Exhibit 10.24 to the
Company's Annual Report on Form 10-K for the year ended December 31, 1996).
10.25* Form of Change in Control Employment Agreements between the Company and Messrs. Dennis
M. Crumpler, Corey M. Smith, Shereef W. Nawar, W. Michael Parham, David F. Held and
Stefanus F. Coetzee (Incorporated herein by reference to Exhibit 10.25 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.26* Restricted Stock Award Agreement effective September 17, 1996 between the Company and
Corey M. Smith (Incorporated herein by reference to Exhibit 10.26 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1997).
10.261* OEM Software License Agreement Between the Registrant and McAfee Software, Inc. effective
as of June 17, 1997 (Incorporated herein by reference to Exhibit 10.26 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.27* System Integration Remarketer Agreement Between the Registrant and Avalan Technology
effective as of May 5, 1997 (Incorporated herein by reference to Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1997).
10.28* Form of Change in Control Employment Agreements between the Company and Mr. Jethro J.
Felton and Ms. Jeanne N. Bateman (Incorporated herein by reference to Exhibit 10.28 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997).
10.29 Form of Change in Control Employment Agreement between the Company and Mr. Scott L. Duma.
11.01 Statement re: computation of per share earnings.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule.
27.02 Restated Financial Data Schedule for the quarter ended March 31,
1997.
27.03 Restated Financial Data Schedule for the quarter ended September 30,
1997.
</TABLE>
. Indicates exhibit was previously filed and is incorporated by reference
herein.
<PAGE>
EXHIBIT 3.01
ARTICLES OF AMENDMENT
TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
XCELLENET, INC.
1.
The name of the corporation is "XcelleNet, Inc."
2.
The articles of incorporation of XcelleNet, Inc. are amended by:
(I) Adding the following sentence to the end of Section 3.3:
The designation of the preferences and other rights of the Series G
Junior Participating Preferred Stock, for which sufficient authorized
shares are available pursuant to Section 10 of each of Exhibits A, B,
C and D to the Company's Amended and Restated Articles of
Incorporation as a result of the conversion of all of the Convertible
Preferred Stock, Series A, B, C, D, E and F, are attached as Exhibit E
to these Amended and Restated Articles of Incorporation.
(II) Adding the attached Exhibit E as Exhibit E to the Company's
Amended and Restated Articles of Incorporation.
3.
The amendment was adopted on November 21, 1997.
4.
The amendment was duly adopted by the board of directors of XcelleNet, Inc.
IN WITNESS WHEREOF, XcelleNet, Inc. has caused these Articles of Amendment
to be executed as of November 24, 1997.
XCELLENET, INC.
By: /s/ Jeanne N. Bateman
---------------------
Jeanne N. Bateman
Vice President - Finance
<PAGE>
EXHIBIT E
TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF XCELLENET, INC.
DESIGNATING THE PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF
SERIES G JUNIOR PARTICIPATING PREFERRED STOCK
There is hereby designated, of the authorized but unissued shares of
Preferred Stock of the corporation, a series thereof, and the number of shares,
voting powers, designation, preferences, and relative, participating, optional,
and other special rights, and the qualifications, limitations, and restrictions
thereof, of the shares of such series (in addition to those set forth in the
Amended and Restated Articles of Incorporation, which are applicable to the
Preferred Stock of all series), shall be as follows:
(1) Designation and Number of Shares. The designation of this series
--------------------------------
of Preferred Stock shall be "Series G Junior Participating Preferred Stock"
(hereinafter called "this Series"), to initially consist of 250,000 shares,
which number may from time to time be increased or decreased (but not below the
number then outstanding) by the Board of Directors by filing additional articles
of amendment to the corporation's amended and restated articles of
incorporation. The shares of this Series are sometimes hereinafter referred to
as the "Shares." Shares of this Series may be issued in fractional shares,
which fractional shares shall entitle the holder, in proportion to such holder's
fractional share, to all rights of a holder of a whole share of this Series.
(2) Distributions.
-------------
(a) Distribution Rights. The holders of whole or fractional
-------------------
Shares shall be entitled to receive, when, as, and if declared by the Board
of Directors, subject to restrictions imposed by the Georgia Business
Corporation Code or the Amended and Restated Articles of Incorporation on
distributions to shareholders, and subject to the rights of the holders of
any shares of any series of Preferred Stock ranking prior and superior to
this series with respect to dividends, (i) on each date that dividends or
other distributions (other than dividends or distributions payable in
Common Stock of the corporation) are payable on or in respect of Common
Stock comprising part of the Reference Package (as defined below), in an
amount per whole share of this Series equal to the aggregate amount of
dividends or other distributions (other than dividends or distributions
payable in Common Stock of the corporation) that would be payable on such
date to a holder of the Reference Package and (ii) on the last day of
March, June, September and December in each year, in an amount per whole
share of this Series equal to the excess (if any) of $1.00 over the
aggregate dividends paid per whole share of this Series during the three-
month period ending on such last day.
<PAGE>
Each such dividend shall be paid to the holders of record of shares of this
Series on the date, not exceeding sixty days preceding such dividend or
distribution payment date, fixed for that purpose by the Board of Directors
in advance of payment of each particular dividend or distribution.
Dividends on each full and each fractional share of this Series shall be
cumulative from the date such full or fractional share is originally
issued; provided that any such full or fractional share originally issued
after a dividend record date and on or prior to the dividend payment date
to which such record date relates shall not be entitled to receive the
dividend payable on such dividend payment date or any amount in respect of
the period from such original issuance to such dividend payment date. The
term "Reference Package" shall initially mean 100 shares of Common Stock,
par value $0.01 per share ("Common Stock"), of the corporation. In the
event the corporation shall at any time (i) declare or pay a dividend on
any Common Stock payable in Common Stock, (ii) subdivide any Common Stock
or (iii) combine any Common Stock into a smaller number of shares, then and
in each such case the Reference Package after such event shall be the
Common Stock that a holder of the Reference Package immediately prior to
such event would hold thereafter as a result thereof. Holders of shares of
this Series shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of full cumulative dividends, as herein
provided on this Series.
So long as any shares of this Series are outstanding, no dividend
(other than a dividend in Common Stock or in any other stock ranking junior
to this Series as to dividends and upon liquidation) shall be declared or
paid or set aside for payment or other distribution declared or made upon
the Common Stock or upon any other stock ranking junior to this Series as
to dividends or upon liquidation, nor shall any Common Stock nor any other
stock of the corporation ranking junior to or on a parity with this Series
as to dividends or upon liquidation be redeemed, purchased or otherwise
acquired for any consideration (or any moneys to be paid to or made
available for a sinking fund for the redemption of any shares of any such
stock) by the corporation (except by conversion into or exchange for stock
of the corporation ranking junior to this Series as to dividends and upon
liquidation), unless, in each case, the full cumulative dividends
(including the dividend to be due upon payment of such dividend,
distribution, redemption, purchase or other acquisition) on all outstanding
shares of this Series shall have been, or shall contemporaneously be, paid.
(b) Shares Purchased by Corporation. Shares of this Series
-------------------------------
purchased by the corporation shall be canceled and shall revert to
authorized but unissued shares of Preferred Stock undesignated as to
series, which shares may thereafter be provided for and designated by the
Board of Directors pursuant to Article III of the Amended and Restated
Articles of Incorporation as part of a series of Preferred Stock to the
same extent as if such shares had not previously been provided for and
designated as part of a series of Preferred Stock; but such shares shall
not be reissued as shares of this Series.
-2-
<PAGE>
(3) Rights of Redemption. The shares of this Series shall not be
--------------------
redeemable.
(4) Rights on Liquidation, Dissolution, or Winding Up.
------------------------------------------------
(a) In the event of any liquidation, dissolution or winding up of
the affairs of the corporation, whether voluntary or involuntary, the
holders of full and fractional shares of this Series shall be entitled,
before any distribution or payment is made on any date to the holders of
the Common Stock or any other stock of the corporation ranking junior to
this Series upon liquidation, to be paid in full an amount per whole share
of this Series equal to the greater of (A) $1.00 or (B) the aggregate
amount distributed or to be distributed prior to such date in connection
with such liquidation, dissolution or winding up to a holder of the
Reference Package (such greater amount being hereinafter referred to as the
"Liquidation Preference"), together with accrued dividends to such
distribution or payment date, whether or not earned or declared. If such
payment shall have been made in full to all holders of shares of this
Series, the holders of shares of this Series as such shall have no right or
claim to any of the remaining assets of the corporation.
(b) In the event the assets of the corporation available for
distribution to the holders of shares of this Series upon any liquidation,
dissolution or winding up of the corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all amounts to which such
holders are entitled pursuant to paragraph (a) above, no such distribution
shall be made on account of any shares of any other class or series of
Preferred Stock ranking on a parity with the shares of this Series upon
such liquidation, dissolution or winding up unless proportionate
distributive amounts shall be paid on account of the shares of this Series,
ratably in proportion to the full distributable amounts for which holders
of all such parity shares are respectively entitled upon such liquidation,
dissolution or winding up.
(c) Upon the liquidation, dissolution or winding up of the
corporation, the holders of shares of this Series then outstanding shall be
entitled to be paid out of assets of the corporation available for
distribution to its stockholders all amounts to which such holders are
entitled pursuant to paragraph (a) above before any payment shall be made
to the holders of Common Stock or any other stock of the corporation
ranking junior upon liquidation to this Series.
(d) For purposes of this Section (4), the consolidation or merger
of, or binding share exchange by, the corporation with any other
corporation shall not be deemed to constitute a liquidation, dissolution or
winding up of the corporation.
(5) Merger, Consolidation, Share Exchange. In the event of any
-------------------------------------
merger, consolidation, reclassification or other transaction in which the shares
of Common Stock are exchanged for or changed into other stock or securities,
cash and/or any other property, then in any such case the shares of this Series
shall at the same time be similarly
-3-
<PAGE>
exchanged or changed in an amount per whole share equal to the aggregate amount
of stock, securities, cash and/or any other property (payable in kind), as the
case may be, that a holder of the Reference Package would be entitled to receive
as a result of such transaction.
(6) Voting Rights. In addition to any other vote or consent of
-------------
shareholders required by law or by the Amended and Restated Articles of
Incorporation, as amended, of the corporation, each whole share of this Series
shall, on any matter, vote as a class with any other capital stock comprising
part of the Reference Package and voting on such matter and shall have the
number of votes thereon that a holder of the Reference Package would have.
-4-
<PAGE>
CERTIFICATE OF RESTATEMENT
Pursuant to Section 14-2-1007 of the Georgia Business Corporation
Code, XcelleNet, Inc., a Georgia corporation, (the "Corporation") hereby
certifies that:
ONE
The name of the Corporation is XcelleNet, Inc.
TWO
On February 7, 1994, Amended and Restated Articles of Incorporation of
the Corporation were duly adopted by the Board of Directors of the Corporation.
THREE
The Amended and Restated Articles of Incorporation of the Corporation
contain amendments to the Articles of Incorporation requiring shareholder
approval.
FOUR
On February 17, 1994, the shareholders of the Corporation duly
approved the Amended and Restated Articles of Incorporation of the Corporation
in their entirety, including all amendments contained therein, pursuant to
Section 14-2-1003 of the Georgia Business Corporation Code.
FIVE
The Amended and Restated Articles of Incorporation of the Corporation
supersede the original Articles of Incorporation and all amendments to them.
<PAGE>
IN WITNESS WHEREOF, XcelleNet, Inc. has this Certificate of
Restatement to be executed by its duly authorized officers on this 24th day of
February, 1994.
XCELLENET, INC.
By: /s/ Sidney V. Sack
------------------------------------
Sidney V. Sack,
Chief Financial Officer and Secretary
-2-
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
XCELLENET, INC.
ARTICLE I
NAME
The name of the corporation is XcelleNet, Inc.
ARTICLE II
PURPOSE AND POWERS
The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may now or hereafter be organized under the
Georgia Business Corporation Code. It shall have all powers that may now or
hereafter be lawful for a corporation to exercise under the Georgia Business
Corporation Code.
ARTICLE III
AUTHORIZED SHARES
Section 3.1. Authorized Shares. The corporation shall have authority
to be exercised by the Board of Directors to issue not more than 30,000,000
shams of common stock of One Cent ($0.01) par value, such stock to be entitled
the "Common Stock" and 10,000,000 shares of preferred stock of One Cent ($0.01)
par value, such stock to be entitled the "Preferred Stock" and which may be
issued in series by the Board of Directors as provided below.
Section 3.2 Preferred Stock. Shares of Preferred Stock may be issued
from time to time in one or more series. All shares of Preferred Stock shall be
of equal rank and shall be identical except with respect to the particulars that
may be fixed by the Board of Directors as hereinafter provided pursuant to
authority which is hereby expressly vested in the Board of Directors; and each
share of a series shall be identical in all respects with the other shares of
such series. Different series of the same class of shams shall not be construed
to constitute different classes of shares for the purpose of voting by classes,
except when such voting by classes is expressly required by law. Before any
shares of Preferred Stock of any particular series shall be issued, the Board of
Directors shall fix and determine and is hereby expressly empowered to fix and
determine, in the manner provided by law, the following provisions of the shares
of such series:
<PAGE>
(i) the distinctive designation of such series and the number of
shares which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors
in creating such series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by like action of
the Board of Directors;
(ii) the rate of dividend payable on shares of such series, the times
of payment of dividends, whether dividends shall be cumulative,
conditions upon which and the date from which such dividends shall be
accumulated on all shares of such series, and whether arrearages on
the payment of dividends will bear interest;
(iii) the time or times when and the price or prices at which shares
of such series shall be redeemable and the purchase, retirement or
sinking fund provisions, if any, for the purchase or the redemption of
such shares;
(iv) the amount payable on shares of such series in the event of any
voluntary or involuntary liquidation, which shall not be deemed to
include the merger or consolidation of the corporation or a sale,
lease, or conveyance of all or part of the assets of the corporation;
(v) the rights, if any, of the holders of shares of such series to
convert such shares into, or exchange such series for, shares of
Common Stock or shares of any other series of Preferred Stock and the
terms and conditions of such conversion or exchange;
(vi) the voting rights of shares of such series or absence thereof and
the extent of such voting rights, if any.
Section 3.3. Designations of Preferences of Preferred Stock. The
designations of the preferences and other rights of the Convertible, Preferred
Stock, Series A, B, and C, are attached as Exhibit A to these Amended and
Restated Articles of Incorporation, and the designations of the preferences and
other rights of the Convertible, Preferred Stock, Series D, E, and F, are
attached as Exhibits B, C, and D, respectively, to these Amended and Restated
Articles of Incorporation.
ARTICLE IV
PREEMPTIVE RIGHTS
None of the holders of shares of any class of stock of the corporation
shall be entitled as a matter of right to purchase, subscribe for or otherwise
acquire any new or additional shares of stock of the corporation of any class
now or hereafter authorized, or any options or warrants to purchase, subscribe
for or otherwise acquire any such new or additional shares, or any shares,
evidences of indebtedness, or any other securities
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<PAGE>
convertible into or carrying options or warrants to purchase, subscribe for or
otherwise acquire any new or additional shares.
ARTICLE V
Constituency Considerations
In discharging the duties of their respective positions and in
determining what is believed to be in the best interests of the corporation, the
Board of Directors, committees of the Board of Directors, and individual
directors, in addition to considering the effects of any action on the
corporation or its shareholders, may consider the interests of the employees,
customers, suppliers, and creditors of the corporation and its subsidiaries, the
communities in which offices or other establishments of the corporation and its
subsidiaries are located, and all other factors such directors consider
pertinent; provided, however, that this Article shall be deemed solely to grant
discretionary, authority to the directors and shall not be deemed to provide to
any constituency any right to be considered.
ARTICLE VI
Limitation on Liability of Directors
Section 6.1. Limitation on Liability. A director of the corporation
shall not be personally liable to the corporation or its shareholders for
monetary damages for breach of duty of care or other duty as a director, except
for liability (i) for any appropriation in violation of his duties, of any
business opportunity of the corporation. (ii) for acts or omissions which
involved intentional misconduct or a knowing violation of law, (iii) of the
types set forth in Section 14-2-832 of the Georgia Business Corporation Code, or
(iv) for any transaction from which the director derived an improper personal
benefit The provisions of this Article shall not apply with respect to acts or
omissions occurring prior to the effective date of this Article.
Section 6.2. Repeal or Modification of this Article. Any repeal or
modification of the provisions of this Article by the shareholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation with
respect to any act or omission occurring prior to the effective date of such
repeal or modification.
Section 6.3. Amendment of the Georgia Business Corporation Code. If
the Georgia Business Corporation Code hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Georgia Business Corporation Code.
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<PAGE>
ARTICLE VII
SEVERABILITY
In the event that any of the provisions of these Articles of
Incorporation (including any provision within a single Section, paragraph or
sentence) is held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
IN WITNESS WHEREOF, XcelleNet, Inc. executes these Amended and
Restated Articles of Incorporation by its duly authorized officer on this 24th
day of February, 1994.
XCELLENET, INC.
By: /s/ Sidney V. Sack
------------------------
Sidney V. Sack
Secretary
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<PAGE>
EXHIBIT A
TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
XCELLENET, INC.
DESIGNATING THE PREFERENCES AND OTHER RIGHTS OF
CONVERTIBLE PREFERRED STOCK, SERIES A, SERIES B, AND SERIES C
There is hereby designated, of the authorized but unissued shares of
Preferred Stock of the Corporation, three series thereof, and the number of
shares, voting powers, designation, preferences, and relative, participating,
optional, and other special rights, and the qualifications, limitations, and
restrictions thereof, of the shares of each such series (in addition to those
set forth in the Articles of Incorporation which are applicable to the Preferred
Stock of all series), shall be as follows:
(1) Designation and Number of Shares. The designation of these series
--------------------------------
of Preferred Stock shall be: (i) "Convertible Preferred Stock, Series 'A'"
(hereinafter called "Series A"), to consist of 375,000 shares; (ii) "Convertible
Preferred Stock, Series 'B'" (hereinafter called "Series B"), to consist of
250,000 shares; and (iii) "Convertible Preferred Stock, Series 'C'" (hereinafter
called "Series C"), to consist of 214,750 shares. The shares of Series A,
Series B, and Series C are hereinafter collectively referred to as the "Shares".
(2) Distributions.
-------------
(a) Distribution Rights. The holder of Shares shall be entitled
-------------------
to receive, when, as, and if declared by the Board of Directors, subject to
restrictions imposed by the Georgia Business Corporation Code or the
Articles of Incorporation on distributions to shareholders, and subject to
the provisions of paragraph (4) with respect to distributions in the event
of any voluntary or involuntary liquidation, dissolution, or winding up of
the affairs of the Corporation, transfers of money or other property
(except of the Corporation's own shares) or incurrence of indebtedness by
the Corporation in respect of any of its shares, whether by dividend,
purchase, redemption, or other acquisition of shares, a distribution of
indebtedness, or otherwise (hereinafter referred to as a "distribution"),
in an amount equal to the distribution declared for each Share or for each
share of Common Stock. So long as any Shares shall remain outstanding, (i)
no distribution whatsoever shall be declared or paid upon or set apart for
the Shares or for the Common Stock or any other shares ranking on a parity
with or junior to the Shares in payment of distributions; (ii) no
redemption or purchase by the Corporation of Shares or of any shares
ranking on a parity with or junior to the Shares in payment of
distributions shall occur; and (iii) no moneys shall be paid to or made
available for a sinking fund for the redemption or purchase of any such
shares or otherwise applied to any such redemption or purchase, unless in
each instance distributions, redemptions, or payments
<PAGE>
in an equal amount per share shall have been declared and sufficient funds
set aside for the payment thereof to the holders of the Shares.
(b) Shares Held by Corporation. For the purposes of this
--------------------------
paragraph (2), no Share shall be deemed to be issued or outstanding at any
time at which it is held by, or for the account of the Corporation or by or
for the account of any majority-owned subsidiary of the Corporation.
(3) Rights of Redemption. The Shares will not be subject to redemption by
--------------------
the Corporation.
(4) Rights on Liquidation, Dissolution, or Winding Up.
-------------------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, the holders
of the Shares then outstanding shall be entitled to be paid, out of the
assets of the Corporation available for distribution to its shareholders,
before any payment shall be made to the holders of Common Stock or any
shares ranking on liquidation junior to the Shares, (i) an amount equal to
$4.80 per share of Series A; (ii) an amount equal to $4.85 per share of
Series B; and (iii) an amount equal to $7.00 per share of Series C. If
upon voluntary or involuntary liquidation, dissolution, or winding up of
the affairs of the Corporation, the assets of the Corporation available for
distribution to its shareholders shall be insufficient to pay the holders
of the Shares and of any shares ranking on liquidation on a parity with the
Shares the full amounts to which they respectively shall be entitled, the
holders of such Shares and of such parity shares shall share ratably in any
distribution of assets according to the respective amounts which would be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full. In
the event of any voluntary or involuntary liquidation, dissolution, or
winding up of the affairs of the Corporation, after payment shall have been
made to the holders of the Shares and of any shares ranking on liquidation
on a parity with the shares of the full amount to which such shares shall
be entitled as aforesaid, no further payments or distributions shall be
made with respect to the shares of Series C, but the holders of the shares
of Series A and Series B shall be entitled to be paid an amount per share
of Series A and Series B equal to the distribution to be made with respect
to each share of Common Stock from all remaining assets of the corporation
available for distribution to its shareholders.
(b) For the purposes of this paragraph (4), the sale, transfer,
exchange or other disposition of all or substantially all of the assets of
the Corporation shall be deemed to be a liquidation of the Corporation, and
the allocation of any cash, securities, or other property received by the
Corporation in consideration for such sale shall be made in accordance with
the provisions of paragraph (4)(a) as if such sale of assets were a
liquidation of the Corporation. Nothing herein shall be construed as
requiring or permitting a sale of assets to be treated as a liquidation for
any purpose other than the allocations provided for in this subparagraph
(4)(b).
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<PAGE>
(c) Notwithstanding any other provision of this paragraph (4),
the merger, consolidation, or similar business combination of the
Corporation into or with any other corporation or the acquisition by any
other corporation of all of the outstanding shares of one or more classes
or series of the Corporation through a statutory share exchange or similar
business combination, in which, following such merger, consolidation, share
exchange, or similar business combination, less than 50% of the voting
power of the surviving entity is hold by persons that were shareholders of
the Corporation immediately prior to such merger, consolidation, share
exchange, or similar business combination (an "Acquisition Event"), shall
be deemed to be a liquidation of the Corporation; provided, however, that
such a deemed liquidation shall not be governed by the provisions of
paragraph (4)(a) but by the following provisions of this paragraph (4)(c).
Upon the occurrence of an Acquisition Event, the holders of the Shares then
outstanding shall be entitled to be allocated, out of such cash. securities
or other property, before any allocation shall be made to the holders of
Common Stock or any shares ranking on liquidation junior to the Shares, (i)
an amount equal to $4.80 per share of Series A, (ii) an amount equal to
$4.85 per share of Series B, and (iii) an amount equal to $7.00 per share
of Series C. If upon such Acquisition Event, the Cash, securities, or
other property into which the shares of capital stock of the Corporation
are to be converted shall be insufficient to pay the holders of the Shares
and of any shares ranking on liquidation on a parity with the Shares the
full amounts to which they respectively shall be entitled pursuant to this
paragraph (4)(c), the holders of such Shares and of such parity shares
shall share ratably in any cash, securities or other property into which
shares of capital stock of the Corporation are to be converted according to
the respective amounts which would be payable in respect of the shares held
by them upon such payment if all amounts payable on or with respect to said
shares were paid in full. Upon the occurrence of any Acquisition Event,
after payment shall have been made to the holders of the Shares and of any
shares ranking on liquidation on a parity with the Shares of the full
amount to which such Shares shall be entitled pursuant to this paragraph
(4)(c), no further payments or distributions shall be made with respect to
the Shares and all remaining cash, securities, or other property into which
shares of capital stock of the Corporation are to be converted shall be
allocated ratably to the Common Stock. Nothing herein shall be construed
as requiring or permitting a merger, consolidation, share exchange, other
business combination, to be treated as a liquidation for any purpose other
than the allocations provided for in this paragraph (4)(c).
(d) Except as provided in paragraph (4)(b) and (4)(c), the
merger, consolidation, or similar business combination of the Corporation
into or with any other corporation, the merger, consolidation, or similar
business combination of any other corporation into or with the Corporation,
the acquisition by any other corporation of all of the outstanding shares
of one or more classes or series of the statutory share exchange or similar
Corporation through a business combination, or the sale, transfer,
mortgage, pledge, or lease of the assets of the Corporation, shall not be
deemed to be a liquidation, dissolution, or winding up of the affairs of
the Corporation within the meaning of paragraph (4). Except as provided in
paragraph (4)(c), the entitlement of the holders of
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<PAGE>
Shares in the case of the merger, consolidation, or similar business
combination of the Corporation into or with any other corporation, the
merger, consolidation, or similar business combination of any other
corporation into or with the Corporation, of the acquisition by any other
corporation of all of the outstanding shares of one or more classes or
series of the Corporation through a statutory share exchange or similar
business combination, shall be: (x) if this Corporation shall not be a
surviving corporation in such transaction, to receive shares of the
surviving corporation having the same rights as the Shares, including,
without limitation, conversion rights based upon a Stock Unit as referred
to in paragraph (5)(c), or (y) if this Corporation is a surviving
corporation in such a transaction, that the transaction does not effect any
amendment or repeal of any of the terms and provisions of the outstanding
Shares in a manner adversely affecting the holders thereof, which if made
through an amendment to the Articles of Incorporation would require
authorization by the vote referred to in paragraph (7)(b). No such merger,
consolidation, share exchange, or similar transaction shall be effected
unless provision for such entitlement is made or shall result and be met
for the holders of the Shares, unless such transaction shall, in addition
to any other vote required, be authorized by the vote referred to in
paragraph (7)(b).
(e) Written notice of any voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of the Corporation within the
meaning of paragraph (4)(a), (4)(b) and (4)(c), stating a payment date and
the place where the distributable amounts shall be payable, shall be given
by first-class mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to each record holder of the Shares at his
address as the same shall appear on the shareholder records of the
Corporation.
(5) Conversion Rights. The Shares shall be convertible into Common Stock,
-----------------
$.01 par value per share, of the Corporation on the following terms and
conditions:
(a) Term. Subject to and upon compliance with the provisions of
----
this paragraph (5), the holder of any Shares may convert any Shares at his
option at any time (during business hours on a Business Day) at the offices
of the Company, or at such other place or places, if any, as the Board of
Directors may determine, into such number of fully paid and nonassessable
shares of Common Stock (or other property) as are issuable pursuant to the
conversion formula set forth in paragraph (5)(c), as the same may be
adjusted from time to time pursuant to paragraph (6). The Corporation
shall make no payment or adjustment on account of distributions accrued or
in arrears on the Shares surrendered for conversion and no adjustment on
account of distributions on the shares of Common Stock issuable upon
conversion.
(b) Surrender of Shares. In order for any holder of Shares to be
-------------------
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates for such Shares at one of the places referred
to in paragraph (5)(a), duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in
blank, and shall give written notice to the Corporation at said place that
he elects to convert said Shares and shall state in writing therein the
name or names in
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<PAGE>
which he wishes the certificate or certificates for shares of Common Stock
issuable on such conversion to be issued. Subject to the provisions of
paragraph (5)(a), every such notice of election to convert shall constitute
a contract between the holder of such Shares and the Corporation (i)
whereby such holder shall be deemed to subscribe for the amount of Common
Stock which he will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription, to surrender the Shares to
be converted and to release the Corporation from all obligation thereon,
and (ii) whereby the Corporation shall be deemed to agree that the
surrender of the certificate or certificates for such Shares and the
extinguishment of obligation thereon shall constitute full payment of such
subscription for the Common Stock so subscribed for and to be issued upon
such conversion.
