-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UPaHVr07fmBxYFQB5T4tZCUfZDhArRcIAgmy8GIfKiQ+QiqBaMUm8TA12Kv1FDEI DrqZDMF0MoVQDC6aZo/xeQ== /in/edgar/work/20000828/0000912057-00-039247/0000912057-00-039247.txt : 20000922 0000912057-00-039247.hdr.sgml : 20000922 ACCESSION NUMBER: 0000912057-00-039247 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20000828 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADEXA INC CENTRAL INDEX KEY: 0001119691 STANDARD INDUSTRIAL CLASSIFICATION: [ ] IRS NUMBER: 330616222 STATE OF INCORPORATION: CA FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-44618 FILM NUMBER: 710564 BUSINESS ADDRESS: STREET 1: 5933 WEST CENTURY BLVD., 12TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90053 BUSINESS PHONE: 3103388444 S-1 1 s-1.txt FORM S-1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 28, 2000. REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ ADEXA, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 7372 33-0616222 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
5933 W. CENTURY BLVD., 12TH FLOOR LOS ANGELES, CA. 90045 (310) 338-8444 (Address, Including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------ DR. K. CYRUS HADAVI PRESIDENT AND CHIEF EXECUTIVE OFFICER ADEXA, INC. 5933 W. CENTURY BLVD., 12TH FLOOR LOS ANGELES, CA. 90045 (310) 338-8444 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------ COPIES TO: DAVID T. YOUNG, ESQ. GARY L. SELLERS, ESQ. WILLIAM E. GROWNEY, JR., ESQ. SIMPSON THACHER & BARTLETT DAMON D. JORDAN, ESQ. 425 LEXINGTON AVENUE DAVID W. WIENER, ESQ. NEW YORK, NEW YORK 10017 GUNDERSON DETTMER STOUGH (212) 455-2000 VILLENEUVE FRANKLIN & HACHIGIAN, LLP 155 CONSTITUTION DRIVE MENLO PARK, CALIFORNIA 94025 (650) 321-2400
------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this registration statement. ------------------------------ If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / _________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / _________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE Common stock, no par value.................................. $75,000,000 $19,800
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o). ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION, DATED , 2000 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS SHARES [LOGO] COMMON STOCK This is an initial public offering of common stock by Adexa, Inc. All of the shares of common stock are being sold by Adexa, Inc. The estimated initial public offering price will be between $ and $ per share. -------------- Prior to this offering, there has been no public market for our common stock. We have applied to have our common stock approved for quotation on the Nasdaq National Market under the symbol ADXA. --------------
PER SHARE TOTAL --------- ------- Initial public offering price............................... $ $ Underwriting discounts and commissions...................... $ $ Proceeds to Adexa, before expenses.......................... $ $
Adexa has granted the underwriters an option for a period of 30 days to purchase up to additional shares of common stock. -------------- INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. ------------- NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Joint Book-Running Managers CHASE H&Q MERRILL LYNCH & CO. DAIN RAUSCHER WESSELS , 2000 TABLE OF CONTENTS
PAGE -------- Prospectus Summary.......................................... 3 Risk Factors................................................ 7 Special Note Regarding Forward-Looking Statements........... 17 Use of Proceeds............................................. 17 Dividend Policy............................................. 17 Capitalization.............................................. 18 Dilution.................................................... 20 Selected Financial Data..................................... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 23 Business.................................................... 36 Management.................................................. 52 Related Party Transactions.................................. 61 Principal Stockholders...................................... 63 Description of Capital Stock................................ 65 Shares Eligible for Future Sale............................. 68 Underwriting................................................ 70 Legal Matters............................................... 72 Experts..................................................... 72 Additional Information...................................... 73 Index to Financial Statements............................... F-1
2 PROSPECTUS SUMMARY THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE MAKING AN INVESTMENT DECISION. ADEXA, INC. We develop and market software products that enable collaborative commerce, or c-Commerce. Our iCollaboration suite provides visibility into multi-tiered supply chains and is designed to intelligently synchronize and optimize complex and interdependent supply chain activities. Our software enables companies to address the increasing volume, complexity and speed of business interactions within and across the extended supply chain and automates selected inter- and intra-company business processes based on user-defined rules. Our software allows electronic exchanges to provide value-added services to their participants, including collaborative demand planning, multi-tiered supply chain planning and available-to-promise capabilities. Fundamentally, our software enables enterprises and exchange participants to make faster, more informed decisions about supply chain interactions, resulting in enhanced supply chain efficiency, greater customer responsiveness and improved strategic planning and flexibility. Many companies are embracing c-Commerce as a means of synchronizing and streamlining their supply chain activities. c-Commerce is an Internet-based approach to sourcing, making and delivering goods that involves intelligent planning, real-time synchronization and dynamic collaboration among members of an extended supply chain. c-Commerce represents a distinct departure from e-Commerce, which is merely transactional in nature, and empowers enterprises and electronic exchanges to respond more quickly and effectively to customer demands and changing variables within the supply chain. For example, c-Commerce allows business partners to collaboratively synchronize how and when materials are purchased and delivered across a multi-tiered supply chain. We believe our software's powerful functionality, flexibility and open architecture differentiate it from other approaches to c-Commerce. Specifically, our next-generation software: - scales with growing numbers of supply chain members, increasing transaction volumes and expanding product complexity; - can be easily configured to support company-specific supply chain strategies and quickly extended to meet a business's evolving needs; - synchronizes and integrates supply chain activities at different levels within and outside the enterprise; - utilizes sophisticated constraint-based optimization algorithms to rapidly solve the complex and dynamically changing supply chain problems of enterprises and exchanges; - easily integrates with an organization's existing technologies and those of its supply chain members, resulting in reduced implementation time and expense; and - addresses the supply chain-specific issues of a broad range of industries. Our objective is to become the leading global provider of comprehensive c-Commerce solutions. To achieve this objective, we intend to continue focusing on markets where we have referenceable customers and industry knowledge and to penetrate additional vertical markets that are characterized by complex supply chains. We plan to continue to target electronic exchanges both as potential customers and as application service providers, or ASPs, that can offer their customers our products on a hosted basis. We also seek to capitalize on the network effect created when non-customer participants in the supply chains of our customers are exposed to, and benefit from, our software. We intend to pursue a global, multi- 3 channel distribution strategy by expanding our direct sales force and leveraging our relationships with complementary technology providers, resellers and systems integrators. Finally, we plan to continue to develop our technology in order to extend the features and functionality of our product offerings. We target Global 2000 companies and electronic exchanges in large vertical markets, such as the aerospace and defense, automotive, electronics, semiconductors and textiles and apparel industries. As of August 24, 2000, we had more than 50 customers in 11 countries. Our top ten customers based on end- user license contract revenues are: Advanced Micro Devices, Inc.; Conexant Systems, Inc.; Digeno, a unit of RR Donnelley & Sons Co.; Framatome Connectors International; Fujitsu Quantum Device Limited; Matsushita Electronics Corporation; Milliken and Company; Philips Semiconductors B.V.; Sanyo Electronics Co. Ltd.; and Sumitomo Metal Industries, Ltd., Sitix Division. We maintain a Web site at www.adexa.com. Information contained on our Web site does not constitute part of this prospectus. Our principal offices are located at 5933 W. Century Blvd., 12th Floor, Los Angeles, California 90045, and our telephone number is (310) 338-8444. ADEXA, ICOLLABORATION AND OUR LOGO ARE OUR TRADEMARKS. TRADE NAMES, SERVICE MARKS OR TRADEMARKS OF OTHER COMPANIES APPEARING IN THIS PROSPECTUS ARE THE PROPERTY OF THEIR RESPECTIVE HOLDERS. 4 THE OFFERING Common stock offered by Adexa................ shares Common stock to be outstanding after the shares offering................................... Working capital and general corporate Use of proceeds.............................. purposes. Proposed Nasdaq National Market symbol....... ADXA
The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of June 30, 2000, and on a pro forma basis based upon the issuance of 1,574,801 shares of Series C redeemable convertible preferred stock on August 24, 2000 and the conversion of all series of preferred stock into shares of common stock, and excludes: - 4,987,393 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2000 at a weighed average exercise price of $1.69 per share; - 94,750 shares of common stock issuable upon exercise of stock options issued after June 30, 2000 at a weighted average exercise price of $7.00 per share; - 417,689 shares of common stock reserved for future issuance under our 1998 Stock Plan as of June 30, 2000; - 650,000 additional shares of common stock reserved for future issuance under our 1998 Stock Plan subsequent to June 30, 2000; - 2,000,000 shares of common stock reserved for future issuance under our 2000 Stock Incentive Plan; - 750,000 shares of common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan; and - an outstanding warrant to purchase 228,012 shares of Series A convertible preferred stock. ------------------------ Except as otherwise indicated, information in this prospectus is based on the following assumptions: - our reincorporation in the state of Delaware prior to the effectiveness of this offering; - conversion of all outstanding shares of preferred stock, including the 1,574,801 shares of Series C redeemable convertible preferred stock issued on August 24, 2000, into shares of common stock upon the closing of this offering; - no exercise of the underwriters' over-allotment option; and - a stock split of for effective as of , 2000. 5 SUMMARY FINANCIAL DATA The following table sets forth summary financial data for our company. You should read this information together with the financial statements and the notes to those statements appearing elsewhere in this prospectus and the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ---------------------------------------------------- ------------------- 1995 1996 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues License revenues...................... -- $ 175 $ 3,735 $ 4,841 $16,093 $ 5,578 $13,336 Service revenues...................... $ 823 1,618 2,035 2,251 5,175 2,489 5,958 Maintenance revenues.................. -- 54 416 1,020 2,393 793 2,415 ------ ------ ------- ------- ------- ------- ------- Total revenues................ 823 1,847 6,186 8,112 23,661 8,860 21,709 Gross Profit............................ 423 1,391 4,299 2,869 17,616 6,134 14,758 Operating Income (Loss)................. 136 139 (1,093) (9,198) (2,751) (1,757) (2,032) Net Income (Loss)....................... $ 139 $ 152 $ (847) $(9,434) $(5,185) $(2,750) $(3,077) ====== ====== ======= ======= ======= ======= ======= Basic and Diluted Net Income (Loss) per Share...................... $ 0.01 $ 0.02 $ (0.08) $ (0.94) $ (0.51) $ (0.27) $ (0.29) ====== ====== ======= ======= ======= ======= ======= Weighted Average Shares of Common Stock................................. 9,700 9,925 10,000 10,000 10,099 10,027 10,622 ====== ====== ======= ======= ======= ======= =======
JUNE 30, 2000 ---------------------------------------- PRO PRO FORMA ACTUAL FORMA(1) AS ADJUSTED(2) -------- ------------ -------------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash and cash equivalents.............................. $ 3,604 $23,604 $ Working capital........................................ (5,248) 14,750 Total assets........................................... 16,060 36,060 Deferred revenues...................................... 7,882 7,882 Capital Lease Obligations.............................. 177 177 Total stockholders' equity (deficit)................... (2,911) 17,088
- ------------------------ (1) On a pro forma basis based upon the issuance of 1,574,801 shares of Series C redeemable convertible preferred stock on August 24, 2000, the deemed payment of a dividend representing the value of the beneficial conversion feature of the Series C redeemable convertible preferred stock, and the conversion of all series of preferred stock into shares of common stock. (2) As adjusted to reflect the issuance of shares of common stock under this offering. 6 RISK FACTORS THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AND ALL OTHER INFORMATION IN THIS PROSPECTUS BEFORE INVESTING IN OUR COMMON STOCK. OUR BUSINESS AND RESULTS OF OPERATIONS COULD BE SERIOUSLY HARMED BY ANY OF THE FOLLOWING RISKS. THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE DUE TO ANY OF THESE RISKS, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. RISKS RELATED TO OUR BUSINESS OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO EVALUATE OUR BUSINESS AND FUTURE PROSPECTS. We first licensed versions of our current product components in early 1997. Since then, our suite of products has continued to evolve. In the third quarter of 1999, we reconfigured our products to form our iCollaboration suite and repositioned our company to increase our focus on c-Commerce applications. Accordingly, we are subject to the risks inherent to the establishment of a new business enterprise. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by early-stage companies in new and rapidly evolving markets. To address these risks, we must, among other things, respond to competitive developments, continue to upgrade our products, continue to manage our growth effectively and continue to attract, retain and motivate qualified personnel. If we do not successfully address these risks and challenges, our business and operating results could be harmed. WE HAVE A HISTORY OF LOSSES AND WE MAY NOT BE PROFITABLE IN THE FUTURE. We have experienced net losses in each period since 1997. We incurred net losses of $9.4 million for the fiscal year ended December 31, 1998, $5.2 million for the fiscal year ended December 31, 1999 and $3.1 million for the six months ended June 30, 2000. As of June 30, 2000, we had an accumulated deficit of $18.3 million. We expect to significantly increase our sales and marketing, professional services, research and development, maintenance and support services and general and administrative expenses and consequently our losses are expected to increase in the future. We will need to generate significant increases in our revenues to achieve and maintain profitability and we may not be profitable in the future. If our revenues fail to grow or grow more slowly than we anticipate or our operating expenses exceed our projections, our losses could significantly increase. WE MAY NOT ACHIEVE ANTICIPATED REVENUES IF OUR SOFTWARE PRODUCTS FAIL TO ACHIEVE MARKET ACCEPTANCE. We believe that revenues from software licenses, together with revenues from related services and maintenance, will account for substantially all of our revenues for the foreseeable future. As a result, if our products do not achieve widespread market acceptance, we may not achieve anticipated revenues. In addition, if our competitors release new products that are superior to ours, demand for our products could decline and our business could be harmed. OUR FINANCIAL RESULTS MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER AND WE MAY FAIL TO MEET THE EXPECTATIONS OF PUBLIC MARKET ANALYSTS AND INVESTORS. Our operating results have varied significantly from quarter to quarter in the past and will continue to vary in the future due to a variety of factors, many of which are outside of our control. Factors that could affect our quarterly operating results include: - market acceptance of our products; - size and timing of customer orders and contracts; - budgetary constraints of our customers; 7 - entry of new competitors into our market, or the announcement of new products or product enhancements by competitors; - our ability to successfully expand our sales and marketing, professional services, maintenance and support and research and development organizations; - unexpected delays in developing and marketing new and enhanced products; - time, cost and resource utilization associated with product implementation; - variability in the mix of our license, service and maintenance revenues; - variability in the mix of professional services that we perform and those performed by third parties; - variability in the mix of domestic and international revenues; - foreign currency exchange rate fluctuations; - our ability to establish and maintain relationships with key partners and systems integrators; and - potential costs associated with any acquisitions. A significant portion of our expenses is fixed in the short term and cannot be quickly reduced to respond to decreases in revenues. Therefore, if our revenues are below our expectations, our operating results and net income are likely to be adversely affected. In addition, we may reduce our prices or accelerate our investment in research and development efforts in response to competitive pressures or to pursue new market opportunities. Our revenues may not grow at historical rates in future periods, or they may not grow at all. Accordingly, we may not achieve positive operating margins in future quarters. We experience seasonal fluctuations in our operating results. Historically, our operating results have tended to be stronger in the fourth quarter of the year and weaker in the first quarter of the year. In future periods, we expect that seasonal trends could cause first quarter operating results to remain consistent with, or decrease from, the level achieved in the preceding quarter. If our operating results fall below the expectations of public market analysts and investors, the price of our common stock could decline. COMPETITION COULD CAUSE US TO REDUCE PRICES AND RESULT IN REDUCED GROSS MARGINS OR LOSS OF MARKET SHARE. The market for our products is highly competitive. Our competitors offer a variety of solutions directed at the enterprise level as well as at various segments of the supply chain. We currently face two primary sources of competition: - in-house development efforts by potential customers or partners; and - enterprise application vendors such as i2 Technologies, Inc., J.D. Edwards & Co., Manugistics Group, Inc., Oracle Corporation, and SAP Corporation. In addition, we face potential competition from e-Business and electronic exchange infrastructure providers such as Ariba and Commerce One, as they seek to extend their product offerings. Historically, a number of enterprise resource planning vendors have jointly marketed our products as a complement to their own. However, as we increase our market share and expand our product offerings, and as enterprise resource planning vendors expand their own product offerings, we believe our relationships with these vendors will become more competitive. We believe that other enterprise resource planning vendors are focusing significant resources on increasing the functionality of their own planning and scheduling modules. 8 Relative to us, many of our competitors have: - longer operating histories; - significantly greater financial, technical, marketing and other resources; - greater name recognition; - a broader range of products to offer; and - a larger installed base of customers. In addition, we expect to experience increasing price competition as we compete for market share. We may not be able to compete successfully with our existing or new competitors. If we experience increased competition, our business, operating results and financial condition could be harmed. IF WE FAIL TO INTRODUCE NEW VERSIONS AND RELEASES OF OUR PRODUCTS IN A TIMELY MANNER, WE MAY LOSE CUSTOMERS AND OUR REVENUES MAY DECLINE. Much of our future success depends upon our ability to introduce new versions and releases of our products. We may fail to introduce or deliver these new versions and releases on a timely basis, if at all. In addition, we may fail to achieve timely market acceptance of these enhancements. If we fail to introduce new versions and releases of our products in a timely manner, our business, results of operations and financial condition could be harmed. WE DEPEND ON SIGNIFICANT INDIVIDUAL CONTRACTS AND LOSS OR DELAY OF ANY PARTICULAR CONTRACT COULD HARM OUR BUSINESS. We derive a significant portion of our revenues in each quarter from a small number of relatively large contracts. Our largest customer, measured by the reseller in the case of indirect sales and by the end user in the case of direct sales, accounted for 28% of total revenues for 1997, 30% of total revenues for 1998, 13% of total revenues for 1999 and 21% of total revenues for the six months ended June 30, 2000. Concentrations of customer revenue have been and are likely to continue to be significantly higher for individual quarters than for six month and annual periods. If in any future period we fail to close one or more substantial license, service or maintenance sales that have been targeted to close in that period, our operating results for that period could be materially affected. Moreover, due to customer purchasing patterns, we typically realize a significant portion of our software license revenues in the last few weeks of a quarter. As a result, if we incur any delays in customer orders, we may experience significant reductions in our revenues and results of operations. WE RELY ON AND NEED TO DEVELOP AND ENHANCE RELATIONSHIPS WITH THIRD PARTIES AND OUR INABILITY TO DEVELOP THESE RELATIONSHIPS COULD HARM OUR BUSINESS. Companies increasingly rely on consulting and systems integration firms and third-party software and hardware vendors in selecting and implementing software like ours. Accordingly, we expect to rely in part on such third parties for sales and lead generation and for implementation services. In addition, we will rely on partners to penetrate additional vertical markets. We have formal and informal arrangements with a number of third-party software and hardware vendors and consulting and systems integration firms to enhance our marketing, sales, support, service and product development efforts as well as software implementation services. Many of these firms have similar, and often more established, relationships with our competitors. Even when we establish such a relationship with a consulting or systems integration firm, the success of the relationship will depend on a variety of factors, some of which will not be within our control. Moreover, there can be no assurance that these firms, many of which have significantly greater financial and marketing resources than we do, will not develop or market software products that compete with our products in the future or will not otherwise discontinue their relationships with us. If we fail to 9 maintain these existing relationships or to establish new relationships in the future, our business, results of operations and financial condition could be harmed. We embed and integrate third-party software into our software solutions and we may continue this practice in the future. Third-party software licenses may not continue to be available to us on commercially reasonable terms, if at all. The loss of, or inability to maintain or obtain, any of these software licenses could delay or reduce our product shipments until equivalent software can be identified, licensed and integrated. Any delay or reduction in product shipments could harm our business, operating results and financial condition. IF OUR EFFORTS TO EXPAND SALES OF OUR PRODUCTS TO OTHER INDUSTRIES DO NOT SUCCEED, OUR BUSINESS WOULD BE HARMED. We have historically sold our products primarily to companies in the electronics, semiconductors and textile and apparel industries. We intend to market our products to customers in additional industries. Although we have targeted enterprises in other markets as potential customers, these potential customers may not be as willing to purchase products like ours and the time required to gain an understanding of additional industries may slow our penetration into these industries. OUR LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT FOR US TO PREDICT WHEN OR IF SALES WILL OCCUR AND THEREFORE WE MAY EXPERIENCE AN UNPLANNED SHORTFALL IN REVENUES. Our products typically have lengthy and unpredictable sales cycles, contributing to the uncertainty of our operating results. Customers view the purchase of our iCollaboration suite of software products as a significant and strategic decision. As a result, customers generally evaluate our software products and determine their impact on existing infrastructure over a long period of time. Our sales cycle has historically ranged from approximately one to twelve months, but has extended in certain cases to over one year depending upon the customer's need to rapidly implement a solution and whether the customer is new or is extending an existing implementation. The licensing of our software products may be subject to delays if the customer has lengthy internal budgeting, approval and evaluation processes. We may incur significant selling and marketing expenses during a customer's evaluation period, including the costs of developing a full proposal and completing a rapid proof of concept or custom demonstration, before the customer places an order with us. Customers may also initially purchase a limited number of component, server and user licenses before expanding their implementations. Larger customers may purchase our software products as part of multiple simultaneous purchasing decisions, which may result in additional unplanned administrative processing and other delays in our recognition of license revenues. If revenues forecasted from a specific customer for a particular quarter are not realized or are delayed to another quarter, we may experience an unplanned shortfall in revenues, which could harm our operating results. OUR FAILURE TO RETAIN AND ATTRACT KEY PERSONNEL COULD HARM OUR BUSINESS. We rely upon the continued service of a relatively small number of key technical and senior management personnel. In addition, we do not maintain key person insurance. If we lose any of our key technical or senior management personnel, our business, operating results and financial condition could be harmed. Our future success also depends on our ability to attract, train and retain other highly qualified personnel. There is substantial competition for experienced personnel in our industry. We may not be able to attract, assimilate or retain other highly qualified personnel in the future. As a result, our growth could be limited due to our lack of capacity to develop and market our products to our customers, or we could experience deterioration in service levels or decreased customer satisfaction. After this offering, our ability to attract and retain qualified personnel may be even more difficult because potential employees may perceive the value of our future stock option grants offered to them to 10 be less valuable than stock option grants offered by other companies that are not yet public. Our inability to attract, train or retain the number of highly qualified technical, sales, marketing, professional services and customer support personnel that our business needs may seriously harm our business and results of operations. IF WE ARE NOT ABLE TO MANAGE OUR GROWTH, OUR BUSINESS AND FINANCIAL CONDITION COULD BE HARMED. Our business has grown rapidly in recent years. Our employee count has increased from 196 at December 31, 1999 to 261 at June 30, 2000. We have also increased the scope of our operating and financial systems and the international and geographic distribution of our operations and customers. Our management and operations have been strained by this growth and will continue to be strained should rapid growth continue. Our officers and other key employees must continue to implement and improve our operational, customer support and financial control systems and effectively expand, train and manage our employee base. If we are unable to manage future expansion successfully, our business, operating results and financial condition could be harmed. IF OUR CUSTOMERS ARE NOT SATISFIED WITH OUR PRODUCTS, WE MAY NOT ACHIEVE GROWTH IN OUR REVENUES. Some of our customers initially license a limited number of our software components. Customers may subsequently add additional components as they expand the implementations of our products to different levels of their enterprises. It is therefore important that our customers be satisfied with our initial products that they use and their related implementations. If implementations take longer than expected or are not successful, customers will not be satisfied with our products. Such dissatisfaction may decrease their willingness to license additional components or discourage other potential customers from licensing our products. OUR SOFTWARE MAY BE INCOMPATIBLE WITH NEW PLATFORMS, WHICH COULD HINDER MARKET ACCEPTANCE OF OUR PRODUCTS. Our software supports operating system platforms from Compaq Computer, previously Digital Equipment, Hewlett-Packard, IBM, Microsoft and Sun Microsystems. If additional software platforms gain significant market acceptance, we may be required to make our software compatible with those platforms in order to remain competitive. These platforms may not be architecturally compatible with our software product design, and we may not be able to make our software compatible with those additional platforms on a timely basis, or at all. Any failure to maintain compatibility with existing platforms or to achieve compatibility with new platforms that achieve significant market acceptance could harm our business, operating results and financial condition. OUR FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD REDUCE OUR REVENUES OR CAUSE US TO INCUR COSTLY LITIGATION. We rely primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary rights. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. However, these legal protections afford only limited protection for our technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Although we believe software piracy may be a significant problem, we are unable to determine the extent to which piracy of our software products exists. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others. Our failure to adequately protect our intellectual property could harm our business and operating results. 11 IF WE ARE SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WE MAY INCUR SUBSTANTIAL COSTS, WHICH COULD HARM OUR OPERATING RESULTS. The software industry is characterized by frequent infringement claims regarding copyright, patent and other property rights. Our success and ability to compete are dependent upon our ability to operate without infringing upon the property rights of others. We may be subject to future litigation based on claims that our products infringe the intellectual property rights of others or that our own intellectual property rights are invalid. Any intellectual property infringement claims or litigation could result in substantial costs and diversion of resources and could harm our business and operating results. IF WE BECOME SUBJECT TO PRODUCT LIABILITY CLAIMS, THEY MAY BECOME COSTLY AND TIME-CONSUMING TO DEFEND. Our license agreements with customers typically contain provisions designed to limit our exposure to product liability claims. However, these contract provisions may not preclude all potential claims. Product liability claims could require us to spend significant time and money in litigation or to pay significant damages. As a result, any claim, whether or not successful, could harm our reputation, business, operating results and financial condition. OUR INTERNATIONAL OPERATIONS EXPOSE US TO RISKS. Non-U.S. based customers, based upon the location of the reseller in the case of indirect sales and the location of the end user in the case of direct sales, accounted for approximately 52% of our total revenues in 1997, 36% of our total revenues in 1998, 57% of our total revenues in 1999 and 41% of our total revenues in the six months ended June 30, 2000. To continue our growth and profitability, we will need to expand our sales in international markets. Further penetration of international markets will require us to expand our existing foreign operations, to establish additional foreign operations and to translate our software and manuals into additional foreign languages. Expansion may be costly and time-consuming and may not generate returns for a significant period of time, if at all. If we are unable to expand our international operations or localize our software in a timely manner, our business, results of operations and financial condition could be harmed. Our international operations are subject to risks inherent in international business activities, including: - difficulty in staffing and managing geographically dispersed operations; - longer sales cycles and collection of accounts receivables in some countries; - compliance with a variety of foreign laws and regulations; - unexpected changes in regulatory requirements, taxes, trade laws and tariffs; - overlap of different tax structures; - greater difficulty in safeguarding intellectual property; - increased financial accounting and reporting burdens and complexities; - trade restrictions; and - general economic conditions in international markets. In particular, countries in the Asia-Pacific regions have recently experienced weaknesses in their currencies, banking and equity markets. These weaknesses could adversely affect the demand for our products. WE FACE FINANCIAL RISK ASSOCIATED WITH CURRENCY FLUCTUATIONS. To date, our international operations revenues have primarily been denominated in U.S. dollars. The majority of our international operations expenses and some licenses have been denominated in currencies 12 other than the U.S. dollar. Therefore, our operating results may be adversely affected by changes in the value of the U.S. dollar. As our international operations expand, our exposure to exchange rate fluctuations will increase as we generate revenues and incur expenses in an increasing number of foreign currencies. This exposure could harm our business, results of operations or financial condition in future periods. WE MAY EXPERIENCE DIFFICULTIES INTEGRATING POTENTIAL FUTURE ACQUISITIONS, WHICH COULD DISRUPT OUR BUSINESS, BE DILUTIVE TO STOCKHOLDERS AND ADVERSELY AFFECT OUR OPERATING RESULTS. We may expand our operations or market presence by acquiring or investing in businesses, products or technologies that complement our business, increase our market coverage, enhance our technical capabilities or otherwise offer opportunities for growth. These transactions create risks such as: - difficulty assimilating the operations, technology, products and personnel we acquire; - disruption of our ongoing business; - diversion of management's attention from other business concerns; - one-time charges and expenses associated with amortization of goodwill and other purchased intangible assets; and - potential dilution to our stockholders. Our inability to address these risks could negatively impact our operating results. Moreover, any future acquisitions, even if successfully completed, may not generate any additional revenues or provide any benefit to our business. OUR SOFTWARE IS COMPLEX AND MAY CONTAIN UNDETECTED ERRORS, WHICH COULD CAUSE US TO LOSE CUSTOMERS. Our software is complex and may contain undetected errors or "bugs." Despite our testing, bugs may be discovered only after our product has been installed and used by customers. We have on occasion experienced delays in the introduction of new and enhanced products because of bugs. Undetected errors could result in adverse publicity, loss of revenues or claims against us by customers, any of which could harm our business, operating results and financial condition. RISKS RELATED TO OUR INDUSTRY IF WE FAIL TO ADAPT TO THE RAPID TECHNOLOGICAL CHANGE THAT CHARACTERIZES OUR MARKET WE COULD LOSE MARKET SHARE OR OUR PRODUCTS COULD BECOME OBSOLETE. The market for c-Commerce software is characterized by rapid technological advances, changing customer needs and evolving industry standards. Enterprises are increasing their focus on enabling supply chain collaboration and therefore are requiring their application software vendors to provide greater levels of functionality and broader product offerings. Moreover, competitors in our market continue to make rapid technological advances in computer hardware and software technology and frequently introduce new products and enhancements. We must continue to enhance our current product line and develop and introduce new products that keep pace with the technological developments of our competitors. We must also satisfy increasingly sophisticated customer requirements. In addition, we must anticipate and adapt to new industry standards so that our software products do not become obsolete. If we cannot successfully respond to the technological advances of others or if our new products or product enhancements do not achieve market acceptance, our business, operating results and financial condition could be harmed. THE MARKET FOR C-COMMERCE SOFTWARE PRODUCTS IS NEWLY EMERGING AND DEMAND FOR THESE PRODUCTS MAY NOT INCREASE AND COULD DECLINE. The market for c-Commerce software is newly emerging. We cannot be certain that this market will continue to develop and grow or that companies will choose to use our iCollaboration products rather than attempting to develop alternative platforms and applications internally or through other sources. 13 Companies that have already invested substantial resources in other methods of sharing information during the design, manufacturing and supply process may be reluctant to adopt new technology or infrastructures that may replace, limit or compete with their existing systems or methods. We expect that we will continue to need to pursue intensive marketing and selling efforts to educate prospective customers about the uses and benefits of our iCollaboration product suite. Due to these factors, demand for and market acceptance of our software products is subject to a high level of uncertainty. WE FACE RISKS IF USE OF THE INTERNET DOES NOT CONTINUE TO GROW AND RELIABLY SUPPORT THE DEMANDS PLACED ON IT BY E-COMMERCE. Growth in the sales of our products and services depends upon the continued and increased use of the Internet as a medium for commerce and communication. Growth in the use of the Internet is a recent phenomenon and may not continue. In addition, the Internet infrastructure may not be able to support the demands placed on it by increased usage and bandwidth requirements. There have also been recent well-publicized security breaches involving "denial of service" attacks on major Web sites. Concerns over these and other security breaches may slow the adoption of electronic commerce by businesses. In addition, the recent growth in the use of the Internet has caused frequent periods of poor or slow performance, requiring components of the Internet infrastructure to be upgraded. Delays in the development or adoption of new equipment and standards or protocols required to handle increased levels of Internet activity could cause the Internet to lose its viability as a commercial medium. If the Internet infrastructure does not develop sufficiently to address these concerns, it may not develop as a commercial marketplace, and our sales would be harmed. THE GOVERNMENT MAY INCREASE ITS REGULATION OF THE INTERNET, WHICH COULD REDUCE MARKET ACCEPTANCE OF OUR PRODUCTS. As electronic commerce and the Internet continue to evolve, federal, state and foreign governments may adopt laws and regulations covering issues such as user privacy, taxation of goods and services provided over the Internet, pricing, content and quality of products and services. If enacted, these laws and regulations could limit the market for electronic commerce, and therefore the market for our products and services. Although many of these regulations may not apply directly to our business, we expect that laws regulating the solicitation, collection or processing of personal or consumer information could indirectly affect our business. Laws or regulations concerning telecommunications might also negatively impact us. Several telecommunications companies have petitioned the Federal Communications Commission to regulate Internet service providers and online service providers in a manner similar to long distance telephone carriers and to impose access fees on these companies. If enacted, these laws, rules or regulations could limit the market for our products and our business could be harmed. OUR SUCCESS DEPENDS ON THE WILLINGNESS OF BUYERS AND SELLERS TO CARRY OUT TRANSACTIONS OVER THE INTERNET INSTEAD OF USING MORE TRADITIONAL METHODS AND THEIR FAILURE TO DO SO COULD SIGNIFICANTLY HARM OUR BUSINESS. Our future success depends in part on the growth of our customers' electronic exchanges as a preferred alternative to the traditional methods of transacting business for purchasers and sellers. Online trading is new and not proven. We cannot be certain that our customers' electronic exchanges will be successful or that they will achieve or sustain revenue growth or generate any profits. In order to succeed, our customers' clients must utilize our customers' online marketplaces with greater frequency and consistency. We cannot be certain that enterprises will accept the Internet as a viable alternative to the traditional methods of transacting business. Participants may be unwilling to adopt an electronic exchange due to their comfort with traditional purchasing and selling habits and established relationships, the costs required to change trading methods, their demand for products and services not offered in our 14 marketplace, security and privacy concerns or a general reluctance to use or unfamiliarity with the Internet. If electronic exchanges do not develop as a preferred alternative for purchasers and sellers, many of our customers and potential customers may not license or continue to license our products. RISKS RELATED TO THIS OFFERING OUR DIRECTORS AND EXECUTIVE OFFICERS WILL RETAIN SIGNIFICANT CONTROL OVER US AFTER THIS OFFERING, WHICH WILL ALLOW THEM TO DECIDE THE OUTCOME OF MATTERS SUBMITTED TO STOCKHOLDERS FOR APPROVAL. Upon completion of this offering, our directors and executive officers will beneficially own approximately % of our outstanding common stock assuming no exercise of the underwriters' over-allotment option. As a result, these stockholders, acting in concert, could control all matters submitted to our stockholders for a vote, including the election of directors and the approval of mergers and other significant corporate transactions, which could have the effect of delaying or preventing a change in control of our company that stockholders may consider desirable. The interests of these persons may conflict with your interests as stockholders, and the actions they take or approve may be contrary to those desired by other stockholders. OUR CHARTER AND BYLAWS HAVE ANTI-TAKEOVER PROVISIONS WHICH COULD DISCOURAGE OR PREVENT A TAKEOVER OF US EVEN IF IT WERE FAVORED BY OUR STOCKHOLDERS. Provisions of our certificate of incorporation and bylaws as well as the Delaware General Corporation Law could make it more difficult for a third party to acquire us, even if doing so would be beneficial to our stockholders. These provisions may also prevent changes in our management. The provisions include, without limitation: - authorizing the issuance of undesignated preferred stock; - staggering the elections of the board of directors over three years; - requiring super-majority voting to effect certain amendments to our certificate of incorporation and bylaws; - limiting the persons who may call special meetings of stockholders; - prohibiting stockholder action by written consent; and - establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on at stockholder meetings. We also will be subject to the provisions of Section 203 of the Delaware General Corporation Law, which restricts some business combinations with interested stockholders. The combination of these provisions may have the effect of inhibiting a nonnegotiated merger or other business combination involving us, even if it were favored by our stockholders. OUR STOCK PRICE MAY BE VOLATILE, AND THIS VOLATILITY COULD RESULT IN SUBSTANTIAL LOSSES FOR INVESTORS PURCHASING SHARES IN THIS OFFERING. Prior to this offering, there was no public market for our stock. An active public market for our common stock may not develop or be sustained after the offering. We negotiated and determined the initial public offering price with the representatives of the underwriters based on several factors. This price may vary from the market price of common stock after the offering. You may be unable to sell your shares of common stock at or above the offering price. The market price of the common stock may fluctuate significantly in response to the following factors, some of which are beyond our control: - variations in our quarterly operating results; - changes in securities analysts' estimates of our financial performance; 15 - changes in market valuations of similar companies; - announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; - loss of a major customer or failure to complete significant license transactions; - a failed implementation of our software; and - additions or departures of key personnel. WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK PRICE VOLATILITY WHICH COULD INCREASE OUR EXPENSES AND DAMAGE OUR REPUTATION. In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of its securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources, which could harm our business and operating results. SUBSTANTIAL FUTURE SALES OF OUR COMMON STOCK COULD DEPRESS OUR STOCK PRICE, RESULTING IN THE LOSS OF ALL OR PART OF YOUR INVESTMENT IN OUR COMMON STOCK. If our current stockholders sell substantial amounts of our common stock in the public market following this offering, the market price of our common stock could fall. Upon completion of this offering, we will have outstanding shares of common stock. All or substantially all of our stockholders will be subject to agreements with the underwriters or us that restrict their ability to transfer their stock for 180 days from the date of this prospectus. After these agreements expire, 18,912,431 shares will be eligible for sale in the public market subject in some cases to the restrictions of Rule 144. AS A NEW INVESTOR, YOU WILL INCUR SUBSTANTIAL DILUTION AS A RESULT OF THIS OFFERING AND FUTURE EQUITY ISSUANCES. The initial public offering price will be substantially higher than the net tangible book value per share of our outstanding common stock. As a result, investors purchasing common stock in this offering will incur immediate dilution of $ per share, assuming an initial public offering price of $ per share. Investors will incur additional dilution upon the exercise of outstanding stock options and warrants. WE HAVE BROAD DISCRETION TO USE THE PROCEEDS FROM THIS OFFERING, AND WE MAY NOT BE SUCCESSFUL IN INVESTING THESE PROCEEDS IN WAYS THAT WILL ENHANCE OUR MARKET VALUE. We plan to use the proceeds from this offering for general corporate purposes. Therefore, we will have broad discretion as to how we will spend the proceeds, and our stockholders may not agree with the ways in which we use the proceeds. We may not be successful in investing the proceeds from this offering in our operations or external investments and our investments may not yield a favorable return. 16 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements we make in this prospectus are forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "may," "will," "could," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of these terms or other comparable terminology. These statements involve known and unknown risks and uncertainties that could cause our results to differ materially from forward-looking statements. In evaluating these statements, you should specifically consider various factors, including the risks outlined under "Risk Factors." These factors may cause our actual results to differ materially from any forward-looking statement. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results. USE OF PROCEEDS We estimate that the net proceeds of this offering will be approximately $ million, or $ million if the underwriters' over-allotment option is exercised in full, assuming an initial public offering price of $ , and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We expect to use the net proceeds of this offering for general corporate purposes, including working capital and capital expenditures. While the exact use of the proceeds has not been specifically determined, we currently intend to expand our sales and marketing organizations, grow our professional services, training and customer support functions, increase our research and development activities and increase our spending to support general administrative operations. We also anticipate making various capital expenditures over the next 12 months. We intend, if the opportunity arises, to use an unspecified portion of the net proceeds from this offering to acquire or invest in complementary businesses, products and technologies. Currently, however, we do not have any understandings, commitments or agreements with respect to any acquisitions. Pending our use of the proceeds, we will most likely invest the net proceeds in short-term, interest-bearing, investment-grade securities. DIVIDEND POLICY We do not expect to declare or pay cash dividends on our common stock in the foreseeable future. We anticipate that all future earnings, if any, generated from operations will be retained to develop and expand our business. Any future determination with respect to the payment of dividends will be at the discretion of the board of directors and will depend upon, among other things, our operating results, financial condition and capital requirements, the terms of then-existing indebtedness, general business conditions and other factors as the board of directors deems relevant. In addition, the terms of our line of credit prohibit the payment of cash dividends without the lender's consent. 17 CAPITALIZATION The following table sets forth our capitalization as of June 30, 2000 (i) on an actual basis, (ii) on a pro forma basis to reflect the issuance of 1,574,801 shares of Series C redeemable convertible preferred stock on August 24, 2000, the deemed payment of a dividend representing the value of the beneficial conversion feature of the Series C redeemable convertible preferred stock, and the conversion of all series of preferred stock into shares of common stock and (iii) on a pro forma as adjusted basis to reflect our receipt of the estimated net proceeds from the sale of the shares of common stock offered by us at an assumed initial public offering price of $ per share, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, and the authorization of 10,000,000 shares of undesignated preferred stock. This table should be read with our consolidated financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
JUNE 30, 2000 ----------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- ---------- ----------- (IN THOUSANDS) Capital Lease Obligations................................... $ 177 $ 177 $ ======== ======== ======== Stockholders' equity: Series A convertible preferred stock, no par value; 4,358,186 shares authorized, 4,130,170 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted........ 4,284 -- -- Series B convertible preferred stock, no par value; 2,900,000 shares authorized, 2,492,424 shares issued and outstanding, actual; no shares authorized, issued or outstanding, pro forma and pro forma as adjusted........ 8,126 -- -- Series C redeemable convertible preferred stock, no par value; no shares authorized, issued or outstanding, actual, pro forma and pro forma as adjusted............. -- -- -- Undesignated preferred stock, no par value; no shares authorized, issued or outstanding, actual and pro forma; 10,000,000 shares authorized, no shares issued or outstanding, pro forma as adjusted...................... -- -- -- Common stock, no par value; 23,000,000 shares authorized and 10,715,036 shares issued and outstanding, actual; 30,000,000 shares authorized and 18,912,431 shares issued and outstanding, pro forma; 125,000,000 shares authorized and shares issued and outstanding, pro forma as adjusted....................................... 308 32,718 Additional paid-in capital.................................. 8,114 16,460 Unearned stock-based compensation........................... (5,407) (5,407) Accumulated deficit......................................... (18,336) (26,683) -------- -------- -------- Total stockholders' equity (deficit).................... (2,911) 17,088 -------- -------- -------- Total capitalization.................................. $ (2,734) $ 17,265 $ ======== ======== ========
18 The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of June 30, 2000, and on a pro forma basis based on the issuance of 1,574,801 shares of Series C convertible redeemable preferred stock on August 24, 2000 and conversion of all series of preferred stock into shares of common stock, and excludes: - 4,987,393 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 2000 at a weighted average exercise price of $1.69 per share; - 94,750 shares of common stock issuable upon exercise of stock options issued after June 30, 2000 at a weighted average exercise price of $7.00 per share; - 417,689 shares of common stock reserved for future issuance under our 1998 Stock Plan as of June 30, 2000; - 650,000 additional shares of common stock reserved for future issuance under our 1998 Stock Plan subsequent to June 30, 2000; - 2,000,000 shares of common stock reserved for future issuance under our 2000 Stock Incentive Plan; - 750,000 shares of common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan; and - an outstanding warrant to purchase 228,012 shares of our Series A convertible preferred stock. 19 DILUTION If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of the common stock and the pro forma as adjusted net tangible book value per share of the common stock after this offering. Pro forma net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the pro forma number of shares of common stock outstanding as of June 30, 2000. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering. Our pro forma net tangible book value as of June 30, 2000 was $17.1 million, or $0.90 per share of common stock. Pro forma net tangible book value per share represents the amount of our pro forma tangible stockholders' equity divided by 18,912,431 shares of our common stock on a pro forma basis to reflect the issuance of 1,574,801 shares of Series C redeemable convertible preferred stock on August 24, 2000 and the conversion of all series of preferred stock into shares of common stock. After giving effect to the sale of the shares of common stock offered hereby at an assumed initial public offering price of $ per share (less underwriting discounts and commissions and estimated offering expenses), our pro forma as adjusted net tangible book value as of June 30, 2000 would have been $ million, or $ per share. This represents an immediate increase in pro forma net tangible book value of $ per share to existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors of common stock in this offering, as illustrated in the following table: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of June 30, 2000.................................................... $ 0.90 Increase per share attributable to new investors.......... ------ Pro forma as adjusted net tangible book value per share after the offering........................................ ------ Dilution per share to new investors......................... $ ======
The following table sets forth on a pro forma as adjusted basis, after giving effect to the conversion of all outstanding shares of preferred stock into common stock upon completion of this offering, the difference between the number of shares of common stock purchased from Adexa, the total consideration paid and the average price per share paid by the existing stockholders and by the new investors purchasing shares of common stock in this offering, as of June 30, 2000.