The Corporation will as soon as practicable after such deposit of
certificates for Shares, accompanied by the written notice and the
statement above prescribed, issue and deliver to the person for whose
account such Shares were so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of Common Stock
to which he shall be entitled as aforesaid. together with a check or cash
in respect of any fraction of a share as hereinafter provided in paragraph
(5)(f). Subject to the following provisions of this paragraph (5), such
conversion shall be deemed to have been made on the Business Day on which
the Corporation shall have received the Shares to be converted and the
notice and statement above prescribed, and the person or persons entitled
to receive the Common Stock issuable upon conversion of such Shares shall
be deemed for all purposes to have become the record holder or holders of
such Common Stock and to have ceased to be the holder of the Shares
surrendered for conversion on such Business Day. The Corporation shall not
be required to convert, and no surrender of any Shares shall be effective
for that purpose, while the shareholder records of the Corporation are
closed for any purpose, but the surrender of any Shares for conversion
during any period while such records are closed shall become effective for
conversion immediately upon the reopening of such records, as if the
conversion had been made on the date such Shares were surrendered, and on
the basis of conversion in effect on the date of such surrender. Nothing
in the preceding sentence shall require the Corporation to effect
conversions otherwise than during business hours upon a Business Day, and
Shares which are surrendered for conversion upon a day which is not a
Business Day shall be deemed to be so surrendered upon the next succeeding
Business Day.
(c) Stock Unit. Each share shall be convertible, at the times
----------
and places and in the manner referred to in subparagraphs (a) and (b)
above, into one "Stock Unit". The Contents of a Stock Unit as of the date
of filing these Articles of Amendment with the Secretary of State of the
State of Georgia, shall be one (1) share of Common Stock (as constituted
upon such date) of the Corporation. The contents of a Stock Unit shall
thereafter be subject to adjustment in accordance with the provisions of
paragraph (6).
(d) Taxes. The issue of share certificates on conversion of
-----
Shares shall be made free of any tax in respect of such issue. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect to any transfer involved in the
-5-
<PAGE>
issue and delivery of shares in a name other than that of the holder of the
Shares converted, and the Corporation shall not be required to issue or
deliver any such share certificate unless and until the person or persons
requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
(e) Reservation of Shares. The corporation shall at all times
---------------------
reserve and keep available, out of its authorized and unissued shares,
solely for the purpose of effecting the conversion of Shares, such number
of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all Shares from time to time outstanding. The
Corporation shall from time to time, in accordance with the Georgia
Business Corporation Code, use its best efforts to cause the number of
authorized shares of its Common Stock to be increased if at any time the
number of authorized shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the then outstanding Shares.
(f) Fractional Shares. The Corporation shall not be required to
-----------------
issue fractional shares of Common Stock or scrip upon conversion of Shares.
As to any final fraction of a share of Common Stock which a holder of one
or more Shares would otherwise be entitled to receive upon conversion of
Shares in the same transaction, the Corporation shall pay a cash adjustment
in respect of such final fraction in an amount equal to: (i) $4.80 per
share of Series A; (ii) $4.85 per share of Series B; or (iii) $7.00 per
share of Series C.
(6) Antidilution. The number of shares of Common Stock comprising a Stock
------------
Unit shall be subject to adjustment from time to time, as follows:
(a) Recapitalization. In case the Corporation after the date of
----------------
filing these Articles of Amendment with the Secretary of State of the State
of Georgia (the "Base Date") shall (i) issue a share dividend to the
holders of its Common Stock, (ii) combine its outstanding shares of Common
Stock into a smaller number of shares, or (iii) issue by reclassification
of its shares of Common Stock any shares of the Corporation, then the
number of shares of Common Stock comprising a Stock Unit immediately after
the happening of any of the events described above shall be adjusted so as
to consist of the number of shares of the Corporation which a record holder
of the number of shares of Common Stock comprising a Stock Unit immediately
prior to the happening of such event would own or be entitled to receive
after the happening of such event (taking into account fractional interests
in shares included in a Stock Unit to the nearest one-hundredth of a share,
and for the purposes of the foregoing considering such fractional interests
as outstanding fractional shares). Similar adjustments to the content of a
Stock Unit shall be made if any of the events described above in this
subparagraph (a) shall thereafter occur. An adjustment made pursuant to
this subparagraph (4) shall become effective retroactively immediately
after the record date in the case of a share dividend. and shall become
effective immediately after the effective date in the case of a
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<PAGE>
combination or reclassification, subject in each case to the provisions of
subparagraph (c) of this paragraph (6).
(b) Merger, Consolidation, or Share Exchange. In case, after the
----------------------------------------
Base Date, as a result of a merger, consolidation, or similar business
combination of the Corporation into or with another corporation, the
acquisition by any other corporation of all of the outstanding shares of
one or more classes or series of the Corporation through a statutory share
exchange or similar business combination, or the sale or other transfer of
the Corporation's property, assets, and business substantially as an entity
to a successor corporation, the Common Stock is in effect changed, in whole
or in part, into a different kind or class of shares or other securities or
property, the contents of a Stock Unit shall thereupon become the kind and
amount of shares or other securities or property receivable upon such
merger, consolidation, share exchange, or similar business combination, or
upon the dissolution following such sale or other transfer, by a record
holder of the number of shares of Common Stock comprising a Stock Unit
immediately prior to such change.
(c) De Minimus Adjustments. No adjustment in the number of
----------------------
shares of Common Stock comprising a Stock Unit shall be required under this
paragraph (6) unless such adjustment would require an increase or decrease
of at least 1% in the number of shares of Common Stock at the time
comprising a Stock Unit, or a change in the kind of class of shares or
other securities or property Comprising a Stock Unit; provided, however,
that any adjustments which by reason of the foregoing are not required at
the time to be made shall be carried forward and taken into account and
included in determining the amount of any subsequent adjustment. If the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or distribution or any
subscription or purchase rights and shall, thereafter and before the
distribution to shareholders of any such dividend, distribution, or
subscription or purchase rights, legally abandon its plan to pay or deliver
such dividend, distribution, or subscription or purchase rights, then no
adjustment in the number of shares of Common Stock comprising a Stock Unit
shall be required by reason of the taking of such record.
(d) Other Actions by Corporation. In case the Corporation after
----------------------------
the Base Date shall take any action affecting the Common Stock, other then
action described in subparagraphs (a) and (b) of this paragraph (6), which
in the opinion of the Board of Directors of the Corporation would
materially affect the rights of this holders of the Shares, the Common
Stock included in a Stock Unit shall be adjusted in such manner, if any,
and at such time, as the Board of Directors of the Corporation, in its sole
discretion, may determine to be equitable in the circumstances. Failure of
the board of Directors of the Corporation to provide for an adjustment
prior to the effective date of any such action by the corporation affecting
the Common Stock shall be conclusive evidence that the Board of Directors
of the Corporation has determined that it is equitable to make no
adjustment in the circumstances.
-7-
<PAGE>
(e) Notices of Adjustment. Whenever the content of a Stock Unit
---------------------
is adjusted pursuant to this paragraph (6), the Corporation shall promptly
mail to each holder of record of the Shares a certificate signed by the
President or Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Corporation setting forth
in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated and specifying the number, or kind, or
class of shares or other securities or property comprising a Stock Unit
after giving effect to such adjustment.
Failure to file any certificate or notice or to publish or mail
any notice, or any defect in any certificate or notice, pursuant to this
paragraph (6) shall not affect the legality or validity of the adjustment
in the content of a Stock unit or of any transaction giving rise thereto.
(f) Definition of Terms. For the purposes of this paragraph (6),
-------------------
the number of shares of Common Stock at any time outstanding shall not
include shares then owned or held by or for the account of the Corporation
or any majority-owned subsidiary.
For the purposes of this paragraph (6), the term "Common Stock"
shall mean (i) the class of shares designated as the Common Stock, par
value $.01 per share, of the Corporation at the Base Date or (ii) any other
class of shares resulting from successive changes or reclassifications of
such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event
that at any time, as a result of an adjustment made pursuant to this
paragraph (6), a Stock Unit shall include shares of the Corporation other
than shares of Common Stock. thereafter the number of such other shares so
included in a Stock Unit shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common stock contained in subparagraphs (a)
and (b) of this paragraph (6), and all other provisions of this paragraph
(6) with respect to Common Stock shall apply on like terms to any such
other shares. Subject to the foregoing, and unless the context requires
otherwise, all references to Common Stock in this paragraph (6) shall, in
the event of an adjustment pursuant to this paragraph (6), be deemed to
refer also to any other securities or property then comprising a Stock Unit
as a result of such adjustments.
(7) Voting Rights.
-------------
(a) Voting Rights. The holders of record of the Shares shall
-------------
have one (1) vote in respect of each Share held by such holder of record
with respect to every matter coming before any meeting of the shareholders,
or otherwise to be acted upon by the shareholders; except that, if at any
time the contents of the Stock Unit referred to in subparagraph 5(c) shall
include more or fewer than one (1) share of Common Stock of the
Corporation, each Share shall have a number of votes per share equal to the
fractional number of shares of Common Stock (to the nearest one-hundredth
of a share) contained in a Stock Unit upon the record date to determine
entitlement to vote, but not less than
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<PAGE>
one (1) vote per share. In all votes of shareholders, the holders of the
Shares shall vote in the same class as the holders of Common Stock except
as expressly provided in this statement of Designation, Preferences, and
Other Rights or as otherwise required by the Georgia Business Corporation
Code.
(b) Amendment of Terms of Shares.
----------------------------
(i) Notwithstanding the provisions of subparagraph 7(a), so
long as any shares of Series A shall be outstanding, the Corporation
shall not, without the affirmative vote at a meeting called for that
purpose or the written consent of the holders of at least a majority
of the aggregate number of shares of Series A at the time outstanding,
or such greater vote as may be required by the Georgia Business
Corporation Code, adopt any amendment to the Articles of Incorporation
which would amend or repeal any of the terms and provisions of the
outstanding shares of Series A in a manner materially affecting the
holders thereof.
(ii) Notwithstanding the provisions of subparagraph 7(a), so
long as any shares of Series B shall be outstanding, the Corporation
shall not, without the affirmative vote at a meeting called for that
purpose or the written consent of the holders of at least a majority
of the aggregate number of shares of Series B at the time outstanding,
or such greater vote as may be required by the Georgia Business
Corporation Code, adopt any amendment to the Articles of Incorporation
which would amend or repeal any of the terms and provisions of the
outstanding shares of Series a in a manner materially affecting the
holders thereof.
(iii) Notwithstanding the provisions of subparagraph 7(a),
so long as any shares of Series C shall be outstanding, the
corporation shall not, without the affirmative vote at a meeting
called for that purpose or the written consent of the holders of at
least a majority of the aggregate number of shares of Series C at the
time outstanding, or such greater vote as may be required by the
Georgia Business Corporation Code, adopt any amendment to the Articles
of Incorporation which would amend or repeal any of the terms and
provisions of the outstanding shares of Series C in a manner
materially affecting the holders thereof.
(c) (i) Issuance of Senior Preferred Shares. So long as any Shares
-----------------------------------
shall be outstanding, the Corporation shall not, without the
affirmative vote at a meeting called for that purpose or the written
consent of the holders of at least a majority of the aggregate amount
of shares of each of the Series A, Series B, and Series C outstanding,
take action to authorize any class of shares ranking prior to the
Shares, or to increase the authorized number of shares of any such
prior class.
(ii) Definition of Senior Preferred Shares. For the
-------------------------------------
purposes of this subparagraph (c), shares shall be deemed to rank
prior to the Shares if the holders thereof shall be entitled to the
receipt of distributions or of amounts distributable on liquidation,
dissolution, at winding up of the affairs of the Corporation, as the
-9-
<PAGE>
case may be, in preference or priority to the holders of the Shares,
but shall be deemed to rank an a parity with, and not prior to the
Shares, if the holders of such class shall be entitled to the receipt
of distributions or of amounts distributable on liquidation,
dissolution, or winding up of the affairs of the Corporation, as the
case may be, in proportion to-their respective distribution rates or
liquidation prices. without preference or priority one over the other
as between the holders of such shares and the holders of the Shares,
whether or not the distribution rates, distribution payment dates, or
liquidation prices per share thereof are different from those of the
Shares (including without limitation, whether or not such other shares
shall have the benefit of any provision for any extra participating
preferred distribution. It shall not be deemed to be the creation of
any such prior class or series of shares if the Corporation shall take
action to authorize the creation or issuance of any indebtedness of
the withstanding that such indebtedness may be subordinate to other
indebtedness of the Corporation, and notwithstanding that such
indebtedness may be convertible at the option of the Corporation or
the option of the holder into shares of the Corporation (but the
authorization of any such shares which are prior to the Shares shall
be subject to the foregoing provisions), and notwithstanding that such
indebtedness may be both so subordinate and so convertible.
(d) Exceptions to Voting Rights. It shall not constitute any
---------------------------
amendment or repeal of the terms and provisions of any of the outstanding
Shares having an adverse effect on the holders thereof within the meaning
of subparagraph (b) of this paragraph (7) for the corporation to take
action to authorize any other class or series of shares ranking on a parity
with the Shares as to either distributions or liquidation preferences or
both; and, except as otherwise provided by law or expressly otherwise
provided herein, any such action may be authorized without the concurrence
of holders of the Shares.
Notwithstanding the provisions of subparagraphs (b) or (c) above,
unless otherwise specifically provided in subparagraph (7)(c)(ii) as to
series of Preferred Stock prior to the Shares, no vote or consent of the
holders of Shares shall be required in connection with the authorization of
any series of Preferred Stock or the issuance of any shares of any such
series or the adoption by the board of Directors of the Corporation of any
resolution providing for a series of Preferred Stock.
(8) Relationship to Other Series of Preferred Stock. Without limiting
-----------------------------------------------
in any manner the powers of the Board of Directors as expressed in Article Five
of the Articles of Incorporation, it is expressly understood that the Board of
Directors, without any action on the part of shareholders, may provide in the
Articles of Amendment providing for any series of Preferred Stock such
conforming provisions and such restrictions on any series (including the Shares)
as are reasonably designed to permit consistent treatment among parity series
(without materially adversely affecting the rights of the holders of the
Shares), including, without limitation, restrictions on the payment of
distributions on and/or purchase or redemption (or the setting aside of amounts
into a sinking fund for purchase or redemption) of shares ranking on a parity
with or junior to such newly created series, which restrictions are applicable
to such parity or junior
-10-
<PAGE>
series (including the Shares); without limitation, such restrictions may operate
in a manner similar to the manner in which the provisions of paragraph (2)
relating to such matters apply by their terms to shares on a parity with or
junior to the Shares.
(9) Meaning of Certain Terms.
------------------------
(a) For the purposes hereof, shares shall be deemed to rank:
(i) prior to Shares either as to distributions or on
liquidation if the holders thereof shall be entitled to the receipt of
distributions or of amounts distributable on liquidation, dissolution,
or winding up of the affairs of the Corporation, as the case may be,
in preference or priority to the holders of the Shares;
(ii) on a parity with Shares as to distributions or on
liquidation, whether or not the distribution rates, distribution
payment dates, at redemption or liquidation prices per share thereof
are different from those of the Shares (including, without limitation,
whether or not such other shares shall have the benefit of any
provision for any extra participating preferred distribution), if the
holders thereof shall be entitled to the receipt of distributions or
of amounts distributable on liquidation, dissolution, at winding up of
the affairs of the Corporation, as the case may be, in proportion to
their respective distribution rates or liquidation prices, without
preference at priority one over the other as between the holders of
such shares and the holders of the Shares; and
(iii) junior to Shares either as to distributions or on
liquidation if the rights of the holders thereof shall be subject or
subordinate to the rights of the holders of the Shares in respect of
the receipt of distributions or of the amounts distributable on
liquidation, dissolution, or winding up of the affairs of the
Corporation, as the case may be.
(b) For the purposes hereof, "Business Day" shall mean any day
upon which commercial banks in the City of Atlanta, Georgia are required to
be open for the transaction of their general banking business.
(10) Certain Provisions Concerning Conversion and Retirement. Upon
-------------------------------------------------------
the conversion of any of the Shares pursuant to the provisions of paragraph (5),
such Shares shall be deemed to be retired. Upon any such retirement and upon
such conversion, the Shares so converted or otherwise so retired shall be
restored to the status of authorized but undesignated and unissued Shares of
Preferred Stock of the Corporation, which shares may thereafter be provided for
and designated by the Board of Directors pursuant to Article Five of the
Articles of Incorporation as part of a series of Preferred Stock to the same
extent as if such shares had not previously been provided for and designated as
part of a series of Preferred Stock; but such shares shall not be reissued as
shares of Series A, Series B, or Series C.
-11-
<PAGE>
(11) Amendment. The Board of Directors reserves the right to amend
---------
the provisions of these Articles of Amendment subject to the provisions of
paragraph (7); without limiting the generality of the foregoing, the Board of
Directors may amend the provisions of these Articles of Amendment without any
vote or consent of the shareholders of the Corporation of any class or series by
decreasing (including a decrease to zero) (but not increasing) the number of
Shares designated hereby, but no such decrease shall be effected to a number
less than the number to Shares at the time issued and outstanding.
-12-
<PAGE>
EXHIBIT B
TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
XCELLENET, INC.
DESIGNATING THE PREFERENCES AND OTHER RIGHTS OF
CONVERTIBLE PREFERRED STOCK, SERIES D
In addition to the Convertible Preferred Stock, Series A, Series B and
Series C, there is hereby designated, of the authorized but unissued shares of
Preferred Stock of the Corporation, a separate series thereof, and the number of
shares, voting powers, designation, preferences, and relative, participating,
optional, and other special rights, and the qualifications, limitations, and
restrictions thereof, of the shares of such series (in addition to those set
forth in the Articles of Incorporation which are applicable to the Preferred
Stock of all series), shall be as follows:
(1) Designation and Number of Shares. The designation of this series
--------------------------------
of Preferred Stock shall be "Convertible Preferred Stock, Series D" (hereinafter
called "Series D Stock"), to consist of 225,000 shares. The shares of Series D
are sometimes hereinafter referred to as the "Shares."
(2) Distributions.
-------------
(a) Distribution Rights. The holders of Shares shall be entitled
-------------------
to receive, when, as, and if declared by the Board of Directors, subject to
restrictions imposed by the Georgia Business Corporation Code or the
Articles of Incorporation on distributions to shareholders, and subject to
the provisions of paragraph (4) with respect to distributions in the event
of any voluntary or involuntary liquidation, dissolution, or winding up of
the affairs of the Corporation, transfers of money or other property
(except of the Corporation's own shares) or incurrence of indebtedness by
the Corporation in respect of any of its shares, whether by dividend,
purchase, redemption, or other acquisition of shares, a distribution of
indebtedness, or otherwise (hereinafter referred to as a "distribution"),
in an amount equal to the distribution declared for each Share or for each
share of Common Stock. So long as any Shares shall remain outstanding, (i)
no distribution whatsoever shall be declared or paid upon or set apart for
the Shares or for the Common Stock or any other shares ranking on a parity
with or junior to the Shares in payment of distributions; (ii) no
redemption or purchase by the Corporation of Shares or of any shares
ranking on a parity with or junior to the Shares in payment of
distributions shall occur; and (iii) no moneys shall be paid to or made
available for a sinking fund for the redemption or purchase of any such
shares or otherwise applied to any such redemption or purchase, unless in
each instance distributions, redemptions, or payments in an equal amount
per share
<PAGE>
shall have been declared and sufficient funds set aside for the payment
thereof to the holders of the Shares.
(b) Shares Held by Corporation. For the purposes of this
--------------------------
paragraph (2), no Share shall be deemed to be issued or outstanding at any
time at which it is held by or for the account of the Corporation or by or
for the account of any majority-owned subsidiary of the Corporation.
(3) Rights of Redemption. The Shares will not be subject to redemption by
--------------------
the Corporation.
(4) Rights on Liquidation, Dissolution, or Winding Up.
-------------------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, the holders
of the Shares then outstanding shall be entitled to be paid, out of the
assets of the Corporation available for distribution to its shareholders,
before any payment shall be made to the holders of Common Stock or any
shares ranking on liquidation junior to the Shares, an amount equal to
$9.00 per share of Series D Stock. If upon voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the Corporation,
the assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the Shares and of
any shares ranking on liquidation on a parity with the Shares (including,
without limitation, the shares of the Corporation's Convertible Preferred
Stock, Series A, Series B and Series C) the full amounts to which they
respectively shall be entitled, the holders of such Shares and of such
parity shares shall share ratably in any distribution of assets according
to the respective amounts which would be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment shall have been made to the holders of the
Shares and of any shares ranking on liquidation on a parity with the Shares
of the full amount to which such shares shall be entitled as aforesaid, no
further payments or distributions shall be made with respect to the Shares.
(b) For the purposes of this paragraph (4), the sale, transfer,
exchange or other disposition of all or substantially all of the assets of
the Corporation shall be deemed to be a liquidation of the Corporation, and
the allocation of any cash, securities, or other property received by the
Corporation in consideration for such sale shall be made in accordance with
the provisions of paragraph (4)(a) as if such sale of assets were a
liquidation of the Corporation. Nothing herein shall be construed as
requiring or permitting a sale of assets to be treated as a liquidation for
any purpose other than the allocations provided for in this subparagraph
(4)(b).
-2-
<PAGE>
(c) Notwithstanding any other provision of this paragraph (4),
the merger, consolidation, or similar business combination of the
Corporation into or with any other corporation or the acquisition by any
other corporation of all of the outstanding shares of one or more classes
or series of the Corporation through a statutory share exchange or similar
business combination, in which, following such merger, consolidation, share
exchange, or similar business combination, less than 50% of the voting
power of the surviving entity is hold by persons that were shareholders of
the Corporation immediately prior to such merger, consolidation, share
exchange, or similar business combination (an "Acquisition Event"), shall
be deemed to be a liquidation of the Corporation; provided, however, that
such a deemed liquidation shall not be governed by the provisions of
paragraph (4)(a) but by the following provisions of this paragraph (4)(c).
Upon the occurrence of an Acquisition Event, the holders of the Shares then
outstanding shall be entitled to be allocated, out of such cash. securities
or other property, before any allocation shall be made to the holders of
Common Stock or any shares ranking on liquidation junior to the Shares an
amount equal to $9.00 per share of Series D Stock. If upon such
Acquisition Event, the cash, securities, or other property into which the
shares of capital stock of the Corporation are to be converted shall be
insufficient to pay the holders of the Shares and of any shares ranking on
liquidation on a parity with the Shares the full amounts to which they
respectively shall be entitled pursuant to this paragraph (4)(c), the
holders of such Shares and of such parity shares shall share ratably in any
cash, securities or other property into which shares of capital stock of
the Corporation are to be converted according to the respective amounts
which would be payable in respect of the shares held by them upon such
payment if all amounts payable on or with respect to said shares were paid
in full. Upon the occurrence of any Acquisition Event, after payment shall
have been made to the holders of the Shares and of any shares ranking on
liquidation on a parity with the Shares of the full amount to which such
Shares shall be entitled pursuant to this paragraph (4)(c), no further
payments or distributions shall be made with respect to the Shares and all
remaining cash, securities, or other property into which shares of capital
stock of the Corporation are to be converted shall be allocated ratably to
the Common Stock. Nothing herein shall be construed as requiring or
permitting a merger, consolidation, share exchange, other business
combination, to be treated as a liquidation for any purpose other than the
allocations provided for in this paragraph (4)(c).
(d) Except as provided in paragraph (4)(b) and (4)(c), the
merger, consolidation, or similar business combination of the Corporation
into or with any other corporation, the merger, consolidation, or similar
business combination of any other corporation into or with the Corporation,
the acquisition by any other corporation of all of the outstanding shares
of one or more classes or series of the statutory share exchange or similar
Corporation through a business combination, or the sale, transfer,
mortgage, pledge, or lease of the assets of the Corporation, shall not be
deemed to be a liquidation, dissolution, or winding up of the affairs of
the Corporation within the meaning of paragraph (4). Except as provided in
-3-
<PAGE>
paragraph (4)(c), the entitlement of the holders of Shares in the case of
the merger, consolidation, or similar business combination of the
Corporation into or with any other corporation, the merger, consolidation,
or similar business combination of any other corporation into or with the
Corporation, of the acquisition by any other corporation of all of the
outstanding shares of one or more classes or series of the Corporation
through a statutory share exchange or similar business combination, shall
be: (x) if this Corporation shall not be a surviving corporation in such
transaction, to receive shares of the surviving corporation having the same
rights as the Shares, including, without limitation, conversion rights
based upon a Stock Unit as referred to in paragraph (5)(c), or (y) if this
Corporation is a surviving corporation in such a transaction, that the
transaction does not effect any amendment or repeal of any of the terms and
provisions of the outstanding Shares in a manner adversely affecting the
holders thereof, which if made through an amendment to the Articles of
Incorporation would require authorization by the vote referred to in
paragraph (7)(b). No such merger, consolidation, share exchange, or
similar transaction shall be effected unless provision for such entitlement
is made or shall result and be met for the holders of the Shares, unless
such transaction shall, in addition to any other vote required, be
authorized by the vote referred to in paragraph (7)(b).
(e) Written notice of any voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of the Corporation within the
meaning of paragraph (4)(a), (4)(b) and (4)(c), stating a payment date and
the place where the distributable amounts shall be payable, shall be given
by first-class mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to each record holder of the Shares at his
address as the same shall appear on the shareholder records of the
Corporation.
(5) Conversion Rights. The Shares shall be convertible into Common Stock,
-----------------
$.01 par value per share, of the Corporation on the following terms and
conditions:
(a) Term. Subject to and upon compliance with the provisions of
----
this paragraph (5), the holder of any Shares may convert any Shares at his
option at any time (during business hours on a Business Day) at the offices
of the Company, or at such other place or places, if any, as the Board of
Directors may determine, into such number of fully paid and nonassessable
shares of Common Stock (or other property) as are issuable pursuant to the
conversion formula set forth in paragraph (5)(c), as the same may be
adjusted from time to time pursuant to paragraph (6). The Corporation
shall make no payment or adjustment on account of distributions accrued or
in arrears on the Shares surrendered for conversion and no adjustment on
account of distributions on the shares of Common Stock issuable upon
conversion.
-4-
<PAGE>
(b) Surrender of Shares. In order for any holder of Shares to be
-------------------
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates for such Shares at one of the places referred
to in paragraph (5)(a), duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in
blank, and shall give written notice to the Corporation at said place that
he elects to convert said Shares and shall state in writing therein the
name or names in which he wishes the certificate or certificates for shares
of Common Stock issuable on such conversion to be issued. Subject to the
provisions of paragraph (5)(a), every such notice of election to convert
shall constitute a contract between the holder of such Shares and the
Corporation (i) whereby such holder shall be deemed to subscribe for the
amount of Common Stock which he will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription, to
surrender the Shares to be converted and to release the Corporation from
all obligation thereon, and (ii) whereby the Corporation shall be deemed to
agree that the surrender of the certificate or certificates for such Shares
and the extinguishment of obligation thereon shall constitute full payment
of such subscription for the Common Stock so subscribed for and to be
issued upon such conversion.
The Corporation will as soon as practicable after such deposit of
certificates for Shares, accompanied by the written notice and the
statement above prescribed, issue and deliver to the person for whose
account such Shares were so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of Common Stock
to which he shall be entitled as aforesaid. together with a check or cash
in respect of any fraction of a share as hereinafter provided in paragraph
(5)(f). Subject to the following provisions of this paragraph (5), such
conversion shall be deemed to have been made on the Business Day on which
the Corporation shall have received the Shares to be converted and the
notice and statement above prescribed, and the person or persons entitled
to receive the Common Stock issuable upon conversion of such Shares shall
be deemed for all purposes to have become the record holder or holders of
such Common Stock and to have ceased to be the holder of the Shares
surrendered for conversion on such Business Day. The Corporation shall not
be required to convert, and no surrender of any Shares shall be effective
for that purpose, while the shareholder records of the Corporation are
closed for any purpose, but the surrender of any Shares for conversion
during any period while such records are closed shall become effective for
conversion immediately upon the reopening of such records, as if the
conversion had been made on the date such Shares were surrendered, and on
the basis of conversion in effect on the date of such surrender. Nothing
in the preceding sentence shall require the Corporation to effect
conversions otherwise than during business hours upon a Business Day, and
Shares which are surrendered for conversion upon a day which is not a
Business Day shall be deemed to be so surrendered upon the next succeeding
Business Day.
-5-
<PAGE>
(c) Stock Unit. Each share of Series D Stock shall be
----------
convertible, at the times and places and in the manner referred to in
subparagraphs (a) and (b) above, into one "Stock Unit". The contents of a
Stock Unit as of [October 18, 1991], shall be one (1) share of Common Stock
(as constituted upon such date) of the Corporation. The contents of a
Stock Unit shall thereafter be subject to adjustment in accordance with the
provisions of paragraph (6).
(d) Taxes. The issue of share certificates on conversion of
-----
Shares shall be made free of any tax in respect of such issue. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect to any transfer involved in the issue and delivery of
shares in a name other than that of the holder of the Shares converted, and
the Corporation shall not be required to issue or deliver any such share
certificate unless and until the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of any such tax or
shall have established to the satisfaction of the Corporation that such tax
has been paid.
(e) Reservation of Shares. he corporation shall at all times
---------------------
reserve and keep available, out of its authorized and unissued shares,
solely for the purpose of effecting the conversion of Shares, such number
of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all Shares from time to time outstanding. The
Corporation shall from time to time, in accordance with the Georgia
Business Corporation Code, use its best efforts to cause the number of
authorized shares of its Common Stock to be increased if at any time the
number of authorized shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the then outstanding Shares.
(f) Fractional Shares. The Corporation shall not be required to
-----------------
issue fractional shares of Common Stock or scrip upon conversion of Shares.
As to any final fraction of a share of Common Stock which a holder of one
or more Shares would otherwise be entitled to receive upon conversion of
Shares in the same transaction, the Corporation shall pay a cash adjustment
in respect of such final fraction in an amount equal to $9.00 per share of
Series D Stock.
(6) Antidilution. The number of shares of Common Stock comprising a Stock
------------
Unit shall be subject to adjustment from time to time, as follows:
(a) Recapitalization. In case the Corporation after October 18,
----------------
1991 (the "Base Date") shall (i) issue a share dividend to the holders of
its Common Stock, (ii) combine its outstanding shares of Common Stock into
a smaller number of shares, or (iii) issue by reclassification of its
shares of Common Stock any shares of the Corporation, then the number of
shares of Common Stock comprising a Stock Unit immediately after the
happening of any of the events described above shall be adjusted so as to
consist of the number of shares of the Corporation which a record holder of
the number of shares of Common Stock
-6-
<PAGE>
comprising a Stock Unit immediately prior to the happening of such event
would own or be entitled to receive after the happening of such event
(taking into account fractional interests in shares included in a Stock
Unit to the nearest one-hundredth of a share, and for the purposes of the
foregoing considering such fractional interests as outstanding fractional
shares). Similar adjustments to the content of a Stock Unit shall be made
if any of the events described above in this subparagraph (a) shall
thereafter occur. An adjustment made pursuant to this subparagraph (4)
shall become effective retroactively immediately after the record date in
the case of a share dividend. and shall become effective immediately after
the effective date in the case of a combination or reclassification,
subject in each case to the provisions of subparagraph (c) of this
paragraph (6).
(b) Merger, Consolidation, or Share Exchange. In case, after the
----------------------------------------
Base Date, as a result of a merger, consolidation, or similar business
combination of the Corporation into or with another corporation, the
acquisition by any other corporation of all of the outstanding shares of
one or more classes or series of the Corporation through a statutory share
exchange or similar business combination, or the sale or other transfer of
the Corporation's property, assets, and business substantially as an entity
to a successor corporation, the Common Stock is in effect changed, in whole
or in part, into a different kind or class of shares or other securities or
property, the contents of a Stock Unit shall thereupon become the kind and
amount of shares or other securities or property receivable upon such
merger, consolidation, share exchange, or similar business combination, or
upon the dissolution following such sale or other transfer, by a record
holder of the number of shares of Common Stock comprising a Stock Unit
immediately prior to such change.
(c) De Minimus Adjustments. No adjustment in the number of
----------------------
shares of Common Stock comprising a Stock Unit shall be required under this
paragraph (6) unless such adjustment would require an increase or decrease
of at least 1% in the number of shares of Common Stock at the time
comprising a Stock Unit, or a change in the kind of class of shares or
other securities or property Comprising a Stock Unit; provided, however,
that any adjustments which by reason of the foregoing are not required at
the time to be made shall be carried forward and taken into account and
included in determining the amount of any subsequent adjustment. If the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or distribution or any
subscription or purchase rights and shall, thereafter and before the
distribution to shareholders of any such dividend, distribution, or
subscription or purchase rights, legally abandon its plan to pay or deliver
such dividend, distribution, or subscription or purchase rights, then no
adjustment in the number of shares of Common Stock comprising a Stock Unit
shall be required by reason of the taking of such record.
-7-
<PAGE>
(d) Other Actions by Corporation. In case the Corporation after
----------------------------
the Base Date shall take any action affecting the Common Stock, other then
action described in subparagraphs (a) and (b) of this paragraph (6), which
in the opinion of the Board of Directors of the Corporation would
materially affect the rights of this holders of the Shares, the Common
Stock included in a Stock Unit shall be adjusted in such manner, if any,
and at such time, as the Board of Directors of the Corporation, in its sole
discretion, may determine to be equitable in the circumstances. Failure of
the board of Directors of the Corporation to provide for an adjustment
prior to the effective date of any such action by the corporation affecting
the Common Stock shall be conclusive evidence that the Board of Directors
of the Corporation has determined that it is equitable to make no
adjustment in the circumstances.
(e) Notices of Adjustment. Whenever the content of a Stock Unit
---------------------
is adjusted pursuant to this paragraph (6), the Corporation shall promptly
mail to each holder of record of the Shares a certificate signed by the
President or Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Corporation setting forth
in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated and specifying the number, or kind, or
class of shares or other securities or property comprising a Stock Unit
after giving effect to such adjustment.
Failure to file any certificate or notice or to publish or mail
any notice, or any defect in any certificate or notice, pursuant to this
paragraph (6) shall not affect the legality or validity of the adjustment
in the content of a Stock unit or of any transaction giving rise thereto.
(f) Definition of Terms. For the purposes of this paragraph (6),
-------------------
the number of shares of Common Stock at any time outstanding shall not
include shares then owned or held by or for the account of the Corporation
or any majority-owned subsidiary.
For the purposes of this paragraph (6), the term "Common Stock"
shall mean (i) the class of shares designated as the Common Stock, par
value $.01 per share, of the Corporation at the Base Date or (ii) any other
class of shares resulting from successive changes or reclassifications of
such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event
that at any time, as a result of an adjustment made pursuant to this
paragraph (6), a Stock Unit shall include shares of the Corporation other
than shares of Common Stock. thereafter the number of such other shares so
included in a Stock Unit shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common stock contained in subparagraphs (a)
and (b) of this paragraph (6), and all other provisions of this paragraph
(6) with respect to Common Stock shall apply on like terms to any such
other shares. Subject to
-8-
<PAGE>
the foregoing, and unless the context requires otherwise, all references to
Common Stock in this paragraph (6) shall, in the event of an adjustment
pursuant to this paragraph (6), be deemed to refer also to any other
securities or property then comprising a Stock Unit as a result of such
adjustments.
(7) Voting Rights.
-------------
(a) Voting Rights. The holders of record of the Shares shall
-------------
have one (1) vote in respect of each Share held by such holder of record
with respect to every matter coming before any meeting of the shareholders,
or otherwise to be acted upon by the shareholders; except that, if at any
time the contents of the Stock Unit referred to in subparagraph 5(c) shall
include more or fewer than one (1) share of Common Stock of the
Corporation, each Share shall have a number of votes per share equal to the
fractional number of shares of Common Stock (to the nearest one-hundredth
of a share) contained in a Stock Unit upon the record date to determine
entitlement to vote, but not less than one (1) vote per share. In all
votes of shareholders, the holders of the Shares shall vote in the same
class as the holders of Common Stock except as expressly provided in this
statement of Designation, Preferences, and Other Rights or as otherwise
required by the Georgia Business Corporation Code.
(b) Amendment of Terms of Shares.
----------------------------
(i) Notwithstanding the provisions of subparagraph 7(a), so
long as any shares of Series D Stock shall be outstanding, the
Corporation shall not, without the affirmative vote at a meeting
called for that purpose or the written consent of the holders of at
least a majority of the aggregate number of shares of Series A at the
time outstanding, or such greater vote as may be required by the
Georgia Business Corporation Code, adopt any amendment to the Articles
of Incorporation which would amend or repeal any of the terms and
provisions of the outstanding shares of Series D Stock in a manner
materially affecting the holders thereof.
(c) (i) Issuance of Senior Preferred Shares. So long as
-----------------------------------
any Shares shall be outstanding, the Corporation shall not, without
the affirmative vote at a meeting called for that purpose or the
written consent of the holders of at least a majority of the aggregate
amount of shares of the Series D stock outstanding, take action to
authorize any class of shares ranking prior to the Shares, or to
increase the authorized number of shares of any such prior class.
(ii) Definition of Senior Preferred Shares. For the
-------------------------------------
purposes of this subparagraph (c), shares shall be deemed to rank
prior to the Shares if the holders thereof shall be entitled to the
receipt of distributions or of amounts distributable on liquidation,
dissolution, at winding up of the
-9-
<PAGE>
affairs of the Corporation, as the case may be, in preference or
priority to the holders of the Shares, but shall be deemed to rank an
a parity with, and not prior to the Shares, if the holders of such
class shall be entitled to the receipt of distributions or of amounts
distributable on liquidation, dissolution, or winding up of the
affairs of the Corporation, as the case may be, in proportion to-their
respective distribution rates or liquidation prices. without
preference or priority one over the other as between the holders of
such shares and the holders of the Shares, whether or not the
distribution rates, distribution payment dates, or liquidation prices
per share thereof are different from those of the Shares (including
without limitation, whether or not such other shares shall have the
benefit of any provision for any extra participating preferred
distribution. It shall not be deemed to be the creation of any such
prior class or series of shares if the Corporation shall take action
to authorize the creation or issuance of any indebtedness of the
withstanding that such indebtedness may be subordinate to other
indebtedness of the Corporation, and notwithstanding that such
indebtedness may be convertible at the option of the Corporation or
the option of the holder into shares of the Corporation (but the
authorization of any such shares which are prior to the Shares shall
be subject to the foregoing provisions), and notwithstanding that such
indebtedness may be both so subordinate and so convertible.
(d) Exceptions to Voting Rights. It shall not constitute any
---------------------------
amendment or repeal of the terms and provisions of any of the outstanding
Shares having an adverse effect on the holders thereof within the meaning
of subparagraph (b) of this paragraph (7) for the corporation to take
action to authorize any other class or series of shares ranking on a parity
with the Shares as to either distributions or liquidation preferences or
both; and, except as otherwise provided by law or expressly otherwise
provided herein, any such action may be authorized without the concurrence
of holders of the Shares.
Notwithstanding the provisions of subparagraphs (b) or (c) above,
unless otherwise specifically provided in subparagraph (7)(c)(ii) as to
series of Preferred Stock prior to the Shares, no vote or consent of the
holders of Shares shall be required in connection with the authorization of
any series of Preferred Stock or the issuance of any shares of any such
series or the adoption by the board of Directors of the Corporation of any
resolution providing for a series of Preferred Stock.
(8) Relationship to Other Series of Preferred Stock. Without limiting
-----------------------------------------------
in any manner the powers of the Board of Directors as expressed in Article Five
of the Articles of Incorporation, it is expressly understood that the Board of
Directors, without any action on the part of shareholders, may provide in the
Articles of Amendment providing for any series of Preferred Stock such
conforming provisions and such restrictions on any series (including the Shares)
as are reasonably designed to permit consistent treatment
-10-
<PAGE>
among parity series (without materially adversely affecting the rights of the
holders of the Shares), including, without limitation, restrictions on the
payment of distributions on and/or purchase or redemption (or the setting aside
of amounts into a sinking fund for purchase or redemption) of shares ranking on
a parity with or junior to such newly created series, which restrictions are
applicable to such parity or junior series (including the Shares); without
limitation, such restrictions may operate in a manner similar to the manner in
which the provisions of paragraph (2) relating to such matters apply by their
terms to shares on a parity with or junior to the Shares.
(9) Meaning of Certain Terms.
------------------------
(a) For the purposes hereof, shares shall be deemed to rank:
(i) prior to Shares either as to distributions or on
liquidation if the holders thereof shall be entitled to the receipt of
distributions or of amounts distributable on liquidation, dissolution,
or winding up of the affairs of the Corporation, as the case may be,
in preference or priority to the holders of the Shares;
(ii) on a parity with Shares as to distributions or on
liquidation, whether or not the distribution rates, distribution
payment dates, at redemption or liquidation prices per share thereof
are different from those of the Shares (including, without limitation,
whether or not such other shares shall have the benefit of any
provision for any extra participating preferred distribution), if the
holders thereof shall be entitled to the receipt of distributions or
of amounts distributable on liquidation, dissolution, at winding up of
the affairs of the Corporation, as the case may be, in proportion to
their respective distribution rates or liquidation prices, without
preference at priority one over the other as between the holders of
such shares and the holders of the Shares; and
(iii) junior to Shares either as to distributions or on
liquidation if the rights of the holders thereof shall be subject or
subordinate to the rights of the holders of the Shares in respect of
the receipt of distributions or of the amounts distributable on
liquidation, dissolution, or winding up of the affairs of the
Corporation, as the case may be.
(b) For the purposes hereof, "Business Day" shall mean any day
upon which commercial banks in the City of Atlanta, Georgia are required to
be open for the transaction of their general banking business.
(10) Certain Provisions Concerning Conversion and Retirement. Upon
-------------------------------------------------------
the conversion of any of the Shares pursuant to the provisions of paragraph (5),
such Shares shall be deemed to be retired. Upon any such retirement and upon
such conversion, the Shares so converted or otherwise so retired shall be
restored to the status of authorized
-11-
<PAGE>
but undesignated and unissued Shares of Preferred Stock of the Corporation,
which shares may thereafter be provided for and designated by the Board of
Directors pursuant to Article Five of the Articles of Incorporation as part of a
series of Preferred Stock to the same extent as if such shares had not
previously been provided for and designated as part of a series of Preferred
Stock; but such shares shall not be reissued as shares of Series D Stock.
(11) Amendment. The Board of Directors reserves the right to amend
---------
the provisions of these Articles of Amendment subject to the provisions of
paragraph (7); without limiting the generality of the foregoing, the Board of
Directors may amend the provisions of these Articles of Amendment without any
vote or consent of the shareholders of the Corporation of any class or series by
decreasing (including a decrease to zero) (but not increasing) the number of
Shares designated hereby, but no such decrease shall be effected to a number
less than the number to Shares at the time issued and outstanding.
-12-
<PAGE>
EXHIBIT C
TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
XCELLENET, INC.
DESIGNATING THE PREFERENCES AND OTHER RIGHTS OF
CONVERTIBLE PREFERRED STOCK, SERIES E
In addition to the Convertible Preferred Stock, Series A, Series B,
Series C and Series D, there is hereby designated, of the authorized but
unissued shares of Preferred Stock of the Corporation, a separate series
thereof, and the number of shares, voting powers, designation, preferences, and
relative, participating, optional, and other special rights, and the
qualifications, limitations, and restrictions thereof, of the shares of such
series (in addition to those set forth in the Articles of Incorporation which
are applicable to the Preferred Stock of all series), shall be as follows:
(1) Designation and Number of Shares. The designation of this series
--------------------------------
of Preferred Stock shall be "Convertible Preferred Stock, Series E" (hereinafter
called "Series E Stock"), to consist of 189,915. The shares of Series E are
sometimes hereinafter referred to as the "Shares."
(2) Distributions.
-------------
(a) Distribution Rights. The holders of Shares shall be entitled
-------------------
to receive, when, as, and if declared by the Board of Directors, subject to
restrictions imposed by the Georgia Business Corporation Code or the
Articles of Incorporation on distributions to shareholders, and subject to
the provisions of paragraph (4) with respect to distributions in the event
of any voluntary or involuntary liquidation, dissolution, or winding up of
the affairs of the Corporation, transfers of money or other property
(except of the Corporation's own shares) or incurrence of indebtedness by
the Corporation in respect of any of its shares, whether by dividend,
purchase, redemption, or other acquisition of shares, a distribution of
indebtedness, or otherwise (hereinafter referred to as a "distribution"),
in an amount equal to the distribution declared for each Share or for each
share of Common Stock. So long as any Shares shall remain outstanding, (i)
no distribution whatsoever shall be declared or paid upon or set apart for
the Shares or for the Common Stock or any other shares ranking on a parity
with or junior to the Shares in payment of distributions; (ii) no
redemption or purchase by the Corporation of Shares or of any shares
ranking on a parity with or junior to the Shares in payment of
distributions shall occur; and (iii) no moneys shall be paid to or made
available for a sinking fund for the redemption or purchase of any such
shares or otherwise applied to any such redemption or purchase, unless in
each instance distributions, redemptions, or payments in an equal amount
per share
<PAGE>
shall have been declared and sufficient funds set aside for the payment
thereof to the holders of the Shares.
(b) Shares Held by Corporation. For the purposes of this
--------------------------
paragraph (2), no Share shall be deemed to be issued or outstanding at any
time at which it is held by or for the account of the Corporation or by or
for the account of any majority-owned subsidiary of the Corporation.
(3) Rights of Redemption. The Shares will not be subject to redemption by
--------------------
the Corporation.
(4) Rights on Liquidation, Dissolution, or Winding Up.
--------------------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, the holders
of the Shares then outstanding shall be entitled to be paid, out of the
assets of the Corporation available for distribution to its shareholders,
before any payment shall be made to the holders of Common Stock or any
shares ranking on liquidation junior to the Shares, an amount equal to
$12.00 per share of Series E Stock. If upon voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the Corporation,
the assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the Shares and of
any shares ranking on liquidation on a parity with the Shares (including,
without limitation, the shares of the Corporation's Convertible Preferred
Stock, Series A, Series B, Series C and Series D) the full amounts to which
they respectively shall be entitled, the holders of such Shares and of such
parity shares shall share ratably in any distribution of assets according
to the respective amounts which would be payable in respect of the shares
held by them upon such distribution if all amounts payable on or with
respect to said shares were paid in full. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the affairs of the
Corporation, after payment shall have been made to the holders of the
Shares and of any shares ranking on liquidation on a parity with the Shares
of the full amount to which such shares shall be entitled as aforesaid, no
further payments or distributions shall be made with respect to the Shares.
(b) For the purposes of this paragraph (4), the sale, transfer,
exchange or other disposition of all or substantially all of the assets of
the Corporation shall be deemed to be a liquidation of the Corporation, and
the allocation of any cash, securities, or other property received by the
Corporation in consideration for such sale shall be made in accordance with
the provisions of paragraph (4)(a) as if such sale of assets were a
liquidation of the Corporation. Nothing herein shall be construed as
requiring or permitting a sale of assets to be treated as a liquidation for
any purpose other than the allocations provided for in this subparagraph
(4)(b).
-2-
<PAGE>
(c) Notwithstanding any other provision of this paragraph (4),
the merger, consolidation, or similar business combination of the
Corporation into or with any other corporation or the acquisition by any
other corporation of all of the outstanding shares of one or more classes
or series of the Corporation through a statutory share exchange or similar
business combination, in which, following such merger, consolidation, share
exchange, or similar business combination, less than 50% of the voting
power of the surviving entity is hold by persons that were shareholders of
the Corporation immediately prior to such merger, consolidation, share
exchange, or similar business combination (an "Acquisition Event"), shall
be deemed to be a liquidation of the Corporation; provided, however, that
such a deemed liquidation shall not be governed by the provisions of
paragraph (4)(a) but by the following provisions of this paragraph (4)(c).
Upon the occurrence of an Acquisition Event, the holders of the Shares then
outstanding shall be entitled to be allocated, out of such cash. securities
or other property, before any allocation shall be made to the holders of
Common Stock or any shares ranking on liquidation junior to the Shares an
amount equal to $12.00 per share of Series E Stock. If upon such
Acquisition Event, the cash, securities, or other property into which the
shares of capital stock of the Corporation are to be converted shall be
insufficient to pay the holders of the Shares and of any shares ranking on
liquidation on a parity with the Shares the full amounts to which they
respectively shall be entitled pursuant to this paragraph (4)(c), the
holders of such Shares and of such parity shares shall share ratably in any
cash, securities or other property into which shares of capital stock of
the Corporation are to be converted according to the respective amounts
which would be payable in respect of the shares held by them upon such
payment if all amounts payable on or with respect to said shares were paid
in full. Upon the occurrence of any Acquisition Event, after payment shall
have been made to the holders of the Shares and of any shares ranking on
liquidation on a parity with the Shares of the full amount to which such
Shares shall be entitled pursuant to this paragraph (4)(c), no further
payments or distributions shall be made with respect to the Shares and all
remaining cash, securities, or other property into which shares of capital
stock of the Corporation are to be converted shall be allocated ratably to
the Common Stock. Nothing herein shall be construed as requiring or
permitting a merger, consolidation, share exchange, other business
combination, to be treated as a liquidation for any purpose other than the
allocations provided for in this paragraph (4)(c).
(d) Except as provided in paragraph (4)(b) and (4)(c), the
merger, consolidation, or similar business combination of the Corporation
into or with any other corporation, the merger, consolidation, or similar
business combination of any other corporation into or with the Corporation,
the acquisition by any other corporation of all of the outstanding shares
of one or more classes or series of the statutory share exchange or similar
Corporation through a business combination, or the sale, transfer,
mortgage, pledge, or lease of the assets of the Corporation, shall not be
deemed to be a liquidation, dissolution, or winding up of the affairs of
the Corporation within the meaning of paragraph (4). Except as provided in
-3-
<PAGE>
paragraph (4)(c), the entitlement of the holders of Shares in the case of
the merger, consolidation, or similar business combination of the
Corporation into or with any other corporation, the merger, consolidation,
or similar business combination of any other corporation into or with the
Corporation, of the acquisition by any other corporation of all of the
outstanding shares of one or more classes or series of the Corporation
through a statutory share exchange or similar business combination, shall
be: (x) if this Corporation shall not be a surviving corporation in such
transaction, to receive shares of the surviving corporation having the same
rights as the Shares, including, without limitation, conversion rights
based upon a Stock Unit as referred to in paragraph (5)(c), or (y) if this
Corporation is a surviving corporation in such a transaction, that the
transaction does not effect any amendment or repeal of any of the terms and
provisions of the outstanding Shares in a manner adversely affecting the
holders thereof, which if made through an amendment to the Articles of
Incorporation would require authorization by the vote referred to in
paragraph (7)(b). No such merger, consolidation, share exchange, or
similar transaction shall be effected unless provision for such entitlement
is made or shall result and be met for the holders of the Shares, unless
such transaction shall, in addition to any other vote required, be
authorized by the vote referred to in paragraph (7)(b).
(e) Written notice of any voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of the Corporation within the
meaning of paragraph (4)(a), (4)(b) and (4)(c), stating a payment date and
the place where the distributable amounts shall be payable, shall be given
by first-class mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to each record holder of the Shares at his
address as the same shall appear on the shareholder records of the
Corporation.
(5) Conversion Rights. The Shares shall be convertible into Common Stock,
-----------------
$.01 par value per share, of the Corporation on the following terms and
conditions:
(a) Term. Subject to and upon compliance with the provisions of
----
this paragraph (5), the holder of any Shares may convert any Shares at his
option at any time (during business hours on a Business Day) at the offices
of the Company, or at such other place or places, if any, as the Board of
Directors may determine, into such number of fully paid and nonassessable
shares of Common Stock (or other property) as are issuable pursuant to the
conversion formula set forth in paragraph (5)(c), as the same may be
adjusted from time to time pursuant to paragraph (6). The Corporation
shall make no payment or adjustment on account of distributions accrued or
in arrears on the Shares surrendered for conversion and no adjustment on
account of distributions on the shares of Common Stock issuable upon
conversion.
-4-
<PAGE>
(b) Surrender of Shares. In order for any holder of Shares to be
-------------------
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates for such Shares at one of the places referred
to in paragraph (5)(a), duly endorsed to the Corporation or in blank or
accompanied by proper instruments of transfer to the Corporation or in
blank, and shall give written notice to the Corporation at said place that
he elects to convert said Shares and shall state in writing therein the
name or names in which he wishes the certificate or certificates for shares
of Common Stock issuable on such conversion to be issued. Subject to the
provisions of paragraph (5)(a), every such notice of election to convert
shall constitute a contract between the holder of such Shares and the
Corporation (i) whereby such holder shall be deemed to subscribe for the
amount of Common Stock which he will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription, to
surrender the Shares to be converted and to release the Corporation from
all obligation thereon, and (ii) whereby the Corporation shall be deemed to
agree that the surrender of the certificate or certificates for such Shares
and the extinguishment of obligation thereon shall constitute full payment
of such subscription for the Common Stock so subscribed for and to be
issued upon such conversion.
The Corporation will as soon as practicable after such deposit of
certificates for Shares, accompanied by the written notice and the
statement above prescribed, issue and deliver to the person for whose
account such Shares were so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of Common Stock
to which he shall be entitled as aforesaid. together with a check or cash
in respect of any fraction of a share as hereinafter provided in paragraph
(5)(f). Subject to the following provisions of this paragraph (5), such
conversion shall be deemed to have been made on the Business Day on which
the Corporation shall have received the Shares to be converted and the
notice and statement above prescribed, and the person or persons entitled
to receive the Common Stock issuable upon conversion of such Shares shall
be deemed for all purposes to have become the record holder or holders of
such Common Stock and to have ceased to be the holder of the Shares
surrendered for conversion on such Business Day. The Corporation shall not
be required to convert, and no surrender of any Shares shall be effective
for that purpose, while the shareholder records of the Corporation are
closed for any purpose, but the surrender of any Shares for conversion
during any period while such records are closed shall become effective for
conversion immediately upon the reopening of such records, as if the
conversion had been made on the date such Shares were surrendered, and on
the basis of conversion in effect on the date of such surrender. Nothing
in the preceding sentence shall require the Corporation to effect
conversions otherwise than during business hours upon a Business Day, and
Shares which are surrendered for conversion upon a day which is not a
Business Day shall be deemed to be so surrendered upon the next succeeding
Business Day.
-5-
<PAGE>
(c) Stock Unit. Each share shall be convertible, at the times
----------
and places and in the manner referred to in subparagraphs (a) and (b)
above, into one "Stock Unit". The contents of a Stock Unit as of [date
Warrant is exercised], shall be one (1) share of Common Stock (as
constituted upon such date) of the Corporation. The contents of a Stock
Unit shall thereafter be subject to adjustment in accordance with the
provisions of paragraph (6).