SHARES PURCHASED TOTAL CONSIDERATION --------------------- ---------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- -------- ----------- -------- ------------- Existing stockholders............... 18,912,431 % $33,407,053 % $1.77 New investors....................... $ ---------- ------ ----------- ------ Totals............................ 100.0% $ 100.0% ========== ====== =========== ======
As of June 30, 2000, there were options outstanding to purchase a total of 4,987,393 shares of common stock at a weighted average exercise price of $1.69 per share under our 1998 Stock Plan and a warrant outstanding to purchase 228,012 shares of Series A convertible preferred stock. To the extent outstanding options or the warrant are exercised, there will be further dilution to new investors. See "Management--Employee Stock Plans" and Notes 9 and 12 of Notes to Financial Statements. 20 SELECTED FINANCIAL DATA The following selected financial data should be read in conjunction with our consolidated financial statements and related notes, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The statement of operations data for each of the years in the three-year period ended December 31, 1999 and the six months ended June 30, 2000, and the balance sheet data at December 31, 1998 and 1999 and June 30, 2000, are derived from our financial statements, which have been audited by Deloitte & Touche LLP, independent auditors, and are included elsewhere in this prospectus. The balance sheet data at December 31, 1996 and 1997 and the statement of operations data for the year ended December 31, 1996 are derived from our audited financial statements which are not included in this prospectus. The statement of operations data for the year ended December 31, 1995 and the balance sheet data at December 31, 1995 are derived from unaudited financial statements. The consolidated statement of operations data for the six months ended June 30, 1999 are derived from unaudited financial statements included elsewhere in this prospectus and, in the opinion of our management, include all adjustments that are necessary for a fair presentation of the results of operations for these periods. The historical results are not necessarily indicative of the operating results to be expected in the future.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------- -------------------- 1995 1996 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- --------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License revenues........................ -- $ 175 $ 3,735 $ 4,841 $16,093 $ 5,578 $13,336 Service revenues........................ $ 823 1,618 2,035 2,251 5,175 2,489 5,958 Maintenance revenues.................... -- 54 416 1,020 2,393 793 2,415 ------ ------- ------- ------- ------- ------- ------- Total revenues.................... 823 1,847 6,186 8,112 23,661 8,860 21,709 ------ ------- ------- ------- ------- ------- ------- Cost of Revenues: Cost of revenues (excluding stock-based compensation)......................... 400 456 1,887 4,982 6,006 2,707 6,808 Stock-based compensation--Cost of Revenues.............................. -- -- -- 261 39 19 143 ------ ------- ------- ------- ------- ------- ------- Total cost of revenues............ 400 456 1,887 5,243 6,045 2,726 6,951 ------ ------- ------- ------- ------- ------- ------- Gross Profit.............................. 423 1,391 4,299 2,869 17,616 6,134 14,758 ------ ------- ------- ------- ------- ------- ------- Operating Expenses: Sales and marketing (excluding stock-based compensation)............. 71 616 3,664 7,860 12,929 4,922 10,030 Research and development (excluding stock-based compensation)............. -- 413 980 1,707 4,534 1,815 3,315 General and administrative (excluding stock-based compensation)............. 216 223 748 1,437 2,689 1,047 2,729 ------ ------- ------- ------- ------- ------- ------- Total operating expenses (excluding stock-based compensation)................... 287 1,252 5,392 11,004 20,152 7,784 16,074 ------ ------- ------- ------- ------- ------- ------- Stock-based compensation--Operating Expenses: Sales and marketing................... -- -- -- 191 61 30 500 Research and development.............. -- -- -- 834 127 64 143 General and administrative............ -- -- -- 38 27 13 73 ------ ------- ------- ------- ------- ------- ------- Total stock-based compensation-- Operating Expenses.............. -- -- -- 1,063 215 107 716 ------ ------- ------- ------- ------- ------- ------- Total operating expenses.......... 287 1,252 5,392 12,067 20,367 7,891 16,790 ------ ------- ------- ------- ------- ------- ------- Operating Income (Loss)................... 136 139 (1,093) (9,198) (2,751) (1,757) (2,032) Interest and Other Income (Expense), Net..................................... 3 17 58 9 (320) (136) (118) ------ ------- ------- ------- ------- ------- ------- Income (Loss) before Income Taxes......... 139 156 (1,035) (9,189) (3,071) (1,893) (2,150) Provision (Benefit) for Income Taxes...... -- 4 (188) 245 2,114 857 927 ------ ------- ------- ------- ------- ------- ------- Net Income (Loss)......................... $ 139 $ 152 $ (847) $(9,434) $(5,185) $(2,750) $(3,077) ====== ======= ======= ======= ======= ======= ======= Basic and Diluted Net Income (Loss) per Share............................... $ 0.01 $ 0.02 $ (0.08) $ (0.94) $ (0.51) $ (0.27) $ (0.29) ====== ======= ======= ======= ======= ======= ======= Weighted Average Shares of Common Stock... 9,700 9,925 10,000 10,000 10,099 10,027 10,622 ====== ======= ======= ======= ======= ======= =======
21
DECEMBER 31, ---------------------------------------------------- JUNE 30, 1995 1996 1997 1998 1999 2000 -------- -------- -------- -------- -------- -------- (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: Cash, cash equivalents and short-term investments............................... $(13) $ 611 $3,209 $4,424 $ 6,232 $ 3,604 Working capital............................. 97 163 2,907 2,866 (2,172) (5,248) Total assets................................ 275 1,615 7,602 8,182 12,347 16,060 Deferred revenues........................... -- 679 2,672 781 2,012 7,882 Capital Lease Obligations................... 0 -- 155 238 117 177 Total stockholders' equity (deficit)........ 188 370 3,930 3,891 (847) (2,930)
22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DESCRIPTION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS ALONG WITH INFORMATION INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS SECTION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. BECAUSE OF RISK FACTORS PRESENTED BELOW AND ELSEWHERE IN THIS PROSPECTUS, OUR ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. OVERVIEW We were founded in February 1994 in Texas as NP Complete. We relocated to California in May 1994 and formed a new corporation, called Paragon Management Systems, Inc., which acquired all of the assets of NP Complete as its successor. We began primarily as a supply chain-consulting firm. In 1997, we licensed our first versions of our current product components and have continued to expand and improve our suite of products. In the third quarter of 1999, we aggregated our product components into our iCollaboration suite, and in February 2000, we changed our name to Adexa, Inc. We target Global 2000 companies, private exchanges and public exchanges in large vertical markets, such as the aerospace and defense, automotive, electronics, semiconductors and textile and apparel industries. We currently market and license our products in North America, Europe and Asia through our direct sales force and through systems integrators, e-Business infrastructure providers and value-added resellers. REVENUES LICENSE REVENUES. Customers typically pay a one-time fee for a perpetual license to use our software products. The amount of the fee is based on the number of licensed sites and users and the type and number of components licensed. We have experienced, and expect to continue to experience, significant variations in the size of individual licensing transactions. We are currently introducing alternative pricing models that involve licensing our software on a subscription basis to application service providers, or ASPs, that will host our software for their customers. To date, we have not signed any such ASP customers. SERVICE REVENUES. Our service revenues consist principally of revenues from services associated with implementing our products and training our customers' employees on the use of our products. We do not provide professional services to all our customers, as such services may be provided by resellers or other service providers. Service revenues may fluctuate relative to license revenues depending upon whether implementation is performed by us or by a third party contracted by the customer. We also subcontract third-party service providers to perform aspects of implementations that we are contracted to perform. We expect that service revenues as a percentage of total revenues will decline as system integrators and other professional services organizations provide a greater percentage of implementation services required by our customers. Our implementation and training services generally are delivered on a time-and-materials basis, although occasionally on a fixed-price basis. MAINTENANCE REVENUES. We offer annual maintenance contracts to our customers as part of a software license, a separate contract or a renewal of a previous contract. Our maintenance and support services include product upgrades and enhancements as well as user and technical support services. Most of our maintenance and support contracts are invoiced annually in advance, are renewable at the discretion of the customer and allow for future fee increases. To date, all of our licenses to customers have included maintenance contracts, and most of our customers have renewed such maintenance contracts. REVENUE RECOGNITION We recognize revenues in accordance with the American Institute of Certified Public Accountants Statement of Position No. 97-2, "Software Revenue Recognition," as amended by Statement of Position Nos. 98-4 and 98-9. Accordingly, we recognize software license revenues when persuasive evidence of an agreement exists, delivery of the product component has occurred, the fee is fixed and determinable and 23 collection is probable. If any of these criteria is not met, revenue recognition is deferred until such time as all of these criteria are met. We recognize revenues for some of our contracts in accordance with Paragraphs 48 and 49 of SOP 97-2, whereby customer contracts that require delivery of unspecified additional software products in the future are accounted for as subscriptions. We recognize this revenue ratably over the term of the arrangement beginning with the delivery of the first product. We anticipate that revenues generated by licensing our software to application service providers will be recognized using subscription accounting methods. When contracts include multiple product components or other elements and vendor-specific objective evidence exists for the value of all undelivered elements, we account for the delivered elements in accordance with the "residual method" prescribed by SOP No. 98-9. Revenues on undelivered elements are recognized once delivery is complete. We have established vendor-specific objective evidence based on the price established for each element when that element is sold separately, or in the case of an element not yet sold separately, on the price established by management. In those instances where arrangements include contractual milestones, acceptance criteria or other contingencies, we account for the transaction using contract accounting. For those arrangements that include extended payment terms, we recognize revenue when these fees are due and payable. We record amounts billed to customers in excess of recognizable revenue as deferred revenues on our balance sheet, as in cases involving license revenues when subscription accounting applies, when undelivered elements exist or when contract accounting applies, and maintenance revenues. Amounts recognized as revenue in advance of billing are recorded as unbilled receivables and generally involve maintenance and service revenues. As noted above, we generally enter into separate contracts for professional services. We recognize revenues from services delivered on a time-and-materials basis as they are performed. Revenues from fixed-price arrangements are recognized on a percentage-of-completion basis. We recognize revenue from maintenance and support arrangements on a straight-line basis over the life of the arrangement, which is typically one year. If maintenance and support are included in a license arrangement, amounts related to these elements are allocated based on vendor-specific objective evidence. COST OF REVENUES Our cost of revenues consists of cost of license revenues, cost of service revenues and cost of maintenance revenues. We have not separately accounted for each of these costs. Our cost of license revenues includes royalties to third parties for software embedded in our products, royalties due for the resale of third-party software to our customers and the costs of documentation, delivery and packaging. Our cost of service revenues includes salaries and other personnel-related costs for implementation and training services, travel expenses, bonuses, facility costs, costs of third parties contracted to provide implementation services to customers and associated overhead expenses. Our cost of maintenance revenues includes salaries and other personnel-related costs for our customer support organization, travel expenses, bonuses, facility costs and associated overhead expenses. Our cost of service revenues can fluctuate depending upon the amount of professional services provided by us as compared to third-party service providers acting as subcontractors. Our overall gross profit can vary based on the mix of license, service and maintenance revenues. OPERATING EXPENSES SALES AND MARKETING. Our sales and marketing expenses consist primarily of salaries and other personnel-related costs, bonuses and commissions, facility costs, travel, marketing collateral, advertising, public relations programs and promotional events such as trade shows, customer user group meetings, seminars and technical conferences. 24 RESEARCH AND DEVELOPMENT. Our research and development expenses consist primarily of salaries and other personnel-related costs, bonuses, facility costs, and costs of third-party development services. We maintain a research and development staff to enhance our products and to develop new products. Our research and development operation is located in Toronto, Canada. We have expensed all software development costs because the establishment of technological feasibility of products and their availability for sale have substantially coincided. GENERAL AND ADMINISTRATIVE. Our general and administrative expenses consist of salaries, bonuses and other personnel-related costs for our administrative, finance and human resources employees, legal and accounting services, facility costs, bad debt expense and other general corporate expenses. STOCK-BASED COMPENSATION. Deferred stock-based compensation for employees represents the difference between the exercise price of stock options granted and the estimated fair market value of the underlying common stock on the date of the grant. This amount is included as a component of stockholders' equity and is being amortized by charges to operations over the vesting period of the options, consistent with the method described in Accounting Principles Board Opinion 25 and compliant with disclosure provisions of SFAS No. 123. We account for stock options issued to non-employees in accordance with provisions of SFAS No. 123. 25 RESULTS FROM OPERATIONS The following table sets forth selected statement of operations data expressed as a percentage of our total revenues for the respective periods.
YEAR ENDED SIX MONTHS DECEMBER 31, ENDED JUNE 30, ------------------------------ ------------------- 1997 1998 1999 1999 2000 -------- -------- -------- -------- -------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License revenues................................ 60% 60% 68% 63% 61% Service revenues................................ 33 28 22 28 28 Maintenance revenues............................ 7 12 10 9 11 -------- -------- -------- -------- -------- Total revenues............................ 100 100 100 100 100 -------- -------- -------- -------- -------- Cost of Revenues: Cost of revenues (excluding stock-based compensation)................................. 31 61 25 31 31 Stock-based compensation--Cost of Revenues...... 0 3 0 0 1 -------- -------- -------- -------- -------- Total cost of revenues.................... 31 64 25 31 32 -------- -------- -------- -------- -------- Gross Profit...................................... 69 36 75 69 68 -------- -------- -------- -------- -------- Operating Expenses: Sales and marketing (excluding stock-based compensation)................................. 59 97 55 56 46 Research and development (excluding stock-based compensation)................................. 16 21 19 20 15 General and administrative (excluding stock-based compensation)..................... 12 18 11 12 13 -------- -------- -------- -------- -------- Total operating expenses (excluding stock-based compensation)............... 87 136 85 88 74 -------- -------- -------- -------- -------- Stock-based compensation--Operating Expenses: Sales and marketing........................... 0 2 0 0 2 Research and development...................... 0 10 1 1 1 General and administrative.................... 0 0 0 0 0 -------- -------- -------- -------- -------- Total stock-based compensation--Operating Expenses................................ 0 12 1 1 3 -------- -------- -------- -------- -------- Total operating expenses.................. 87 148 86 89 77 -------- -------- -------- -------- -------- Operating Loss.................................... (18) (112) (11) (20) (9) Interest and Other Income (Expense), Net.......... 1 0 (1) (2) (1) -------- -------- -------- -------- -------- Loss before Income Taxes.......................... (17) (112) (12) (22) (10) Provision (Benefit) for Income Taxes.............. (3) 3 9 10 4 -------- -------- -------- -------- -------- Net Loss.......................................... (14)% (115)% (21)% (32)% (14)% ======== ======== ======== ======== ========
26 SIX MONTHS ENDED JUNE 30, 1999 AND 2000 REVENUES Total revenues were $8.9 million for the six months ended June 30, 1999 and $21.7 million for the six months ended June 30, 2000, representing an increase of $12.8 million, or 145%. Revenues from non-U.S. based customers as a percentage of total revenues, based upon the location of the reseller in the case of indirect sales and the location of the end user in the case of direct sales, were 45% for the six months ended June 30, 1999 and 31% for the six months ended June 30, 2000. Revenues from our largest customer as a percentage of total revenues, measured by the revenues from the reseller in the case of indirect sales and by the revenues from the end user in the case of direct sales, were 28% for the six months ended June 30, 1999 and 21% for the six months ended June 30, 2000. Two customers accounted for more than 10% of our total revenues during the six months ended June 30, 2000. LICENSE REVENUES. License revenues were $5.6 million for the six months ended June 30, 1999 and $13.3 million for the six months ended June 30, 2000, representing an increase of $7.7 million, or 139%. License revenues as a percentage of total revenues were 63% for the six months ended June 30, 1999 and 61% for the six months ended June 30, 2000. The increase in license revenues was due to increased market acceptance of the iCollaboration suite, expanded sales and marketing efforts, expansion into new vertical market segments, the introduction of new products and the upgrade of existing products. SERVICE REVENUES. Service revenues were $2.5 million for the six months ended June 30, 1999 and $6.0 million for the six months ended June 30, 2000, representing an increase of $3.5 million, or 139%. Service revenues as a percentage of total revenues were 28% for the six months ended June 30, 1999 and 28% for the six months ended June 30, 2000. The increase in service revenues was due to increases in license revenues and associated implementations. MAINTENANCE REVENUES. Maintenance revenues were $793,247 for the six months ended June 30, 1999 and $2.4 million for the six months ended June 30, 2000, representing an increase of $1.6 million, or 204%. Maintenance revenues as a percentage of total revenues were 9% for the six months ended June 30, 1999 and 11% for the six months ended June 30, 2000. The increase in maintenance revenues was due to increased licensing of our products and renewals of prior maintenance contracts. COST OF REVENUES Cost of revenues was $2.7 million for the six months ended June 30, 1999 and $6.8 million for the six months ended June 30, 2000, representing an increase of $4.1 million, or 152%. Cost of revenues as a percentage of total revenues was 31% for the six months ended June 30, 1999 and 31% for the six months ended June 30, 2000. The increase in the cost of revenues was due to increased hiring and training of our implementation and maintenance and support professionals, increased subcontracting of service implementations to third parties, and royalties to third parties for software that we sold to our customers. The increase in cost of revenues for the six months ended June 30, 2000 was also due to $1.2 million in royalties to a third party for the resale of its software by us. We do not expect such royalty payments to occur frequently in the future. OPERATING EXPENSES SALES AND MARKETING. Sales and marketing expenses were $4.9 million for the six months ended June 30, 1999 and $10.0 million for the six months ended June 30, 2000, representing an increase of $5.1 million, or 104%. Sales and marketing expenses as a percentage of total revenues were 56% for the six months ended June 30, 1999 and 46% for the six months ended June 30, 2000. The increase in sales and marketing expenses was due to higher personnel-related expenses, including salaries, benefits and commissions, travel expenses and related costs of hiring sales management, sales representatives, sales support and marketing personnel. We expect that sales and marketing expenses will increase substantially 27 in the future as we hire additional sales and marketing personnel, increase spending on advertising and marketing programs and establish sales organizations in additional domestic and international locations. RESEARCH AND DEVELOPMENT. Research and development expenses were $1.8 million for the six months ended June 30, 1999 and $3.3 million for the six months ended June 30, 2000, representing an increase of $1.5 million, or 83%. Research and development expenses as a percentage of total revenues were 20% for the six months ended June 30, 1999 and 15% for the six months ended June 30, 2000. The increase in research and development expenses was due to the hiring of additional software developers, quality assurance personnel and outside contractors to support our product development, and testing activities related to the development and release of our products. We anticipate that research and development expenses will continue to increase in absolute dollars for the foreseeable future as we continue to invest in product development. GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1.0 million for the six months ended June 30, 1999 and $2.7 million for the six months ended June 30, 2000, representing an increase of $1.7 million, or 161%. General and administrative expenses as a percentage of total revenues were 12% for the six months ended June 30, 1999 and 13% for the six months ended June 30, 2000. The increase in general and administrative expenses was due to the hiring of additional personnel, increased legal and accounting expenses and increased bad debt expenses. We expect that general and administrative expenses will increase substantially in the future as we assume the responsibilities of a public company and as we hire additional general and administrative personnel. STOCK-BASED COMPENSATION Total stock-based compensation was $126,534 for the six months ended June 30, 1999 and $858,828 for the six months ended June 30, 2000, representing an increase of $732,294, or 579%. The increase in stock-based compensation was due to increased hiring of personnel and granting of employee incentives. INTEREST AND OTHER INCOME (EXPENSE), NET Interest and other income (expense), net was ($134,974) for the six months ended June 30, 1999 and ($118,353) for the six months ended June 30, 2000, representing a decrease of $16,621, or 12%. Interest and other income (expense), net consists primarily of interest expense and loss on sale of securities. PROVISION (BENEFIT) FOR INCOME TAXES Provision (benefit) for income taxes was $857,411 for the six months ended June 30, 1999 and $927,227 for the six months ended June 30, 2000, representing an increase of $69,816, or 8%. Provision (benefit) for income taxes as a percentage of total revenues was 10% for the six months ended June 30, 1999 and 4% for the six months ended June 30, 2000. The increase in provision (benefit) for income taxes was due to increased foreign source income for which we incurred foreign income and withholding taxes. During the six months ended June 30, 1999 and June 30, 2000, we reported losses for both financial reporting and income tax purposes. As a result, we made no significant provision for U.S. income taxes in either period. We have placed a valuation allowance against our net deferred tax assets to reduce them to zero as a result of uncertainties regarding the realization of the asset balance. When we have determined that it is more likely than not that the net deferred tax assets are realizable, we will reduce the valuation allowance. FISCAL YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 TOTAL REVENUES Total revenues were $6.2 million for fiscal 1997, $8.1 million for fiscal 1998 and $23.7 million for fiscal 1999, representing increases of $1.9 million, or 31%, from fiscal 1997 to fiscal 1998 and $15.6 million, or 28 192%, from fiscal 1998 to fiscal 1999. Revenues from non-U.S. based customers as a percentage of total revenues, based on the location of the reseller in the case of indirect sales and the location of the end user in the case of direct sales, were 52% for fiscal 1997, 36% for fiscal 1998 and 57% for fiscal 1999. Revenues from our largest customer as a percentage of total revenues, based on the reseller in the case of indirect sales and the end user in the case of direct sales, were 28% for fiscal 1997, 30% for fiscal 1998 and 13% for fiscal 1999. The number of customers accounting for more than ten percent of our total revenues was three in fiscal 1997, two in fiscal 1998 and three in fiscal 1999. LICENSE REVENUES. License revenues were $3.7 million for fiscal 1997, $4.8 million for fiscal 1998 and $16.1 million for fiscal 1999, representing increases of $1.1 million, or 30%, from fiscal 1997 to fiscal 1998 and $11.3 million, or 232%, from fiscal 1998 to fiscal 1999. License revenues as a percentage of total revenues were 60% for fiscal 1997, 60% for fiscal 1998 and 68% for fiscal 1999. The increase in license revenues from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to our expanded and reorganized sales force, increased international licensing, greater penetration into existing markets, expansion into new vertical market segments and new and upgraded products. SERVICE REVENUES. Service revenues were $2.0 million for fiscal 1997, $2.3 million for fiscal 1998 and $5.2 million for fiscal 1999, representing increases of $216,747, or 11%, from fiscal 1997 to fiscal 1998 and $2.9 million, or 130%, from fiscal 1998 to fiscal 1999. Service revenues as a percentage of total revenues were 33% for fiscal 1997, 28% for fiscal 1998 and 22% for fiscal 1999. The increase from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to increases in license revenues. MAINTENANCE REVENUES. Maintenance revenues were $415,961 for fiscal 1997, $1.0 million for fiscal 1998 and $2.4 million for fiscal 1999, representing increases of $604,262, or 145%, from fiscal 1997 to fiscal 1998 and $1.4 million, or 135%, from fiscal 1998 to fiscal 1999. Maintenance revenues as a percentage of total revenues were 7% for fiscal 1997, 13% for fiscal 1998 and 10% for fiscal 1999. The increase in maintenance revenues from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to increased licensing of our products and renewals of prior maintenance contracts. COST OF REVENUES Cost of revenues was $1.9 million for fiscal 1997, $5.0 million for fiscal 1998 and $6.0 million for fiscal 1999, representing increases of $3.1 million, or 164%, from fiscal 1997 to fiscal 1998 and $1.0 million, or 21%, from fiscal 1998 to fiscal 1999. Cost of revenues as a percentage of total revenues was 31% for fiscal 1997, 61% for fiscal 1998 and 25% for fiscal 1999. The increase in cost of revenues from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to increased hiring and training of our implementation and maintenance and support personnel and an increase in our use of third-party services personnel. OPERATING EXPENSES SALES AND MARKETING. Sales and marketing expenses were $3.7 million for fiscal 1997, $7.9 million for fiscal 1998 and $12.9 million for fiscal 1999, representing increases of $4.2 million, or 115%, from fiscal 1997 to fiscal 1998 and $5.0 million, or 64%, from fiscal 1998 to fiscal 1999. Sales and marketing expenses as a percentage of total revenues were 59% for fiscal 1997, 97% for fiscal 1998 and 55% for fiscal 1999. The increase in sales and marketing expenses from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to higher personnel-related expenses, including salaries, benefits and commissions, recruiting fees, travel expenses and related costs of hiring sales management, sales representatives, sales support and marketing personnel. RESEARCH AND DEVELOPMENT. Research and development expenses were $979,657 for fiscal 1997, $1.7 million for fiscal 1998 and $4.5 million for fiscal 1999, representing increases of $727,023, or 74%, from fiscal 1997 to fiscal 1998 and $2.8 million, or 166%, from fiscal 1998 to fiscal 1999. Research and 29 development costs as a percentage of total revenues were 16% for fiscal 1997, 21% for fiscal 1998 and 19% for fiscal 1999. The increase in research and development expenses from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to an increase in the number of software developers, quality assurance personnel and outside contractors that we utilized to support our product development and testing activities related to the development and release of our products. GENERAL AND ADMINISTRATIVE. General and administrative expenses were $747,541 for fiscal 1997, $1.4 million for fiscal 1998 and $2.7 million for fiscal 1999, representing increases of $689,326, or 92%, from fiscal 1997 to fiscal 1998 and $1.3 million, or 87%, from fiscal 1998 to fiscal 1999. General and administrative expenses as a percentage of total revenues were 12% for fiscal 1997, 18% for fiscal 1998 and 11% for fiscal 1999. The increase in general and administrative expenses from fiscal 1997 to fiscal 1998 and fiscal 1998 to fiscal 1999 was due to hiring additional finance, executive and administrative personnel to support the growth of our business during those periods. STOCK-BASED COMPENSATION Stock-based compensation expenses were $0 for fiscal 1997, $1.3 million for fiscal 1998 and $253,068 for fiscal 1999, representing an increase of $1.3 million from fiscal 1997 to fiscal 1998 and a decrease of $1.0 million, or 81%, from fiscal 1998 to fiscal 1999. The increase in stock-based compensation from fiscal 1997 to fiscal 1998 was due to the establishment of our 1998 Stock Plan and the granting of options promised to employees, many of which were subject to no vesting or less than four year vesting. The decrease of stock-based compensation from fiscal 1998 to fiscal 1999 was due to the granting of options with strike prices closer to the fair value of the underlying stock. INTEREST AND OTHER INCOME (EXPENSES), NET Interest and other income (expenses) net, was $58,058 for fiscal 1997, $8,774 for fiscal 1998 and ($319,908) for fiscal 1999, representing a decrease in income of $49,284, or 85%, from fiscal 1997 to fiscal 1998 and an increase in expense of $328,682 from fiscal 1998 to fiscal 1999. The decrease in income from fiscal 1997 to fiscal 1998 was due to an increase in interest expense. The increase of expense from fiscal 1998 to fiscal 1999 was due to an increase in interest expense and losses on the sale of securities. PROVISION (BENEFIT) FOR INCOME TAXES Provision (benefit) for income taxes was ($188,458) for fiscal 1997, $245,494 for fiscal 1998 and $2.1 million for fiscal 1999, representing increases of $433,952 from fiscal 1997 to fiscal 1998 and $1.9 million, or 761%, from fiscal 1998 to fiscal 1999. The increase in provision (benefit) for income taxes from fiscal 1997 to fiscal 1998 and from fiscal 1998 to fiscal 1999 was due to increased foreign source income for which we incurred foreign income and withholding taxes. 30 QUARTERLY RESULTS OF OPERATIONS The following tables set forth our unaudited consolidated statement of operations data for each of the six quarters in the period ended June 30, 2000, as well as that data expressed as a percentage of our total revenues for the quarters presented. You should read this information in conjunction with our consolidated financial statements and related notes appearing elsewhere in this prospectus. This data has been prepared on a basis consistent with our audited consolidated financial statements, and, in the opinion of our management, reflects all adjustments necessary for a fair presentation of our financial position and operating results for the quarters presented. You should not draw any conclusions about our future results from the operating results for any quarter.
THREE MONTHS ENDED ---------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1999 1999 1999 1999 2000 2000 -------- -------- --------- -------- -------- -------- (IN THOUSANDS) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License revenues................................... $ 2,054 $ 3,523 $ 5,382 $ 5,133 $ 5,782 $ 7,554 Service revenues................................... 1,334 1,156 1,582 1,103 3,053 2,905 Maintenance revenues............................... 269 524 659 941 1,047 1,367 ------- ------- ------- ------- ------- ------- Total revenues............................. 3,657 5,203 7,623 7,177 9,883 11,826 ------- ------- ------- ------- ------- ------- Cost of Revenues: Cost of revenues (excluding stock-based compensation).................................... 1,167 1,540 1,601 1,697 2,747 4,061 Stock-based compensation--Cost of Revenues......... 10 10 10 10 47 96 ------- ------- ------- ------- ------- ------- Total cost of revenues..................... 1,177 1,550 1,611 1,707 2,794 4,157 ------- ------- ------- ------- ------- ------- Gross Profit......................................... 2,480 3,653 6,012 5,470 7,089 7,669 ------- ------- ------- ------- ------- ------- Operating Expenses: Sales and marketing (excluding stock-based compensation).................................... 2,235 2,687 3,246 4,762 4,557 5,474 Research and development (excluding stock-based compensation).................................... 752 1,063 1,176 1,543 1,570 1,746 General and administrative (excluding stock-based compensation).................................... 564 483 795 847 1,495 1,234 ------- ------- ------- ------- ------- ------- Total operating expenses (excluding stock-based compensation)................ 3,551 4,233 5,217 7,152 7,622 8,454 ------- ------- ------- ------- ------- ------- Stock-based compensation--Operating Expenses Sales and marketing.............................. 15 15 15 15 138 362 Research and development......................... 32 32 32 32 49 94 General and administrative....................... 7 7 7 7 24 49 ------- ------- ------- ------- ------- ------- Total stock-based compensation--Operating Expenses................................. 54 54 54 54 212 505 ------- ------- ------- ------- ------- ------- Total operating expenses................... 3,605 4,287 5,271 7,206 7,833 8,959 ------- ------- ------- ------- ------- ------- Operating Income (Loss).............................. (1,125) (634) 741 (1,736) (744) (1,290) Interest and Other Expense, Net...................... (35) (99) (79) (107) (79) (40) ------- ------- ------- ------- ------- ------- Income (Loss) before Income Taxes.................... (1,160) (733) 662 (1,843) (823) (1,330) Provision for Income Taxes........................... 432 426 726 532 552 375 ------- ------- ------- ------- ------- ------- Net Loss............................................. $(1,592) $(1,159) $ (64) $(2,375) $(1,375) $(1,705) ======= ======= ======= ======= ======= =======
31
THREE MONTHS ENDED ---------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 1999 1999 1999 1999 2000 2000 -------- -------- --------- -------- -------- -------- (AS A PERCENTAGE OF TOTAL REVENUES) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Revenues: License revenues................................... 56 % 68 % 71 % 72 % 58 % 64 % Service revenues................................... 37 22 21 15 31 25 Maintenance revenues............................... 7 10 8 13 11 11 ------- ------- ------- ------- ------- ------- Total revenues............................. 100 100 100 100 100 100 ------- ------- ------- ------- ------- ------- Cost of Revenues: Cost of revenues (excluding stock-based compensation).................................... 32 30 21 24 28 34 Stock-based compensation--Cost of Revenues......... 0 0 0 0 0 1 ------- ------- ------- ------- ------- ------- Total cost of revenues..................... 32 30 21 24 28 35 ------- ------- ------- ------- ------- ------- Gross Profit......................................... 68 70 79 76 72 65 ------- ------- ------- ------- ------- ------- Operating Expenses: Sales and marketing (excluding stock-based compensation).................................... 61 52 43 66 46 46 Research and development (excluding stock-based compensation).................................... 21 20 15 21 16 15 General and administrative (excluding stock-based compensation).................................... 15 9 10 12 15 10 ------- ------- ------- ------- ------- ------- Total operating expenses (excluding of stock-based compensation)................ 97 81 68 99 77 71 ------- ------- ------- ------- ------- ------- Stock-based compensation--Operating Expenses Sales and marketing.............................. 0 0 0 0 1 3 Research and development......................... 1 1 0 1 1 1 General and administrative....................... 0 0 0 0 0 0 ------- ------- ------- ------- ------- ------- Total stock-based compensation--Operating Expenses................................. 1 1 1 1 2 4 ------- ------- ------- ------- ------- ------- Total operating expenses................... 98 82 69 100 79 75 ------- ------- ------- ------- ------- ------- Operating Income (Loss).............................. (30) (12) 10 (24) (7) (10) Interest and Other Expense, Net...................... (1) (2) (1) (2) (1) (0) ------- ------- ------- ------- ------- ------- Income (Loss) before Income Taxes.................... (31) (14) 9 (26) (8) (10) Provision for Income Taxes........................... 12 8 10 7 6 4 ------- ------- ------- ------- ------- ------- Net Loss............................................. (43)% (22)% (1)% (33)% (14)% (14)% ======= ======= ======= ======= ======= =======
REVENUES. Our total revenues increased for each of the six quarters in the period ended June 30, 2000, except for the quarter ended December 31, 1999. The increase in revenues for these periods reflects the increase in the number of customers and implementations and increased license contract values due to greater market acceptance of the iCollaboration suite, expanded sales and marketing efforts, expansion into new vertical market segments, the introduction of new products and the upgrade of products. The decrease in revenues for the quarter ended December 31, 1999 was due to higher than anticipated revenues for the quarter ended September 30, 1999. COST OF REVENUES. Cost of revenues increased for each of the six quarters in the period ended June 30, 2000. The increase in the cost of revenues was due to a greater number of implementations and an increase in staffing required to support such activities. The increase in the cost of revenues for the quarters ended March 31, 2000 and June 30, 2000 was due to greater subcontracting of implementations to 32 third parties. The increase in the cost of revenues for the quarter ended June 30, 2000 was also due to $1.2 million in royalty payments for the resale of third-party software to our customers. OPERATING EXPENSES. Operating expenses increased for each of the six quarters in the period ended June 30, 2000. The increase in operating expenses for these periods was due to increased sales and marketing, research and development and general and administrative expenses associated with higher numbers of personnel, related hiring expenses and the growth of our business. The increase in sales and marketing expenses for the quarter ended December 31, 1999 was due to commissions and other year-end compensation. The increase in research and development expenses for the quarter ended December 31, 1999 was due to the payment of special bonuses. The increase in general and administrative expenses for the quarter ended March 31, 2000 was due to higher accounting and legal expenses. Our quarterly operating results have varied widely in the past, and we expect that they will continue to fluctuate in the future as a result of a number of factors, many of which are outside our control. We believe that our period-to-period operating results are not necessarily meaningful, and you should not rely on them as indicative of our future performance. You should also evaluate our prospects in light of the risks and uncertainties encountered by early-stage companies in new and rapidly emerging markets. We may not be able to successfully address the risks and challenges that face us. In addition, although we have experienced significant revenue growth recently, our revenue may not continue to grow and we may not become or remain profitable in the future. Our expansion will also place significant demands on our management and operational resources. To manage this rapid growth and increased demands, we must improve existing and implement new operational and financial systems, procedures and controls. We must also hire, train, manage, retain and motivate qualified personnel. We expect future expansion to continue to challenge our ability to hire, train, manage, retain and motivate our employees. LIQUIDITY AND CAPITAL RESOURCES Since inception, we have funded our operations primarily through the private sale of equity securities with aggregate proceeds of approximately $32.7 million and, to a lesser extent, through bank lines of credit. On August 24, 2000, we closed a private sale of Series C redeemable convertible preferred stock raising aggregate proceeds of approximately $20 million. The investors that participated in the Series C financing, ordered by size of investment, include J. & W. Seligman & Co., Amerindo Investment Advisors, Vitria Technology, Inc., Sutter Hill Ventures, L.P. and affiliates, DRW Venture Partners L.P., an affiliate of Dain Rauscher Incorporated, one of the underwriters of this offering, and Information Technology Ventures II, L.P. and affiliates. At June 30, 2000, we had cash and cash equivalents of $3.6 million and a secured bank credit line of $5.0 million, of which $1.1 million had been drawn upon. On August 22, 2000, we entered into a new $5.0 million bank line of credit that replaces the prior bank credit line, bears interest at prime plus one and one half percent and expires on August 22, 2001. This line of credit is secured by our accounts receivable and substantially all our other assets. We anticipate using available cash to provide working capital to fund our operations, to purchase capital equipment and to make leasehold and other facility improvements. Net cash used in operating activities was $810,321 for fiscal 1997, $8.6 million for fiscal 1998, and $441,016 for fiscal 1999, and net cash provided by operating activities was $2.5 million for the six months ended June 30, 2000. Net cash used in operating activities for fiscal 1997 and for fiscal 1998 related primarily to funding our operating losses. Net cash used in operating activities in fiscal 1999 related primarily to an operating loss of $5.2 million and increased accounts receivables of $3.0 million partially offset by $1.2 million in deferred revenue and a $4.9 million increase in accounts payable and accrued expenses and taxes. Net cash provided by operating activities for the six months ended June 30, 2000, related primarily to an increase of $5.9 million in deferred revenue and a $3.8 million increase in accounts 33 payable and accrued expenses and taxes, partially offset by an operating loss of $3.1 million and increased accounts receivables of $5.5 million. Net cash provided by (used in) investing activities was ($3.3) million for fiscal 1997, ($1.2) million for fiscal 1998 and $2.5 million for fiscal 1999, and primarily related to capital equipment expenditures and net short-term investments. Net cash used in investing activities of $1.3 million for the six months ended June 30, 2000 was used primarily to acquire capital equipment. Capital equipment expenditures primarily consist of the purchase of computer hardware and software, office furniture and equipment and leasehold improvements. We expect capital expenditures and lease commitments to increase in the future as our business expands. Net cash provided by (used in) financing activities was $4.4 million for fiscal 1997, $10.2 million for fiscal 1998, $2.9 million for fiscal 1999 and ($3.9) million for the six months ended June 30, 2000. Net cash was provided primarily by sales of capital stock and, to a lesser extent, borrowings and the exercise of warrants and stock options. Net cash used in financing activities for the six months ended June 30, 2000 was used primarily to repay borrowings under the line of credit. We expect to experience significant growth in our operating expenses, particularly sales and marketing and research and development expenses, and in capital expenditures as we execute our business strategy. We anticipate that these operating expenses and planned capital expenditures will constitute a material use of our cash resources. We may utilize cash resources to fund acquisitions of, or investments in, complementary businesses, technologies or product lines. We believe that the net proceeds from the sale of the common stock in this offering, current cash balances and borrowings available under our credit facility will be sufficient to meet our working capital needs for at least the next 12 months. After that, we may require additional funds. We may not be able to obtain adequate or favorable financing in the future. Any additional financing may dilute your ownership interest in Adexa, and new debt or equity securities, if issued, could have rights senior to those of our common stockholders. RECENT ACCOUNTING PRONOUNCEMENTS In December 1998, the American Institute of Certified Public Accountants issued SOP No. 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions," which amends SOP No. 97-2, and was effective for transactions that we entered into beginning January 1, 2000. Adoption of SOP No. 98-9 did not have a material impact on our consolidated financial position or results of operation. In June 1998, June 1999 and June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" and SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities--An Amendment of SFAS No. 133." SFAS No. 133, as amended, requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the planned use of the derivative and the resulting designation. We are required to implement SFAS No. 133, as amended, in the first quarter of 2001. We have not determined the effects, if any, adoption of SFAS No. 133, as amended, will have on the its consolidated financial statements. In March 2000, the Financial Accounting Standards Board issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation--an interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but 34 certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. We do not expect the application of FIN 44 to have a material impact on our consolidated financial position or results of operations. In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements" which summarizes the views of the staff of the SEC in applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000 and June 2000 the SEC issued SAB No. 101A and SAB No. 101B, which delayed the implementation dates of SAB No. 101. We will be required to adopt the accounting provisions of SAB No. 101, as amended, no later than the fourth quarter of 2000. We do not believe that the implementation of SAB No. 101 will have a material impact on our consolidated financial position or results of operations. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK We are headquartered in the United States and market our products in North America, Asia and Europe. As a result, our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. Because the majority of our revenues are currently denominated in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the short-term nature of our investments, we believe that there is not a material risk exposure. 35 BUSINESS OVERVIEW We provide software products that enable c-Commerce. Our iCollaboration suite is designed to automate and optimize interactions among trading partners at multiple tiers of the supply chain. Our software allows companies and participants in electronic exchanges to collaborate in real-time with members of their extended supply chains and provides visibility into critical business variables, such as changes in customer demand and material and component availability. This visibility enables companies to intelligently synchronize business processes across the extended supply chain. Users of our products can predict future material needs based on collaborative demand forecasts, can provide their customers with accurate delivery dates and can optimize a broad range of supply chain activities, from coordinating shop floor production processes to managing resource allocation across a multi-site enterprise. Our intelligent collaboration capabilities allow private and public exchanges to provide value-added services to their customers, such as collaborative demand planning, multi-tiered supply chain planning and available-to-promise capabilities. In addition, our software allows companies and exchanges to address the increasing volume, complexity and speed of business interactions within and across the extended supply chain and automates selected inter- and intra-company business processes based on user-defined rules. Overall, our iCollaboration suite allows companies to make better, faster decisions about their supply chain interactions, resulting in enhanced customer responsiveness and increased planning efficiency. Our products are tailored for the Internet using an open, standards-based architecture and can be easily configured for the individual business conditions and industry requirements of each customer, allowing us to rapidly deliver a company-specific solution. We sell our products to companies and electronic exchanges through a direct sales force and indirect channels. We target Global 2000 companies in large vertical markets that are characterized by complex supply chains, including the aerospace and defense, automotive, electronics, semiconductors and textiles and apparel industries. We also use our relationships with e-Business infrastructure providers, such as Agile Software Corporation, BroadVision, Inc., Selectica, Inc., and Vitria Technology, Inc., and value-added resellers, such as Compaq Professional Services, HP Professional Services, QAD, Inc. and Western Data Systems, to support our sales efforts and deepen our market penetration. Our top ten customers based on end-user license contract revenues are: Advanced Micro Devices Inc.; Conexant Systems, Inc.; Digeno, Inc.; Framatome Technologies, Inc.; Fujitsu Quantum Devices, Ltd.; Matsushita Electric Industrial Co., Ltd.; Milliken & Co.; Philips Semiconductors; Sanyo Electric Co. Ltd.; and Sumitomo Metal Industries, Ltd. INDUSTRY BACKGROUND EMERGENCE OF THE INTERNET FOR BUSINESS The Internet has emerged as a critical communications and commerce platform for business, providing a medium through which companies can interact in real-time with their trading partners and customers. While first generation business-to-business solutions are focused on generating cost-savings through activities such as procurement of indirect goods, companies are now beginning to use the Internet to increase market share and revenues. These businesses are increasingly using the Internet to collaborate with suppliers, distributors and customers to make faster, better informed business decisions. The Internet has also given rise to electronic exchanges where companies can transact business with multiple buyers and sellers. These electronic exchanges may be private exchanges, which are operated by a single business for the purpose of trading with multiple partners, or may be public exchanges, which are operated by third parties and facilitate commerce among multiple buyers and multiple sellers. Businesses are attempting to use these electronic exchanges to remove market inefficiencies and share information broadly among market constituencies. These efforts, along with the widespread use of the Internet, have increased the volume and speed of business interactions. This has placed greater demand on enterprises to 36 become more efficient, make decisions faster, bring products to market more quickly and provide a higher level of service to customers and partners. INCREASING SUPPLY CHAIN COMPLEXITY Supply chains are communities of trading partners that source, make and deliver both finished products for resale and the materials and components used to produce them. Factors driving increased supply chain complexity include greater demand for complex build-to-order products, increased outsourcing of manufacturing processes and continuing globalization. To meet growing demand for highly configured and sophisticated products, businesses are adding new suppliers and increasing the number of components that they purchase through their extended supply chains. Businesses are also continuing to outsource more of their manufacturing and distribution processes in an attempt to focus on core competencies and increase efficiency. As companies expand globally, supply chains can span multiple continents, tying together suppliers, plants and customers in geographically dispersed locations. These factors are adding significant complexity to the supply chain by increasing the number of supply chain activities that must be synchronized. Effective synchronization of the extended supply chain is highly challenging, in part because many supply chain processes are interdependent and determined by both prior and future events. Coordination of the supply chain typically involves frequent interaction among multiple parties, each of which must also simultaneously react to market forces originating outside the supply chain. Ineffective supply chain coordination can negatively affect revenues, costs and customer satisfaction, particularly if a company is unable to effectively manage material and capacity constraints. For example, late components from a supplier could result in poor customer service or higher production costs. Similarly, unexpected changes in customer demand can result in a lost sale or excess inventory if a company's supply chain is inflexible. Ultimately, if its supply chain cannot react quickly and in a coordinated fashion to a broad range of market forces, a company may risk losing ground to more responsive competitors. THE EMERGENCE OF c-COMMERCE Companies are embracing the Internet and its inherent speed and flexibility to synchronize their supply chain activities and to conduct c-Commerce. c-Commerce is an Internet-based approach to sourcing, making and delivering goods that involves intelligent planning, real-time synchronization and dynamic collaboration among members of an extended supply chain. c-Commerce reduces inefficiencies in the supply chain and empowers enterprises and electronic exchanges to respond more quickly and effectively to customer demands and changing variables within the supply chain. c-Commerce represents a distinct departure from e-Commerce, which is merely transactional in nature. While c-Commerce does involve Internet-based transactions between manufacturers and suppliers for the real-time procurement of direct materials--the basis for many electronic exchanges--it also involves using the Internet to collaboratively synchronize how and when these materials are purchased and delivered across a multi-tiered supply chain. Moreover, c-Commerce can involve providing real-time product availability information to customers based on the collective capabilities of a business's supply chain or creating production forecasts based on real-time inputs from multiple supply chain participants. In April 2000, AMR Research predicted that Internet-based business-to-business commerce will grow from $215 billion in 1999 to $5.7 trillion by 2004. AMR also estimated that the cost of goods, for public U.S. companies across all industries, represents 63% of revenue, while sales, general and administrative costs are 18% of revenue. Consequently we believe that there will be an increasing need for business-to-business commerce applications that support the sourcing, making and delivering of direct goods using the Internet. 37 INADEQUACIES OF CURRENT SOLUTIONS Many companies have implemented various enterprise applications, such as those for procurement, enterprise resource planning and manufacturing automation, which help streamline a variety of business processes. Generally, these applications focus on tasks such as transaction execution or data collection and address only limited aspects of the supply chain within the enterprise. These same companies are now attempting to extend the functionality of these applications to conduct c-Commerce. c-Commerce, however, requires applications that account for the interdependence of all supply chain functions to synchronize multiple activities across the extended supply chain efficiently and intelligently. While there are other software products in the market that attempt to address c-Commerce, we believe that they fall short in one or more of the following ways: - they do not scale easily with growing numbers of supply chain members, increasing transaction volumes and expanding product complexity, and their functionality cannot be easily extended to meet a business's evolving needs, due in large part to their client-server architecture; - they cannot be configured to support company-specific supply chain strategies; - they do not closely synchronize and integrate supply chain activities at different levels of the enterprise; - they do not solve the complex and dynamically changing supply chain problems of enterprises and electronic exchanges on a rapid basis; - they do not integrate easily with an organization's existing technologies or those of its supply chain members, resulting in significant implementation time and expense; and - they do not address supply chain-specific issues across a broad range of industries. Many enterprises and electronic exchanges believe that the ability to conduct intelligent c-Commerce is critical to retaining both customers and key supply chain partners, and that an effective c-Commerce strategy demands a comprehensive approach to the supply chain. As a result, we believe there is a significant opportunity for a software platform that accounts for the interdependence of supply chain functions, is tailored for the Internet, supports real-time interaction and is adaptable to any business environment. THE ADEXA SOLUTION ATTRIBUTES We provide software products that enable c-Commerce. Our iCollaboration suite is designed to automate and optimize supply chain interactions among trading partners. Our software enables intelligent planning, real-time synchronization and dynamic collaboration among members of an extended, multi- tiered supply chain. Our software addresses the increasing volume, complexity and speed of business interactions within and across the extended supply chain. Our next-generation architecture is designed for the open and scalable requirements of c-Commerce and offers rapid deployment and integration. We license our products to enterprises and public and private electronic exchanges worldwide. The key attributes of our solution include: SUPPLY CHAIN VISIBILITY AND SYNCHRONIZATION. Our software facilitates c-Commerce by allowing enterprises to gain visibility into supply and demand information across the supply chain, enabling them to synchronize multiple interactions at different tiers of the supply chain. As a result, enterprises can provide customers with accurate delivery dates and build-to-order commitments and make rapid decisions about choosing alternative suppliers or allocating limited resources, based on up-to-the-minute information. 38 SUPPLY CHAIN OPTIMIZATION. Our software employs sophisticated constraint-based optimization algorithms and heuristics designed to reach optimal planning solutions on a rapid basis. We believe, based on comparison testing conducted by our customers, that our iCollaboration suite provides faster planning solutions relative to competing software products. BUSINESS DECISION AUTOMATION. Our software uses agent-based technology and user-defined rules to intelligently automate selected inter- and intra-company business decisions. By automating activities, such as determining order promise dates or material requirements, our software enables enterprises to expedite and improve their decision-making processes. This enhances their ability to rapidly respond to changes in supplier commitments, customer requirements and market conditions. VALUE-ADDED EXCHANGE SERVICES. Our iCollaboration suite allows private and public exchanges to provide value-added services to their customers such as collaborative demand planning, multi-tiered supply chain planning, capacity brokering, rules-based auctioning and order promising and inventory management. Our software also enables electronic exchanges to provide real-time available-to-promise information and give electronic exchange participants visibility into material or capacity shortages. Additionally, our software provides suppliers with advance notification of demand for their products so that they can effectively adjust production to meet buyer needs and improve customer service. NEXT-GENERATION ARCHITECTURE. Our iCollaboration suite is based on open systems and industry standards for rapidly deployable and scalable Internet applications. In particular, our software: - uses a distributed architecture that allows it to process high volumes of complex data in real-time and support large numbers of concurrent users across multiple remote locations; - uses a single data model that accelerates software performance and enables application and feature extensibility; - features a component-based design that provides improved scalability, reliability and availability relative to traditional applications; and - overlays existing software applications, extending their functionality rather than replacing it. ADAPTABILITY AND FLEXIBILITY. Our products use a library of user-definable business rules and industry-specific templates, allowing our customers to easily and accurately model their specific supply-chain related business processes. Our software can be easily configured for the individual business conditions and industry requirements of each customer, allowing us to rapidly deliver a tailored solution. BENEFITS Our solutions are designed to help enterprises and electronic exchanges improve profitability and increase revenue by providing the following key benefits: ENHANCED SUPPLY CHAIN EFFICIENCY. Our software is designed to optimize supply chain efficiency by allowing enterprises and electronic exchanges to synchronize material, product and data flows among multiple locations and third-party suppliers. As a result, our products can help enterprises reduce inventory, enhance financial results, increase resource utilization and improve on-time delivery performance. GREATER EXCHANGE PREPAREDNESS. By streamlining and automating selected business processes, our software enables companies to prepare for the increased velocity of electronic exchange-based business activity by improving decision response times, shrinking information lead times and reducing planning cycles. For example, our software can rapidly determine a supplier's ability to fulfill an order and the price at which it can do so and remain profitable, allowing the supplier to be highly competitive when responding to a real-time auction bid or request-for-quote. 