(d) Taxes. The issue of share certificates on conversion of
-----
Shares shall be made free of any tax in respect of such issue. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect to any transfer involved in the issue and delivery of
shares in a name other than that of the holder of the Shares converted, and
the Corporation shall not be required to issue or deliver any such share
certificate unless and until the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of any such tax or
shall have established to the satisfaction of the Corporation that such tax
has been paid.
(e) Reservation of Shares. he corporation shall at all times
---------------------
reserve and keep available, out of its authorized and unissued shares,
solely for the purpose of effecting the conversion of Shares, such number
of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all Shares from time to time outstanding. The
Corporation shall from time to time, in accordance with the Georgia
Business Corporation Code, use its best efforts to cause the number of
authorized shares of its Common Stock to be increased if at any time the
number of authorized shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the then outstanding Shares.
(f) Fractional Shares. The Corporation shall not be required to
-----------------
issue fractional shares of Common Stock or scrip upon conversion of Shares.
As to any final fraction of a share of Common Stock which a holder of one
or more Shares would otherwise be entitled to receive upon conversion of
Shares in the same transaction, the Corporation shall pay a cash adjustment
in respect of such final fraction in an amount equal to $12.00 per share of
Series E Stock.
(6) Antidilution. The number of shares of Common Stock comprising a Stock
------------
Unit shall be subject to adjustment from time to time, as follows:
(a) Recapitalization. In case the Corporation after the date of
----------------
filing these Articles of Amendment with the Secretary of State of the State
of Georgia (the "Base Date") shall (i) issue a share dividend to the
holders of its Common Stock, (ii) combine its outstanding shares of Common
Stock into a smaller number of shares, or (iii) issue by reclassification
of its shares of Common Stock any shares of the Corporation, then the
number of shares of Common Stock comprising a Stock Unit immediately after
the happening of any of the events described above shall be adjusted so as
to consist of the number of shares of the
-6-
<PAGE>
Corporation which a record holder of the number of shares of Common Stock
comprising a Stock Unit immediately prior to the happening of such event
would own or be entitled to receive after the happening of such event
(taking into account fractional interests in shares included in a Stock
Unit to the nearest one-hundredth of a share, and for the purposes of the
foregoing considering such fractional interests as outstanding fractional
shares). Similar adjustments to the content of a Stock Unit shall be made
if any of the events described above in this subparagraph (a) shall
thereafter occur. An adjustment made pursuant to this subparagraph (4)
shall become effective retroactively immediately after the record date in
the case of a share dividend. and shall become effective immediately after
the effective date in the case of a combination or reclassification,
subject in each case to the provisions of subparagraph (c) of this
paragraph (6).
(b) Merger, Consolidation, or Share Exchange. In case, after the
----------------------------------------
Base Date, as a result of a merger, consolidation, or similar business
combination of the Corporation into or with another corporation, the
acquisition by any other corporation of all of the outstanding shares of
one or more classes or series of the Corporation through a statutory share
exchange or similar business combination, or the sale or other transfer of
the Corporation's property, assets, and business substantially as an entity
to a successor corporation, the Common Stock is in effect changed, in whole
or in part, into a different kind or class of shares or other securities or
property, the contents of a Stock Unit shall thereupon become the kind and
amount of shares or other securities or property receivable upon such
merger, consolidation, share exchange, or similar business combination, or
upon the dissolution following such sale or other transfer, by a record
holder of the number of shares of Common Stock comprising a Stock Unit
immediately prior to such change.
(c) De Minimus Adjustments. No adjustment in the number of
----------------------
shares of Common Stock comprising a Stock Unit shall be required under this
paragraph (6) unless such adjustment would require an increase or decrease
of at least 1% in the number of shares of Common Stock at the time
comprising a Stock Unit, or a change in the kind of class of shares or
other securities or property Comprising a Stock Unit; provided, however,
that any adjustments which by reason of the foregoing are not required at
the time to be made shall be carried forward and taken into account and
included in determining the amount of any subsequent adjustment. If the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or distribution or any
subscription or purchase rights and shall, thereafter and before the
distribution to shareholders of any such dividend, distribution, or
subscription or purchase rights, legally abandon its plan to pay or deliver
such dividend, distribution, or subscription or purchase rights, then no
adjustment in the number of shares of Common Stock comprising a Stock Unit
shall be required by reason of the taking of such record.
-7-
<PAGE>
(d) Other Actions by Corporation. In case the Corporation after
----------------------------
the Base Date shall take any action affecting the Common Stock, other then
action described in subparagraphs (a) and (b) of this paragraph (6), which
in the opinion of the Board of Directors of the Corporation would
materially affect the rights of this holders of the Shares, the Common
Stock included in a Stock Unit shall be adjusted in such manner, if any,
and at such time, as the Board of Directors of the Corporation, in its sole
discretion, may determine to be equitable in the circumstances. Failure of
the board of Directors of the Corporation to provide for an adjustment
prior to the effective date of any such action by the corporation affecting
the Common Stock shall be conclusive evidence that the Board of Directors
of the Corporation has determined that it is equitable to make no
adjustment in the circumstances.
(e) Notices of Adjustment. Whenever the content of a Stock Unit
---------------------
is adjusted pursuant to this paragraph (6), the Corporation shall promptly
mail to each holder of record of the Shares a certificate signed by the
President or Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Corporation setting forth
in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated and specifying the number, or kind, or
class of shares or other securities or property comprising a Stock Unit
after giving effect to such adjustment.
Failure to file any certificate or notice or to publish or mail
any notice, or any defect in any certificate or notice, pursuant to this
paragraph (6) shall not affect the legality or validity of the adjustment
in the content of a Stock unit or of any transaction giving rise thereto.
(f) Definition of Terms. For the purposes of this paragraph (6),
-------------------
the number of shares of Common Stock at any time outstanding shall not
include shares then owned or held by or for the account of the Corporation
or any majority-owned subsidiary.
For the purposes of this paragraph (6), the term "Common Stock"
shall mean (i) the class of shares designated as the Common Stock, par
value $.01 per share, of the Corporation at the Base Date or (ii) any other
class of shares resulting from successive changes or reclassifications of
such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event
that at any time, as a result of an adjustment made pursuant to this
paragraph (6), a Stock Unit shall include shares of the Corporation other
than shares of Common Stock. thereafter the number of such other shares so
included in a Stock Unit shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common stock contained in subparagraphs (a)
and (b) of this paragraph (6), and all other provisions of this paragraph
(6) with respect to Common Stock shall apply on like terms to any such
other shares. Subject to
-8-
<PAGE>
the foregoing, and unless the context requires otherwise, all references to
Common Stock in this paragraph (6) shall, in the event of an adjustment
pursuant to this paragraph (6), be deemed to refer also to any other
securities or property then comprising a Stock Unit as a result of such
adjustments.
(7) Voting Rights.
-------------
(a) Voting Rights. The holders of record of the Shares shall
-------------
have one (1) vote in respect of each Share held by such holder of record
with respect to every matter coming before any meeting of the shareholders,
or otherwise to be acted upon by the shareholders; except that, if at any
time the contents of the Stock Unit referred to in subparagraph 5(c) shall
include more or fewer than one (1) share of Common Stock of the
Corporation, each Share shall have a number of votes per share equal to the
fractional number of shares of Common Stock (to the nearest one-hundredth
of a share) contained in a Stock Unit upon the record date to determine
entitlement to vote, but not less than one (1) vote per share. In all
votes of shareholders, the holders of the Shares shall vote in the same
class as the holders of Common Stock except as expressly provided in this
statement of Designation, Preferences, and Other Rights or as otherwise
required by the Georgia Business Corporation Code.
(b) Amendment of Terms of Shares.
----------------------------
(i) Notwithstanding the provisions of subparagraph 7(a), so
long as any shares of Series E Stock shall be outstanding, the
Corporation shall not, without the affirmative vote at a meeting
called for that purpose or the written consent of the holders of at
least a majority of the aggregate number of shares of Series A at the
time outstanding, or such greater vote as may be required by the
Georgia Business Corporation Code, adopt any amendment to the Articles
of Incorporation which would amend or repeal any of the terms and
provisions of the outstanding shares of Series E Stock in a manner
materially affecting the holders thereof.
(c) (i) Issuance of Senior Preferred Shares. So long as any
-----------------------------------
Shares shall be outstanding, the Corporation shall not, without the
affirmative vote at a meeting called for that purpose or the written
consent of the holders of at least a majority of the aggregate amount
of shares of the Series E stock outstanding, take action to authorize
any class of shares ranking prior to the Shares, or to increase the
authorized number of shares of any such prior class.
(ii) Definition of Senior Preferred Shares. For the
-------------------------------------
purposes of this subparagraph (c), shares shall be deemed to rank
prior to the Shares if the holders thereof shall be entitled to the
receipt of distributions or of amounts distributable on liquidation,
dissolution, at winding up of the
-9-
<PAGE>
affairs of the Corporation, as the case may be, in preference or
priority to the holders of the Shares, but shall be deemed to rank an
a parity with, and not prior to the Shares, if the holders of such
class shall be entitled to the receipt of distributions or of amounts
distributable on liquidation, dissolution, or winding up of the
affairs of the Corporation, as the case may be, in proportion to-their
respective distribution rates or liquidation prices. without
preference or priority one over the other as between the holders of
such shares and the holders of the Shares, whether or not the
distribution rates, distribution payment dates, or liquidation prices
per share thereof are different from those of the Shares (including
without limitation, whether or not such other shares shall have the
benefit of any provision for any extra participating preferred
distribution. It shall not be deemed to be the creation of any such
prior class or series of shares if the Corporation shall take action
to authorize the creation or issuance of any indebtedness of the
withstanding that such indebtedness may be subordinate to other
indebtedness of the Corporation, and notwithstanding that such
indebtedness may be convertible at the option of the Corporation or
the option of the holder into shares of the Corporation (but the
authorization of any such shares which are prior to the Shares shall
be subject to the foregoing provisions), and notwithstanding that such
indebtedness may be both so subordinate and so convertible.
(d) Exceptions to Voting Rights. It shall not constitute any
---------------------------
amendment or repeal of the terms and provisions of any of the outstanding
Shares having an adverse effect on the holders thereof within the meaning
of subparagraph (b) of this paragraph (7) for the corporation to take
action to authorize any other class or series of shares ranking on a parity
with the Shares as to either distributions or liquidation preferences or
both; and, except as otherwise provided by law or expressly otherwise
provided herein, any such action may be authorized without the concurrence
of holders of the Shares.
Notwithstanding the provisions of subparagraphs (b) or (c) above,
unless otherwise specifically provided in subparagraph (7)(c)(ii) as to
series of Preferred Stock prior to the Shares, no vote or consent of the
holders of Shares shall be required in connection with the authorization of
any series of Preferred Stock or the issuance of any shares of any such
series or the adoption by the board of Directors of the Corporation of any
resolution providing for a series of Preferred Stock.
(8) Relationship to Other Series of Preferred Stock. Without limiting
-----------------------------------------------
in any manner the powers of the Board of Directors as expressed in Article Five
of the Articles of Incorporation, it is expressly understood that the Board of
Directors, without any action on the part of shareholders, may provide in the
Articles of Amendment providing for any series of Preferred Stock such
conforming provisions and such restrictions on any series (including the Shares)
as are reasonably designed to permit consistent treatment
-10-
<PAGE>
among parity series (without materially adversely affecting the rights of the
holders of the Shares), including, without limitation, restrictions on the
payment of distributions on and/or purchase or redemption (or the setting aside
of amounts into a sinking fund for purchase or redemption) of shares ranking on
a parity with or junior to such newly created series, which restrictions are
applicable to such parity or junior series (including the Shares); without
limitation, such restrictions may operate in a manner similar to the manner in
which the provisions of paragraph (2) relating to such matters apply by their
terms to shares on a parity with or junior to the Shares.
(9) Meaning of Certain Terms.
------------------------
(a) For the purposes hereof, shares shall be deemed to rank:
(i) prior to Shares either as to distributions or on
liquidation if the holders thereof shall be entitled to the receipt of
distributions or of amounts distributable on liquidation, dissolution,
or winding up of the affairs of the Corporation, as the case may be,
in preference or priority to the holders of the Shares;
(ii) on a parity with Shares as to distributions or on
liquidation, whether or not the distribution rates, distribution
payment dates, at redemption or liquidation prices per share thereof
are different from those of the Shares (including, without limitation,
whether or not such other shares shall have the benefit of any
provision for any extra participating preferred distribution), if the
holders thereof shall be entitled to the receipt of distributions or
of amounts distributable on liquidation, dissolution, at winding up of
the affairs of the Corporation, as the case may be, in proportion to
their respective distribution rates or liquidation prices, without
preference at priority one over the other as between the holders of
such shares and the holders of the Shares; and
(iii) junior to Shares either as to distributions or on
liquidation if the rights of the holders thereof shall be subject or
subordinate to the rights of the holders of the Shares in respect of
the receipt of distributions or of the amounts distributable on
liquidation, dissolution, or winding up of the affairs of the
Corporation, as the case may be.
(b) For the purposes hereof, "Business Day" shall mean any day
upon which commercial banks in the City of Atlanta, Georgia are required to
be open for the transaction of their general banking business.
(10) Certain Provisions Concerning Conversion and Retirement. Upon
-------------------------------------------------------
the conversion of any of the Shares pursuant to the provisions of paragraph (5),
such Shares shall be deemed to be retired. Upon any such retirement and upon
such conversion, the Shares so converted or otherwise so retired shall be
restored to the status of authorized
-11-
<PAGE>
but undesignated and unissued Shares of Preferred Stock of the Corporation,
which shares may thereafter be provided for and designated by the Board of
Directors pursuant to Article Five of the Articles of Incorporation as part of a
series of Preferred Stock to the same extent as if such shares had not
previously been provided for and designated as part of a series of Preferred
Stock; but such shares shall not be reissued as shares of Series E Stock.
(11) Amendment. The Board of Directors reserves the right to amend
---------
the provisions of these Articles of Amendment subject to the provisions of
paragraph (7); without limiting the generality of the foregoing, the Board of
Directors may amend the provisions of these Articles of Amendment without any
vote or consent of the shareholders of the Corporation of any class or series by
decreasing (including a decrease to zero) (but not increasing) the number of
Shares designated hereby, but no such decrease shall be effected to a number
less than the number to Shares at the time issued and outstanding.
-12-
<PAGE>
EXHIBIT D
TO THE AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
XCELLENET, INC.
DESIGNATING THE PREFERENCES AND OTHER RIGHTS OF
CONVERTIBLE PREFERRED STOCK, SERIES F
In addition to the Convertible Preferred Stock, Series A, Series B,
Series C, Series D and Series E, there is hereby designated, of the authorized
but unissued shares of Preferred Stock of the Corporation, a separate series
thereof, and the number of shares, voting powers, designation, preferences, and
relative, participating, optional, and other special rights, and the
qualifications, limitations, and restrictions thereof, of the shares of such
series (in addition to those set forth in the Articles of Incorporation which
are applicable to the Preferred Stock of all series), shall be as follows:
(1) Designation and Number of Shares. The designation of this series
--------------------------------
of Preferred Stock shall be "Convertible Preferred Stock, Series F" (hereinafter
called "Series F Stock"), to consist of 20,834 shares. The shares of Series F
Stock are sometimes hereinafter referred to as the "Shares".
(2) Distributions.
-------------
(a) Distribution Rights. The holder of Shares shall be entitled
-------------------
to receive, when, as, and if declared by the Board of Directors, subject to
restrictions imposed by the Georgia Business Corporation Code or the
Articles of Incorporation on distributions to shareholders, and subject to
the provisions of paragraph (4) with respect to distributions in the event
of any voluntary or involuntary liquidation, dissolution, or winding up of
the affairs of the Corporation, transfers of money or other property
(except of the Corporation's own shares) or incurrence of indebtedness by
the Corporation in respect of any of its shares, whether by dividend,
purchase, redemption, or other acquisition of shares, a distribution of
indebtedness, or otherwise (hereinafter referred to as a "distribution"),
in an amount equal to the distribution declared for each Share or for each
share of Common Stock. So long as any Shares shall remain outstanding, (i)
no distribution whatsoever shall be declared or paid upon or set apart for
the Shares or for the Common Stock or any other shares ranking on a parity
with or junior to the Shares in payment of distributions; (ii) no
redemption or purchase by the Corporation of Shares or of any shares
ranking on a parity with or junior to the Shares in payment of
distributions shall occur; and (iii) no moneys shall be paid to or made
available for a sinking fund for the redemption or purchase of any such
shares or otherwise applied to any such redemption or purchase, unless in
each instance distributions,
<PAGE>
redemptions, or payments in an equal amount per share shall have been
declared and sufficient funds set aside for the payment thereof to the
holders of the Shares.
(b) Shares Held by Corporation. For the purposes of this
--------------------------
paragraph (2), no Share shall be deemed to be issued or outstanding at any
time at which it is held by or for the account of the Corporation or by or
for the account of any majority-owned subsidiary of the Corporation.
(3) Rights of Redemption. The Shares will not be subject to redemption by
--------------------
the Corporation.
(4) Rights on Liquidation, Dissolution, or Winding Up.
-------------------------------------------------
(a) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the Corporation, the holders
of the Shares then outstanding shall be entitled to be paid, out of the
assets of the Corporation available for distribution to its shareholders,
before any payment shall be made to the holders of Common Stock or any
shares ranking on liquidation junior to the Shares, an amount equal to
$12.00 per share of Series F Stock. If upon voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the Corporation,
the assets of the Corporation available for distribution to its
shareholders shall be insufficient to pay the holders of the Shares and of
any shares ranking on liquidation on a parity with the Shares (including,
without limitation, the shares of the Corporation's Convertible Preferred
Stock, Series A, Series B, Series C, Series D and Series E) the full
amounts to which they respectively shall be entitled, the holders of such
Shares and of such parity shares shall share ratably in any distribution of
assets according to the respective amounts which would be payable in
respect of the shares held by them upon such distribution if all amounts
payable on or with respect to said shares were paid in full. In the event
of any voluntary or involuntary liquidation, dissolution, or winding up of
the affairs of the Corporation, after payment shall have been made to the
holders of the Shares and of any shares ranking on liquidation on a parity
with the Shares of the full amount to which such shares shall be entitled
as aforesaid, no further payments or distributions shall be made with
respect to the Shares.
(b) For the purposes of this paragraph (4), the sale, transfer,
exchange or other disposition of all or substantially all of the assets of
the Corporation shall be deemed to be a liquidation of the Corporation, and
the allocation of any cash, securities, or other property received by the
Corporation in consideration for such sale shall be made in accordance with
the provisions of paragraph (4)(a) as if such sale of assets were a
liquidation of the Corporation. Nothing herein shall be construed as
requiring or permitting a sale of assets to be treated as a liquidation for
any purpose other than the allocations provided for in this subparagraph
(4)(b).
<PAGE>
(c) Notwithstanding any other provision of this paragraph (4),
the merger, consolidation, or similar business combination of the
Corporation into or with any other corporation\\, or the acquisition by any
other corporation of all of the outstanding shares of one or more classes
or series of the Corporation through a statutory share exchange or similar
business combination, in which, following such merger, consolidation, share
exchange, or similar business combination, less than 50% of the voting
power of the surviving entity is held by persons that were shareholders of
the Corporation immediately prior to such merger, consolidation, share
exchange, or similar business combination (an "Acquisition Event"), shall
be deemed to be a liquidation of the Corporation; provided, however, that
such a deemed liquidation shall not be governed by the provisions of
paragraph (4)(a) but by the following provisions of this paragraph (4)(c).
Upon the occurrence of an Acquisition Event, the holders of the Shares then
outstanding shall be entitled to be allocated, out of such cash, securities
or other property, before any allocation shall be made to the holders of
Common Stock or any shares ranking on liquidation junior to the Shares\\ an
amount equal to $12.00 per share of Series F Stock. If upon such
Acquisition Event, the cash, securities, or other property into which the
shares of capital stock of the Corporation are to be converted shall be
insufficient to pay the holders of the Shares and of any shares ranking on
liquidation on a parity with the Shares the full amounts to which they
respectively shall be entitled pursuant to this paragraph (4)(c), the
holders of such Shares and of such parity shares shall share ratably in any
cash, securities or other property into which shares of capital stock of
the Corporation are to be converted according to the respective amounts
which would be payable in respect of the shares held by them upon such
payment if all amounts payable on or with respect to said shares were paid
in full. Upon the occurrence of any Acquisition Event, after payment shall
have been made to the holders of the Shares and of any shares ranking on
liquidation on a parity with the Shares of the full amount to which such
Shares shall be entitled pursuant to this paragraph (4)(c), no further
payments or distributions shall be made with respect to the Shares and all
remaining cash, securities, or other property into which shares of capital
stock of the Corporation are to be converted shall be allocated ratably to
the Common Stock. Nothing herein shall be construed as requiring or
permitting a merger, consolidation, share exchange, other business
combination, to be treated as a liquidation for any purpose other than the
allocations provided for in this paragraph (4)(c).
(d) Except as provided in paragraphs (4)(b) and (4)(c), the
merger, consolidation, or similar business combination of the Corporation
into or with any other corporation, the merger, consolidation, or similar
business combination of any other corporation into or with the Corporation,
the acquisition by any other corporation of all of the outstanding shares
of one or more classes or series of the Corporation through a statutory
share exchange or similar business combination, or the sale, transfer,
mortgage, pledge, or lease of the assets of the Corporation, shall not be
deemed to be a liquidation, dissolution, or winding up of the affairs of
the Corporation within the meaning of paragraph (4). Except as provided in
paragraph
<PAGE>
(4)(c), the entitlement of the holders of Shares in the case of the merger,
consolidation, or similar business combination of the Corporation into or
with any other corporation, the merger, consolidation, or similar business
combination of any other corporation into or with the Corporation, or the
acquisition by any other corporation of all of the outstanding shares of
one or more classes or series of the Corporation through a statutory share
exchange or similar business combination, shall be: (x) if this Corporation
shall not be a surviving corporation in such transaction, to receive shares
of the surviving corporation having the same rights as the Shares,
including, without limitation, conversion rights based upon a Stock Unit as
referred to in paragraph (5)(c), or (y) if this Corporation is a surviving
corporation in such a transaction, that the transaction does not effect any
amendment or repeal of any of the terms and provisions of the outstanding
Shares in a manner adversely affecting the holders thereof, which if made
through an amendment to the Articles of Incorporation would require
authorization by the vote referred to in paragraph (7)(b). No such merger,
consolidation, share exchange, or similar transaction shall be effected
unless provision for such entitlement is made or shall result and be met
for the holders of the Shares, unless such transaction shall, in addition
to any other vote required, be authorized by the vote referred to in
paragraph (7)(b).
(e) Written notice of any voluntary or involuntary dissolution,
liquidation, or winding up of the affairs of the Corporation within the
meaning of paragraphs (4)(a), (4)(b) and (4)(c), stating a payment date and
the place where the distributable amounts shall be payable, shall be given
by first-class mail, postage prepaid, not less than 30 days prior to the
payment date stated therein, to each record holder of the Shares at his
address as the same shall appear on the shareholder records of the
Corporation.
(5) Conversion Rights. The Shares shall be convertible into Common Stock,
-----------------
$.01 par value per share, of the Corporation on the following terms and
conditions:
(a) Term. Subject to and upon compliance with the provisions of
----
this paragraph (5), the holder of any Shares may convert any Shares at his
option at any time (during business hours on a Business Day) at the offices
of the Company, or at such other place or places, if any, as the Board of
Directors may determine, into such number of fully paid and nonassessable
shares of Common Stock (or other property) as are issuable pursuant to the
conversion formula set forth in paragraph (5)(c), as the same may be
adjusted from time to time pursuant to paragraph (6). The Corporation
shall make no payment or adjustment on account of distributions accrued or
in arrears on the Shares surrendered for conversion and no adjustment on
account of distributions on the shares of Common Stock issuable upon
conversion.
(b) Surrender of Shares. In order for any holder of Shares to be
-------------------
entitled to convert the same into Common Stock, he shall surrender the
certificate or certificates for such Shares at one of the places referred
to in paragraph (5)(a), duly
<PAGE>
endorsed to the Corporation or in blank or accompanied by proper
instruments of transfer to the Corporation or in blank, and shall give
written notice to the Corporation at said place that he elects to convert
said Shares and shall state in writing therein the name or names in which
he wishes the certificate or certificates for shares of Common Stock
issuable on such conversion to be issued. Subject to the provisions of
paragraph (5)(a), every such notice of election to convert shall constitute
a contract between the holder of such Shares and the Corporation (i)
whereby such holder shall be deemed to subscribe for the amount of Common
Stock which he will be entitled to receive upon such conversion and, in
payment and satisfaction of such subscription, to surrender the Shares to
be converted and to release the Corporation from all obligation thereon,
and (ii) whereby the Corporation shall be deemed to agree that the
surrender of the certificate or certificates for such Shares and the
extinguishment of obligation thereon shall constitute full payment of such
subscription for the Common Stock so subscribed for and to be issued upon
such conversion.
The Corporation will as soon as practicable after such deposit of
certificates for Shares, accompanied by the written notice and the
statement above prescribed, issue and deliver to the person for whose
account such Shares were so surrendered, or to his nominee or nominees, a
certificate or certificates for the number of full shares of Common Stock
to which he shall be entitled as aforesaid, together with a check or cash
in respect of any fraction of a share as hereinafter provided in paragraph
(5)(f). Subject to the following provisions of this paragraph (5), such
conversion shall be deemed to have been made on the Business Day on which
the Corporation shall have received the Shares to be converted and the
notice and statement above prescribed, and the person or persons entitled
to receive the Common Stock issuable upon conversion of such Shares shall
be deemed for all purposes to have become the record holder or holders of
such Common Stock and to have ceased to be the holder of the Shares
surrendered for conversion on such Business Day. The Corporation shall not
be required to convert, and no surrender of any Shares shall be effective
for that purpose, while the shareholder records of the Corporation are
closed for any purpose, but the surrender of any Shares for conversion
during any period while such records are closed shall become effective for
conversion immediately upon the reopening of such records, as if the
conversion had been made on the date such Shares were surrendered, and on
the basis of conversion in effect on the date of such surrender. Nothing
in the preceding sentence shall require the Corporation to effect
conversions otherwise than during business hours upon a Business Day, and
Shares which are surrendered for conversion upon a day which is not a
Business Day shall be deemed to be so surrendered upon the next succeeding
Business Day.
(c) Stock Unit. Each share of Series F Stock shall be
----------
convertible, at the times and places and in the manner referred to in
subparagraphs (a) and (b) above, into one "Stock Unit". The contents of a
Stock Unit as of February __, 1993, shall be one (1) share of Common Stock
(as constituted upon such date) of the
<PAGE>
Corporation. The contents of a Stock Unit shall thereafter be subject to
adjustment in accordance with the provisions of paragraph (6).
(d) Taxes. The issue of share certificates on conversion of
-----
Shares shall be made free of any tax in respect of such issue. The
Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of
shares in a name other than that of the holder of the Shares converted, and
the Corporation shall not be required to issue or deliver any such share
certificate unless and until the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of any such tax or
shall have established to the satisfaction of the Corporation that such tax
has been paid.
(e) Reservation of Shares. The Corporation shall at all times
---------------------
reserve and keep available, out of its authorized and unissued shares,
solely for the purpose of effecting the conversion of Shares, such number
of shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all Shares from time to time outstanding. The
Corporation shall from time to time, in accordance with the Georgia
Business Corporation Code, use its best efforts to cause the number of
authorized shares of its Common Stock to be increased if at any time the
number of authorized shares of Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the then outstanding Shares.