39 INCREASED RESPONSIVENESS TO CUSTOMERS. Our iCollaboration suite provides real-time and accurate available-to-promise information to buyers of both standard and configured products. In addition, enterprises and electronic exchange participants can rapidly respond to changes in demand by collaborating in real-time with supply chain members to improve on-time delivery of the specified quantity and types of products. This allows companies and electronic exchanges to differentiate their levels of customer service. CLOSER COORDINATION WITH SUPPLIERS. Our software enables enterprises and electronic exchanges to provide suppliers with accurate, up-to-the-minute projections of short- and long-term demand. This visibility gives suppliers the flexibility to plan production and predict material needs, enabling them to use their resources more efficiently, increase inventory turnover and respond to last-minute demand changes. IMPROVED STRATEGIC PLANNING AND FLEXIBILITY. Our collaborative planning solutions enable enterprises and electronic exchange participants to make strategic and tactical decisions across functional areas throughout the supply chain. Our software helps companies improve profitability by enabling them to plan the quantities of products they produce, the components they use to produce them and the distribution resources they utilize to support these activities. Our software provides enterprises with visibility into changes in future supply and demand that enable them to plan more effectively for the long term and to manage constraints in their development, procurement, production and delivery processes. STRATEGY Our objective is to become the leading global provider of comprehensive c-Commerce solutions. Key elements of our strategy are to: FOCUS ON LARGE VERTICAL MARKETS. To date, we have focused our sales and marketing efforts primarily on Global 2000 companies in large vertical markets that are characterized by complex supply chains, including the aerospace and defense, automotive, electronics, semiconductors and textiles and apparel industries. We intend to leverage our current customer base and industry knowledge to further penetrate our existing vertical markets. In addition, we intend to enter new, high-growth vertical markets both by winning high-profile reference accounts within those markets and by leveraging our software's inherent flexibility and our strategic relationships to create new industry-specific solutions. TARGET ELECTRONIC EXCHANGES. We are a neutral provider of software to electronic exchanges, which allows us to license our products to multiple electronic exchanges within the same industry. We will continue to license our products to electronic exchanges because we believe that our c-Commerce software allows them to offer their participants expanded, value-added services. When deployed within an exchange, our software products provide exchange participants with the ability to effectively conduct c-Commerce. For example, our software allows buyers to receive available-to-promise information and sellers to gain visibility into future demand. As an alternative, our software can also be hosted by an exchange, allowing exchange participants to subscribe to components of the iCollaboration suite for the specific functionality that they need. EXTEND OUR PRODUCT OFFERINGS AND TECHNOLOGY LEADERSHIP. We will continue to develop our software products using a component-based, distributed, multi-user and multi-threaded architecture that leverages leading edge technology, including Java and Extensible Mark-up Language, or XML. Building on an open and scalable architecture, we have established simple interfaces between our iCollaboration suite and various transaction and execution systems and we intend to expand these interfaces to support other existing and emerging technologies. We intend to leverage our industry experience, in conjunction with our knowledge of advanced software technology, to continue to improve the functionality of our software. We also plan to continue to expand our offerings by enabling applications service providers, or ASPs, to host our iCollaboration suite. We believe that this ASP offering is another distribution channel that will allow us to target small and medium sized enterprises and provide us with recurring revenue streams. 40 LEVERAGE NETWORK EFFECT TO EXPAND CUSTOMER BASE. As users of the iCollaboration suite deploy our software across their supply chains, their business partners and customers are exposed to our products. We believe that this exposure, which allows non-customer participants in the supply chain to benefit from our software, will create a network effect that will accelerate industry recognition and adoption of our iCollaboration suite. Accordingly, we intend to leverage this network effect to expand our customer base. BUILD RELATIONSHIPS WITH IMPLEMENTATION PARTNERS. We intend to continue to pursue additional relationships with systems integrators and other implementation partners that can provide consulting and implementation services, enabling us to focus on building a high-margin, software-driven business. These relationships with systems integrators are also designed to enable us to extend the reach of our sales and marketing efforts. CONTINUE TO EXPAND SALES AND MARKETING EFFORTS. We intend to pursue a global, multi-channel distribution strategy by expanding our direct sales force and leveraging indirect sales channels with complementary technology providers, resellers and systems integrators to increase widespread adoption of our products. To accomplish this objective, we plan to increase the size of our sales force in order to target a broader base of potential customers. In addition, we will expand our reseller relationships with independent software vendors that have traditionally sold their products in the vertical markets that we intend to penetrate. We also plan to promote our brand awareness through aggressive sales and marketing campaigns, including joint marketing efforts with our current customers and partners. PRODUCTS Our iCollaboration suite consists of multiple components designed to provide enterprises and electronic exchanges with comprehensive c-Commerce functionality, including collaborative planning, supply chain synchronization and optimization and business decision automation. The iCollaboration suite is a component-based, extensible solution that uses a common, unified architecture. Our software's design and our library of user-defined business rules and industry-specific templates allow rapid configuration and deployment of a c-Commerce solution tailored to customers' specific needs. iCOLLABORATION SUITE FOR ENTERPRISES Our iCollaboration suite for enterprises can be deployed at multiple levels within an enterprise depending on its specific business needs. At the corporate level, our products are designed to enable an enterprise with multiple internal and external production and distribution facilities to synchronize and optimize activities across its global supply chain for both short- and long-term planning horizons. At the individual site or plant level, our products facilitate distributed and decentralized constraint-based planning that improves operational efficiency and sequences work orders in a way that is consistent with corporate planning objectives. And at the shop floor level, our software provides planning, scheduling and monitoring for individual production lines and machines. In addition, our software can synchronize supply chain activities across these different levels of the enterprise. For example, changing supply chain conditions at the production line and shop floor levels can be assessed at the plant and corporate planning levels so that activities can be resynchronized accordingly. Our iCollaboration suite also allows an enterprise to dynamically collaborate with suppliers and customers to improve visibility into current and future material and component requirements, to develop comprehensive demand forecasts, to better manage inventory and to coordinate supply chain activities in real-time. As interaction among trading partners and the need for quicker response times increase, our software's business agents can automate and streamline business processes within the enterprise and across the extended supply chain. 41 iCOLLABORATION SUITE FOR ELECTRONIC EXCHANGES Our iCollaboration suite can be deployed to address the specific supply chain-related needs of electronic exchanges. There are two general types of electronic exchanges--private exchanges and public exchanges. Our iCollaboration suite enables organizations with private exchanges to collaborate and share supply chain information with their customers and suppliers in a secure environment. Our iCollaboration suite provides public exchanges with value-added services to attract and retain both buyers and sellers. Electronic exchanges can choose among a variety of functionalities depending on their specific requirements. For example, in a private exchange an enterprise may want to share critical supply chain information such as work-in-progress, finished and component goods inventory levels and production capacity. Certain functionalities such as collaborative demand or supply planning and real-time order promising may be desirable in both private and public exchanges. A public exchange may offer capacity brokering whereby the excess production capacity of the exchange participants is aggregated and auctioned to large potential buyers. The component-based architecture of our iCollaboration suite allows us to configure our services to meet the varied needs of electronic exchanges, as well as adapt to their evolving business models and structures. iCOLLABORATION COMPONENTS Our iCollaboration suite consists of the following components, which may be deployed and configured in various ways: iCOLLABORATION COMPONENTS DESCRIPTION Supply Chain Planner iCollaboration's Supply Chain Planner is a constraint-based planning application that coordinates and synchronizes global, multi-tiered supply chain activities, including procurement, production and distribution. Supply Chain Planner uses a detailed supply chain model that accounts for multiple production and distribution sites, transportation networks, suppliers and customers in order to help enterprises and exchange participants optimize inventory, material and capacity and improve financial performance. Available-to-Promise iCollaboration's Available-to-Promise, or ATP, provides real-time available-to-promise and capable-to-promise information. ATP simultaneously considers a variety of constraints provided by Supply Chain Planner, including current and projected inventory positions, production and distribution capacity, appropriate substitution and configuration alternatives and the priorities of competing commitments. Plant Planner iCollaboration's Plant Planner is a constraint-based planning application designed to optimize plant-level operations without violating strategic business constraints, such as customer priority. Plant Planner uses configurable business rules to model complex production processes and advanced planning algorithms to quickly process and route large numbers of jobs. Plant Planner improves the profitability, reliability and feasibility of production plans by balancing material and capacity constraints with supplier constraints and customer preferences as they change.
42 Strategic Planner iCollaboration's Strategic Planner is a scenario-based, long-horizon planning and optimization application that enables companies to design their supply chain and business processes to achieve strategic business objectives, improve customer service levels and more accurately predict the impact of supply chain decisions on short- and long-term financial performance. Collaborative Demand Planner iCollaboration's Collaborative Demand Planner enables multiple geographically dispersed users within and outside an enterprise or exchange to collaboratively plan for future demand. Collaborative Demand Planner enables users to aggregate, securely view, analyze and publish changes to forecasted demand. Collaborative Demand Planner quickly creates a consensus forecast based on a broad array of data inputs from a wide range of users. Collaborative Supply Planner iCollaboration's Collaborative Supply Planner will complement Collaborative Demand Planner by providing suppliers with visibility into forecasted demand over the Internet. Collaborative Supply Planner will enable multiple levels of suppliers to collaborate on component-level demand from Supply Chain Planner. COLLABORATIVE SUPPLY PLANNER IS CURRENTLY UNDER DEVELOPMENT. Product Development Planner iCollaboration's Product Development Planner is designed to optimize product development processes by intelligently allocating design resources, synchronizing multiple development projects and scheduling sequence-dependent activities. Product Development Planner uses a constraint-based planning engine to generate product development plans that are based on user-defined constraints. Shop Floor Sequencer iCollaboration's Shop Floor Sequencer translates work orders into detailed execution instructions for shop floor systems and sequences jobs across multiple plant resources to efficiently meet production requirements. Shop Floor Sequencer functions as an intelligent buffer between the production plan and shop floor systems and can reduce the impact of unexpected events--such as machine outages or inventory shortfalls--by automatically re-sequencing production events.
43 Business Agents - iCOLLABORATION'S ATP AGENT is embedded in external applications, such as an order entry system, and works with our Available-to-Promise application to provide customers with real-time order promising information. - iCOLLABORATION'S BUSINESS ALERT AGENT is an exception-based messaging system that monitors supply chain activities and sends alerts when user-defined thresholds are exceeded. - iCOLLABORATION'S CUSTOMER AGENT monitors order status and notifies customers when user-defined thresholds are exceeded. - iCOLLABORATION'S SUPPLIER AGENT monitors the status of ordered components and provides users with immediate access to material requirement information when new production plans are created. Unified Data Server iCollaboration's Unified Data Server provides persistent data storage for all iCollaboration components via a relational database. Unified Data Server manages the data required for distributed supply chain planning by enabling data communication between multiple Unified Data Server components and supporting multiple supply chain models. Supply Chain Controller iCollaboration's Supply Chain Controller is the connectivity, workflow and integration component for the iCollaboration suite. Supply Chain Controller consists of a graphical workflow modeling tool, application programming interfaces and certified connectors to external data sources and applications.
FUTURE RELEASES We are currently developing a major release of our iCollaboration suite, version 5.0. This version of our software will feature extended collaborative commerce functionality and enhanced technology based on our existing single data model and Internet framework. The iCollaboration suite will be further enhanced to provide a unified environment for collaborative commerce ranging from planning to execution. Also, our agent technology is being further developed to provide personalized user- and business rule-defined alerts and work flow structure. Finally, this new version is being developed to operate with different levels of detail based on the availability of data and business objectives. iCOLLABORATION ARCHITECTURE AND TECHNOLOGY We believe that we are a technology leader in providing c-Commerce solutions and that iCollaboration's next-generation architecture and underlying technology provide significantly greater flexibility and adaptability, scalability and openness than competitive product offerings. We believe our product offerings have the following technological advantages: FLEXIBILITY AND ADAPTABILITY. All iCollaboration suite components share a common architecture that provides the flexibility and adaptability to address a customer's particular business environment, processes and requirements. Our software's functionality is flexible, rather than rigidly designed to address only a specific industry. Its components can be readily configured to address specific customer needs through a library of user-definable business rules, industry-specific templates, attribute logic and alternative decision logic. A customer can further extend the applicability of iCollaboration software by fine-tuning the 44 pre-existing library of business rules and attributes or by introducing more detailed and sophisticated business rules and attribute logic to fit the specific business environment. The iCollaboration suite molds to the needs of the customer, rather than requiring the customer to change its technology infrastructure to accommodate the software. SCALABILITY. Our single data model and component-based architecture enable customers to easily add functionality and accommodate additional users and increased transaction volumes. iCollaboration's architecture provides for scalability through the following: - EXTENSIBILITY. Our component-based architecture allows additional capabilities and features to be seamlessly added. In addition, once an iCollaboration component is integrated with other applications, the single data model enables more components to be added with minimal integration effort. - SPEED. iCollaboration suite uses powerful, constraint-based optimization algorithms and heuristics to rapidly reach optimal planning solutions. iCollaboration's algorithms and heuristics intelligently prune the search space based on user-defined parameters to eliminate unnecessary searches and allow for rapid solve times. Speed is further enhanced though the use of a cached object model with optimized cross-references. As a result, our iCollaboration product can scale to handle large supply chain models. - SUPPORT OF DISTRIBUTED COMMUNITIES. Components of the iCollaboration suite can be distributed across an enterprise, run from an enterprise server, hosted by application service providers or offered as services in both public and private exchanges. This allows our software to scale with a business as it expands geographically and changes the way it uses its technology infrastructure. OPENNESS. Our software's open architecture is designed to operate on a variety of technology platforms. iCollaboration currently supports five hardware/operating system combinations. Our database technology is also platform independent, supporting two dozen combinations of platform and Relational Database Management System, or RDBMS, types. The integration components of our products provide rich connectivity by supporting multiple technologies, vendors and standards at the relational, object and document levels. These include XML over http, open database connectivity, structured query language, Java serialization and tool command language. Application connectors are available for enterprise resource planning, manufacturing execution systems, enterprise application integration and RDBMS tools. INTERNET ARCHITECTURE. Our products' Internet architecture offers personalized, browser-based views, XML communication and secure access for planning and collaboration to multiple users across multiple enterprises. Additionally, our products can deliver planning and collaboration functionality in a hosted environment through an application service provider. It also provides for load balancing to enable organizations to scale to accommodate large numbers of users and transactions via the Internet. 45 CUSTOMERS As of August 24, 2000, we had licensed components of our iCollaboration suite to more than 50 customers in North America, Europe and Asia. Our customers include: ELECTRONIC EXCHANGES Com2B* Digeno, a unit of RR Donnelley & Sons Company RetailMetro* ELECTRONICS AT&T Wireless Dlink Corporation Harmonic, Inc. KYE Systems Corp. MiTAC International Corp. Philips Components B.V. Quarta Display Inc. Ricoh Company, Ltd. Sharp Corporation, LCD Synnex Information Technologies, Inc. TECO Electric & Machinery Company, Ltd. Viasystems Technologies Corporation Xerox Corporation SEMICONDUCTORS Advanced Micro Devices, Inc. Centillium Communications, Inc. Chartered Semiconductor Manufacturing, Ltd. Conexant Systems, Inc. ESM Limited Fujitsu AMD Semiconductor Ltd. Fujitsu Quantum Device Ltd. Hitachi Semiconductor (America) Inc. Integrated Silicon Solution, Inc. Lucent Microelectronics Matsushita Electronics Corporation Philips Semiconductors B.V. S3 Incorporated Sanyo Electric Co. Ltd. Sharp Microelectronics Corporation Silicon Manufacturing Partners PTE, Ltd. Sumitomo Metal Industries, Ltd. Sitix Division Toshiba Corporation Semiconductor Company United Microelectronics Corporation Winbond Electronics Corporation ZiLOG, Inc. TEXTILES AND APPAREL Gulistan Carpets, Inc. Malden Mills Industries, Inc. Milliken and Company Quaker Fabric Corporation of Fall River Teijin Limited Tropical Sportswear International Corporation INDUSTRIAL/CONSUMER PACKAGED GOODS Cheil Textile (Chemical) Co., Ltd. (subsidiary of Samsung) Firmenich S.A. Framatome Connectors International Hunter Douglas Europe B.V. Rich Products Corporation The Rowe Companies AEROSPACE AND DEFENSE Aerospace Industrial Development Corporation Naval Air Systems Command (NAVAIR) Template Software, Inc. AUTOMOTIVE General Motors Corporation * These companies have signed a letter of intent to license our products. SAMPLE CUSTOMER CASE STUDIES DIGENO Digeno is an electronic exchange for sheet-fed printers and print buyers established and funded by RR Donnelley & Sons, a leading printing, communications services and logistics organization. THE CHALLENGE. As an emerging electronic exchange for printing services, Digeno will target commercial printers and large corporate print buyers. To serve this diverse group of exchange participants and scale its business rapidly, Digeno required a flexible and adaptable collaborative planning solution. THE SOLUTION. Digeno selected our iCollaboration Supply Chain Planner and Available-to-Promise components based on their flexibility, scalability and ease of integration with technologies from 46 BroadVision, Digeno's other key technology provider. Overall, our software will enable Digeno's buyers and sellers to collaborate on the procurement, planning and management of printing projects. Digeno, which is planning to launch in September 2000, has licensed iCollaboration components to offer its buyers and sellers value-added services such as available-to-promise information on printing jobs. Digeno will also offer our software to commercial printers on a hosted basis, with Digeno acting as an application service provider. This will allow commercial printers participating in Digeno as sellers to forecast upcoming projects and efficiently plan their resource utilization accordingly. PHILIPS SEMICONDUCTORS B.V. Philips Semiconductors, a division of Royal Philips Electronics, is one of the world's largest semiconductor suppliers. THE CHALLENGE. The semiconductor industry is characterized by huge volumes of operations, long lead times, complex inter-plant dependencies and a high level of breakdowns, scrap, and rework. Philips wanted to improve its level of delivery performance and reduce the long cycle times that led to high levels of work-in-progress inventory at its Albuquerque, New Mexico facility. Philips needed a state-of-the-art planning solution that could model the complexities of the semiconductor environment, streamline manufacturing, optimize product mixes, provide reliable commitments to its customers and relieve bottlenecks in production. THE SOLUTION. Our Plant Planner was deployed at the Philips Albuquerque fabrication facility to help streamline plant-level operations. One year after implementation of our Plant Planner, Philips reported doubling on-time delivery performance. Delivery performance increased from roughly 50 percent to over 97 percent. Philips also reported more than 25 percent reduction in cycle times, as well as a 10 percent reduction in works in progress. Based on the success of the implementation at its Albuquerque site, Philips announced in November 1999 that it had chosen us to plan, synchronize and optimize additional worldwide manufacturing operations, including one site in North America and four sites in Europe. MITAC INTERNATIONAL CORP. MiTAC International Corp., headquartered in Taiwan with support sites in the U.S. and the U.K., designs, builds and markets a diverse range of products such as high-performance workstations, servers, motherboards, notebook computers and LCD monitors. THE CHALLENGE. MiTAC needed a central planning and supply chain system that would unite management systems across its three facilities in Taiwan, the U.S. and the U.K. MiTAC's challenges included a lack of visibility into inventories at all facilities, inadequate inventory controls and access, a lack of supply chain integration across the three separate sites and a need for faster materials requirements planning, or MRP, reports. THE SOLUTION. MiTAC implemented Supply Chain Planner at its home office in Taiwan and installed Plant Planner in its support facilities in the U.S. and the U.K. Our software provides MiTAC with real-time reports that register multi-site consolidated inventory information for all raw and finished materials, consumption of inventory and in-transit inventory. In addition, Supply Chain Planner extracts vital information from each site's enterprise resource planning system and generates customized reports for specific audiences, including MiTAC's materials planners and key customers. Supply Chain Planner also facilitates up-to-the-minute MRP reports that can be published over the Internet for customers to view, providing them with improved visibility into MiTAC's production processes. Whereas the previous MRP reports took hours to generate and were only run weekly, our software can run MRP reports across all three sites in only 15 minutes, allowing reports to be computed daily. Supply Chain Planner has also enabled synchronization of MiTAC's top 20 most critical production factors. Since implementing our software, MiTAC has experienced the following tangible benefits: better on-time delivery performance, 47 decreases in excess or obsolete inventories, improved response time to customer orders, and better communication among remote sites. FIRMENICH S.A. Firmenich S.A. is one of the world's leading manufacturers and distributors of perfumes, aromatic compounds and flavors for the cosmetics and food industries, with 24 plants and facilities worldwide. THE CHALLENGE. Firmenich has over 6,000 clients worldwide, generating more than 1,000 new sales orders a day. Firmenich manufactures products based on approximately 50,000 different formulas, adding roughly 100 new formulas each day, and has over 75,000 components in its supply chain and bills-of-materials containing more than 3 million items. Firmenich sought a comprehensive solution to optimize its complex supply chain and gain visibility into global operations. THE SOLUTION. Firmenich licensed our software through QAD, one of our resellers, in conjunction with purchasing QAD's own enterprise resource planning software. Firmenich currently uses our software to provide up-to-the-minute visibility and monitoring via the Internet for inventory levels and work-in- progress at each of its facilities worldwide. Our joint Adexa-QAD solution was initially deployed across Firmenich's operations in Geneva, Switzerland and was later extended to Latin America. Additional implementations are currently being rolled out. Firmenich plans to leverage our financial optimization capabilities with a view toward maximizing profits and minimizing overhead costs for different product groups and sourcing scenarios. Firmenich also plans to use our software to synchronize its supply chain planning and manufacturing planning across its plants and facilities worldwide. STRATEGIC RELATIONSHIPS We plan to continue to enhance and expand our strategic relationships with leading consulting and systems integration firms, e-Business infrastructure providers and value-added resellers. These relationships help us promote the widespread adoption of our products in different vertical markets through joint marketing and reseller arrangements. SYSTEMS INTEGRATORS AND IMPLEMENTATION RELATIONSHIPS Our consulting and systems integration relationships accelerate implementation and provide value-added services, including business process redesign, training and vertical market expertise. We work closely with third-party consulting and system integration professionals to educate them on our iCollaboration suite. Our customers use these certified consultants to implement our software and to offer other value-added services. We currently have relationships with Andersen Consulting, Arthur Andersen, Compaq Professional Services, EDS, HP Professional Services, Origin, Spectrum Group and TRW. e-BUSINESS INFRASTRUCTURE PROVIDERS Our relationships with leading providers of e-Business-enabling infrastructure technologies allow us to take advantage of the rapid growth in business-to-business e-Commerce and the emergence of new e-Business opportunities such as public and private exchanges. We leverage the infrastructure technologies of our e-Business infrastructure partners to deliver more robust solutions to our customers. We currently have strategic relationships with Agile, Broadvision, Selectica and Vitria. VALUE-ADDED RESELLERS We have value-added reseller agreements for software products with Compaq Professional Services, Essentus, HP Professional Services, QAD and Western Data Systems. 48 PROFESSIONAL SERVICES Our portfolio of professional services includes implementation, education and customer support. As of June 30, 2000, we employed 87 persons in our professional services operations. IMPLEMENTATION SERVICES. Our consultants have significant domain expertise, enabling them to conduct in-depth value assessments and develop business solution designs prior to live deployment. The consulting team develops a business model of each customer's supply chain environment and incorporates customer-specific rules within our software to automate supply chain planning, optimization and execution. This solution design process also includes formulating supply chain performance improvement metrics, which can then be tracked and audited. We have adopted a comprehensive supply chain assessment program to enable companies to rapidly develop a supply chain performance scorecard, identify baseline performance, assess business process drivers of performance and establish attainable target performance based on our business solution. EDUCATION SERVICES. We offer comprehensive education and training programs as well as customized courses designed to address the specific needs of our clients and partners. To deliver this knowledge efficiently, we offer modular, content-focused courses based on an instructor-led training methodology that effectively combines lectures with hands-on exercises. Our education program is designed for both implementation specialists and end users seeking to become more familiar with our applications. CUSTOMER SUPPORT SERVICES. Our Global Support Center in Toronto, Canada has product and technology experts that help to quickly resolve product issues and minimize disruptions to our customers' business activities. Annual maintenance agreements entitle our customers to receive software upgrades and regularly scheduled maintenance releases. We also provide comprehensive user and reference manuals, answers to frequently asked questions, conversion roadmap guides and detailed release notes. Customers may download all of this information and receive product support from our central Web server. We also offer product support through a telephone hotline and through on-site support services. RESEARCH AND DEVELOPMENT As of June 30, 2000, we employed 60 people in research and development and technical support. Our primary research and development facility is located in Toronto, Canada. Our research and development staff is responsible for enhancing our existing products and services and expanding our product line and services offered. Our current product development activities focus on new products, product enhancements and the integration of external services and partner technology. We have made substantial investments in research and development. Our research and development expenses totaled approximately $980,000 for fiscal 1997, $1.7 million for fiscal 1998, $4.5 million for fiscal 1999 and $3.3 million for the six months ended June 30, 2000, excluding amortization of stock-based compensation. We intend to continue to make substantial investments in research and development. SALES AND MARKETING As of June 30, 2000, we employed 91 persons in our sales and marketing department, of which 57 were employed in North America, 20 in Asia and 14 in Europe. Our direct sales offices are located in the U.S., Germany, Japan, Singapore, South Korea, Taiwan and the U.K. We focus our sales efforts on Global 2000 companies and electronic exchanges. We sell our products and services through our direct sales organization, value-added resellers and other strategic relationships. We target large vertical markets, including the aerospace and defense, automotive, electronics, semiconductors and textiles and apparel industries. We are continuing to significantly expand our sales and marketing organization and to establish additional sales offices. 49 During our sales process, we typically target members of senior executive management, including the chief executive officer, chief financial officer, chief operating officer, chief information officer and vice presidents of supply chain management, manufacturing and operations. We utilize local sales teams consisting of both sales and technical professionals who work with our strategic partners to create proposals, presentations and demonstrations that address the specific needs of each potential customer. We focus our marketing efforts on educating our target vertical markets and strategic partners, supporting our sales teams and generating new sales opportunities, and creating awareness of our brand and c-Commerce solution. We engage in marketing activities such as business seminars, trade shows, public relations, Web broadcasts and industry analyst programs. COMPETITION The c-Commerce solutions market is relatively new, fast growing, competitive and rapidly changing. We expect competition to persist and intensify in the future. Competitors vary in size and in the scope and breadth of the products and services they offer. We believe that our ability to compete depends on many factors, including: - functionality and performance; - scalability; - flexibility; - ease and speed of implementation; - integration with other systems; - product support services; and - price. Although we believe that we currently compete favorably with respect to each of these factors, our market is relatively new and our c-Commerce software is a new category of product. In particular, we believe our application suite provides superior functionality and a faster time-to-benefit in comparison to competing products. We also believe that our next-generation architecture and our ability to enable electronic exchanges to offer value added services to their participants provide us with advantages over our competitors. We currently face two primary sources of competition: - in-house development efforts by potential customers or partners; and - enterprise application vendors including i2 Technologies, J.D. Edwards, Manugistics, Oracle and SAP. In addition, we face potential competition from e-Business and electronic exchange infrastructure providers such as Ariba and Commerce One, as they seek to extend their product offerings. Historically, a number of enterprise resource planning vendors have jointly marketed our products as a complement to their own. However, as we increase our market share and expand our product offerings, and as enterprise resource planning vendors expand their own product offerings, we believe our relationships with these vendors will become more competitive. We believe that other enterprise resource planning vendors are focusing significant resources on increasing the functionality of their own planning and scheduling modules. We may be unable to maintain our competitive position against current and potential competition, particularly competitors that have longer operating histories and significantly greater financial, technical, sales and marketing, and other resources than we do. Also, many current and potential competitors have greater name recognition, a broader range of products to offer and more extensive customer bases that 50 could be leveraged to gain market share to our detriment. These competitors may be able to undertake more extensive promotional activities, adopt more aggressive pricing policies and offer more attractive terms to purchasers than we can. In addition, current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to enhance their products. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share, which could hurt our business. We also expect that competition may increase as a result of industry consolidation. LEGAL PROCEEDINGS We have been, are and may in the future become involved in litigation relating to claims arising from our ordinary course of business. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a material adverse effect on us. INTELLECTUAL PROPERTY We rely primarily on a combination of copyright, trademark and trade secret laws, confidentiality procedures and contractual provisions to protect our proprietary rights. We also seek to avoid disclosure of our intellectual property by requiring employees and consultants with access to our proprietary information to execute confidentiality agreements. However, these legal protections afford only limited protection for our technology. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary. Although we believe software piracy may be a problem, we are unable to determine the extent to which piracy of our software products exists. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of the proprietary rights of others. Our failure to adequately protect our intellectual property could significantly harm our business and operating results. We embed third-party software in our products and may continue this practice. Third-party software licenses may not continue to be available to us on commercially reasonable terms, if at all. The loss of, or inability to maintain or obtain, any of these software licenses could delay, reduce or prevent our product shipments. Any delay or reduction in product shipments could damage our business, operating results and financial condition. EMPLOYEES As of June 30, 2000, we had 261 full-time employees, including 60 primarily engaged in research and development activities, 91 engaged in sales and marketing activities, 87 engaged in professional services and 23 in general administration. Of these employees, 189 were located in the North America, 24 in Europe and 48 in Asia. None of our employees is represented by collective bargaining units and we have never experienced a work stoppage. We believe that our employee relations are good. FACILITIES Our primary office is located in approximately 18,400 square feet of space in Los Angeles, California under a lease expiring in June 2005. We also lease space for our other offices in the United States, Canada, Germany, Japan, Singapore, South Korea and Taiwan. 51 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors and key employees of Adexa, and their ages and positions as of August 24, 2000, are as follows:
NAME AGE POSITION(S) - ---- -------- ----------- EXECUTIVE OFFICERS AND DIRECTORS K. Cyrus Hadavi, Ph.D..................... 47 President, Chief Executive Officer and Director Hoon Chung................................ 42 Chief Operating Officer Udo Dengler............................... 44 Chief Technology Officer J. Timothy Romer.......................... 39 Chief Financial Officer David R. Golob(1)......................... 32 Director William W. Lattin, Ph.D.(2)............... 59 Director Sam H. Lee(1)(2).......................... 39 Director William H. Younger, Jr.(1)(2)............. 50 Director KEY EMPLOYEES Chris Givens.............................. 37 Vice President of Product Management Chris Smith............................... 49 Vice President of Development Shuji Sueshige............................ 50 Country and Sales Manager of Japan Richard Wolinski.......................... 44 Senior Vice President of North American Sales
- ------------------------ (1) Member of the audit committee. (2) Member of the compensation committee. K. CYRUS HADAVI, PH.D., has served as President and Chief Executive Officer of Adexa since its inception. Prior to founding Adexa, Dr. Hadavi served as Director of Implementations at i2 Technologies, Inc., a supply chain management software company, from 1992 to 1994. Dr. Hadavi holds a B.S. in electrical engineering and a M.S. in industrial management from the University of Birmingham, UK, a M.S. in computer engineering from the University of Southampton, UK, and a Ph.D. in computer science from the University of Michigan. HOON CHUNG has served as Chief Operating Officer of Adexa since December 1999. Mr. Chung served as President of Asia Pacific and Executive Vice President of Professional Services of Adexa from 1997 to 1999. Prior to joining Adexa, Mr. Chung served as Senior Vice President, Supply Chain Management Consulting Services, North America at Numetrix Inc., a supply chain management software company, from 1994 to 1997. Prior to his tenure at Numetrix, Mr. Chung held senior management positions at Haagen-Dazs Company, Inc., from 1991 to 1994 and the Level Brothers Company, from 1989 to 1991. Mr. Chung holds a B.S. in civil engineering and operations research from Princeton University and a M.B.A. in management policy, marketing and operations management from Northwestern University. UDO DENGLER has served as Chief Technology Officer of Adexa since January 1995. Prior to joining Adexa, Mr. Dengler was employed by Numetrix, Inc., a supply chain management software company, where he was Manager of Research and Development from 1991 to 1994. Mr. Dengler holds a M.S. in computer science from the University of Stuttgart, Germany. J. TIMOTHY ROMER has served as Chief Financial Officer of Adexa since February 2000. From 1989 to 2000, Mr. Romer was an investment banker with Merrill Lynch & Co., most recently as a Group Manager and Managing Director. Mr. Romer holds a B.S. in industrial engineering from Stanford University and a M.B.A. in entrepreneurial management and finance from the Wharton School of the University of Pennsylvania. 52 DAVID R. GOLOB has served as a Director of Adexa since July 1997. Since March 2000, Mr. Golob has been a co-founder and Managing Director of Octane Capital Management, an investment management firm. From 1997 to February 2000, Mr. Golob worked for Tiger Management, LLC, an investment management company. From 1996 to 1997, Mr. Golob worked at Sutter Hill Ventures, a venture capital firm, and from 1991 to 1996, Mr. Golob worked at General Atlantic Partners, a private equity investment firm. Mr. Golob holds an A.B., summa cum laude, in chemistry from Harvard College and an M.B.A from Stanford University. WILLIAM W. LATTIN, PH.D. has served as a Director of Adexa since August 2000. Dr. Lattin retired as Executive Vice President of Synopsys, an electronic design automation software company, in October 1999. Dr. Lattin served as President and Chief Executive Officer of Logic Modeling from 1992 until its acquisition by Synopsys in 1994. Prior to that, Dr. Lattin served as the CEO of Logic Automation from 1986 to 1992. Prior to Logic Automation, he was with Intel from 1975 to 1986. Dr. Lattin left Intel as VP and General Manager of Intel's System Group. He also serves on the Board of Directors of Synopsys, the Oregon Graduate Institute, FEI, EasyStreet Online Services, Inc. and is an active consultant with Vitesse Semiconductor. Dr. Lattin holds a B.S.E.E. and an M.S.E.E. from the University of California at Berkeley and a Ph.D. in Electrical Engineering from Arizona State University. SAM H. LEE has served as a Director of Adexa since June 1998. Since July 1999, Mr. Lee has been a co-founder and Managing Director of Infinity Capital, a venture capital firm. Since 1995, Mr. Lee has been a co-founder and General Partner of Information Technology Ventures, a venture capital firm. Prior to founding Information Technology Ventures, from 1990 to 1994 he served as Vice President of Philadelphia Ventures, a venture capital firm. Mr. Lee serves on the board of directors of E.piphany, a software solutions company, and several privately held companies. Mr. Lee holds a B.S. in electrical engineering from Mississippi State University, an M.E. in electrical engineering from Texas A&M University and an M.B.A. from the Wharton School of the University of Pennsylvania. WILLIAM H. YOUNGER, JR. has served as a Director of Adexa since January 1998. Mr. Younger is a Managing Director of the general partner of Sutter Hill Ventures, a venture capital management firm, which he joined in 1981. Mr. Younger also sits on the board of directors of Vitria, an e-Business platform provider company, Virage, Inc., a software company, and several privately held companies. Mr. Younger holds a B.S., summa cum laude, in electrical engineering from the University of Michigan and an M.B.A. from Stanford University. CHRIS GIVENS has served as Vice President of Product Management of Adexa since October 1997. Prior to joining Adexa, Mr. Givens served as Manager, Logistics Strategy Practice at Andersen Consulting from 1992 to 1997. Prior to his tenure at Andersen Consulting, Mr. Givens was a Consultant for the Transportation and Operations Department at SRI International, formerly Stanford Research Institute, a research company, from 1990 to 1992. Mr. Givens holds a B.S. in mechanical engineering from California State University, Sacramento and an M.S. in industrial engineering from Stanford University. CHRIS SMITH has served as Vice President of Development of Adexa since October 1999. Prior to joining Adexa, Mr. Smith was with Marcam Solutions, Inc., an asset management and ERP solution provider company, as Vice President and General Manager from 1998 to 1999, and as Vice President and Director of Development from 1996 to 1998, and he held several management and technical positions at IBM Canada Software Development Laboratory in Toronto, a software company, from 1981 to 1996. Mr. Smith holds an M.S. in astrophysics from the University of Toronto, Canada. SHUJI SUESHIGE has served as Country and Sales Manager of Japan of Adexa since February 1998. Prior to joining Adexa, Mr. Sueshige was Senior Manager for Global Partners Sales with Informix K.K., a software company, from 1995 until 1998; was a Sales Manager at Tandem Corporation, a computer company, from 1992 to 1995; and was a Sales Manager at Sun Microsystems K.K., a computer company, from 1988 to 1992. Mr. Sueshige holds a B.E. in mechanical engineering from Akashi College of Technology, Japan. 53 RICHARD WOLINSKI has served as Senior Vice President of North American Sales of Adexa since January 1999. Mr. Wolinski served as Regional Vice President of Adexa from April 1998 to January 1999. Prior to joining Adexa, Mr. Wolinski served as Sales Executive of IMI North America, a software company, from 1995 to 1998 and as Divisional Vice President, Client Server Products at Computer Associates, a software company, from 1992 to 1995. BOARD OF DIRECTORS We currently have six authorized director positions and there is currently one vacancy on the board. Upon the completion of the offering, the terms of the office of the board of directors will be divided into three classes: Class I, whose term will expire at the annual meeting of the stockholders to be held in 2001; Class II, whose term will expire at the annual meeting of stockholders to be held in 2002; and Class III, whose term will expire at the annual meeting of stockholders to be held in 2003. The Class I director will be K. Cyrus Hadavi; the Class II directors will be David R. Golob and William W. Lattin; and the Class III directors will be Sam H. Lee and William H. Younger, Jr. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of Adexa. All of our officers serve at the discretion of the board of directors. There are no family relationships among our directors and officers. BOARD COMMITTEES The board of directors has a Compensation Committee and an Audit Committee. COMPENSATION COMMITTEE. The Compensation Committee of the board of directors reviews and makes recommendations to the board of directors regarding all forms of compensation provided to the executive officers and directors of Adexa and our subsidiaries, including stock compensation and loans. In addition, the Compensation Committee reviews and makes recommendations on bonus and stock compensation arrangements for all of our employees. Following this offering, the Compensation Committee will administer our 2000 Stock Incentive Plan. The current members of the Compensation Committee are William W. Lattin, Sam H. Lee and William H. Younger, Jr. AUDIT COMMITTEE. The Audit Committee of the board of directors reviews and monitors the corporate financial reporting and the internal and external audits of our company, including, among other things, our internal audit and control functions, the results and scope of the annual audit and other services provided by our independent auditors and our compliance with legal matters that have a significant impact on our financial reports. The Audit Committee also consults with our management and our independent auditors prior to the presentation of financial statements to stockholders and, as appropriate, initiates inquiries into aspects of our financial affairs. In addition, the Audit Committee has the responsibility to consider and recommend the appointment of, and to review fee arrangements with, our independent auditors. The current members of the Audit Committee are David R. Golob, Sam H. Lee and William H. Younger, Jr. DIRECTOR COMPENSATION AND OTHER ARRANGEMENTS Our directors who are not employees receive no cash payments beyond reimbursement for expenses. Upon and following this offering, directors will be eligible for automatic option grants under our 2000 Stock Incentive Plan. In February 1998, we granted Mr. Golob, one of our directors, an option to purchase 25,000 shares of our common stock at an exercise price of $.15 per share, subject to our repurchase right. In August 2000, when we appointed Mr. Lattin to our board of directors, we granted him an option to purchase 25,000 shares of our common stock at an exercise price of $7.00 per share, subject to our repurchase right. Mr. Golob's options are immediately exercisable, with twenty-five percent vesting after each year of service, provided that as of January 1, 2001 vesting will begin on a monthly basis over the remainder of his four year vesting schedule. Mr. Lattin's options are immediately exercisable, with 54 twenty-five percent vesting after one year and the balance vesting ratably on a monthly basis for thirty-six months thereafter. See "--Employee Stock Plans--2000 Stock Incentive Plan." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of the members of the Compensation Committee is currently or has been, at any time since our formation, an officer or employee of our company. None of our executive officers has served as a member of the board of directors or compensation committee of any entity that has had one or more executive officers serving as a member of our board of directors or Compensation Committee. INDEMNIFICATION In , the board of directors authorized our company to enter into indemnification agreements with each of our directors. The form of indemnity agreement provides that we will indemnify against any and all expenses of the director who incurred these expenses because of his or her status as a director, to the fullest extent permitted by Delaware law, our certificate of incorporation and our bylaws. Our certificate of incorporation and bylaws contain provisions relating to the limitation of liability and indemnification of directors and officers. The certificate of incorporation provides that our directors shall not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability - for any breach of the director's duty of loyalty to Adexa or our stockholders; - for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - in respect of unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; or - for any transaction from which the director derives any improper personal benefit. The certificate of incorporation also provides that if the Delaware General Corporation Law is amended after the approval by our stockholders of the certificate of incorporation to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law. The foregoing provisions of the certificate of incorporation are not intended to limit the liability of directors or officers for any violation of applicable federal securities laws. In addition, as permitted by Section 145 of the Delaware General Corporation Law, our bylaws provide that - we are required to indemnify our directors and executive officers to the fullest extent permitted by the Delaware General Corporation Law; - we may, in our discretion, indemnify other officers, employees and agents as provided by the Delaware General Corporation Law; - to the fullest extent permitted by the Delaware General Corporation Law, we are required to advance all expenses incurred by our directors and executive officers in connection with a legal proceeding, subject to some exceptions; - the rights conferred in the bylaws are not exclusive; - we are authorized to enter into indemnification agreements with our directors, officers, employees and agents; and - we may not retroactively amend the bylaws provisions relating to indemnity. 55 Our bylaws provide that we shall indemnify our directors to the fullest extent permitted by Delaware law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth the compensation earned by our Chief Executive Officer and the two other executive officers who were serving as executive officers of our company during the fiscal year ended December 31, 1999, and whose aggregate compensation exceeded $100,000 for services rendered in all capacities to Adexa and our subsidiaries for that fiscal year. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ------------- ANNUAL COMPENSATION SECURITIES --------------------- UNDERLYING NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS - --------------------------- --------- --------- ------------- K. Cyrus Hadavi ............................................ $156,250 $ 75,000 -- President and Chief Executive Officer Hoon Chung ................................................. 250,000 281,720 -- Chief Operating Officer Udo Dengler ................................................ 148,219 25,000 100,000 Chief Technology Officer
OPTION GRANTS IN LAST FISCAL YEAR The following table contains information concerning the stock option grants made to each of the named officers during the fiscal year ended December 31, 1999. The figures representing percentages of total options granted to employees in the last fiscal year are based on a total of 843,300 option shares granted to our employees under our 1998 Stock Plan during the fiscal year ended December 31, 1999. The amount listed in the column entitled "Exercise Price" is equal to the fair market value of our common stock, as determined by our board of directors on the date of grant. In determining the fair market value, the board of directors considered the purchase price paid by investors for shares of our preferred stock, taking into account the liquidation preferences and other rights, privileges and preferences associated with the preferred stock, and our revenues, operating history and prospects. We calculated the amounts listed in the column entitled "Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term" based on the 10-year term of the option at the time of grant. For purposes of this column, we assumed stock price appreciation of 5% and 10% per year pursuant to rules promulgated by the Securities and Exchange Commission. These rates do not represent a prediction of our stock price performance. We calculated the potential realizable values at 5% and 10% appreciation by assuming that the estimated fair market value on the date of grant increases at the indicated rate for the entire term of the option, that the option is exercised on the last day of its term and that the shares are sold at the appreciated price. Information on how we determined the fair market value of our common stock is provided in the preceding paragraph. The price to the public in this offering is higher than the estimated fair market value on the date of grant. Therefore, the potential realizable value of the option grant would be significantly higher than the numbers shown in the table if future stock prices were projected to the end of the option term by applying the same annual rates of stock price appreciation to the public offering price. 56 No stock appreciation rights were granted to these individuals during the fiscal year ended December 31, 1999.
POTENTIAL REALIZABLE INDIVIDUAL GRANTS VALUE AT ASSUMED ----------------------------------------------------- ANNUAL RATES OF NUMBER OF STOCK SECURITIES % OF TOTAL PRICE APPRECIATION UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ------------------- NAME GRANTED 1999 PER SHARE DATE 5% 10% - ---- ---------- --------------- --------- ---------- -------- -------- K. Cyrus Hadavi......... -- -- -- -- -- -- Hoon Chung.............. -- -- -- -- -- -- Udo Dengler............. 100,000 11.4% $1.95 2/7/09 $122,634 $310,780
The option granted to Mr. Dengler is exercisable at any time following the date of grant with respect to the first 51,282 shares and at any time following January 1, 2000 with respect to the remaining 48,718 shares. All shares subject to this option were fully vested from the date of grant. The option expires before the expiration date shown above if Mr. Dengler's service terminates. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth information concerning the year-end number and value of unexercised options with respect to each of the named officers. No options or stock appreciation rights were exercised by the named officers in fiscal year 1999, and no stock appreciation rights were outstanding at the end of that year.