(f) Fractional Shares. The Corporation shall not be required to
-----------------
issue fractional shares of Common Stock or scrip upon conversion of Shares.
As to any final fraction of a share of Common Stock which a holder of one
or more Shares would otherwise be entitled to receive upon conversion of
Shares in the same transaction, the Corporation shall pay a cash adjustment
in respect of such final fraction in an amount equal to $12.00 per share of
Series F Stock.
(6) Antidilution. The number of shares of Common Stock comprising a Stock
------------
Unit shall be subject to adjustment from time to time, as follows:
(a) Recapitalization. In case the Corporation after February __,
----------------
1993, (the "Base Date") shall (i) issue a share dividend to the holders of
its Common Stock, (ii) combine its outstanding shares of Common Stock into
a smaller number of shares, or (iii) issue by reclassification of its
shares of Common Stock any shares of the Corporation, then the number of
shares of Common Stock comprising a Stock Unit immediately after the
happening of any of the events described above shall be adjusted so as to
consist of the number of shares of the Corporation which a record holder of
the number of shares of Common Stock comprising a Stock Unit immediately
prior to the happening of such event would own or be entitled to receive
after the happening of such event (taking into account fractional interests
in shares included in a Stock Unit to the nearest one-hundredth of a share,
and for the purposes of the foregoing considering such fractional interests
as outstanding
<PAGE>
fractional shares). Similar adjustments to the content of a Stock Unit
shall be made if any of the events described above in this subparagraph (a)
shall thereafter occur. An adjustment made pursuant to this subparagraph
(a) shall become effective retroactively immediately after the record date
in the case of a share dividend, and shall become effective immediately
after the effective date in the case of a combination or reclassification,
subject in each case to the provisions of subparagraph (c) of this
paragraph (6).
(b) Merger, Consolidation, or Share Exchange. In case, after the
----------------------------------------
Base Date, as a result of a merger, consolidation, or similar business
combination of the Corporation into or with another corporation, the
acquisition by any other corporation of all of the outstanding shares of
one or more classes or series of the Corporation through a statutory share
exchange or similar business combination, or the sale or other transfer of
the Corporation's property, assets, and business substantially as an entity
to a successor corporation, the Common Stock is in effect changed, in whole
or in part, into a different kind or class of shares or other securities or
property, the contents of a Stock Unit shall thereupon become the kind and
amount of shares or other securities or property receivable upon such
merger, consolidation, share exchange, or similar business combination, or
upon the dissolution following such sale or other transfer, by a record
holder of the number of shares of Common Stock comprising a Stock Unit
immediately prior to such change.
(c) De Minimus Adjustments. No adjustment in the number of
----------------------
shares of Common Stock comprising a Stock Unit shall be required under this
paragraph (6) unless such adjustment would require an increase or decrease
of at least 1% in the number of shares of Common Stock at the time
comprising a Stock Unit, or a change in the kind or class of shares or
other securities or property comprising a Stock Unit; provided, however,
that any adjustments which by reason of the foregoing are not required at
the time to be made shall be carried forward and taken into account and
included in determining the amount of any subsequent adjustment. If the
Corporation shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or distribution or any
subscription or purchase rights and shall, thereafter and before the
distribution to shareholders of any such dividend, distribution, or
subscription or purchase rights, legally abandon its plan to pay or deliver
such dividend, distribution, or subscription or purchase rights, then no
adjustment in the number of shares of Common Stock comprising a Stock Unit
shall be required by reason of the taking of such record.
(d) Other Actions by Corporation. In case the Corporation after
----------------------------
the Base Date shall take any action affecting the Common Stock, other than
action described in subparagraphs (a) and (b) of this paragraph (6), which
in the opinion of the Board of Directors of the Corporation would
materially affect the rights of the holders of the Shares, the Common Stock
included in a Stock Unit shall be adjusted in such manner, if any, and at
such time, as the Board of Directors of the
<PAGE>
Corporation, in its sole discretion, may determine to be equitable in the
circumstances. Failure of the Board of Directors of the Corporation to
provide for an adjustment prior to the effective date of any such action by
the Corporation affecting the Common Stock shall be conclusive evidence
that the Board of Directors of the Corporation has determined that it is
equitable to make no adjustment in the circumstances.
(e) Notices of Adjustment. Whenever the content of a Stock Unit
---------------------
is adjusted pursuant to this paragraph (6), the Corporation shall promptly
mail to each holder of record of the Shares a certificate signed by the
President or Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Corporation setting forth
in reasonable detail the events requiring the adjustment and the method by
which such adjustment was calculated and specifying the number, or kind, or
class of shares or other securities or property comprising a Stock Unit
after giving effect to such adjustment.
Failure to file any certificate or notice or to publish or mail
any notice, or any defect in any certificate or notice, pursuant to this
paragraph (6) shall not affect the legality or validity of the adjustment
in the content of a Stock Unit or of any transaction giving rise thereto.
(f) Definition of Terms. For the purposes of this paragraph (6),
-------------------
the number of shares of Common Stock at any time outstanding shall not
include shares then owned or held by or for the account of the Corporation
or any majority-owned subsidiary.
For the purposes of this paragraph (6), the term "Common Stock"
shall mean (i) the class of shares designated as the Common Stock, par
value $.01 per share, of the Corporation at the Base Date or (ii) any other
class of shares resulting from successive changes or reclassifications of
such Common Stock consisting solely of changes in par value, or from par
value to no par value, or from no par value to par value. In the event
that at any time, as a result of an adjustment made pursuant to this
paragraph (6), a Stock Unit shall include shares of the Corporation other
than shares of Common Stock, thereafter the number of such other shares so
included in a Stock Unit shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in subparagraphs (a)
and (b) of this paragraph (6), and all other provisions of this paragraph
(6) with respect to Common Stock shall apply on like terms to any such
other shares. Subject to the foregoing, and unless the context requires
otherwise, all references to Common Stock in this paragraph (6) shall, in
the event of an adjustment pursuant to this paragraph (6), be deemed to
refer also to any other securities or property then comprising a Stock Unit
as a result of such adjustments.
(7) Voting Rights.
-------------
<PAGE>
(a) Voting Rights. The holders of record of the Shares shall
-------------
have one (1) vote in respect of each Share held by such holder of record
with respect to every matter coming before any meeting of the shareholders,
or otherwise to be acted upon by the shareholders; except that, if at any
time the contents of the Stock Unit referred to in subparagraph 5(c) shall
include more or fewer than one (1) share of Common Stock of the
Corporation, each Share shall have a number of votes per share equal to the
fractional number of shares of Common Stock (to the nearest one-hundredth
of a share) contained in a Stock Unit upon the record date to determine
entitlement to vote, but not less than one (1) vote per share. In all
votes of shareholders, the holders of the Shares shall vote in the same
class as the holders of Common Stock except as expressly provided in this
statement of Designation, Preferences, and Other Rights or as otherwise
required by the Georgia Business Corporation Code.
(b) Amendment of Terms of Shares.
----------------------------
(i) Notwithstanding the provisions of subparagraph 7(a), so
long as any shares of Series F Stock shall be outstanding, the
Corporation shall not, without the affirmative vote at a meeting
called for that purpose or the written consent of the holders of at
least a majority of the aggregate number of shares of Series F Stock
at the time outstanding, or such greater vote as may be required by
the Georgia Business Corporation Code, adopt any amendment to the
Articles of Incorporation which would amend or repeal any of the terms
and provisions of the outstanding shares of Series F Stock in a manner
materially affecting the holders thereof.
(c) (i) Issuance of Senior Preferred Shares. So long as any Shares
-----------------------------------
shall be outstanding, the Corporation shall not, without the
affirmative vote at a meeting called for that purpose or the written
consent of the holders of at least a majority of the aggregate amount
of shares of the Series F Stock outstanding, take action to authorize
any class of shares ranking prior to the Shares, or to increase the
authorized number of shares of any such prior class.
(ii) Definition of Senior Preferred Shares. For the
-------------------------------------
purposes of this subparagraph (c), shares shall be deemed to rank
prior to the Shares if the holders thereof shall be entitled to the
receipt of distributions or of amounts distributable on liquidation,
dissolution, or winding up of the affairs of the Corporation, as the
case may be, in preference or priority to the holders of the Shares,
but shall be deemed to rank on a parity with, and not prior to the
Shares, if the holders of such class shall be entitled to the receipt
of distributions or of amounts distributable on liquidation,
dissolution, or winding up of the affairs of the Corporation, as the
case may be, in proportion to their respective distribution rates or
liquidation prices, without
<PAGE>
preference or priority one over the other as between the holders of
such shares and the holders of the Shares, whether or not the
distribution rates, distribution payment dates, or liquidation prices
per share thereof are different from those of the Shares (including
without limitation, whether or not such other shares shall have the
benefit of any provision for any extra participating preferred
distribution). It shall not be deemed to be the creation of any such
prior class or series of shares if the Corporation shall take action
to authorize the creation or issuance of any indebtedness of the
Corporation, notwithstanding that such indebtedness may be subordinate
to other indebtedness of the Corporation, and notwithstanding that
such indebtedness may be convertible at the option of the Corporation
or the option of the holder into shares of the Corporation (but the
authorization of any such shares which are prior to the Shares shall
be subject to the foregoing provisions), and notwithstanding that such
indebtedness may be both so subordinate and so convertible.
(d) Exceptions to Voting Rights. It shall not constitute any
---------------------------
amendment or repeal of the terms and provisions of any of the outstanding
Shares having an adverse effect on the holders thereof within the meaning
of subparagraph (b) of this paragraph (7) for the Corporation to take
action to authorize any other class or series of shares ranking on a parity
with the Shares as to either distributions or liquidation preferences or
both; and, except as otherwise provided by law or expressly otherwise
provided herein, any such action may be authorized without the concurrence
of holders of the Shares.
Notwithstanding the provisions of subparagraphs (b) or (c) above,
unless otherwise specifically provided in subparagraph (7)(c)(ii) as to
series of Preferred Stock prior to the Shares, no vote or consent of the
holders of Shares shall be required in connection with the authorization of
any series of Preferred Stock or the issuance of any shares of any such
series or the adoption by the Board of Directors of the Corporation of any
resolution providing for a series of Preferred Stock.
(8) Relationship to Other Series of Preferred Stock. Without limiting
-----------------------------------------------
in any manner the powers of the Board of Directors as expressed in Article Five
of the Articles of Incorporation, it is expressly understood that the Board of
Directors, without any action on the part of shareholders, may provide in the
Articles of Amendment providing for any series of Preferred Stock such
conforming provisions and such restrictions on any series (including the Shares)
as are reasonably designed to permit consistent treatment among parity series
(without materially adversely affecting the rights of the holders of the
Shares), including, without limitation, restrictions on the payment of
distributions on and/or purchase or redemption (or the setting aside of amounts
into a sinking fund for purchase or redemption) of shares ranking on a parity
with or junior to such newly created series, which restrictions are applicable
to such parity or junior series (including the Shares); without limitation, such
restrictions may operate in a manner similar to the manner in which the
<PAGE>
provisions of paragraph (2) relating to such matters apply by their terms to
shares on a parity with or junior to the Shares.
(9) Meaning of Certain Terms.
------------------------
(a) For the purposes hereof, shares shall be deemed to rank:
(i) prior to Shares either as to distributions or on
liquidation if the holders thereof shall be entitled to the receipt of
distributions or of amounts distributable on liquidation, dissolution,
or winding up of the affairs of the Corporation, as the case may be,
in preference or priority to the holders of the Shares;
(ii) on a parity with Shares as to distributions or on
liquidation, whether or not the distribution rates, distribution
payment dates, or redemption or liquidation prices per share thereof
are different from those of the Shares (including, without limitation,
whether or not such other shares shall have the benefit of any
provision for any extra participating preferred distribution), if the
holders thereof shall be entitled to the receipt of distributions or
of amounts distributable on liquidation, dissolution, or winding up of
the affairs of the Corporation, as the case may be, in proportion to
their respective distribution rates or liquidation prices, without
preference or priority one over the other as between the holders of
such shares and the holders of the Shares; and
(iii) junior to Shares either as to distributions or on
liquidation if the rights of the holders thereof shall be subject or
subordinate to the rights of the holders of the Shares in respect of
the receipt of distributions or of the amounts distributable on
liquidation, dissolution, or winding up of the affairs of the
Corporation, as the case may be.
(b) For the purposes hereof, "Business Day" shall mean any day
upon which commercial banks in the City of Atlanta, Georgia are required to
be open for the transaction of their general banking business.
(10) Certain Provisions Concerning Conversion and Retirement. Upon
-------------------------------------------------------
the conversion of any of the Shares pursuant to the provisions of paragraph (5),
such Shares shall be deemed to be retired. Upon any such retirement and upon
such conversion, the Shares so converted or otherwise so retired shall be
restored to the status of authorized but undesignated and unissued shares of
Preferred Stock of the Corporation, which shares may thereafter be provided for
and designated by the Board of Directors pursuant to Article Five of the
Articles of Incorporation as part of a series of Preferred Stock to the same
extent as if such shares had not previously been provided for and designated as
part of a series of Preferred Stock; but such shares shall not be reissued as
shares of Series F Stock.
<PAGE>
(11) Amendment. The Board of Directors reserves the right to amend the
---------
provisions of these Articles of Amendment subject to the provisions of paragraph
(7); without limiting the generality of the foregoing, the Board of Directors
may amend the provisions of these Articles of Amendment without any vote or
consent of the shareholders of the Corporation of any class or series by
decreasing (including a decrease to zero) (but not increasing) the number of
Shares designated hereby, but no such decrease shall be effected to a number
less than the number of Shares at the time issued and outstanding.
<PAGE>
EXHIBIT 3.02
XCELLENET, INC.
AMENDED AND RESTATED
BYLAWS
As Amended March 24, 1995
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE ONE - OFFICES AND AGENT
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1.1 Registered Office and Agent 1
Section 1.2 Other Offices 1
ARTICLE TWO - SHAREHOLDERS' MEETINGS
Section 2.1 Place of Meetings 1
Section 2.2 Annual Meetings 1
Section 2.3 Special Meetings 1
Section 2.4 Notice of Meetings 1
Section 2.5 Voting Group 2
Section 2.6 Quorum 2
Section 2.7 Vote Required for Action 2
Section 2.8 Voting of Shares 2
Section 2.9 Proxies 3
Section 2.10 Presiding Officer 3
Section 2.11 Adjournments 3
Section 2.12 Action of Shareholders
Without a Meeting 3
ARTICLE THREE - THE BOARD OF DIRECTORS
Section 3.1 General Powers 3
Section 3.2 Number of Directors and Term of Office 4
Section 3.3 Removal 4
Section 3.4 Vacancies 4
Section 3.5 Compensation 4
ARTICLE FOUR - MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 Regular Meetings 5
Section 4.2 Special Meetings 5
Section 4.3 Place of Meetings 5
Section 4.4 Notice of Meetings 5
Section 4.5 Quorum 5
Section 4.6 Vote Required for Action 5
Section 4.7 Participation by Conference
Telephone 6
Section 4.8 Action by Directors Without a Meeting 6
Section 4.9 Adjournments 6
Section 4.10 Committees of the Board of Directors 6
</TABLE>
-ii-
<PAGE>
ARTICLE FIVE - MANNER OF NOTICE AND WAIVER AS TO
SHAREHOLDERS AND DIRECTORS
Section 5.1 Procedure 6
Section 5.2 Waiver 7
ARTICLE SIX - OFFICERS
Section 6.1 Number 8
Section 6.2 Election and Term 8
Section 6.3 Compensation 8
Section 6.4 Chairman 8
Section 6.5 Chief Executive Officer 8
Section 6.6 President 8
Section 6.7 Chief Financial Officer 9
Section 6.8 Secretary 9
Section 6.9 Vice Presidents 9
Section 6.10 Bonds 9
ARTICLE SEVEN - DISTRIBUTIONS AND SHARE DIVIDENDS
Section 7.1 Authorization or Declaration 10
Section 7.2 Record Date with Regard to Distri-
butions and Share Dividends 10
ARTICLE EIGHT - SHARES
Section 8.1 Authorization and Issuance
of Shares 10
Section 8.2 Share Certificates 10
Section 8.3 Rights of Corporation with Respect
to Registered Owners 10
Section 8.4 Transfers of Shares 11
Section 8.5 Duty of Corporation to Register Transfer 11
Section 8.6 Lost, Stolen or Destroyed
Certificates 11
Section 8.7 Fixing of Record Date with regard to
Shareholder Action 11
ARTICLE NINE - INDEMNIFICATION
Section 9.1 Certain Definitions 12
Section 9.2 Basic Indemnification Arrangement 13
Section 9.3 Advances for Expenses 14
-iii-
<PAGE>
Section 9.4 Authorization of and Determination of
Entitlement to Indemnification 14
Section 9.5 Court-Ordered Indemnification and
Advances for Expenses 15
Section 9.6 Indemnification of Employees and Agents 16
Section 9.7 Limitations on Indemnification 16
Section 9.8 Liability Insurance 17
Section 9.9 Witness Fees 17
Section 9.10 Report to Shareholders 17
Section 9.11 Security for Indemnification
Obligations 17
Section 9.12 No Duplication of Payments 17
Section 9.13 Subrogation 17
Section 9.14 Contract Rights 17
Section 9.15 Specific Performance 18
Section 9.16 Non-exclusivity, Etc. 18
Section 9.17 Amendments 18
Section 9.18 Severability 18
ARTICLE TEN - MISCELLANEOUS
Section 10.1 Inspection of Books and Records 19
Section 10.2 Fiscal Year 19
Section 10.3 Corporate Seal 19
Section 10.4 Annual Financial Statements 19
Section 10.5 Conflict with Articles of
Incorporation 19
ARTICLE ELEVEN - AMENDMENTS
Section 11.1 Power to Amend Bylaws 19
ARTICLE TWELVE - RESTRICTIONS ON CERTAIN BUSINESS
COMBINATIONS WITH INTERESTED SHAREHOLDERS
Section 12.1 Business Combinations 20
-iv-
<PAGE>
ARTICLE ONE
Offices and Agent
Section 1.1 Registered Office and Agent. The corporation shall maintain a
---------------------------
registered office in the State of Georgia and shall have a registered agent
whose business office is identical with such registered office.
Section 1.2 Other Offices. In addition to its registered office, the
-------------
corporation may have offices at such other place or places, within or without
the State of Georgia, as the Board of Directors may from time to time appoint or
as the business of the corporation may require or make desirable.
ARTICLE TWO
Shareholders' Meetings
Section 2.1 Place of Meetings. Meetings of shareholders may be held at
-----------------
any place within or without the State of Georgia as set forth in the notice
thereof or in the event of a meeting held pursuant to waiver of notice, as set
forth in the waiver, or if no place is so specified, at the principal office of
the corporation.
Section 2.2 Annual Meetings. The annual meeting of shareholders shall be
---------------
held following the availability of the corporation's annual financial statements
on a date determined by the Board of Directors, for the purpose of electing
directors and transacting any and all business that may properly come before the
meeting. If the annual meeting of shareholders is not held on the day
designated as provided in this Section 2.2, any business, including the election
of directors, that might properly have been acted upon at that meeting may be
acted upon at a special meeting in lieu of the annual meeting held pursuant to
these bylaws or held pursuant to a court order.
Section 2.3 Special Meetings. Special meetings of shareholders or a
----------------
special meeting in lieu of the annual meeting of shareholders may be called at
any time by the Board of Directors, the Chairman or the Chief Executive Officer.
Special meetings of the shareholders or a special meeting in lieu of the annual
meeting of the shareholders shall be called by the corporation upon the written
request of the holders of twenty-five percent (25%) or more of all the shares of
capital stock of the corporation entitled to vote in any election of directors.
Section 2.4 Notice of Meetings. Unless waived as contemplated in Section
------------------
5.2, a written or printed notice of each meeting of shareholders stating the
date, time and place of the meeting shall be given not less than ten (10) days
nor more than sixty (60) days before the date thereof, by or at the direction of
<PAGE>
the Chairman, the President, the Secretary, or the officer or persons calling
the meeting, to each shareholder entitled to vote at that meeting. In the case
of an annual meeting, the notice need not state the purpose or purposes of the
meeting unless the articles of incorporation or the Georgia Business Corporation
Code (the "Code") require the purpose or purposes to be stated in the notice of
the meeting. In the case of a special meeting, including a special meeting in
lieu of an annual meeting, the notice of meeting shall state the purpose or
purposes for which the meeting is called.
Section 2.5 Voting Group. Voting group means all shares of one or more
------------
classes or series that are entitled to vote and be counted together collectively
on a matter at a meeting of shareholders. All shares entitled to vote generally
on the matter are for that purpose a single voting group.
Section 2.6 Quorum. With respect to shares entitled to vote as a separate
------
voting group on a matter at a meeting of shareholders, the presence, in person
or by proxy, of a majority of the votes entitled to be cast on the matter by the
voting group shall constitute a quorum of that voting group for action on that
matter unless the articles of incorporation or the Code provides otherwise.
Once a share is represented for any purpose at a meeting, other than solely to
object to holding the meeting or to transacting business at the meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of the meeting unless a new record date is or must be set for the
adjourned meeting pursuant to Section 8.7 of these bylaws.
Section 2.7 Vote Required for Action. If a quorum exists, action on a
------------------------
matter (other than the election of directors) by a voting group is approved if
the votes cast within the voting group favoring the action exceed the votes cast
opposing the action, unless the articles of incorporation, provisions of these
bylaws validly adopted by the shareholders, or the Code requires a greater
number of affirmative votes. If the articles of incorporation or the Code
provide for voting by two or more voting groups on a matter, action on that
matter is taken only when voted upon by each of those voting groups counted
separately. Action may be taken by one voting group on a matter even though no
action is taken by another voting group entitled to vote on the matter. With
regard to the election of directors, unless otherwise provided in the articles
of incorporation, if a quorum exists, action on the election of directors is
taken by a plurality of the votes cast by the shares entitled to vote in the
election.
Section 2.8 Voting of Shares. Unless the articles of incorporation or the
----------------
Code provides otherwise, each outstanding share having voting rights shall be
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. Voting on all matters shall be by voice vote or by show of hands
unless any qualified voter, prior to the voting on any matter, demands vote by
ballot, in which case each ballot shall state the name of the shareholder voting
and the number of shares voted by him, and if the ballot be cast by proxy, it
shall also state the name of the proxy.
-2-
<PAGE>
Section 2.9 Proxies. A shareholder entitled to vote pursuant to Section
-------
2.8 may vote in person or by proxy pursuant to an appointment of proxy executed
in writing by the shareholder or by his attorney in fact. An appointment of
proxy shall not be valid for more than eleven months unless expressly provided
therein. If the validity of any appointment of proxy is questioned, it must be
submitted to the secretary of the meeting of shareholders for examination or to
a proxy officer or committee appointed by the person presiding at the meeting.
The secretary of the meeting or, if appointed, the proxy officer or committee,
shall determine the validity or invalidity of any appointment of any proxy
submitted and reference by the secretary in the minutes of the meeting to the
regularity of an appointment of proxy shall be received as prima facie evidence
of the facts stated for the purpose of establishing the presence of a quorum at
the meeting and for all other purposes.
Section 2.10 Presiding Officer. The Chairman shall serve as the chairman
-----------------
of every meeting of shareholders unless another person is elected by
shareholders to serve as chairman at the meeting. The chairman shall appoint
any persons he deems desirable to assist with the meeting.
Section 2.11 Adjournments. Whether or not a quorum is present to organize
------------
a meeting, any meeting of shareholders (including an adjourned meeting) may be
adjourned by the holders of a majority of the voting shares represented at the
meeting to reconvene at a specific time and place, but no later than 120 days
after the date fixed for the original meeting unless the requirements of the
Code concerning the selection of a new record date have been met. At any
reconvened meeting within that time period, any business may be transacted that
could have been transacted at the meeting that was adjourned. If notice of the
adjourned meeting was properly given, it shall not be necessary to give any
notice of the reconvened meeting or of the business to be transacted, if the
date, time and place of the reconvened meeting are announced at the meeting that
was adjourned and before adjournment; provided, however, that if a new record
date is or must be fixed, notice of the reconvened meeting must be given to
persons who are shareholders as of the new record date.
Section 2.12 Action of Shareholders Without a Meeting. Action required or
----------------------------------------
permitted to be taken at a meeting of shareholders may be taken without a
meeting if the action is taken by all shareholders entitled to vote on the
action. The action must be evidenced by one or more written consents describing
the action taken, signed by all shareholders and delivered to the corporation
for inclusion in the minutes or filing with the corporate records.
ARTICLE THREE
The Board of Directors
Section 3.1 General Powers. All corporate powers shall be exercised by or
--------------
under the authority of, and the business and affairs of the corporation shall be
managed
-3-
<PAGE>
under the direction of the Board of Directors. In addition to the
powers and authority expressly conferred upon it by these bylaws, the Board of
Directions may exercise all such lawful acts and things as are not by law, by
the articles of incorporation or by these bylaws directed or required to be
exercised or done by the shareholders.
Section 3.2 Number of Directors and Term of Office. The number of
--------------------------------------
directors of the corporation shall not be less than three (3) nor more than
eleven (11), the precise number to be fixed by resolution of the shareholders or
the Board of Directors from time to time.
The number of directors may be increased or decreased from time to time as
provided herein or by amendment to these bylaws and the articles of
incorporation; provided, however, that the total number of directors at any time
shall not be less than three (3); and provided further, that no decrease in the
number of directors shall have the effect of shortening the term of an incumbent
director. In the event that preferred stock of the corporation is issued and
authorizes the election of one or more directors by the holders of such
preferred stock, the number of directors may be increased in accordance with the
terms of the preferred stock. In the event of any increase or decrease in the
authorized number of directors, each director then serving shall continue as a
director until the expiration of his current term, or his earlier resignation,
removal from office or death. Each director shall serve until the next
succeeding annual meeting and thereafter until his successor shall have been
elected and qualified or until his earlier resignation, retirement,
disqualification, removal from office, or death.
Section 3.3 Removal. The entire Board of Directors or any individual
-------
director may be removed from office with or without cause and only by the
affirmative vote of at least a majority of all classes of stock of the
corporation entitled to vote in the election of such director or directors,
considered for purposes of this Section as one class. Notwithstanding the
foregoing, in the event that preferred stock of the corporation is issued and
authorizes the election of one or more directors by the holders of such
preferred stock, any individual director elected by the preferred shareholders
may be removed only by the holders of the outstanding shares of the preferred
stock in accordance with the terms of the preferred stock as provided therein.
Removal action may be taken at any shareholders' meeting with respect to which
notice of such purpose has been given, and a removed director's successor may be
elected at the same meeting to serve the unexpired term.
Section 3.4 Vacancies. A vacancy occurring on the Board of Directors,
---------
other than by reason of removal of a director by the shareholders but including
vacancies arising from resignation, death or through an increase in the number
of directors, may be filled, until the next election of directors by the
shareholders, by the affirmative vote of at least a majority of all directors
then remaining in office.
Section 3.5 Compensation. Unless the articles of incorporation provide
------------
otherwise, the Board of Directors may determine from time to time the
compensation,
-4-
<PAGE>
if any, directors may receive for their services as directors. A
director may also serve the corporation in a capacity other than that of
director and receive compensation, as determined by the Board of Directors, for
services rendered in any other capacity.
ARTICLE FOUR
Meetings of the Board of Directors
Section 4.1 Regular Meetings. Regular meetings of the Board of Directors,
----------------
including an annual meeting, shall be held at such times throughout the year as
the Board of Directors shall determine.
Section 4.2 Special Meetings. Special meetings of the Board of Directors
----------------
may be called by or at the request of the Chairman, or by any two directors in
office at that time.