NUMBER OF SECURITIES UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED HELD AT FISCAL IN-THE-MONEY OPTIONS YEAR END AT FISCAL YEAR END --------------------- ----------------------- NAME UNVESTED VESTED UNVESTED VESTED - ---- --------- --------- ---------- ---------- K. Cyrus Hadavi................................. -- -- -- -- Hoon Chung...................................... 119,564 141,305 $ 358,692 $ 423,915 Udo Dengler..................................... 125,000 1,475,000 375,000 4,425,000
The "Value of Unexercised In-the-Money Options at Fiscal Year End" is based on a value of $3.00 per share, the fair market value of our common stock as of December 31, 1999, as determined by the board of directors, less the per share exercise price, multiplied by the number of shares issued upon exercise of the option. All options were granted under our 1998 Stock Plan. In a letter dated March 3, 1999, we agreed to pay Mr. Dengler cash bonuses when he exercises options that we granted to him in 1998 under our 1998 Stock Plan. The aggregate amount of these bonuses will not exceed $145,000. The bonuses are not reflected in the table above. EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS We have not entered into an employment contract with any of the executive officers named in the summary compensation table above. 57 The options held by Messrs. Chung and Dengler vest on an accelerated basis if we are subject to a change in control and within 12 months after the change in control: - if the optionee is involuntarily discharged without cause, he receives an additional 24 months' vesting credit. - if the optionee resigns because his level of authority or responsibility was significantly reduced and because his compensation was reduced, then he also receives an additional 24 months' vesting credit. - if the optionee resigns because he was asked to relocate his principal place of employment by more than 50 miles, then he receives an additional 12 months' vesting credit. EMPLOYEE STOCK PLANS 2000 STOCK INCENTIVE PLAN SHARE RESERVE. Our board of directors adopted our 2000 Stock Incentive Plan on August 24, 2000. We have reserved 2,000,000 shares of our common stock for issuance under the 2000 Stock Incentive Plan. Any shares not yet issued under our 1998 Stock Plan on the date of this offering will also be available under the 2000 Stock Incentive Plan. On January 1 of each year, starting with the year 2001, the number of shares in the reserve will automatically increase by 5% of the total number of shares of common stock that are outstanding at that time or by 15,000,000 shares, whichever is less. In general, if options or shares awarded under the 2000 Stock Incentive Plan or the 1998 Stock Plan are forfeited, then those options or shares will again become available for awards under the 2000 Stock Incentive Plan. We have not yet granted any options under the 2000 Stock Incentive Plan. ADMINISTRATION. Following the date of this offering the compensation committee of our board of directors will administer the 2000 Stock Incentive Plan. The committee has the complete discretion to make all decisions relating to the interpretation and operation of our 2000 Stock Incentive Plan. The committee has the discretion to determine who will receive an award, what type of award it will be, how many shares will be covered by the award, what the vesting requirements will be, and what the other features and conditions of each award will be. The compensation committee may also reprice outstanding options and modify outstanding awards in other ways. ELIGIBILITY. The following groups of individuals are eligible to participate in the 2000 Stock Incentive Plan: - employees; - members of our board of directors who are not employees; and - consultants. TYPES OF AWARDS. The 2000 Stock Incentive Plan provides for the following types of awards: - incentive stock options to purchase shares of our common stock; - nonstatutory stock options to purchase shares of our common stock; and - restricted shares of our common stock. OPTIONS. An optionee who exercises an incentive stock option may qualify for favorable tax treatment under Section 422 of the Internal Revenue Code of 1986. Nonstatutory stock options, however, do not qualify for such favorable tax treatment. The exercise price for incentive stock options granted under the 2000 Stock Incentive Plan may not be less than 100% of the fair market value of our common stock on the option grant date. In the case of nonstatutory stock options, the minimum exercise price is 50% of the fair 58 market value of our common stock on the option grant date. Optionees may pay the exercise price by using: - cash; - shares of common stock that the optionee already owns; - a full-recourse promissory note; - an immediate sale of the option shares through a broker designated by us; or - a loan from a broker designated by us, secured by the option shares. Options vest at the time or times determined by the compensation committee. In most cases, our options vest over the four-year period following the date of grant. Options generally expire 10 years after they are granted, except that they generally expire earlier if the optionee's service terminates earlier. The 2000 Stock Incentive Plan provides that no participant may receive options covering more than 2,000,000 shares in the same year, except that a newly hired employee may receive options covering up to 4,000,000 shares in the first year of employment. RESTRICTED SHARES. Restricted shares may be awarded under the 2000 Stock Incentive Plan in return for: - cash; - a full-recourse promissory note; or - services provided to us or to be provided to us. Restricted shares vest at the time or times determined by the compensation committee. CHANGE IN CONTROL. If a change in control of Adexa occurs, an option or restricted stock award under the 2000 Stock Incentive Plan may vest on an accelerated basis to the extent determined by the compensation committee. The compensation committee may determine that outstanding grants will vest in full or in part at the time of the change in control. It may also determine that the grants will vest on an accelerated basis only if the participant is actually or constructively discharged within a specified period of time after the change in control. Finally, the committee may determine that the grants will remain outstanding without acceleration of vesting. However, if the surviving corporation fails to assume an outstanding option or replace it with a comparable option, then the option will always become fully vested as a result of the change in control. A change in control includes: - a merger of Adexa after which our own stockholders own 50% or less of the surviving corporation or its parent company; - a sale of all or substantially all of our assets; - a proxy contest that results in the replacement of at least one-half of our directors over a 24-month period; or - an acquisition of 50% or more of our outstanding stock by any person or group, other than a person related to Adexa, such as a holding company owned by our stockholders. AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. Each non-employee director who first joins our board after the effective date of this offering will receive an initial option for 25,000 shares. That grant will occur when the director takes office. The initial options vest in equal annual installments over the four-year period following the date of grant. At the time of each of our annual stockholders' meetings, beginning in 2001, each non-employee director who will continue to be a director after that meeting will automatically be granted an annual option for 6,000 shares of our common stock. However, a new non-employee director who is receiving the 25,000-share initial option will not receive the 6,000-share annual option in the same 59 calendar year. The annual options vest in full one year following the date of grant. The exercise price of each non-employee director's option will be equal to the fair market value of our common stock on the option grant date. A director may pay the exercise price by using cash, shares of common stock that the director already owns, or an immediate sale of the option shares through a broker designated by us. The non-employee directors' options expire after 10 years, or one year after a director leaves the board, whichever is earlier. A non-employee director's option granted under the 2000 Stock Incentive Plan will become fully vested if a change in control of Adexa occurs and the director does not serve on the board of the surviving corporation for at least 12 months. Vesting also accelerates in the event of the director's death, disability or retirement after age 65. AMENDMENTS OR TERMINATION. Our board may amend or terminate the 2000 Stock Incentive Plan at any time. If our board amends the plan, it does not need to ask for stockholder approval of the amendment unless applicable law requires it. The 2000 Stock Incentive Plan will continue in effect indefinitely, unless the board decides to terminate the plan. 2000 EMPLOYEE STOCK PURCHASE PLAN SHARE RESERVE AND ADMINISTRATION. Our board of directors adopted our 2000 Employee Stock Purchase Plan on August 24, 2000. Our 2000 Employee Stock Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code. We have reserved 750,000 shares of our common stock for issuance under the plan. On May 1 of each year, starting with the year 2001, the number of shares in the reserve will be increased by the number of shares that have been issued under the 2000 Employee Stock Purchase Plan during the prior 12-month period. The compensation committee of our board of directors will administer the plan. ELIGIBILITY. All of our employees are eligible to participate if we employ them for more than 20 hours per week and for more than five months per year. Eligible employees may begin participating in the 2000 Employee Stock Purchase Plan at the start of any offering period. Each offering period lasts 24 months. Overlapping offering periods start on May 1 and November 1 of each year. However, the first offering period will start on the effective date of this offering and end on October 31, 2002. AMOUNT OF CONTRIBUTIONS. Our 2000 Employee Stock Purchase Plan permits each eligible employee to purchase common stock through payroll deductions. Each employee's payroll deductions may not exceed 15% of the employee's salary, bonus and commissions. Purchases of our common stock will occur on April 30 and October 31 of each year. Each participant may purchase up to 5,000 shares on any purchase date, but no more than 10,000 shares per year. The value of the shares purchased in any calendar year, measured as of the beginning of the applicable offering period, may not exceed $25,000. PURCHASE PRICE. The price of each share of common stock purchased under our 2000 Employee Stock Purchase Plan will be 85% of the lower of: - the fair market value per share of common stock on the date immediately before the first day of the applicable offering period, or - the fair market value per share of common stock on the purchase date. In the case of the first offering period, the price per share under the plan will be 85% of the lower of: - the price per share to the public in this offering, or - the fair market value per share of common stock on the purchase date. OTHER PROVISIONS. Employees may end their participation in the 2000 Employee Stock Purchase Plan at any time. Participation ends automatically upon termination of employment with Adexa. If a change in control of Adexa occurs, our 2000 Employee Stock Purchase Plan will end and shares will be purchased with the payroll deductions accumulated to date by participating employees, unless the surviving corporation or its parent assumes the plan. Our board of directors may amend or terminate the plan at any time. If our board increases the number of shares of common stock reserved for issuance under the plan, except for the automatic increases described above, it must seek the approval of our stockholders. The 2000 Employee Stock Purchase Plan will continue in effect for 20 years, unless the board decides to terminate the plan earlier. 60 RELATED PARTY TRANSACTIONS EQUITY FINANCINGS Since our inception we have financed our growth primarily through the sale of preferred stock, resulting in the issuance of an aggregate of 4,130,170 shares of Series A convertible preferred stock at a purchase price of $1.18 per share, 2,492,424 shares of Series B convertible preferred stock at a purchase price of $3.30 per share, and 1,574,801 shares of Series C redeemable convertible preferred stock at a purchase price of $12.70 per share. The buyers of our Series A convertible preferred stock, Series B convertible preferred stock and Series C redeemable convertible preferred stock included the following directors, executive officers and 5% stockholders.
SHARES OF PREFERRED STOCK -------------------------------- SERIES A SERIES B SERIES C --------- --------- -------- DIRECTORS William H. Younger, Jr.(1).................................. 276,086 24,922 8,287 William W. Lattin........................................... 42,356 -- -- ENTITIES AFFILIATED WITH DIRECTORS AND 5% STOCKHOLDERS Entities Associated with Sutter Hill Ventures(2)............ 3,160,750 283,469 108,709 Entities Associated with Information Technology Ventures(3)............................................... -- 1,818,182 59,055
- ------------------------ (1) Includes investments made by Sutter Hill Associates which will have been distributed to its partners prior to the date of this offering. (2) William H. Younger, Jr., one of our directors, is a managing director of the general partner of venture funds associated with Sutter Hill Ventures. (3) Sam H. Lee, one of our directors, is a managing member of venture funds associated with Information Technology Ventures. On August 24, 2000, we sold an aggregate of 1,574,801 shares of our Series C redeemable convertible preferred stock at a price of $12.70 per share to a group of investors including J. & W. Seligman & Co., Amerindo Investment Advisors, Vitria Technology, Inc., entities associated with Sutter Hill Ventures, Information Technology Ventures II, L.P. and DRW Venture Partners L.P., an affiliate of Dain Rauscher Incorporated, one of the underwriters of this offering. This sale of our Series C redeemable convertible preferred stock yielded gross proceeds to us of approximately $20.0 million. The Series C redeemable convertible preferred stock will convert into shares of our common stock upon the consummation of this offering. William H. Younger, Jr., one of our directors, is a member of the board of directors of Vitria Technology, Inc. AGREEMENTS WITH DIRECTORS AND OFFICERS AND INDEBTEDNESS OF MANAGEMENT We made a loan of $200,000 to K. Cyrus Hadavi, our President and Chief Executive Officer, evidenced by a promissory note dated July 31, 1997. The loan is secured by a pledge of 1,694,920 shares of our common stock owned by Dr. Hadavi. We have no recourse against other assets of Dr. Hadavi. The loan bears interest at the rate of 5% per year and is payable in full on or before July 31, 2002. In 1998, we offset a $30,000 debt that we owed to Dr. Hadavi against the loan, reducing the loan balance to $170,000. The highest outstanding balance since January 1999 including accrued interest was $178,500. As of June 30, 2000, the loan balance including accrued interest was $174,250. We made an unsecured loan of $300,000 to Udo Dengler, our Chief Technology Officer, evidenced by a promissory note dated May 19, 2000. The loan bears interest at the rate of 5% per year and is payable in 61 full on or before May 19, 2008 or, if earlier, when Mr. Dengler's employment terminates. As of June 30, 2000, the loan balance including accrued interest was $301,708. In addition, we have granted options and other arrangements to attract, retain and provide incentive to our directors and executive officers. These transactions are described in "Management." INDEMNIFICATION We have entered into an indemnification agreement with each of our directors. See "Management--Indemnification" for a description of the indemnification available to our officers and directors under our Certificate of Incorporation, to be effective after the closing of this offering, and our bylaws. We believe that all of the transactions presented above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. All future transactions, including loans between us and our officers, directors, principal stockholders and their affiliates will be approved by a majority of the board of directors, including a majority of the independent and disinterested outside directors on the board of directors, and will continue to be on terms no less favorable to us than could be obtained from unaffiliated third parties. 62 PRINCIPAL STOCKHOLDERS The table below presents selected information regarding beneficial ownership of our outstanding common stock as of August 24, 2000, and as adjusted to reflect the sale of common stock being sold in this offering by us, for the following individuals: - each person who is known by us to own beneficially more than 5% of our common stock, - each of our directors, - our chief executive officer and our three other highest-paid executive officers, and - all of our executive officers and directors as a group. The information below assumes no exercise of the underwriters' over-allotment option and is based upon 18,912,431 shares outstanding prior to the offering and shares outstanding after the offering. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Common stock subject to options currently exercisable within 60 days of August 24, 2000 is deemed outstanding for purposes of computing the percentage ownership of the person holding the option but is not deemed outstanding for purposes of computing the percentage ownership of any other person. Except where indicated, and subject to community property laws where applicable, the persons in the table above have sole voting and investment power with respect to all common stock shown as beneficially owned by them. Unless otherwise indicated, the address of each of the individuals listed in the table is c/o Adexa, Inc., 5933 West Century Boulevard, Twelfth Floor, Los Angeles, CA 90045.
PERCENT BENEFICIALLY OWNED ------------------- TOTAL NUMBER OF BEFORE AFTER NAME AND ADDRESS SHARES OFFERING OFFERING - ---------------- --------------- -------- -------- NAMED EXECUTIVE OFFICERS AND DIRECTORS: K. Cyrus Hadavi(1)..................................... 8,700,000 46.0% Udo Dengler(2)......................................... 1,605,000 7.8 Hoon Chung(3).......................................... 560,869 2.9 J. Timothy Romer(4).................................... 175,000 * David R. Golob......................................... 33,474 * William W. Lattin(5)................................... 67,356 * Sam H. Lee(6).......................................... 1,877,237 9.9 William H. Younger, Jr.(7)............................. 3,552,928 18.8 All directors and officers as a group(8 persons)(8).... 16,571,864 77.8 OTHER 5% SHAREHOLDERS: Funds affiliated with Sutter Hill Ventures(9).......... 3,552,928 18.8 755 Page Mill Road Suite A-200 Palo Alto, CA 94304 Funds affiliated with Information Technology Ventures(10)......................................... 1,877,237 9.9 100 Hamilton Avenue Suite 400 Palo Alto, CA 94301 Kameron Hadavi......................................... 1,000,000 5.3
- ------------------------ * Represents beneficial ownership of less than 1% of the outstanding shares of our common stock. 63 (1) Includes 435,000 shares owned by the S. Hadavi Trust, 435,000 shares owned by the C. Hadavi Trust, 50,000 shares owned by the R. S. Hadavi Trust, and 50,000 shares owned by the R. C. Hadavi Trust. (2) Includes 1,600,000 shares subject to options that are exercisable within 60 days of August 24, 2000. Also includes 5,000 shares subject to options that are exercisable within 60 days of August 24, 2000, that are owned by Mr. Dengler's wife, Cordula Dengler. (3) Includes 560,869 shares subject to options that are exercisable within 60 days of August 24, 2000. (4) Includes 175,000 shares subject to options that are exercisable within 60 days of August 24, 2000. (5) Includes 25,000 shares subject to options that are exercisable within 60 days of August 24, 2000. (6) Includes 1,808,380 shares owned by Information Technology Ventures II, L.P., and 68,857 shares owned by ITV Affiliates Fund II, L.P. Mr. Lee, a managing member of each of these entities, disclaims beneficial ownership in such shares, except to the extent of his pecuniary interest in each of the limited partnerships. (7) Includes 2,224,837 shares owned by Sutter Hill Ventures, 22,005 shares owned by Sutter Hill Entrepreneurs Fund (AI), LP, 55,716 shares owned by Sutter Hill Entrepreneurs Fund (QP), LP, and 1,250,370 shares held by other parties affiliated with Sutter Hill Ventures, including 309,295 shares held by William H. Younger Jr., Trustee, The Younger Living Trust. Mr. Younger is a managing director of the general partner of Sutter Hill Ventures and disclaims beneficial ownership of the shares held by these entities except to the extent of his proportionate partnership interest therein. (8) Includes 2,395,369 shares subject to options that are exercisable within 60 days of August 24, 2000. (9) Includes 2,224,837 shares owned by Sutter Hill Ventures, 22,005 shares owned by Sutter Hill Entrepreneurs Fund (AI), LP, 55,716 shares owned by Sutter Hill Entrepreneurs Fund (QP), LP, and 1,250,370 shares held by other parties affiliated with Sutter Hill Ventures. Sutter Hill Ventures disclaims voting power and beneficial ownership to the shares held by its affiliated parties. (10) Includes 1,808,380 shares owned by Information Technology Ventures II, L.P., and 68,857 shares owned by ITV Affiliates Fund II, L.P. 64 DESCRIPTION OF CAPITAL STOCK On the closing of this offering, our authorized capital stock will consist of 125,000,000 shares of common stock, no par value, and 10,000,000 shares of preferred stock, no par value. COMMON STOCK As of August 24, 2000, there were 18,912,431 shares of common stock outstanding that were held of record by approximately 89 stockholders after giving effect to the conversion of our preferred stock into common stock on a one-for-one basis. As of August 24, 2000, there were 5,082,143 shares of common stock subject to outstanding options, all of which are currently exercisable. There will be shares of common stock outstanding after giving effect to the sale of the shares of common stock to the public offered by us and the conversion of our preferred stock into common stock on a one-for-one basis, assuming no exercise of the underwriters' over-allotment option and assuming no exercise after August 24, 2000 of outstanding options or warrants. The holders of common stock are entitled to one vote per share on all matters to be voted on by the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for that purpose. In the event of our liquidation, dissolution, or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be issued on completion of this offering will be fully paid and nonassessable. PREFERRED STOCK On the closing of this offering, 10,000,000 shares of preferred stock will be authorized and no shares will be outstanding. The board of directors has the authority to issue the preferred stock in one or more series and to fix their rights, preferences, privileges and restrictions, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of the series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of us without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others. At present, we have no plans to issue any of our preferred stock. REGISTRATION RIGHTS After this offering, the holders of approximately 18,425,407 shares of common stock and rights to acquire common stock will be entitled to various rights with respect to the registration of those shares under the Securities Act. Under the terms of the agreement between us and the holders of these registrable securities, if we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, these holders are entitled to notice of any registration and may be entitled to include their shares of common stock in that registration. Additionally, these holders are also entitled to demand registration rights, which may require us on up to two occasions to file a registration statement under the Securities Act at our expense with respect to their shares of common stock, and we are required to use all reasonable efforts to effect registration of those shares. 65 Further, these holders may require us to file an unlimited number of additional registration statements on Form S-3 at our expense. All of these registration rights terminate upon the earlier of (i) five (5) years following the consummation of our initial public offering, or (ii) after we have completed our initial public offering, the date on which the holder holds less than one percent of our outstanding common stock and the holder may sell all of its registrable securities under Rule 144 in any ninety day period. All of these registration rights are subject to various conditions and limitations, among them the right of the underwriters of an offering to limit the number of shares included in any registration and our right not to effect a requested registration within 180 days following the initial offering of our securities. ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW GENERAL. Provisions of Delaware law and our certificate of incorporation and bylaws could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from acquiring, control of us. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions of Delaware law and the certificate of incorporation and bylaws may also have the effect of discouraging or preventing transactions involving an actual or threatened change of control of us, including unsolicited takeover attempts, even though such a transaction may offer our stockholders the opportunity to sell their stock at a price above the prevailing market price. DELAWARE TAKEOVER STATUTE. We are subject to the "business combination" provision of Section 203 of the Delaware General Corporation Law. Subject to exceptions, Section 203 prohibits a publicly-held Delaware corporation, including those whose securities are listed on the Nasdaq National Market, from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless: - the transaction is approved by the board of directors prior to the date the interested stockholder obtained interested stockholder status; - upon consummation of the transaction that resulted in the stockholders becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (a) persons who are directors and also officers and (b) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - on or subsequent to the date the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. A "business combination" includes mergers, asset sales and other transactions resulting in a financial benefit to the interested stockholder. Subject to exceptions, an "interested stockholder" is a person who, together with affiliates and associates, owns, or within three years did own, 15% or more of the corporation's voting stock. This statute could prohibit or delay the accomplishment of mergers or other takeover or change in control attempts with respect to us and, accordingly, may discourage attempts to acquire us. A Delaware corporation may "opt out" of DGCL Section 203 with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or bylaws resulting from amendments approved by the holders of at least a majority of the corporation's outstanding voting shares. We have not "opted out" of the provisions of DGCL Section 203. CERTIFICATE OF INCORPORATION AND BYLAWS. Provisions of the bylaws and the amended and restated certificate of incorporation provide that the stockholders may amend the bylaws or provisions of the amended and restated certificate of incorporation only with the affirmative vote of two thirds of our capital 66 stock. These provisions of the amended and restated certificate of incorporation and bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of Adexa. These provisions are intended to enhance the likelihood of continuity and stability in the composition of the board of directors and in the policies formulated by the board of directors and to discourage some types of transactions that may involve an actual or threatened change of control of Adexa. These provisions are designed to reduce our vulnerability to an unsolicited acquisition proposal. The provisions also are intended to discourage tactics that may be used in proxy fights. However, these provisions could have the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of our shares that could result from actual or rumored takeover attempts. These provisions also may have the effect of preventing changes in our management. CLASSIFIED BOARD OF DIRECTORS. Our board will be divided into three classes of directors serving staggered three-year terms. As a result, approximately one-third of the board of directors will be elected each year. These provisions are likely to increase the time required for stockholders to change the composition of our board of directors. For example, in general at least two annual meetings will be necessary for stockholders to effect a change in the majority of our board of directors. Subject to the rights of the holders of any outstanding series of preferred stock, the certificate of incorporation authorizes only the board of directors to fill vacancies, including newly created directorships. The certificate of incorporation also provides that directors may be removed by stockholders only for cause and only by affirmative vote of holders of two-thirds of the outstanding shares of voting stock. STOCKHOLDER ACTION; SPECIAL MEETING OF STOCKHOLDERS. The certificate of incorporation provides that stockholders may not take action by written consent, but may only take action at duly called annual or special meetings of stockholders. The certificate of incorporation further provides that special meetings of our stockholders may be called only by the chairman of the board of directors or a majority of the board of directors. This limitation on the right of stockholders to call a special meeting could make it more difficult for stockholders to initiate actions that are opposed by the board of directors. These actions could include the removal of an incumbent director or the election of a stockholder nominee as a director. They could also include the implementation of a rule requiring stockholder ratification of specific defensive strategies that have been adopted by the board of directors with respect to unsolicited takeover bids. In addition, the limited ability of the stockholders to call a special meeting of stockholders may make it more difficult to change the existing board and management. AUTHORIZED BUT UNISSUED SHARES. The authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder approval. These additional shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise. NASDAQ NATIONAL MARKET LISTING We have requested approval to list our common stock on The Nasdaq Stock Market's National Market under the symbol "ADXA." TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the common stock is , and its telephone number is . 67 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, we will have shares of common stock outstanding assuming no exercise of the underwriters' over-allotment option and no exercise of options after August 24, 2000. Of this amount, all of the shares offered by us in this offering will be available for immediate sale in the public market as of the date of this prospectus, other than shares purchased by our "affiliates," as that term is defined in Rule 144 under the Securities Act. This leaves 18,912,431 shares eligible for sale into the public market as follows: ELIGIBILITY OF SHARES FOR SALE IN THE PUBLIC MARKET
APPROXIMATE SHARES ELIGIBLE FOR RELEVANT DATES FUTURE SALE COMMENT - -------------- -------------- ------------------------------------- On effective date.................... Freely tradable shares sold in offering and shares salable under Rule 144(k) that are not subject to 180-day lock-up 180 days after effective date........ 17,337,630 Lock-up and market stand-off provisions released; additional shares salable under Rule 144, 144(k) or 701 More than 180 days after effective 1,574,801 Additional shares salable under Rule date............................... 144 more than 180 days after the effective date
LOCK-UP AGREEMENTS AND MARKET STAND-OFF PROVISIONS All or substantially all of our employees, directors and stockholders are subject to lock-up agreements or market stand-off provisions under which they have agreed not to transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock, for a period of 180 days after the date of this prospectus. Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated may, however, in their sole discretion, at any time, without notice, release all or any portion of the shares subject to lock-up agreements to which they are parties. However, we may, without their consent, grant options and sell shares pursuant to our stock plans. RULE 144 In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned shares for at least one year is entitled to sell within any three-month period commencing 90 days after the date of this prospectus a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of common stock (approximately shares immediately after the offering) or (ii) the average weekly trading volume during the four calendar weeks preceding that sale, subject to the filing of a Form 144 with respect to that sale. A person (or persons whose shares are aggregated) who is not deemed to have been one of our affiliates at any time during the 90 days immediately preceding the sale who has beneficially owned his or her shares for at least two years is entitled to sell their shares pursuant to Rule 144(k) without regard to the limitations described above. Persons deemed to be affiliates must always sell pursuant to Rule 144, even after the applicable holding periods have been satisfied. We are unable to estimate the number of shares that will be sold under Rule 144, since this will depend on the market price for our common stock, the personal circumstances of the sellers, and other factors. Prior to this offering, there has been no public market for the common stock, and there can be no 68 assurance that a significant public market for the common stock will develop or be sustained after the offering. Any future sale of substantial amounts of the common stock in the open market may adversely affect the market price of the common stock sold in this offering. RULE 701 Some of our employees or consultants who purchased their shares under the 1998 Stock Plan or pursuant to a written compensatory plan or contract are entitled to rely on the resale provisions of Rule 701, which permits nonaffiliates to sell their Rule 701 shares without having to comply with the public information, holding period, volume limitation or notice provisions of Rule 144 and permits affiliates to sell their Rule 701 shares without having to comply with the Rule 144 holding period restrictions, in each case commencing 90 days after the date of this prospectus. REGISTRATION OF SHARES ISSUED UNDER OUR EMPLOYEE BENEFIT PLANS As of August 24, 2000, options to purchase 5,082,143 shares of our common stock were issued and outstanding. No shares have been issued to date under our 2000 Stock Employee Stock Purchase Plan. We intend to file a registration statement on Form S-8 under the Securities Act to register 2,750,000 shares of common stock subject to outstanding stock options or reserved for issuance under the 2000 Stock Incentive Plan and the 2000 Employee Stock Purchase Plan within 180 days after the date of this prospectus. We also intend to file a registration statement on Form S-8 to register approximately 49,750 shares of common stock subject to outstanding stock options or reserved for issuance under the 1998 Stock Plan. These registration statements will permit the resale of these shares by nonaffiliates in the public market without restriction under the Securities Act. REGISTRATION RIGHTS After this offering, the holders of approximately 18,425,407 shares of our common stock and rights to acquire common stock, or their transferees, will be entitled to rights with respect to registration of their shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act (except for shares purchased by our affiliates) immediately upon the effectiveness of their registration. See "Description of Capital Stock--Registration Rights" for a more complete description of these registration rights. 69 UNDERWRITING Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as joint bookrunners, and Dain Rauscher Incorporated are the representatives of the underwriters. As joint bookrunners, Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated will have shared responsibility for managing this offering. Subject to the terms and conditions of the underwriting agreement, the underwriters named below, through their representatives, have severally agreed to purchase from us the following respective numbers of shares of common stock.