Section 4.3 Place of Meetings. Directors may hold their meetings at any
-----------------
place within or without the State of Georgia as the Board of Directors may from
time to time establish for regular meetings or as set forth in the notice of
special meetings or, in the event of a meeting held pursuant to waiver of
notice, as set forth in the waiver.
Section 4.4 Notice of Meetings. No notice shall be required for any
------------------
regularly scheduled meeting of the directors. Unless waived as contemplated in
Section 5.2, each director shall be given at least one day's notice (as set
forth in Section 5.1) of each special meeting stating the date, time, and place
of the meeting.
Section 4.5 Quorum. At meetings of the Board of Directors, more than one-
------
half of the directors then in office shall be necessary to constitute a quorum
for the transaction of business.
Section 4.6 Vote Required for Action. (a) If a quorum is present when a
------------------------
vote is taken, the affirmative vote of a majority of directors present is the
act of the Board of Directors unless the Code, the articles of incorporation, or
these bylaws require the vote of a greater number of directors.
(b) A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken is deemed to
have assented to the action taken unless:
(1) He objects at the beginning of the meeting (or promptly upon his
arrival) to holding it or transacting business at the meeting;
(2) His dissent or abstention from the action taken is entered in the
minutes of the meeting; or
-5-
<PAGE>
(3) He delivers written notice of his dissent or abstention to the
presiding officer of the meeting before its adjournment or to the corporation
immediately after adjournment of the meeting.
The right of dissent or abstention is not available to a director who votes in
favor of the action taken.
Section 4.7 Participation by Conference Telephone. Any or all directors
-------------------------------------
may participate in a meeting of the Board of Directors or of a committee of the
Board of Directors through the use of any means of communication by which all
directors participating may simultaneously hear each other during the meeting.
Section 4.8 Action by Directors Without a Meeting. Unless the articles of
-------------------------------------
incorporation or these bylaws provide otherwise, any action required or
permitted to be taken at any meeting of the Board of Directors or any action
that may be taken at a meeting of a committee of Board of Directors may be taken
without a meeting if the action is taken by all the members of the Board of
Directors (or of the committee as the case may be). The action must be evidenced
by one or more written consents describing the action taken, signed by each
director (or each director serving on the committee, as the case may be), and
delivered to the corporation for inclusion in the minutes or filing with the
corporate records.
Section 4.9 Adjournments. Whether or not a quorum is present to organize
------------
a meeting, any meeting of directors (including an adjourned meeting) may be
adjourned by a majority of the directors present, to reconvene at a specific
time and place. At any reconvened meeting any business may be transacted that
could have been transacted at the meeting that was adjourned. If notice of the
adjourned meeting was properly given, it shall not be necessary to give any
notice of the reconvened meeting or of the business to be transacted, if the
date, time and place of the reconvened meeting are announced at the meeting that
was adjourned.
Section 4.10 Committees of the Board of Directors. The Board of Directors
------------------------------------
by resolution may designate from among its members one or more committees, each
consisting of two or more directors all of whom serve at the pleasure of the
Board of Directors. Except as limited by the Code, each committee shall have
the authority set forth in the resolution establishing the committee. The
provisions of this Article Four as to the Board of Directors and its
deliberations shall be applicable to any committee of the Board of Directors.
ARTICLE FIVE
Manner of Notice and Waiver as to Shareholders and Directors
Section 5.1 Procedure. Whenever these bylaws require notice to be given
---------
to any shareholder or director, the notice shall be given in accordance with
this Section
-6-
<PAGE>
5.1. Notice under these bylaws shall be in writing unless oral notice is
reasonable under the circumstances. Any notice to directors may be written or
oral. Notice may be communicated in person; by telephone, telegraph, teletype,
or other form of wire or wireless communication; or by mail or private carrier.
If these forms of personal notice are impracticable, notice may be communicated
by a newspaper of general circulation in the area where published, or by radio,
television, or other form of public broadcast communication. Written notice to
the shareholders, if in a comprehensible form, is effective when mailed, if
mailed with first-class postage prepaid and correctly addressed to the
shareholder's address shown in the corporation's current record of shareholders.
Except as provided above, written notice, if in a comprehensible form, is
effective at the earliest of the following:
(1) When received or when delivered, properly addressed, to the addressee's
last known principal place of business or residence; or
(2) Five days after its deposit in the mail, as evidenced by the postmark,
if mailed with first-class postage prepaid and correctly addressed; or
(3) On the date shown on the return receipt, if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee.
Oral notice is effective when communicated if communicated in a comprehensible
manner.
In calculating time periods for notice, when a period of time measured in days,
weeks, months, years, or other measurement of time is prescribed for the
exercise of any privilege or the discharge of any duty, the first day shall not
be counted but the last day shall be counted.
Section 5.2 Waiver.
------
(a) A shareholder may waive any notice before or after the date and time
stated in the notice. Except as provided below in (b), the waiver must be in
writing, be signed by the shareholder entitled to the notice, and be delivered
to the corporation for inclusion in the minutes or filing with the corporate
records.
(b) A shareholder's attendance at a meeting (i) waives objection to lack of
notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; and (ii) waives objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
(c) Unless required by the Code, neither the business transacted nor the
purpose of the meeting need be specified in the waiver.
-7-
<PAGE>
(d) A director may waive any notice before or after the date and time
stated in the notice. Except as provided below in (e), the waiver must be in
writing, signed by the director entitled to the notice, and delivered to the
corporation for inclusion in the minutes or filing with the corporate records.
(e) A director's attendance at or participation in a meeting waives any
required notice to him of the meeting unless the director at the beginning of
the meeting (or promptly upon his arrival) objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
ARTICLE SIX
Officers
Section 6.1 Number. The officers of the corporation shall consist of a
------
Chairman, a Chief Executive Officer, a President, a Chief Financial Officer and
a Secretary and any other officers as may be appointed by the Board of Directors
or appointed by the Chairman, Chief Executive Officer or President. The Board
of Directors shall from time to time create and establish the duties of the
other officers. Any two or more offices may be held by the same person.
Section 6.2 Election and Term. All officers shall be appointed by the
-----------------
Board of Directors or the Chairman, Chief Executive Officer or President and
shall serve at the pleasure of the Board of Directors or the appointing officers
as the case may be. All officers, however appointed, may be removed with or
without cause by the Board of Directors and any officer appointed by another
officer may also be removed by the appointing officer with or without cause.
Section 6.3 Compensation. The compensation of all officers of the
------------
corporation appointed by the Board of Directors shall be fixed by the Board of
Directors.
Section 6.4 Chairman. The Chairman shall preside at all meetings of the
--------
Board of Directors and the shareholders. The Chairman shall perform such other
duties and have such other authority and powers as the Board of Directors may
from time to time prescribe.
Section 6.5 Chief Executive Officer. The Chief Executive Officer shall be
-----------------------
the chief executive officer of the corporation and shall have general
supervision of the business of the corporation. He shall see that all orders
and resolutions of the Board of Directors are carried into effect. The Chief
Executive Officer shall perform such other duties as may from time to time be
delegated to him by the Board of Directors.
Section 6.6 President. The President shall be the chief operating officer
---------
of the corporation and shall have general supervision of the day to day
operations of the
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corporation. In the absence or disability of the Chief Executive Officer, or at
the direction of the Chief Executive Officer, the President shall perform the
duties and exercise the powers of the Chief Executive Officer. The President
shall perform such other duties as may from time to time be delegated to him by
the Board of Directors or the Chief Executive Officer.
Section 6.7 Chief Financial Officer. The Chief Financial Officer shall be
-----------------------
responsible for the custody of all funds and securities belonging to the
corporation and for the receipt, deposit or disbursement of funds and securities
under the direction of the Board of Directors. The Chief Financial Officer
shall cause to be maintained full and true accounts of all financial
transactions and shall make reports of the same to the Shareholders, Board of
Directors, and other officers, and to governmental agencies as requested or
required by law, the Code or the Articles of Incorporation. The Chief Financial
Officer shall perform such other duties as may be assigned to him from time to
time by the Board of Directors.
Section 6.8 Secretary. The Secretary shall be responsible for preparing
---------
minutes of the acts and proceedings of all meetings of shareholders and of the
Board of Directors and any committees thereof. He shall have authority to give
all notices required by law or these bylaws. He shall be responsible for the
custody of the corporate books, records, contracts and other documents. The
Secretary may affix the corporate seal to any lawfully executed documents and
shall sign any instruments as may require his signature. The Secretary shall
authenticate records of the corporation. The Secretary shall perform whatever
additional duties and have whatever additional powers the Board of Directors may
from time to time assign him. In the absence or disability of the Secretary or
at the direction of the Chief Executive Officer, any assistant secretary may
perform the duties and exercise the powers of the Secretary.
Section 6.9 Vice Presidents. In the absence or disability of the
---------------
President, or at the direction of the President, the Vice President, if any,
shall perform the duties and exercise the powers of the President. If the
corporation has more than one Vice President the one designated by the Board of
Directors shall act in lieu of the President. Vice Presidents shall perform
whatever duties and have whatever powers the Board of Directors may from time to
time assign.
Section 6.10 Bonds. The Board of Directors by resolution may require any
-----
or all of the officers, agents or employees of the corporation to give bonds to
the corporation, with sufficient surety or sureties, conditioned on the faithful
performance of the duties of their respective offices or positions, and to
comply with any other conditions as from time to time may be required by the
Board of Directors.
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ARTICLE SEVEN
Distributions and Share Dividends
Section 7.1 Authorization or Declaration. Unless the articles of
----------------------------
incorporation provide otherwise, the Board of Directors from time to time in its
discretion may authorize or declare distributions or share dividends in
accordance with the Code.
Section 7.2 Record Date With Regard to Distributions and Share Dividends.
------------------------------------------------------------
For the purpose of determining shareholders entitled to a distribution (other
than one involving a purchase, redemption, or other reacquisition of the
corporation's shares) or a share dividend the Board of Directors may fix a date
as the record date. If no record date is fixed by the Board of Directors, the
record date shall be determined in accordance with the provisions of the Code.
ARTICLE EIGHT
Shares
Section 8.1 Authorization and Issuance of Shares. In accordance with the
------------------------------------
Code, the Board of Directors may authorize shares of any class or series
provided for in the articles of incorporation to be issued for any consideration
valid under the provisions of the Code. To the extent provided in the articles
of incorporation, the Board of Directors shall determine the preferences,
limitations, and relative rights of the shares.
Section 8.2 Share Certificates. The interest of each shareholder in the
------------------
corporation shall be evidenced by a certificate or certificates representing
shares of the corporation which shall be in such form as the Board of Directors
from time to time may adopt. Share certificates shall be numbered
consecutively, shall be in registered form, shall indicate the date of issuance,
the name of the corporation and that it is organized under the laws of the State
of Georgia, the name of the shareholder, and the number and class of shares and
the designation of the series, if any, represented by the certificate. Each
certificate shall be signed by any one of the Chairman, the Chief Executive
Officer or the President, and either the Secretary, or the Chief Financial
Officer, and shall be sealed with the seal of the corporation or facsimile
thereof; provided, however, that where such certificate is signed by a transfer
agent, or registered by a registrar, the signature of such officers may be
facsimiles. In case any officer or officers who shall have signed or whose
facsimile signatures shall have been placed upon a share certificate shall have
ceased for any reason to be such officer or officers of the corporation before
such certificate is issued, such certificate may be issued by the corporation
with the same effect as if the person or persons assigned such certificate or
whose facsimile signatures shall have been used thereon had not ceased to be
such officer or officers.
Section 8.3 Rights of Corporation with Respect to Registered Owners.
-------------------------------------------------------
Prior to due presentation for transfer of registration of its shares, the
corporation may
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treat the registered owner of the shares as the person exclusively entitled to
vote the shares, to receive any share dividend or distribution with respect to
the shares, and for all other purposes; and the corporation shall not be bound
to recognize any equitable or other claim to or interest in the shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
Section 8.4 Transfers of Shares. Transfers of shares shall be made upon
-------------------
the transfer books of the corporation, kept at the office of the transfer agent
designated to transfer the shares, only upon direction of the person named in
the certificate, or by an attorney lawfully constituted in writing; and before a
new certificate is issued, the old certificate shall be surrendered for
cancellation or, in the case of a certificate alleged to have been lost, stolen,
or destroyed, the requirements of Section 8.6 of these bylaws shall have been
met.
Section 8.5 Duty of Corporation to Register Transfer. Notwithstanding any
----------------------------------------
of the provisions of Section 8.4 of these bylaws, the corporation is under a
duty to register the transfer of its shares only if:
(a) the certificate is endorsed by the appropriate person or persons; and
(b) reasonable assurance is given that the endorsement or affidavit is
genuine and effective; and
(c) the corporation either has no duty to inquire into adverse claims or
has discharged that duty; and
(d) the requirements of any applicable law relating to the collection of
taxes have been met; and
(e) the transfer in fact is rightful or is to a bona fide purchaser.
Section 8.6 Lost, Stolen or Destroyed Certificates. Any person claiming a
--------------------------------------
share certificate to be lost, stolen or destroyed shall make an affidavit or
affirmation of the fact in the manner required by the Board of Directors and, if
the Board of Directors requires, shall give the corporation a bond of indemnity
in form and amount, and with one or more sureties satisfactory to the Board of
Directors, as the Board of Directors may require, whereupon an appropriate new
certificate may be issued in lieu of the one alleged to have been lost, stolen
or destroyed.
Section 8.7 Fixing of Record Date with regard to Shareholder Action. For
-------------------------------------------------------
the purpose of determining shareholders entitled to notice of a shareholders'
meeting, to demand a special meeting, to vote, or to take any other action, the
Board of Directors may fix a future date as the record date, which date shall be
not more than seventy (70) days prior to the date on which the particular
action, requiring a determination of shareholders, is to be taken. A
determination of shareholders entitled to notice of or to vote at a
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shareholders' meeting is effective for any adjournment of the meeting unless the
Board of Directors fixes a new record date, which it must do if the meeting is
adjourned to a date more than 120 days after the date fixed for the original
meeting. If no record date is fixed by the Board of Directors, the record date
shall be determined in accordance with the provisions of the Code.
ARTICLE NINE
Indemnification
Section 9.1 Certain Definitions. As used in this Article, the term:
-------------------
(a) "Corporation" includes any domestic or foreign predecessor entity of
this corporation in a merger or other transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a director of the
corporation or an individual who, while a director of the corporation, is or was
serving at the corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise. A director is
considered to be serving an employee benefit plan at the corporation's request
if his duties to the corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a director.
(c) "Expenses" includes attorneys' fees.
(d) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a proceeding.
(e) "Officer" means an individual who is or was an officer of the
corporation or an individual who, while an officer of the corporation, is or was
serving at the corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise. An officer is
considered to be serving an employee benefit plan at the corporation's request
if his duties to the corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of the plan.
"Officer" includes, unless the context requires otherwise, the estate or
personal representative of an officer.
(f) "Party" includes an individual who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
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<PAGE>
(g) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal.
(h) "Reviewing Party" shall mean the person or persons making the
entitlement determination pursuant to Section 9.4 of this Article, and shall not
include a court making any determination under this Article or otherwise.
Section 9.2 Basic Indemnification Arrangement.
---------------------------------
(a) Except as provided in Section 9.7 and subsections 9.2(d) and 9.2(e)
below, the corporation shall indemnify an individual who is made a party to a
proceeding because he is or was a director or officer against liability incurred
by him in the proceeding if he acted in a manner he believed in good faith to be
in or not opposed to the best interests of the corporation and, in the case of
any criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful.
(b) A person's conduct with respect to an employee benefit plan for a
purpose he believed in good faith to be in the interests of the participants in
and beneficiaries of the plan is conduct that satisfies the requirement of
subsection 9.2(a).
(c) The termination of a proceeding by judgment, order, settlement, or
conviction, or upon a plea of nolo contendere or its equivalent shall not, of
itself, be determinative that the proposed indemnitee did not meet the standard
of conduct set forth in subsection 9.2(a).
(d) The corporation shall not indemnify a person under this Article in
connection with (i) a proceeding by or in the right of the corporation in which
such person was adjudged liable to the corporation, unless, and then only to the
extent that, the Reviewing Party, or a court of competent jurisdiction acting
pursuant to Section 9.5 of this Article or Section 14-2-854 of the Code,
determines that, in view of the circumstances of the case, the indemnitee is
fairly and reasonably entitled to indemnification, or (ii) any proceeding in
which such person was adjudged liable on the basis that he improperly received a
personal benefit, unless, and then only to the extent that, a court of competent
jurisdiction acting pursuant to Section 9.5 of this Article or Section 14-2-854
of the Code determines that, in view of the circumstances of the case, such
person is fairly and reasonably entitled to indemnification.
(e) Indemnification permitted under this Article in connection with a
proceeding by or in the right of the corporation shall include reasonable
expenses, penalties, fines (including an excise tax assessed with respect to an
employee benefit plan) and amounts paid in settlement in connection with the
proceeding, but, unless ordered by a court, shall not include judgments.
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Section 9.3 Advances for Expenses.
---------------------
(a) The corporation shall pay for or reimburse the reasonable expenses
incurred by a director or officer as a party to a proceeding in advance of final
disposition of the proceeding if:
(i) Such person furnishes the corporation a written affirmation of his good
faith belief that he has met the standard of conduct set forth in subsection
9.2(a) above and that his conduct does not constitute behavior of the kind
described in subsections 9.7 (i)-(iv) below; and
(ii) Such person furnishes the corporation a written undertaking (meeting
the qualifications set forth below in subsection 9.3(b)), executed personally or
on his behalf, to repay any advances if it is ultimately determined that he is
not entitled to indemnification under this Article or otherwise.
(b) The undertaking required by subsection 9.3(a)(ii) above must be an
unlimited general obligation of the proposed indemnitee but need not be secured
and shall be accepted without reference to financial ability to make repayment.
Section 9.4 Authorization of and Determination of Entitlement to
----------------------------------------------------
Indemnification.
- ---------------
(a) The corporation acknowledges that indemnification of a director or
officer under Section 9.2 has been pre-authorized by the corporation in the
manner described in subsection 9.4(b) below. Nevertheless, except as set forth
in subsection 9.4(d) below, the corporation shall not indemnify a director or
officer under Section 9.2 unless a separate determination has been made in the
specific case that indemnification of such person is permissible in the
circumstances because he has met the standard of conduct set forth in subsection
9.2(a); provided, however, that regardless of the result or absence of any such
determination, and unless limited by the articles of incorporation, 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, or in
defense of any claim, issue or matter therein, because he is or was a director
or officer, the corporation shall indemnify such person against reasonable
expenses incurred by him in connection therewith.
(b) The determination referred to in subsection 9.4(a) above shall be made,
at the election of the Board of Directors:
(i) by the Board of Directors of the corporation by majority vote of a
quorum consisting of directors not at the time parties to the proceeding;
(ii) if a quorum cannot be obtained under subdivision (i), by majority vote
of a committee duly designated by the Board of Directors (in which
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designation directors who are parties may participate), consisting solely of two
or more directors not at the time parties to the proceeding;
(iii) by special legal counsel:
(1) selected by the Board of Directors or its committee in the manner
prescribed in subdivision (i) or (ii); or
(2) if a quorum of the Board of Directors cannot be obtained under
subdivision (i) and a committee cannot be designated under subdivision (ii),
selected by a majority vote of the full board of directors (in which selection
directors who are parties may participate); or
(iv) by the shareholders; provided that shares owned by or voted under the
control of directors or officers who are at the time parties to the proceeding
may not be voted on the determination.
(c) As acknowledged above, the corporation has pre-authorized the
indemnification of directors and officers hereunder, subject to a case-by-case
determination that the proposed indemnitee met the applicable standard of
conduct under subsection 9.2(a). Consequently, no further decision need or
shall be made on a case-by-case basis as to the authorization of the
corporation's indemnification of directors and officers hereunder.
Nevertheless, except as set forth in subsection 9.4(d) below, evaluation as to
reasonableness of expenses of a director or officer in the specific case shall
be made in the same manner as the determination that indemnification is
permissible, as described in subsection 9.4(b) above, except that if the
determination is made by special legal counsel, evaluation as to reasonableness
of expenses shall be made by those entitled under subsection 9.4(b)(iii) to
select counsel.
(d) Notwithstanding the requirement under subsection 9.4(c) that the
Reviewing Party evaluate the reasonableness of expenses claimed by the proposed
indemnitee, any expenses claimed by the proposed indemnitee shall be deemed
reasonable if the Reviewing Party fails to make the evaluation required by
subsection 9.4(c) within thirty (30) days following the proposed indemnitee's
written request for indemnification for, or advancement of, such expenses.
Section 9.5 Court-Ordered Indemnification and Advances for Expenses.
-------------------------------------------------------
Unless the articles of incorporation provide otherwise, a director or officer
who is a party to a proceeding may apply for indemnification or advances for
expenses to the court conducting the proceeding or to another court of competent
jurisdiction. For purposes of this Article, the corporation hereby consents to
personal jurisdiction and venue in any court in which is pending a proceeding to
which a director or officer is a party. Regardless of any determination by the
Reviewing Party that the proposed indemnitee is not entitled to indemnification
or advancement of expenses or as to the reasonableness of expenses, and
regardless of any failure by the Reviewing Party to make a determination as
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to such entitlement or the reasonableness of expenses, such court's review shall
be a de novo review, and its determination shall be binding, on the questions of
whether:
(i) The applicant is entitled to mandatory indemnification under the final
clause of subsection 9.4(a) above (in which case the corporation shall pay the
indemnitee's reasonable expenses incurred to obtain court-ordered
indemnification);
(ii) The applicant is fairly and reasonably entitled to indemnification in
view of all the relevant circumstances, whether or not he met the standard of
conduct set forth in subsection 9.2(a) above or was adjudged liable as described
in subsection 9.2(d) above (in which case any court-ordered indemnification need
not be limited to reasonable expenses incurred by the indemnitee but may include
expenses, penalties, fines, judgments, amounts paid in settlement and any other
amounts ordered by the court to be indemnified, and, whether or not so ordered,
the corporation shall pay the applicant's reasonable expenses incurred to obtain
court-ordered indemnification); or
(iii) In the case of advances for expenses, the applicant is entitled
pursuant to the articles of incorporation, bylaws or applicable resolution or
agreement to payment for or reimbursement of his reasonable expenses incurred as
a party to a proceeding in advance of final disposition of the proceeding (in
which case the corporation shall pay the applicant's reasonable expenses
incurred to obtain court-ordered advancement of expenses).
Section 9.6 Indemnification of Employees and Agents. Unless the articles
---------------------------------------
of incorporation provide otherwise, the corporation may indemnify and advance
expenses under this Article to an employee or agent of the corporation who is
not a director or officer to the same extent as to a director or officer, or to
any lesser extent (or greater extent if permitted by law) determined by the
Board of Directors.
Section 9.7 Limitations on Indemnification. Regardless of whether a
------------------------------
proposed indemnitee has met the applicable standard of conduct set forth in
subsection 9.2(a), the corporation shall not indemnify a person under this
Article for any liability incurred in a proceeding in which the person is
adjudged liable to the corporation or is subjected to injunctive relief in favor
of the corporation:
(i) for any appropriation, in violation of his duties, of any business
opportunity of the corporation;
(ii) for acts or omissions which involve intentional misconduct or a
knowing violation of law;
(iii) for the types of liability set forth in Section 14-2-832 of the
Code; or
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(iv) for any transaction from which he received an improper personal
benefit.
Section 9.8 Liability Insurance. The corporation may purchase and
-------------------
maintain insurance on behalf of a director or officer or an individual who is or
was an employee or agent of the corporation or who, while an employee or agent
of the corporation, is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise against liability asserted against or incurred by him in
that capacity or arising from his status as a director, officer, employee, or
agent, whether or not the corporation would have power to indemnify him against
the same liability under Section 9.2, Section 9.3 or Section 9.4 above.
Section 9.9 Witness Fees. Nothing in this Article shall limit the
------------
corporation's power to pay or reimburse expenses incurred by a person in
connection with his appearance as a witness in a proceeding at a time when he
has not been made a named defendant or respondent in the proceeding.
Section 9.10 Report to Shareholders. If the corporation indemnifies or
----------------------
advances expenses to a director in connection with a proceeding by or in the
right of the corporation, the corporation shall report the indemnification or
advance, in writing, to the shareholders with or before the notice of the next
shareholders' meeting.
Section 9.11 Security for Indemnification Obligations. The corporation
----------------------------------------
may at any time and in any manner, at the discretion of the board of directors,
secure the corporation's obligations to indemnify or advance expenses to a
person pursuant to this Article.
Section 9.12 No Duplication of Payments. The corporation shall not be
--------------------------
liable under this Article to make any payment to a person hereunder to the
extent such person has otherwise actually received payment (under any insurance
policy, agreement or otherwise) of the amounts otherwise payable hereunder.
Section 9.13 Subrogation. In the event of payment under this Article, the
-----------
corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the corporation effectively to
bring suit to enforce such rights.
Section 9.14 Contract Rights. The right to indemnification and
---------------
advancement of expenses conferred hereunder to directors and officers shall be a
contract right and shall not be affected adversely to any director or officer by
any amendment of these bylaws with respect to any action or inaction occurring
prior to such amendment; provided, however, that this provision shall not confer
upon any indemnitee or potential
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indemnitee (in his capacity as such) the right to consent or object to any
subsequent amendment of these bylaws.
Section 9.15 Specific Performance. In any proceeding brought by or on
--------------------
behalf of an officer or director to specifically enforce the provisions of this
Article, the corporation hereby waives the claim or defense therein that the
plaintiff or claimant has an adequate remedy at law, and the corporation shall
not urge in any such proceeding the claim or defense that such remedy at law
exists. The provisions of this Section 9.15, however, shall not prevent the
officer or director from seeking a remedy at law in connection with any breach
of the provisions of this Article.
Section 9.16 Non-exclusivity, Etc. The rights of a director or officer
--------------------
hereunder shall be in addition to any other rights with respect to
indemnification, advancement of expenses or otherwise that he may have under
contract or the Code or otherwise.
Section 9.17 Amendments. It is the intent of the corporation to indemnify
----------
and advance expenses to its directors and officers to the full extent permitted
by the Code, as amended from time to time. To the extent that the Code is
hereafter amended to permit a Georgia business corporation to provide to its
directors greater rights to indemnification or advancement of expenses than
those specifically set forth hereinabove, this Article shall be deemed amended
to require such greater indemnification or more liberal advancement of expenses
to its directors and officers, in each case consistent with the Code as so
amended from time to time. No amendment, modification or rescission of this
Article, or any provision hereof, the effect of which would diminish the rights
to indemnification or advancement of expenses as set forth herein shall be
effective as to any person with respect to any action taken or omitted by such
person prior to such amendment, modification or rescission.
Section 9.18 Severability. To the extent that the provisions of this
------------
Article are held to be inconsistent with the provisions of Part 5 of Article 8
of the Code, such provisions of the Code shall govern. In the event that any of
the provisions of this Article (including any provision within a single section,
subsection, division or sentence) is held by a court of competent jurisdiction
to be invalid, void or otherwise unenforceable, the remaining provisions of this
Article shall remain enforceable to the fullest extent permitted by law.
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ARTICLE TEN
Miscellaneous
Section 10.1 Inspection of Books and Records. The Board of Directors
-------------------------------
shall have power to determine which accounts, books and records of the
corporation shall be opened to the inspection of shareholders, except those as
may by law specifically be made open to inspection, and shall have power to fix
reasonable rules and regulations not in conflict with the applicable law for the
inspection of accounts, books and records which by law or by determination of
the Board of Directors shall be open to inspection. Without the prior approval
of the Board of Directors in their discretion, the right of inspection set forth
in Section 14-2-1602(c) of the Code shall not be available to any shareholder
owning two (2%) percent or less of the shares outstanding.
Section 10.2 Fiscal Year. The Board of Directors is authorized to fix the
-----------
fiscal year of the corporation and to change the same from time to time as it
deems appropriate.
Section 10.3 Corporate Seal. If the Board of Directors determines that
--------------
there should be a corporate seal for the corporation, it shall be in the form as
the Board of Directors may from time to time determine.
Section 10.4 Annual Financial Statements. In accordance with the Code,
---------------------------
the corporation shall prepare and provide to shareholders such financial
statements as may be required by the Code.
Section 10.5 Conflict with Articles of Incorporation. In the event that
---------------------------------------
any provision of these bylaws conflicts with any provision of the articles of
incorporation, the articles of incorporation shall govern.
ARTICLE ELEVEN
Amendments
Section 11.1 Power to Amend Bylaws. The Board of Directors shall have
---------------------
power to alter, amend or repeal these bylaws or adopt new bylaws, but any bylaws
adopted by the Board of Directors may be altered, amended or repealed, and new
bylaws adopted, by the shareholders. The shareholders may prescribe by so
expressing in the action they take in adopting or amending any bylaw or bylaws
that the bylaw or bylaws so adopted or amended shall not be altered, amended or
repealed by the Board of Directors. Notwithstanding the foregoing, the
provisions of Section 2.12, Article Nine, this Article Eleven and Article Twelve
of these bylaws may be amended only by the procedure provided in the Code for
the amendment of articles of incorporation. The provisions of Article Twelve
may be repealed only as provided in the Code.
<PAGE>
ARTICLE TWELVE
Restrictions on Certain Business Combinations with Interested Shareholders
Section 12.1 Business Combinations. All of the requirements of Article
---------------------
11, Part 3, of the Code, included in Sections 14-2-1131 through 1133 (and any
successor provisions thereto), shall be applicable to the corporation in
connection with any business combination, as defined therein, with any
interested shareholder, as defined therein.
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EXHIBIT 10.06
WRITTEN DESCRIPTION OF
----------------------
XCELLENET, INC. KEY EMPLOYEE LOAN PROGRAM, AS AMENDED
-----------------------------------------------------
The XcelleNet, Inc. Key Employee Loan Program (the "Loan Program") is
not set forth in a formal document. The following is a written description of
all of the material aspects of the Loan Program as administered by XcelleNet,
Inc. (the "Company").
ELIGIBILITY. Any current full-time employee of the Company that (i)
owns shares of the Company's common stock (the "Common Stock") or holds vested
options under the Company's 1987 Stock Option Plan (the "Stock Option Plan") or
the 1996 Long-Term Incentive Plan (the "Incentive Plan"), and (ii) has a current
financial hardship, is eligible to apply to the Compensation and Stock
Option Committee of the Company's Board of Directors (the "Compensation
Committee") for a loan under the Loan Program. The Compensation Committee must
approve any loan made under the Loan Program. The Compensation Committee makes
its determinations to extend loans under the Loan Program on a case by case
basis based upon subjective factors.
MONETARY LIMITS. The aggregate principal amount outstanding pursuant
to all of the loans outstanding under the Loan Program at any one time may not
exceed $500,000. Each individual loan may not exceed an amount equal to the
product of (i) the fair market value of a share of Common Stock on the date of
the loan, and (ii) the sum of the number of shares of Common Stock owned by the
employee plus the number of shares of Common Stock subject to the employee's
vested options under the Stock Option Plan.
LOAN TERMS. The interest rate charged on loans under the Loan Program
is equal to 2% plus the prime rate as quoted on the date the loan is made in
such sources as the Company deems appropriate. Principal and interest pursuant
to such loans are payable over a 48 month period in equal monthly installments.
Prepayment of loans is permitted without penalty. The Company requires that Loan
Program participants make certain loan prepayments equal to 25% of the gross
amount of any bonus compensation paid to such individuals. Each participant in
the Loan Program is required to pledge to the Company shares of Common Stock
and/or vested options having an aggregate value equal to the principal amount of
the loan. When shares of Common Stock are given as collateral for loans under
the Loan Program, the shares are valued at the fair market value of the Common
Stock at the date of the loan. When vested options are given as collateral for
loans under the Loan Program, the options are valued at the difference between
the fair market value of the Company's common stock on the date that the loan is
made and the exercise price of the options. Generally, each loan under the Loan
Program is evidenced by the form Installment Note and form Pledge Agreement
attached hereto, but the terms of the note and pledge agreement used in
connection with any individual loan made under the Loan Program may vary from
the terms of the attached Installment Note and Pledge Agreement.
<PAGE>
INSTALLMENT NOTE
----------------
$_______________ ________________, 19__
FOR VALUE RECEIVED, the undersigned ________________________,
currently a full-time employee of XcelleNet, Inc., promises to pay to the order
of XcelleNet, Inc. (hereafter, together with any holder hereof, called "Holder")
at the offices of Holder in Atlanta, Georgia or at such other place as the
Holder may designate and notify the undersigned, in lawful money of the United
States, and in immediately available funds, the principal sum of
_______________________ DOLLARS ($___________) together with interest on the
principal balance from time to time outstanding hereunder from the date hereof
until paid in full at a per annum rate equal to ________ percent (___%). Said
principal and accrued interest shall be paid in forty-eight (48) equal monthly
installments of $_______ each, beginning ________, 19__ and continuing on the
__day of each month thereafter until paid in full. Each such principal and
interest payment shall be applied first, to accrued interest, and then to the
principal balance.
Upon termination of the undersigned's employment with XcelleNet, Inc.
for any reason, the total amount of unpaid principal plus accrued but unpaid
interest shall be immediately due and payable.
The undersigned, at its option, may voluntarily prepay the
indebtedness evidenced by this Note, either in whole or in part, at any time
without penalty, with interest thereon to the date of prepayment. In addition,
the undersigned shall be required to make prepayments from any bonuses received
from XcelleNet, Inc., with the amount of each such prepayment equal to 25% of
the bonus (before taxes and any other payroll deductions). If a voluntary or
required prepayment is in part, the undersigned shall make each later payment as
it becomes due until this Note is paid in full.
Should the undersigned now, or in the future, own common or preferred
stock, or any other equity interest, including any subscription rights, warrants
or vested options, of XcelleNet, Inc. (the "Shares"), the undersigned agrees to
pledge all or a part of such Shares to the Holder (the "Pledged Shares"). The
number of Pledged Shares shall be equal to the lesser of the total Shares owned
by the undersigned or the number of Shares calculated by dividing the principal
balance outstanding on the date of the pledge by the exercise price in
XcelleNet, Inc.'s latest Incentive Stock Option grant, rounded upward to the
next 100 shares, with vested options being valued at the difference between the
fair market value of XcelleNet, Inc.'s common stock on the date of the pledge
and the exercise price of the vested options. The undersigned agrees to execute
a Pledge Agreement, in the form attached as Exhibit "A", in connection with such
Pledged Shares (the "Pledge Agreement").
-2-
<PAGE>
Upon the occurrence of any of the following events (each of the
following a "Default"): (i) the undersigned shall fail to pay within ten (10)
days of demand in writing therefore any of the due but unpaid obligations under
this Note; (ii) an Event of Default (as such term is defined in the Pledge
Agreement); (iii) the undersigned's employment with XcelleNet, Inc., shall be
terminated for any reason; or (iv) the undersigned should become insolvent (as
defined in the Uniform Commercial Code in effect at that time in Georgia), or a
petition in bankruptcy is filed by or against the undersigned, or a receiver is
appointed for any part of the property or assets of the undersigned; then any
and all of the obligations hereunder, at the option of the Holder, and without
demand or further notice of any kind, may be declared, and thereupon shall
immediately become in default and due and payable, and the undersigned shall pay
all expenses of the Holder in the collection of this Note, including attorneys'
fees in the amount of fifteen percent (15%) of the unpaid principal balance and
accrued interest, if this Note is collected by or through an attorney-at-law.
Time is of the essence of this Note.
No delay or failure on the part of the Holder in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Holder of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other rights or remedies.
As used in this Note and for the purposes of Section 7-4-2 of the
Official Code of Georgia Annotated, the term "interest" does not include any
fees or other charges imposed on the undersigned in connection with this loan
other than the interest described in the first paragraph hereof
The undersigned hereby waives presentment, demand, notice of dishonor,
notice of nonpayment, protests and all other notices or demands whatever.
Any notice to be given hereunder shall be in writing, and shall be
sent to the addresses for each party as set forth in Section 14 of the Pledge
Agreement.
This Note has been executed and delivered in, and its terms and
conditions are to be governed and construed by the laws of, the State of
Georgia.
-3-
<PAGE>
This Note shall be binding upon the successors and assigns of the
undersigned.
- ------------------------ --------------------------
Date
- ------------------------ --------------------------
Witness Date
-4-
<PAGE>
Exhibit "A"
PLEDGE AGREEMENT
This PLEDGE AGREEMENT is made and entered into this ____ day of
_________, 19___, by and between ________________________, an individual
residing in the State of __________ (the "Pledgor"), and XCELLENET, INC., a
Georgia corporation (the "Pledgee").
BACKGROUND
The Pledgor is obligated to pay Pledgee __________________________
Dollars ($_______) together with interest thereon pursuant to the Pledgor's
$_________ principal amount Installment Note dated ____________, 19__ (the
"Note"), and this obligation is to be secured by the Pledged Collateral (as
defined below).
AGREEMENT
In consideration of the premises and the mutual covenants herein contained, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, and in order to induce the Pledgee to make advances
under the Note, the parties agree as follows:
SECTION 1. Pledge. As security for (a) the due and punctual payment
------
of all Pledgor's obligations under the Note (the "Obligations"), the Pledgor
hereby pledges, assigns, transfers, grants and delivers to the Pledgee a first
priority security interest in, (i) _______ shares of the common/preferred
capital stock of the Pledgor represented by Certificate No. _________, (ii)
________ vested options of the Pledgor and any other person or entity which is a
successor to the Pledgee (the "Issuer"), as granted in that certain Option
Agreement between the Pledgee and Pledgor dated as of _________ __, ___,
(together with any certificate or instrument evidencing such vested option)
(clause (i) and (ii) collectively, the "Pledged Shares"), and (iii) subject to
Section 4, any cash, additional shares or securities or other property at any
time and from time to time receivable or otherwise distributable in respect of,
in exchange for, or in substitution of, the Pledged Shares, together with the
proceeds thereof (all such shares, securities, cash, property and other proceeds
thereof being hereinafter collectively called the "Pledged Collateral"). This
Pledge Agreement is made, and the security interest created hereby is granted to
the Pledgee, to secure payment in full of the Obligations.
SECTION 2. Representations and Warranties. The Pledgor hereby
------------------------------
represents and warrants that the Pledgor is the legal and equitable owner of the
Pledged Shares, and holds the same free and clear of all liens, charges,
encumbrances and security interests of every kind and nature; and that Pledgor
has the right and legal authority to pledge the Pledged Shares in the manner
hereby done. Pledgor agrees that he will defend his title
-5-
<PAGE>
thereto against the claims of all persons whomsoever. Pledgor further
represents and warrants that the pledge of the Pledged Shares is effective to
vest in the Pledgee the rights of the Pledgee in the Pledged Shares as set forth
herein. The Pledgor's social security number is ___________.
SECTION 3. Retention of the Pledged Collateral. Pledgee agrees to
-----------------------------------
hold all Pledged Collateral in the form in which the same are delivered to it,
unless and until there shall occur an Event of Default (as defined in Section
7). Pledgee agrees to use reasonable care in the custody and preservation
thereof.
SECTION 4. Voting Rights, Dividends, Etc.
------------------------------
(a) So long as no Event or Default hereunder shall have occurred,
(i) the Pledgor shall be entitled to exercise any and all voting
and consensual rights and powers accruing to an owner of the Pledged Shares or
any part thereof; and
(ii) the Pledgor shall be entitled to retain and use any and all
cash dividends paid on the Pledged Shares, but any and all stock and liquidating
dividends, other distributions in property, return of capital or other
distributions made on or in respect to the Pledged Shares, whether resulting
from a subdivision, combination or reclassification of outstanding capital stock
of any corporation the capital stock of which is pledged hereunder or received
in exchange for the Pledged Shares or any part thereof or as a result of any
merger, consolidation, acquisition or other exchange of assets or on the
liquidation, whether voluntary or involuntary, of the Issuer of the Pledged
Shares, or otherwise, shall be and become part of the Pledged Collateral pledged
hereunder and, if received by the Pledgor, shall forthwith be delivered to the
Pledgee to be held as collateral subject to the terms of this Pledge Agreement;
and
(iii) the Pledgee shall execute and deliver to the Pledgor, or
cause to be executed and delivered to the Pledgor, as appropriate, all such
proxies, powers of attorney, dividend orders and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and consensual rights and powers which Pledgor is entitled
to exercise pursuant to paragraph (i) above and to receive the dividends which
Pledgor is authorized to retain pursuant to paragraph (ii) above.
(b) Upon the occurrence and during the continuance of an Event of
Default hereunder, all rights of the Pledgor to exercise the voting and
consensual rights and powers which Pledgor is entitled to exercise pursuant to
paragraph (a)(i) above and to receive the dividends which Pledgor is authorized
to receive and retain pursuant to paragraph (a)(ii) above shall cease, and all
such rights thereupon shall become vested solely in the Pledgee. Any and all
money and other property paid over to or received by the Pledgee pursuant to the
provisions of this paragraph (b) shall be retained by the
-6-
<PAGE>
Pledgee as additional collateral hereunder and shall be applied in accordance
with the provisions of Section 8 hereof.
SECTION 5. Remedies upon Default. In addition to any right or remedy
---------------------
that the Pledgor may have under the Note or otherwise under applicable law, if
an Event of Default shall have occurred and be continuing, the Pledgee may
exercise any and all the rights and remedies of a secured party under the
Uniform Commercial Code as in effect in any applicable jurisdiction (the "Code")
and may otherwise sell or otherwise dispose of the Pledged Collateral at a
public or private sale or make other commercially reasonable disposition of the
Pledged Collateral or any portion thereof, and for such price or prices and on
such terms as the Pledgee in its discretion shall deem appropriate, after ten
(10) days' notice to Pledgor, and Pledgee may purchase the Pledged Collateral or
any portion thereof at any public sale. As an alternative to exercising the
power of sale, the Pledgee may proceed by suit to foreclose this Pledge
Agreement and sell the Pledged Collateral or any portion thereof pursuant to a
judgment or decree. Pledgee, at its option, may also retain the Pledged Shares
in full satisfaction of the Obligations. The rights and remedies of the Pledgee
under this Agreement are cumulative and not exclusive of any rights or remedies
it would otherwise have.
SECTION 6. Pledgee Appointed Attorney-in-Fact. The Pledgor hereby
----------------------------------
constitutes and appoints the Pledgee the attorney-in-fact of the Pledgor for the
purpose of carrying out the provisions of this Pledge Agreement and taking any
action and executing any instrument which the Pledgee may deem necessary or
advisable to accomplish the purposes hereof, which appointment is irrevocable
and coupled with an interest. Nothing herein contained shall be construed,
however, as requiring or obligating the Pledgee to take any action with respect
to the Pledged Collateral or any part thereof.
SECTION 7. Event of Default Defined. For purposes of this Pledge
------------------------
Agreement, an "Event of Default" shall exist hereunder upon declaration thereof
by Pledgee following the occurrence of any of the following events:
(a) any default as defined in the Note;
(b) any representation or warranty made in this Pledge Agreement shall
prove to have been false and misleading in any material respect when
made;
(c) the Pledgor from and after the date hereof shall, or shall attempt to,
encumber, subject to any further pledge or security interest, sell,
transfer or otherwise dispose of any of the Pledged Collateral or any
interest therein;
(d) all or any part of the Pledged Collateral shall be attached or levied
upon or seized in any legal proceedings, or held by virtue of any lien
or distress;
(e) the Pledgor shall fail to pay promptly all taxes and assessments upon
any of the Pledged Collateral; or
-7-
<PAGE>
(f) the Pledgor shall fail to comply with any provision of this Pledge
Agreement.
SECTION 8. Application of Proceeds of Sale and Cash. The proceeds of
----------------------------------------
any sale of the whole or any part of the Pledged Collateral, together with any
other moneys held by the Pledgee under the provisions of this Pledge Agreement,
shall be applied by the Pledgee as follows:
First: to the payment of all costs and expenses incurred by the
Pledgee in enforcing its rights hereunder, including reasonably attorneys' fees;
Second: to the payment in full of the Obligations. Any amounts
remaining after such application shall be promptly remitted to the Pledgor, its
successors, designees, legal representatives or assigns, or as otherwise
provided by law.
SECTION 9. Further Assurances. The Pledgor agrees that it will join
------------------
with the Pledgee in executing and will file or record such notices, financing
statements or other documents as may be necessary to the perfection of the
security interest of the Pledgee hereunder, and as the Pledgee or its counsel
may reasonably request, and that Pledgor will do such further acts and things
and execute and deliver to the Pledgee such additional conveyances, assignments,
agreements and instruments as the Pledgee may at that time reasonably request in
connection with the administration and enforcement of this Pledge Agreement.
SECTION 10. No Waiver. No failure on the part of the Pledgee to
---------
exercise, and no delay on its part in exercising, any right, power or remedy
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power, or remedy preclude any other or the further
exercise thereof or the exercise of any other right, power or remedy. All
remedies hereunder are cumulative and are not exclusive of any other remedies
provided by law.
SECTION 11. Governing Law, Amendments. This Pledge Agreement has
-------------------------
been executed and delivered in the State of Georgia and shall in all respects be
construed in accordance with and governed by the laws of said State. This
Pledge Agreement may not be amended or modified, except in writing signed by the
parties hereto.
SECTION 12. Return of Pledged Collateral to Pledgor, Termination.
----------------------------------------------------
Upon payment in full to Pledgee of all amounts due under the Note, and any then
due but unpaid other Obligations of Pledgor hereunder, (i) Pledgee shall
promptly return to the Pledgor all of the then remaining Pledged Collateral held
by it, together with any instruments of transfer executed by the Pledgor and
(ii) this Agreement shall thereupon immediately terminate.
-8-
<PAGE>
SECTION 13. Binding Agreement, Assignment. This Pledge Agreement,
-----------------------------
and the terms, covenants and conditions hereof, shall be binding upon and inure
to the benefit of the Pledgee and to all holders of the indebtedness secured
hereby and their respective successors and assigns and to the Pledgor and its
successors, designees, legal representatives and assigns, except that the
Pledgor shall not, without prior written consent of the Pledgee, be permitted to
assign this Pledge Agreement or any interest herein or in the Pledged
Collateral, or any part thereof, or any cash or property held by the Pledgee as
collateral under this Pledge Agreement, and any attempt to do so shall be null
and void. Except as otherwise referred to herein, this Agreement, and the
documents executed and delivered pursuant hereby, constitute the entire
agreement between the parties relating to the specific subject matter hereof.
SECTION 14. Notices. All notices required or permitted hereunder
-------
shall be deemed effectively given (a) upon personal delivery thereof or (b)
three days after being sent by registered or certified mail, postage prepaid:
If to Pledgor:
If to Pledgee: XcelleNet, Inc.
5 Concourse Parkway
Suite 850
Atlanta, Georgia 30328
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Pledge
Agreement to be executed as of the first date written above.
PLEDGOR:
By: ____________________________________
PLEDGEE:
XCELLENET, INC
By: ------------------------------------
Title: ------------------------------
-10-
<PAGE>
Exhibit 10.13
January 1 - June 30, 1997 Compensation Plan
W. Michael Parham
Vice President North American Sales
COMPENSATION OBJECTIVES
1. Provide overall compensation that is competitive within the industry for
the job position and responsibilities.
2. Provide motivation to meet and exceed quantitative and qualitative goals
for the development and management of the North American sales force.
3. Ensure management of the North American sales force in a way that is
fully compatible with and in support of, the Company's overall goals,
especially attainment of quota objectives at specified expense levels.
TARGET COMPENSATION LEVEL AT PLAN
Compensation at plan is $102,530 for the six-month period, with the
opportunity for increased payout above that level based upon performance as
described below.
PLAN DESCRIPTION
The plan will operate with a base salary of $59,165 for the six-month
period (paid semi-monthly). In addition to the base salary, there will be
override bonus payments. Quarterly, override bonus payments will be determined
in accordance with the plan and paid upon completion of the quarter's closing,
allowing reasonable time for administration. The override bonus payments will
have no fixed upper limit. At target, the override bonus payments would total
$43,365.
PLAN OPERATION
Override Bonus Payments: The override percentage is 0.2121% per dollar of
revenue. At target, the revenue from North American sales and training is as
follows:
<TABLE>
<S> <C>
Q1'97 $ 9,027,000
Q2'97 $11,419,000
-----------
Total $20,446,000
</TABLE>
<PAGE>
Exhibit 10.131
July 1 - December 31, 1997 Compensation Plan
W. Michael Parham
Senior Vice President Business Development
COMPENSATION OBJECTIVES
1. Provide overall compensation that is competitive within the industry for
the job position and responsibilities.
2. Provide motivation to meet and exceed quantitative and qualitative goals
for the development and management of the North American business
development group.
3. Ensure management of the North American business development group in a
way that is fully compatible with and in support of, the Company's
overall goals, especially attainment of quota objectives at specified
expense levels.
TARGET COMPENSATION LEVEL AT PLAN
Compensation at plan is $112,500 for the six-month period, with the
opportunity for increased payout above that level based upon performance as
described below.
PLAN DESCRIPTION
The plan will operate with a base salary of $62,500 for the six-month
period (paid semi-monthly). In addition to the base salary, there will be
quantitative incentive payments and qualitative incentive payments. Quarterly
incentive payments will be determined in accordance with the plan and paid upon
completion of the quarter's closing, allowing reasonable time for
administration.
At target, the quantitative incentive payments would total $45,000 and the
qualitative incentive payments would total $5,000.
PLAN OPERATION
1. Quantitative Incentive Payments for Indirect Software License Fee Revenue:
For the first 1% through 100% of the plan, the override percentage is
4.2188% per dollar of revenue. At target, the software license fee revenue
from North American resellers and OEM channels is as follows:
Q3'97 $400,000
Q4'97 $400,000
--------
Total $800,000
From 101% through 125% of the plan, the override percentage is 6.33% per
dollar of revenue. From 126% through 150% of the plan, the override
percentage is 7.38% per dollar of revenue. In excess of 150% of the plan,
the override percentage is 10.55% per dollar of revenue.
2. Quantitative Incentive Payments for XcelleNet Integration Services Revenue:
For the first 1% through 100% of the plan, the override percentage is .7031%
per dollar of revenue. At target, the software license fee revenue XcelleNet
integration services is as follows:
Q3'97 $800,000
Q4'97 $800,000
----------
Total $1,600,000
<PAGE>
From 101% through 125% of the plan, the override percentage is 1.05 % per
dollar of revenue. From 126% through 150% of the plan, the override
percentage is 1.23% per dollar of revenue. In excess of 150% of the plan,
the override percentage is 1.76% per dollar of revenue.
3. Qualitative Incentive Payments: Attainment of quarterly qualitative
performance objectives will be judged by the manager of the Senior Vice
President Business Development. The ongoing agreement and specification of
each quarter's qualitative will be the responsibility of the Senior Vice
President Business Development and his manager. These qualitative
objectives will not exceed four in number for each quarter. If all goals
are met, payment will be $2,500. If fewer goals are met, the payment will
be prorated accordingly.
<PAGE>
Exhibit 10.14
July 1 - December 31, 1997 Compensation Plan
Jethro J. Felton, III
Vice President North American Sales
COMPENSATION OBJECTIVES
1. Provide overall compensation that is competitive within the industry for
the job position and responsibilities.
2. Provide motivation to meet and exceed quantitative and qualitative goals
for the development and management of the North American sales force.
3. Ensure management of the North American sales force in a way that is
fully compatible with and in support of, the Company's overall goals,
especially attainment of quota objectives at specified expense levels.
TARGET COMPENSATION LEVEL AT PLAN
Compensation at plan is $115,000 for the six-month period, with the
opportunity for increased payout above that level based upon performance as
described below.
PLAN DESCRIPTION
The plan will operate with a base salary of $60,000 for the six-month
period (paid semi-monthly). In addition to the base salary, there will be
override bonus payments. Quarterly override bonus payments will be determined
in accordance with the plan and paid upon completion of the quarter's closing,
allowing reasonable time for administration. The override bonus payments will
have no fixed upper limit. At target, the override bonus payments would total
$55,000.
PLAN OPERATION
Quantitative Incentive Payments: The override percentage is 0.3642% per
dollar of revenue. At target, the revenue from North American sales is as
follows:
Q3'97 $ 6,700,000
Q4'97 $ 8,400,000
-----------
Total $15,100,000
<PAGE>
EXHIBIT 10.15
-------------
WRITTEN DESCRIPTION OF
----------------------
XCELLENET, INC. PERFORMANCE COMPENSATION PROGRAM, AS REVISED
------------------------------------------------------------
The XcelleNet, Inc Performance Compensation Program (the "Program") is not
set forth in a formal document. The following is a written description of all
of the material aspects of the Program as administered by XcelleNet Inc. (the
"Company").
ELIGIBILITY. All full-time employees, including executive officers, of the
Company are eligible to participate in the Program, except certain employees and
officers in the sales organization of the Company who are eligible for specific
revenue-based bonuses.
BONUSES. The Program ties employee bonuses to specific performance
expectations for each individual and to specific performance goals of the
Company. Bonuses can be earned at two levels each year: (1) at the individual
performance bonus ("IPB") level and (2) either (a) the management performance
bonus ("MPB") level, or (b) the XcelleNet performance bonus ("XPB") level.
PARTICIPATION RATES. At the beginning of each year covered by the Program,
the Compensation and Stock Option Committee of the Company's Board of Directors
(the "Compensation Committee"), based upon its subjective review of several
factors, including the level of each executive officer's responsibility and the
Compensation Committee's perception of the compensation paid to executive
officers of other corporations similar in terms of size and industry to the
Company, sets a participation rate for the IPB, and MPB for each executive
officer based on a percentage of each such officer's salary ("IPB Percentage"
and "MPB Percentage", respectively). For employees other than executive
officers, an IPB Percentage and an MPB Percentage are recommended by the
employee's manager and approved by the officer for the functional area and the
Vice President Human Resources. Currently for employees the IPB Percentage
typically ranges from 5% to 10% and the MPB Percentage ranges from 10% to 20%.
Executive officers' IPB Percentages range from 0% to 10% and MPB Percentages
range from 30% to 50%.
No executive officers or other officers participate at the XPB level. For
employees, a participation rate for the XPB (the "XPB Percentage") is
recommended by the employee's manager and approved by the officer for the
functional area and the Vice President Human Resources. Currently for
employees the XPB Percentage is typically 5%.
IPB PERFORMANCE GOALS. At the beginning of each quarter covered by the
Program, the employee or executive officer's manager, respectively, sets
specific individual performance goals ("IP Goals") based on the individual's
specific job responsibilities.
MPB AND XPB PERFORMANCE GOALS. At the beginning of each year covered by
the Program, the executive officers set goals for the Company ("Company
Performance Goals") based upon the Company's business plan and recommend such
1
<PAGE>
Company Performance Goals to the Compensation Committee. Company Performance
Goals generally pertain to certain financial areas of the Company's business
(including, but not limited to, gross revenues, revenues per employee, operating
income, operating margin, and earnings per share). The Company Performance
Goals recommended by the executive officers to the Compensation Committee for
the MPB level bonuses are generally equal to the Company's business plan
targets. The Company Performance Goals recommended by the executive officers to
the Compensation Committee for the XPB level bonuses are at levels above the
Company's business plan targets. The Company Performance Goals are approved by
the Compensation Committee in connection with each year covered by the Program.
IPB LEVEL BONUSES PAYMENT. At the end of each quarter during the Program,
each participant receives a bonus equal to his or her salary during the quarter
multiplied by (i) the participant's IPB Percentage and (ii) a percentage based
upon the participant's achievement of his or her specific IP Goals for the IPB
level bonus (if an individual meets all of the IP Goals set for an IPB level
bonus, this percentage would equal 100%).
MPB LEVEL BONUSES PAYMENT. At the end of each year covered by the
Program, each participant receives a bonus equal to his or her salary during the
year multiplied by (i) the participant's MPB Percentage and (ii) a percentage
based upon the Company's achievement of Company Performance Goals for the MPB
level bonus (if the Company meets all of the Company Performance Goals set for
an MPB level bonus, this percentage would equal 100%).
XPB LEVEL BONUSES PAYMENT. At the end of each year covered by the
Program, each participant receives a bonus equal to his or her salary during the
year multiplied by (i) the participant's XPB Percentage and (ii) a percentage
based upon the Company's achievement of Company Performance Goals for the XPB
level bonus (if the Company meets all of the Company Performance Goals set for
an XPB level bonus, this percentage would equal 100%).
INDIVIDUAL PERFORMANCE ADJUSTMENTS. The Compensation Committee and the
Chief Executive Officer of the Company may increase, reduce or eliminate certain
bonus payments to the executive officers if they subjectively determine that a
particular executive officer's individual performance warrants such adjustment.
Similar performance adjustments may be made for any other employees on the
recommendation of the employee's manager with the approval of the officer for
the functional area and the Vice President - Human Resources.
2
<PAGE>
Exhibit 10.201
XcelleNet Software & Services Agreement
THIS IS A LEGAL AGREEMENT BETWEEN YOU, THE CUSTOMER, AND XCELLENET, INC.,
("XCELLENET") AND, ALONG WITH THE ORDER FORM, IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN YOU AND XCELLENET (THE "AGREEMENT") WHICH
SUPERSEDES ANY PROPOSAL OR PRIOR AGREEMENT, ORAL OR WRITTEN, AND ANY OTHER
COMMUNICATIONS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT.
1. GRANT OF LICENSE. XcelleNet hereby grants you a nonexclusive and limited
license to use the software products ordered by you, including any updates and
any associated electronic or written documentation (together, the "Software"),
and you accept certain limits on you set forth in this Agreement, including:
a) You agree to use the Software for your internal use only in processing data
you have a right to process or distribute.
b) You may assign or transfer the Software and this Agreement to any
affiliated entity upon prior written consent from XcelleNet, which shall not be
unreasonably withheld, provided such entity agrees in writing to be bound by all
the terms and conditions of this Agreement. Except as provided in this Section
and Section2, you agree not to sublicense, assign, rent, sell, lease, distribute
or otherwise transfer the Software or any of the rights granted by this
Agreement, to any third party.
c) You agree to take all reasonable precautions to prevent unauthorized
persons from obtaining access to or use of the Software.
d) You agree not to disassemble, decompile or reverse engineer the Software,
except to the extent and for the express purposes authorized by applicable law.
e) You agree not to modify or alter the Software without the prior written
consent of XcelleNet. You acknowledge that XcelleNet retains all rights and
title to any modifications or enhancements to, or derivative works of, the
Software, except as otherwise agreed to by XcelleNet. Use of any features
contained within the Software to configure the Software does not constitute
modification of the Software, and XcelleNet does not claim any ownership of
applications or interfaces that were not created by XcelleNet. If you wish to
develop an interface to the Software, XcelleNet will provide you existing
information reasonably sufficient to enable interoperability.
2. CLIENT AND SERVER SOFTWARE. The Software includes "Server Software" and
"Client Software". Server Software are those modules of the Software installed
on a single network or file server computer (the "Server") that manage and
control the automated exchanges of information with Clients through various
telecommunication channels. Client Software are those modules of the Software
that run on remote computers ("Clients") and facilitate communications with the
Server Software. You agree to use each copy of the licensed Server Software on
only one Server at a time, to manage up to the number of Clients licensed for
that Server. The Client Software may be copied and distributed by you to
endusers within your organization and to third parties solely for the purpose of
connecting to the Server, but may not otherwise be further copied and
distributed. If you provide third parties with access to the Software, you agree
to be solely responsible for all claims and liabilities resulting from the use
of the Software by such third parties and for any breach of this Agreement by
such third parties.
3. OWNERSHIP & INTELLECTUAL PROPERTY. All copyright and other intellectual
property rights in and to the Software are and shall remain the exclusive
property of XcelleNet and/or its suppliers. The Software is protected by the
copyright laws of the United States and international treaty provisions. To
further protect XcelleNet's ownership rights in the Software, you agree not to:
(i) violate any of XcelleNet's copyrights or other proprietary rights related to
the Software; (ii) alter, remove or conceal any copyright notices or other
proprietary notices that may appear on or within the Software; and (iii) copy
the Server Software without the prior written consent of XcelleNet, except to
provide a backup copy (but not for "hot standby" or "test bed" purposes without
XcelleNet's prior written consent).
4. LIMITED WARRANTY/EXCLUSIVE REMEDY.
a) XcelleNet warrants that it has the right and authority to enter into and
perform this Agreement. XcelleNet further warrants that for a period of ninety
(90) days from initial delivery of the first copy of each Software product, (i)
the Software will substantially conform to the functional description in its
associated documentation and that (ii) the physical media and documentation
containing the Software will be free from defects in materials and workmanship.
The above warranties specifically exclude defects resulting from accident abuse,
unauthorized repair, modifications, or enhancements, or misapplication.
XcelleNet does not warrant that use of the Software will be uninterrupted or
error free. Delivery of additional copies of, or revisions or upgrades to, the
Software shall not restart or otherwise affect the warranty period for
previously delivered copies.
b) Your exclusive remedy for breach of this limited warranty shall be, at
XcelleNet's option, either (i) correction or replacement of the Software with
product(s) which conform to the above-stated limited warranty, or (ii) refund of
the price paid for the Software and termination of this Agreement with respect
to those copies not in compliance. To claim the benefit of this limited warranty
you must give XcelleNet written notice of any breach of the above-stated limited
warranty, not later than ninety (90) days following your receipt of the
Software.
c) EXCEPT AS SET FORTH IN TIES SECTION 4, XCELLENET AND ITS DISTRIBUTORS AND
SUPPLIERS MAKE NO REPRESENTATIONS, WARRANTIES, OR GUARANTEES, EITHER EXPRESS,
IMPLIED, STATUTORY, OR OTHERWISE, ORAL OR WRITTEN, WITH RESPECT TO THE SOFTWARE
AND ANY SERVICES COVERED BY OR FURNISHED PURSUANT TO THIS AGREEMENT, INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OR CONDITION (I) OF MERCHANTABILITY,
(II) OF SATISFACTORY QUALITY, (III) OF FITNESS FOR A PARTICULAR PURPOSE, OR (IV)
ARISING FROM COURSE OF PERFORMANCE, COURSE OF DEALING, OR USAGE OF TRADE.
5. LIMITATION OF LIABILITY. EXCEPT AS PROVIDED IN SECTION 6, IN NO EVENT WILL
XCELLENET OR ITS OFFICERS, EMPLOYEES, DISTRIBUTORS, SUPPLIERS OR AFFILIATES BE
LIABLE FOR; (I) COSTS OF SUBSTITUTE GOODS OR SERVICES; (II) SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER, WHETHER IN AN ACTION OF
CONTRACT OR TORT, EVEN IF XCELLENET HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES; (III) ANY CLAIM AGAINST YOU BY ANY THIRD PARTY; AND (IV) ANY DAMAGES,
LOSSES OR INJURIES TO YOU, OR THOSE CLAIMING THROUGH YOU, IN EXCESS OF THE FEES
PAID BY YOU FOR THE SOFTWARE OR SERVICES DIRECTLY CAUSING THE LIABILITY.
6. INFRINGEMENT INDEMNITY.
a) If an action is brought against you claiming that the Software infringes
any United States patent or worldwide copyright or trade secret rights of a
third party, XcelleNet shall indemnify you and hold you harmless against all
damages and costs awarded against you, or settlements entered into by XcelleNet
on your behalf, in the action, subject to Section 6(b) but only if. (i) You
notify XcelleNet promptly and in writing upon learning that the claim might be
asserted: (ii) XcelleNet is given sole control of any proceedings or
negotiations in connection with the claim; (iii) you take no action that in
XcelleNet's judgment, materially impairs XcelleNet's defense of the claim; and
(iv) you cooperate and assist in the defense or settlement of the claim, as
reasonably requested by XcelleNet.
b) In performing its indemnity obligations in Section 6(a), XcelleNet may, at
its option and expense, either (i) substitute a substantially equivalent non-
infringing item for the infringing item (ii) modify the infringing item so that
it no longer infringes but remains functionally equivalent, or (iii) obtain for
you the right to continue using such item. If none of the foregoing is
commercially practicable in XcelleNet's reasonable opinion, Xcellenet may
terminate this Agreement and will accept a return of the infringing Software and
refund to you the license fees applicable thereto less 1/60" of such amount for
each month in which this Agreement has been in effect. The indemnity in Section
6(a) will not apply if and to the extent that the infringement claim results
from (i) a correction or modification of the Software not provided by XcelleNet,
(ii) a failure to promptly install an update, or (iii) the combination of the
Software with items not provided by XcelleNet.
c) NOTWITHSTANDING ANY OTHER PROVISIONS OF THIS AGREEMENT, THE FOREGOING
STATES THE ENTIRE LIABILITY AND OBLIGATION OF XCELLENET OR ANY DISTRIBUTOR.
SUPPLIER OR AFFILIATE WITH RESPECT TO INFRINGEMENT OR CLAIMS OF INFRINGEMENT OF
ANY PATENT, COPYRIGHT, TRADEMARK, TRADE SECRET OR OTHER INTELLECTUAL PROPERTY
RIGHT BY THE SOFTWARE.
7. TERMINATION. This Agreement is effective until terminated. You may terminate
this Agreement at any time by returning the Software and all copies to XcelleNet
or by destroying them. However, you shall receive a refund of your license fee
only if this Agreement is terminated in compliance with Section 4. This
Agreement may be terminated by XcelleNet if (i) you fail to pay the license fees
and other charges, or (ii) you fail to comply with any of the terms and
conditions of this Agreement and do not remedy such failure within thirty (30)
days after receiving notice. Upon any termination of this Agreement, you agree
to (i) immediately cease all use of the Software, (ii) either return the
Software and all copies to XcelleNet or destroy them, and (iii) notify all third
parties using the Software through you to do the same.
8. EXPORT CONTROLS. None of the Software or underlying information or technology
may be downloaded or otherwise exported or re-exported in violation of the laws
and administrative regulations of the United States or any other applicable
jurisdiction.
9. GENERAL. (i) This Agreement shall be governed in accordance with the laws of
the State of Georgia, U.S.A., without reference to conflict of laws principles
and without regard to the United Nations 1980 Convention on Contracts for the
International Sale of Goods and any amendments thereto. (ii) XcelleNet's
suppliers are the intended third party beneficiaries of this Agreement and have
the express right to rely upon and directly enforce the terms set forth herein.
(iii) All sales, use or other taxes arising out of this Agreement or your use of
the Software is your sole responsibility, except for income or franchise taxes
payable by XcelleNet. (iv) If any provision of this Agreement is held to be
unenforceable, such provision shall be reformed only to the extent necessary to
make it enforceable. (v) All terms of any purchase order or other ordering
document submitted by you shall be superseded by this Agreement. (vi) This
Agreement may only be amended in writing and only if signed by XcelleNet and
you. (vii) All notices shall be in writing and shall be sent by mail to the
parties at the business addresses on the accompanying order form or at such
other addresses of which either party may give notice.
<PAGE>
CHANGE IN CONTROL EMPLOYMENT AGREEMENT Exhibit 10.29
--------------------------------------
AGREEMENT by and between XcelleNet, Inc., a Georgia corporation (the
"Company") and Scott L. Duma (the "Executive"), dated as of the ___ day of
-------------
_____________________ 199__.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
-------------------
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section l(b)) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the second anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Change of Control Period shall be automatically extended so as
to terminate three years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give notice to the Executive that the
Change of Control Period shall not be so extended.
2. Change of Control. For the purposes of this Agreement, a "Change of
-----------------
Control" shall mean:
<PAGE>
(a) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 30% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting Securities");
provided, however, that for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of Control: (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, (iii) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company or (iv)
any acquisition by any corporation pursuant to a transaction which complies with
clauses (i), (ii) and (iii) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company Common
Stock and outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock or other equity
interests and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the case
may be, of the entity resulting from such Business Combination (including,
without limitation, an entity which as a result of such transaction owns the
Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the case may
be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
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<PAGE>
shares of common stock or other equity interests of the entity resulting from
such Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination and (iii) at least a majority of the
members of the board of directors or comparable body of the entity resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination.
3. Employment Period. The Company hereby agrees to continue the Executive
-----------------
in its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the second anniversary of such
date (the "Employment Period").
4. Terms of Employment.
-------------------
(a) Position and Duties.
-------------------
(i) During the Employment Period, (A) the Executive's position (including
status, offices, titles and reporting requirements), authority, duties and
responsibilities shall be at least commensurate in all material respects with
the most significant of those held, exercised and assigned at any time during
the 120-day period immediately preceding the Effective Date and (B) the
Executive's services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office or location less
than 35 miles from such location.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote full attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
------------
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<PAGE>
(i) Base Salary. During the Employment Period, the Executive shall
-----------
receive an annual base salary ("Annual Base Salary"), which shall be paid at a
monthly rate, at least equal to twelve times the highest monthly base salary
paid or payable, including any base salary which has been earned but deferred,
to the Executive by the Company and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base Salary shall be reviewed
no more than 12 months after the last salary increase awarded to the Executive
prior to the Effective Date and thereafter at least annually. Any increase in
Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any entity controlled
by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall
------------
be awarded, for each fiscal year ending during the Employment Period, an annual
bonus (the "Annual Bonus") in cash at least equal to the greater of forty
percent (40%) of Annual Base Salary or the Executive's highest bonus under the
Company's executive compensation plan, or any comparable bonus under any
predecessor or successor plan, for the last three full fiscal years prior to the
Effective Date (annualized in the event that the Executive was not employed by
the Company for the whole of such fiscal year) (the "Recent Annual Bonus").
Each such Annual Bonus shall be paid no later than the end of the third month of
the fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
--------------------------------- -----
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding the Effective Date.
(iv) Welfare Benefit Plans. During the Employment Period, the Executive
---------------------
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to other peer
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<PAGE>
executives of the Company and its affiliated companies, but in no event shall
such plans, practices, policies and programs provide the Executive with benefits
which are less favorable, in the aggregate, than the most favorable of such
plans, practices, policies and programs in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date.
(v) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date.
(vi) Fringe Benefits. During the Employment Period, the Executive shall
---------------
be entitled to fringe benefits, including, without limitation, tax and financial
planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date.
(vii) Office and Support Staff. During the Employment Period, the
------------------------
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to personal secretarial and other
assistance, at least equal to the most favorable of the foregoing provided to
the Executive by the Company and its affiliated companies at any time during the
120-day period immediately preceding the Effective Date.
(viii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date.
5. Termination of Employment.
-------------------------
(a) Death or Disability. The Executive's employment shall terminate
-------------------
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 13(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
-5-
<PAGE>
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during the
-----
Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer of the Company which
specifically identifies the manner in which the Board or Chief Executive Officer
believes that the Executive has not substantially performed the Executive's
duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any other action by the Company which
-6-
<PAGE>
results in a diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the provisions of
Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office or
location other than as provided in Section 4(a)(i)(B) hereof or the Company's
requiring the Executive to travel on Company business to a substantially greater
extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section 12(c) of
this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good
Reason" made by the Executive shall be conclusive. Anything in this Agreement
to the contrary notwithstanding, a termination by the Executive for any reason
during the 30-day period immediately following the first anniversary of the
Effective Date shall be deemed to be a termination for Good Reason for all
purposes of this Agreement.
(d) Termination Other Than for Death or Disability, Cause or Good Reason.
--------------------------------------------------------------------
The Company may terminate the Executive's employment at any time for any reason.
The Executive's employment may be terminated by Executive at any time for any
reason.
(e) Notice of Termination. Any termination by the Company for Cause, or by
---------------------
the Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(b) of this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this Agreement relied
upon, (ii) to the extent applicable, sets forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than 30 days after the giving
of such notice). The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
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<PAGE>
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination.
-------------------------------------------
(a) Good Reason; Other Than for Cause, Death or Disability. If, during the
------------------------------------------------------
Employment Period, the Company shall terminate the Executive's employment other
than for Cause or Disability or the Executive shall terminate employment for
Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash within 30
days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of (x) the
higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned but deferred (and
annualized for any fiscal year consisting of less than twelve full months or
during which the Executive was employed for less than twelve full months), for
the most recently completed fiscal year during the Employment Period, if any
(such higher amount being referred to as the "Highest Annual Bonus") and (y) a
fraction, the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which is 365 and
(3) any compensation previously deferred by the Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each case
to the extent not theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the amount equal to the sum of (x) the Executive's Annual Base Salary
and (y) the Highest Annual Bonus; and
C. an amount equal to the excess of (a) the actuarial equivalent of the
benefit under the Company's qualified defined benefit retirement plan (the
"Retirement Plan") (utilizing actuarial assumptions no less favorable to the
Executive than those in effect under the Company's Retirement Plan immediately
prior to the Effective Date), and any excess or supplemental retirement plan in
which the Executive participates (together, the "SERP") which the Executive
-8-
<PAGE>
would receive if the Executive's employment continued for one year after the
Date of Termination assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's compensation in each of the
three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b)
the actuarial equivalent of the Executive's actual benefit (paid or payable), if
any, under the Retirement Plan and the SERP as of the Date of Termination;
D. an amount equal to the product of (1) the fair market value of the
aggregate securities subject to the Unvested Options (as hereinafter defined)
less the aggregate exercise price for the Unvested Options, and (2) 1.2;
however, no amount shall be payable pursuant to this Section 6.(a)(i)D if the
Company accelerates the exercisability of all of the Unvested Options to a date
no later than the Date of Termination; as used herein, Unvested Options means
any options, or portions thereof, to purchase the Company's securities that have
been granted to the Executive on or prior to the Date of Termination, and which
options or portions thereof are not exercisable on the Date of Termination, but
would become exercisable within eighteen (18) months following the Date of
Termination if the Executive remained employed by the Company for such eighteen-
month period, and assuming any performance-based acceleration of exercisability
that could occur during such eighteen-month period did occur (the "Unvested
Options").
(ii) for one year after the Executive's Date of Termination, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been provided to
them in accordance with the plans, programs, practices and policies described in
Section 4(b)(iv) of this Agreement if the Executive's employment had not been
terminated, provided, however, that if the Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare benefits
under another employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other plan
during such applicable period of eligibility. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive for
retiree benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until three years after
the Date of Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall be
selected by the Executive in his sole discretion; and
(iv) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required to
be paid or provided or which the Executive is eligible to receive under any
plan, program, policy or practice or contract or agreement of the Company and
its affiliated companies (such other amounts and benefits shall be hereinafter
referred to as the "Other Benefits").
-9-
<PAGE>
(b) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall include
without limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment shall
---------------------------------
be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
-10-
<PAGE>
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 13(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments
---------------
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a result
of any contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code
of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
-11-
<PAGE>
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 9(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Executive, after
taking into account the Payments and the Gross-Up Payment, would not receive a
net after-tax benefit of at least $25,000 (taking into account both income taxes
and any Excise Tax) as compared to the net after-tax proceeds to the Executive
resulting from an elimination of the Gross-Up Payment and a reduction of the
Payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations required
to be made under this Section 9, including whether and when a Gross-Up Payment
is required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by Arthur Andersen &
Co. L.L.P. or such other certified public accounting firm as may be designated
by the Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. In the event that the Accounting
Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, the Company shall appoint another nationally
recognized accounting firm to make the determinations required hereunder (which
accounting firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall-
be paid by the Company to the Executive within five days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Company and the Executive. As a result of the uncertainty
in the application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
-12-
<PAGE>
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the Company
relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively to
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
-13-
<PAGE>
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by acts
by the Executive or representatives of the Executive in violation of this
Agreement). After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the Company or as
may otherwise be required by law or legal process, communicate or divulge any
such information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Non Competition. Upon termination of Executive's employment by
---------------
Executive or the Company for any reason:
(i) (a) For one (1) year thereafter, I will not, within the continental
United States, Directly or Indirectly Compete with XcelleNet;
(ii) For three (3) years thereafter, Executive will not engage in
recruiting or hiring or attempting to recruit or hire, directly or by assisting
others, any employee of the Company;
(iii) For three (3) years thereafter, Executive will not solicit or
accept, or attempt to solicit or accept, directly or by assisting others, for
purposes of providing products or services that are competitive with those
provided by the Company, any business from the Company's customers, including
actively sought prospective customers, with whom or which Executive made
material contact while employed by the Company.
As used in this Section 11:
-14-
<PAGE>
"Compete" or "Competing" shall mean with respect to XcelleNet any of: (a) the
design, development, marketing, sale, licensing or distribution of systems
management software of the types or performing the functions of the products
designed, produced, marketed, sold, licensed or distributed by XcelleNet as of
the date of termination of my employment or the provision of related consulting,
systems engineering, integration and support services for such XcelleNet
products; (b) hiring, soliciting or attempting to hire or solicit any employee
of XcelleNet as of the date my employment is terminated either on my behalf or
on behalf of any other person or entity; or (c) entering into or attempting to
enter into, in a material way and level, any business substantially similar to
any of the activities described in (a) above, either alone or with any
individual, partnership, corporation or association or any other person or
entity; and
"Directly or Indirectly" as they modify the words "Compete" or "Competing" shall
mean: (a) providing services that are the same as or similar to those services
in which I was engaged for XcelleNet at the time of termination of my employment
or during the twelve (12) months immediately preceding such termination, as an
employee, director, officer, agent, representative, consultant, or independent
contractor of any entity or enterprise that is Competing with XcelleNet ; (b)
participating in any such Competing entity or enterprise as an owner, partner,
limited partner, joint venturer, or stockholder (except as a stockholder owning
less than a one percent interest in a corporation whose shares are actively
traded on a national securities exchange or in the over-the-counter market); and
(c) communicating to any such Competing entity or enterprise the names or
addresses or any other information concerning any person or entity that is a
past, present or identified prospective client, customer licensee from or
licensor to XcelleNet at the time of termination of my employment.
If, and while, Executive acts in violation of this Section 11, the running of
the period specified in the particular subsection which Executive violated shall
be tolled and suspended.
12. Successors.
----------
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
-15-
<PAGE>
be required to perform it if no such succession had taken place. As used in
this Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees to
perform this Agreement by operation of law, or otherwise.
13. Miscellaneous.
-------------
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Georgia, without reference to principles of conflict of
laws. The captions of this Agreement are not part of the provisions hereof and
shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
--------------------
______________________________
______________________________
______________________________
______________________________
If to the Company:
------------------
XcelleNet, Inc.
Suite 850
5 Concourse Parkway
Atlanta, Georgia 30328
Attention: Chief Financial Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this Agreement
such Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
-16-
<PAGE>
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may otherwise
be provided under any other written agreement between the Executive and the
Company, the employment of the Executive by the Company is "at will". If the
Effective Date, as defined herein, has not occurred, including but not limited
to the Effective Date occurring by reason of anticipation of a Change of
Control, the Executive's employment and/or this Agreement may be terminated by
either the Executive or the Company at any time prior to the Effective Date, in
which case the Executive shall have no further rights under this Agreement.
From and after the Effective Date this Agreement shall supersede any other
agreement between the parties that was in effect prior to the Effective Date of
this Agreement with respect to the subject matter hereof.
-17-
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
_____________________________
[Executive]
XCELLENET, INC.
By: __________________________
Vice President - Finance, Secretary
and Treasurer
-18-
<PAGE>
EXHIBIT 11.01
XCELLENET, INC. AND SUBSIDIARIES
Computation of Earnings Per Share of Common Stock
For the Years Ended December 31, 1997, 1996 and 1995
(amounts in thousands, except per share)
For the Year Ended
December 31,
--------------------------
1997 1996 1995
-------- -------- --------
Basic weighted average number of common
shares outstanding 8,035 7,229 7,387
Add - Shares of common stock assumed
issued upon exercise of stock options
using the "treasury stock" method as it
applies to the computation of
diluted earnings per share 657 686 1,093
-------- -------- --------
Diluted weighted average shares outstanding 8,692 7,915 8,480
======= ======= =======
Net earnings used in the computation of basic
and diluted earnings per share $3,145 $ - $3,802
======= ======= =======
Earnings per share:
Basic $0.39 $ - $0.51
======= ======= =======
Diluted $0.36 $ - $0.45
======= ======= =======
<PAGE>
EXHIBIT 23.01
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 22, 1998 incorporated by reference in this Form 10-K of
XcelleNet, Inc. into the Company's previously filed Registration Statements on
Form S-8, File No. 33-82630, 33-82632, 33-92536, 33-92538 and 33-93384.
/s/ Arthur Andersen LLP
-----------------------
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,478
<SECURITIES> 20,811
<RECEIVABLES> 14,947
<ALLOWANCES> 552
<INVENTORY> 0
<CURRENT-ASSETS> 45,219
<PP&E> 13,330
<DEPRECIATION> 8,597
<TOTAL-ASSETS> 55,583
<CURRENT-LIABILITIES> 8,153
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 46,175
<TOTAL-LIABILITY-AND-EQUITY> 55,583
<SALES> 34,320
<TOTAL-REVENUES> 53,579
<CGS> 2,592
<TOTAL-COSTS> 10,174
<OTHER-EXPENSES> 39,318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 72
<INCOME-PRETAX> 4,964
<INCOME-TAX> 1,819
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,145
<EPS-PRIMARY> .39
<EPS-DILUTED> .36
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
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FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,403
<SECURITIES> 2,947
<RECEIVABLES> 15,818
<ALLOWANCES> 602
<INVENTORY> 0
<CURRENT-ASSETS> 28,897
<PP&E> 12,209
<DEPRECIATION> 6,609
<TOTAL-ASSETS> 41,087
<CURRENT-LIABILITIES> 6,669
<BONDS> 0
0
0
<COMMON> 75
<OTHER-SE> 33,084
<TOTAL-LIABILITY-AND-EQUITY> 41,087
<SALES> 8,871
<TOTAL-REVENUES> 13,350
<CGS> 570
<TOTAL-COSTS> 2,258
<OTHER-EXPENSES> 9,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 1,867
<INCOME-TAX> 738
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<EPS-DILUTED> .14
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 15,822
<SECURITIES> 11,587
<RECEIVABLES> 11,688
<ALLOWANCES> 502
<INVENTORY> 0
<CURRENT-ASSETS> 40,506
<PP&E> 13,103
<DEPRECIATION> 8,022
<TOTAL-ASSETS> 51,514
<CURRENT-LIABILITIES> 6,974
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 43,630
<TOTAL-LIABILITY-AND-EQUITY> 51,514
<SALES> 7,214
<TOTAL-REVENUES> 12,183
<CGS> 715
<TOTAL-COSTS> 2,770
<OTHER-EXPENSES> 9,863
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16
<INCOME-PRETAX> (201)
<INCOME-TAX> (69)
<INCOME-CONTINUING> (132)
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<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