NUMBER UNDERWRITERS OF SHARES - ------------ --------- Chase Securities Inc........................................ Merrill Lynch, Pierce, Fenner & Smith Incorporated...................................... Dain Rauscher Incorporated.................................. ------ Total................................................... ======
The underwriting agreement provides that the obligations of the underwriters are subject to conditions precedent, including the absence of any material adverse change in our business and the receipt of various certificates, opinions and letters from us, our counsel and the independent auditors. The underwriters are committed to purchase all of the shares offered by us if they purchase any shares. The following table shows the per share and total underwriting discounts and commissions we will pay to the underwriters in connection with this offering. Such amounts are shown assuming both no exercise and full exercise of the underwriters' over allotment option to purchase additional shares.
PAID BY ADEXA ------------------- NO FULL EXERCISE EXERCISE -------- -------- Per Share............................................... $ $ Total................................................... $ $
We estimate that the total expenses of this offering, excluding underwriting discounts and commissions, will be approximately $ million. The underwriters propose to offer the shares directly to the public at the initial public offering price set forth on the cover page of this prospectus and to various dealers at that price less a concession not in excess of $ per share. The underwriters may allow and such dealers may re-allow a concession not in excess of $ per share to various other dealers. If all of the shares are not sold at the initial public offering price, the representatives may change the offering price and other selling terms. We have granted to the underwriters an option, exercisable no later than 30 days after the date of this prospectus, to purchase up to additional shares of common stock at the initial public offering price, less the underwriting discount set forth on the cover page of the prospectus. To the extent that the underwriters exercise this option, each of the underwriters will have a firm commitment to purchase approximately the same percentage of these option shares which the number of shares of common stock to be purchased by it shown in the above table bears to the total number of shares of common stock offered by this prospectus. We will be obligated, pursuant to this option, to sell shares to the underwriters to the extent the option is exercised. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of shares of common stock in this offering. 70 The offering of the shares is made for delivery when, as and if accepted by the underwriters and subject to prior sale and to withdrawal, cancellation or modification of the offering without notice. The underwriters reserve the right to reject an order for the purchase of shares in whole or in part. We have agreed to indemnify the underwriters against liabilities specified in the underwriting agreement, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect of these liabilities. Our officers and directors and all or substantially all of our stockholders have agreed that they will not, without the prior written consent of Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, directly or indirectly, offer, sell, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of any shares of capital stock, options or warrants to acquire shares of capital stock or securities exchangeable for or convertible into shares of capital stock owned by them or any other rights to purchase or acquire capital stock for a period of 180 days following the effective date of the registration statement that includes this prospectus. We have agreed that we will not, without the prior written consent of Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, offer, sell or otherwise dispose of any shares of capital stock, options or warrants to acquire shares of capital stock or securities exchangeable for or convertible into shares of capital stock for a period of 180 days following the date of this prospectus, except that we may issue shares upon the exercise of options granted prior to the date of this prospectus and may grant additional options or sell additional shares under our stock option or stock purchase plans. Without the prior written consent of Chase Securities Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, any additional options granted shall not be exercisable during this 180-day period. In connection with this offering, the underwriters may effect transactions that could have the effect of raising or maintaining, or preventing or retarding a decline in, the market price of our shares. As a result, the price of our shares may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise. In particular, the underwriters may make short sales of our shares and may purchase our shares on the open market to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. Covered short sales are sales made in an amount not greater than the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Naked short sales are sales in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in this offering. In addition, an underwriter may enter a stabilizing bid in connection with the offering, which is the placing of any bid or effecting of any purchase, for the purposes of pegging, fixing or maintaining the price of the shares. The underwriters may also impose penalty bids, which permit them to reclaim the selling concession from a syndicate member when shares sold by the syndicate member are purchased in syndicate covering transactions. Any stabilizing, if commenced, may be discontinued at any time. The underwriters do not intend to confirm sales to accounts over which they exercise discretionary authority that exceed 5% of the total number of shares of common stock offered by them. Prior to this offering, there has been no public market for our shares. The initial public offering price for the shares will be determined by negotiations among us and the representatives. Among the factors considered in determining the initial public offering will be prevailing market and economic conditions, 71 our revenue, the prospects for our future earnings, market valuations of other companies engaged in activities similar to our business operations and our management. The estimated initial public offering price range set forth on the cover of this preliminary prospectus is subject to change as a result of market conditions or other factors. At our request, the underwriters have reserved up to shares of common stock for sale at the initial public offering price to our directors, officers, employees, business associates and related persons. The number of shares of common stock available for sale to the general public will be reduced if such persons purchase the reserved shares. Any reserved shares which are not so purchased may be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. As of August 24, 2000, we sold 1,574,801 shares of our Series C redeemable convertible preferred stock in a private placement at a price of $12.70 per share. In this private placement, DRW Venture Partners L.P., an affiliate of Dain Rauscher Incorporated, one of the underwriters of this offering, purchased 59,055 shares of Series C redeemable convertible preferred stock, all on the same terms as the other investors in the private placement. LEGAL MATTERS Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, Menlo Park, California will pass upon the validity of the common stock in this offering for Adexa. Simpson Thacher & Bartlett, New York, New York, will pass upon legal matters in connection with this offering for the underwriters. As of the date of this prospectus, some members and employees of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP beneficially owned an aggregate of 7,259 shares of our stock. EXPERTS The financial statements included in this prospectus and the related financial statement schedule included elsewhere in the registration statement have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing herein and elsewhere in the registration statement, and are included in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. 72 ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, a registration statement on Form S-1 under the Securities Act relating to the common stock offered by us. This prospectus does not contain all of the information presented in the registration statement and the exhibits and schedules to the registration statement. For further information about Adexa and the common stock that we are offering, reference is made to the registration statement and the exhibits and schedules filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document referred to are not necessarily complete and summarize only the provisions of these documents that are material to investors. You should refer to the exhibits to this registration statement for the complete contents of these contracts and documents. Each statement is qualified by reference to that exhibit. The registration statement, including the exhibits and schedules, may be inspected without charge at the public reference facilities maintained by the Securities and Exchange Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part of the document may be obtained from that office after payment of fees prescribed by the Securities and Exchange Commission. The Securities and Exchange Commission maintains a world wide Web site that contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the Securities and Exchange Commission at http://www.sec.gov. 73 ADEXA INDEX TO FINANCIAL STATEMENTS
PAGE -------- Independent Auditors' Report................................ F-2 Consolidated Balance Sheets as of December 31, 1998 and 1999 and June 30, 2000......................................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1998 and 1999, and the Six Months Ended June 30, 1999 (unaudited) and June 30, 2000............................................. F-4 Consolidated Statement of Stockholders Equity (Deficit) for the Years Ended December 31, 1997, 1998 and 1999, and the Six Months Ended June 30, 2000............................ F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999, and the Six Months Ended June 30, 1999 (unaudited) and June 30, 2000............... F-6 Notes to Financial Statements............................... F-7
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders Adexa, Inc.: We have audited the accompanying consolidated balance sheets of Adexa, Inc. and subsidiaries (the "Company") as of December 31, 1998 and 1999 and June 30, 2000, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1999 and the six months ended June 30, 2000. 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 auditing standards generally accepted in the United States of America. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 1998 and 1999 and June 30, 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 and the six months ended June 30, 2000 in conformity with accounting principles generally accepted in the United States of America. /s/ DELOITTE & TOUCHE LLP Los Angeles, California August 24, 2000 F-2 ADEXA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1999 AND JUNE 30, 2000
DECEMBER 31, JUNE 30, 2000 --------------------------- --------------------------- 1998 1999 ACTUAL PRO FORMA ------------ ------------ ------------ ------------ (UNAUDITED) ASSETS Current Assets: Cash and cash equivalents.............................. $ 1,285,736 $ 6,231,569 $ 3,604,492 $ 23,604,465 Short-term investments................................. 3,138,292 Accounts receivable, net of allowance for doubtful accounts of $480,000, $528,000, and $863,771 as of December 31, 1998 and 1999 and June 30, 2000......... 2,327,548 4,448,375 9,521,793 9,521,793 Prepaid and other current assets....................... 110,412 189,306 420,439 420,439 ------------ ------------ ------------ ------------ Total current assets............................. 6,861,988 10,869,250 13,546,724 33,546,697 ------------ ------------ ------------ ------------ Property and Equipment, Net.............................. 997,220 1,149,455 1,840,498 1,840,498 Loans Receivable from Related Parties.................... 226,500 214,556 510,306 510,306 Other Assets............................................. 96,469 113,749 163,712 163,712 ------------ ------------ ------------ ------------ Total Assets............................................. $ 8,182,177 $ 12,347,010 $ 16,061,240 $ 36,061,213 ============ ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Line of credit......................................... $ 2,100,000 $ 5,000,000 $ 1,063,225 $ 1,063,225 Accounts payable....................................... 212,551 969,321 2,333,914 2,333,914 Accrued wages and related liabilities.................. 742,308 2,393,372 2,741,477 2,741,477 Accrued expenses and other current liabilities......... 110,370 1,139,069 2,780,705 2,780,705 Accrued taxes payable.................................. 1,440,870 1,841,633 1,841,633 Deferred revenues...................................... 781,482 2,012,149 7,881,619 7,881,619 Current portion of capital lease obligations........... 109,428 123,286 155,030 155,030 ------------ ------------ ------------ ------------ Total current liabilities........................ 4,056,139 13,078,067 18,797,603 18,797,603 ------------ ------------ ------------ ------------ Capital Lease Obligations................................ 237,951 117,406 176,811 176,811 ------------ ------------ ------------ ------------ Total Liabilities........................................ 4,294,090 13,195,473 18,974,414 18,974,414 ------------ ------------ ------------ ------------ Commitments and Contingencies Stockholders' Equity (Deficit): Series A preferred stock, no par value; 4,358,186 shares authorized; 4,130,170 shares issued and outstanding as of December 31, 1998 and 1999 and June 30, 2000; no shares issued and outstanding as of June 30, 2000 (unaudited pro forma).................. 4,283,838 4,283,838 4,283,838 Series B preferred stock, no par value; 2,900,000 shares authorized; 2,492,424 shares issued and outstanding as of December 31, 1998 and 1999 and June 30, 2000; no shares issued and outstanding as of June 30, 2000 (unaudited pro forma).................. 8,125,738 8,125,738 8,125,738 Undesignated preferred stock, no par value; 10,000,000 shares authorized, no shares issued and outstanding as of June 30, 2000 (unaudited pro forma)............ Common stock, no par value; 23,000,000 shares authorized as of December 31, 1998 and 1999 and June 30, 2000, 125,000,000 shares authorized (unaudited pro forma); 10,000,000, 10,460,161, and 10,715,036 shares issued and outstanding as of December 31, 1998 and 1999 and June 30, 2000, respectively; 18,912,431 shares issued and outstanding as of June 30, 2000 (unaudited pro forma)............................................... 78,500 154,149 308,480 32,718,029 Additional paid-in capital............................. 2,249,041 2,531,090 8,114,188 16,459,542 Unearned stock-based compensation...................... (654,106) (683,092) (5,407,362) (5,407,362) Accumulated deficit.................................... (10,074,705) (15,260,186) (18,338,056) (26,683,410) Accumulated other comprehensive loss................... (120,219) ------------ ------------ ------------ ------------ Total stockholders' equity (deficit)............. 3,888,087 (848,463) (2,913,174) 17,086,799 ------------ ------------ ------------ ------------ Total Liabilities and Stockholder's Equity............... $ 8,182,177 $ 12,347,010 $ 16,061,240 $ 36,061,213 ============ ============ ============ ============
See accompanying notes to consolidated financial statements. F-3 ADEXA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND JUNE 30, 2000
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------- ------------------------- 1999 1997 1998 1999 (UNAUDITED) 2000 ---------- ----------- ----------- ----------- ----------- Revenues: License revenues............................... $3,734,725 $ 4,840,992 $16,092,786 $ 5,577,785 $13,336,173 Service revenues............................... 2,034,664 2,251,411 5,174,889 2,489,289 5,958,357 Maintenance revenues........................... 415,961 1,020,223 2,393,057 793,247 2,414,570 ---------- ----------- ----------- ----------- ----------- Total revenues........................... 6,185,350 8,112,626 23,660,732 8,860,321 21,709,100 ---------- ----------- ----------- ----------- ----------- Cost of Revenues: Cost of revenues (excluding stock-based compensation)................................ 1,887,358 4,982,494 6,006,349 2,707,380 6,808,175 Stock-based compensation--Cost of Revenues..... 261,468 38,575 19,288 142,635 ---------- ----------- ----------- ----------- ----------- Total cost of revenues................... 1,887,358 5,243,962 6,044,924 2,726,668 6,950,810 ---------- ----------- ----------- ----------- ----------- Gross Profit..................................... 4,297,992 2,868,664 17,615,808 6,133,653 14,758,290 ---------- ----------- ----------- ----------- ----------- Operating Expenses: Sales and marketing (excluding stock-based compensation)................................ 3,663,973 7,859,925 12,929,224 4,921,994 10,030,260 Research and development (excluding stock-based compensation)................................ 979,657 1,706,680 4,534,197 1,815,133 3,315,091 General administrative (excluding stock-based compensation)................................ 747,541 1,436,867 2,689,005 1,047,380 2,729,036 ---------- ----------- ----------- ----------- ----------- Total operating expenses (excluding stock-based compensation)............. 5,391,171 11,003,472 20,152,426 7,784,507 16,074,387 ---------- ----------- ----------- ----------- ----------- Stock-based compensation--Operating Expenses: Sales and marketing.......................... 190,600 60,793 30,398 499,655 Research and development..................... 833,562 127,017 63,508 143,191 General and administrative................... 38,399 26,678 13,340 73,347 ---------- ----------- ----------- ----------- ----------- Total stock-based compensation--Operating Expenses.............................. 1,062,561 214,488 107,246 716,193 ---------- ----------- ----------- ----------- ----------- Total operating expenses................. 5,391,171 12,066,033 20,366,914 7,891,753 16,790,580 ---------- ----------- ----------- ----------- ----------- Operating Loss................................... (1,093,179) (9,197,369) (2,751,106) (1,758,100) (2,032,290) ---------- ----------- ----------- ----------- ----------- Interest and Other Income (Expense): Interest income................................ 66,176 202,759 149,674 118,434 27,628 Interest expense............................... (8,118) (137,438) (293,630) (101,806) (154,471) Other income (expense)......................... (56,547) (175,952) (151,602) 8,490 ---------- ----------- ----------- ----------- ----------- Total interest and other income (expense)............................. 58,058 8,774 (319,908) (134,974) (118,353) ---------- ----------- ----------- ----------- ----------- Loss before Income Taxes......................... (1,035,121) (9,188,595) (3,071,014) (1,893,074) (2,150,643) Provision (Benefit) for Income Taxes............. (188,458) 245,494 2,114,467 857,411 927,227 ---------- ----------- ----------- ----------- ----------- Net Loss......................................... $ (846,663) $(9,434,089) $(5,185,481) $(2,750,485) $(3,077,870) ========== =========== =========== =========== =========== Basic and Diluted Net Loss per Share............. $ (0.08) $ (0.94) $ (0.51) $ (0.27) $ (0.29) ========== =========== =========== =========== =========== Weighted Average Shares of Common Stock.......... 10,000,000 10,000,000 10,098,992 10,027,317 10,621,660 ========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. F-4 ADEXA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999 AND SIX MONTHS ENDED JUNE 30, 2000
SERIES A SERIES B PREFERRED STOCK PREFERRED STOCK COMMON STOCK ------------------------ ------------------------ ---------------------- NUMBER OF NUMBER OF NUMBER OF ADDITIONAL SHARES SHARES SHARES PAID-IN OUTSTANDING AMOUNT OUTSTANDING AMOUNT OUTSTANDING AMOUNT CAPITAL ----------- ---------- ----------- ---------- ----------- -------- ---------- Balance, December 31, 1996 10,000,000 $ 78,500 Issuance of Series A preferred stock, net of offering costs........................ 4,075,170 $4,218,938 Issuance of preferred stock and common stock purchase warrants..................... $ 270,906 Dividends...................... Net loss....................... --------- ---------- ---------- -------- ---------- Balance, December 31, 1997....... 4,075,170 4,218,938 10,000,000 78,500 270,906 Comprehensive income: Net loss....................... Other comprehensive loss-- Unrealized loss on investments................ Comprehensive loss........... Issuance of Series A preferred stock, net of offering costs........................ 55,000 64,900 Issuance of Series B preferred stock, net of offering costs........................ 2,492,424 $8,125,738 Unearned stock-based compensation................. 1,950,681 Amortization of stock-based compensation................. Common stock options issued for services..................... 27,454 --------- ---------- --------- ---------- ---------- -------- ---------- Balance, December 31, 1998....... 4,130,170 4,283,838 2,492,424 8,125,738 10,000,000 78,500 2,249,041 Comprehensive income: Net loss..................... Other comprehensive income-- Reclassification adjustment for loss on investments included in net loss..... Comprehensive loss............. Issuance of common stock upon exercise of options.......... 460,161 75,649 Unearned stock-based compensation................. 212,103 Amortization of stock-based compensation................. Common stock options issued for services..................... 69,946 --------- ---------- --------- ---------- ---------- -------- ---------- Balance, December 31, 1999....... 4,130,170 4,283,838 2,492,424 8,125,738 10,460,161 154,149 2,531,090 Net loss....................... Issuance of common stock upon exercise of options.......... 254,875 154,331 Unearned stock-based compensation................. 5,273,199 Amortization of stock-based compensation................. Common stock options issued for services..................... 309,899 --------- ---------- --------- ---------- ---------- -------- ---------- Balance, June 30, 2000........... 4,130,170 $4,283,838 2,492,424 $8,125,738 10,715,036 $308,480 $8,114,188 ========= ========== ========= ========== ========== ======== ========== RETAINED ACCUMULATED UNEARNED EARNINGS OTHER STOCK-BASED (ACCUMULATED COMPREHENSIVE COMPENSATION DEFICIT) LOSS TOTAL ------------ ------------ ------------- ----------- Balance, December 31, 1996 $ 289,505 $ 368,005 Issuance of Series A preferred stock, net of offering costs........................ 4,218,938 Issuance of preferred stock and common stock purchase warrants..................... 270,906 Dividends...................... (83,458) (83,458) Net loss....................... (846,663) (846,663) ------------ ----------- Balance, December 31, 1997....... (640,616) 3,927,728 Comprehensive income: Net loss....................... (9,434,089) (9,434,089) Other comprehensive loss-- Unrealized loss on investments................ $(120,219) (120,219) ----------- Comprehensive loss........... (9,554,308) ----------- Issuance of Series A preferred stock, net of offering costs........................ 64,900 Issuance of Series B preferred stock, net of offering costs........................ 8,125,738 Unearned stock-based compensation................. $(1,950,681) Amortization of stock-based compensation................. 1,296,575 1,296,575 Common stock options issued for services..................... 27,454 ----------- ------------ --------- ----------- Balance, December 31, 1998....... (654,106) (10,074,705) (120,219) 3,888,087 Comprehensive income: Net loss..................... (5,185,481) (5,185,481) Other comprehensive income-- Reclassification adjustment for loss on investments included in net loss..... 120,219 120,219 ----------- Comprehensive loss............. (5,065,262) ----------- Issuance of common stock upon exercise of options.......... 75,649 Unearned stock-based compensation................. (212,103) Amortization of stock-based compensation................. 183,117 183,117 Common stock options issued for services..................... 69,946 ----------- ------------ --------- ----------- Balance, December 31, 1999....... (683,092) (15,260,186) (848,463) Net loss....................... (3,077,870) (3,077,870) Issuance of common stock upon exercise of options.......... 154,331 Unearned stock-based compensation................. (5,273,199) Amortization of stock-based compensation................. 548,929 548,929 Common stock options issued for services..................... 309,899 ----------- ------------ --------- ----------- Balance, June 30, 2000........... $(5,407,362) $(18,338,056) $ -- $(2,913,174) =========== ============ ========= ===========
See accompanying notes to consolidated financial statements. F-5 ADEXA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999 AND SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED) AND JUNE 30, 2000
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------- ------------------------- 1997 1998 1999 1999 2000 ---------- ----------- ----------- ----------- ----------- (UNAUDITED) Cash Flows from Operating Activities: Net loss.......................................... $ (846,663) $(9,434,089) $(5,185,481) $(2,750,485) $(3,077,870) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization................... 151,121 414,857 562,028 265,061 378,764 Provision for losses on receivables............. 25,000 412,843 920,000 480,117 440,819 Loss on disposal of property and equipment...... 21,022 Stock-based compensation........................ 1,324,029 253,063 126,534 858,828 Deferred income taxes........................... (189,258) 189,258 Changes in operating assets and liabilities: Accounts receivable........................... (2,325,571) 219,086 (3,040,827) (5,738,541) (5,514,237) Prepaid and other current assets.............. 63,017 (35,866) (78,894) (47,989) (231,133) Accounts payable.............................. (90,224) (184,061) 756,770 944,430 1,364,593 Accrued wages and related liabilities......... 142,091 600,217 1,651,064 360,600 348,104 Accrued expenses and other current liabilities................................. 266,775 (236,940) 1,028,702 231,078 1,641,637 Accrued taxes payable......................... 1,440,870 625,557 400,763 Deferred revenue.............................. 1,993,391 (1,890,909) 1,230,667 2,190,651 5,869,470 ---------- ----------- ----------- ----------- ----------- Net cash provided by (used in) operating activities................................ (810,321) (8,621,575) (441,016) (3,312,987) 2,479,738 ---------- ----------- ----------- ----------- ----------- Cash Flows from Investing Activities: Net (purchases) sales of short-term investments... (2,284,375) (974,136) 3,258,511 2,799,542 Purchases of property and equipment............... (737,546) (212,985) (731,503) (275,231) (911,251) Loans receivable from related parties............. (200,000) (26,500) 11,944 (4,250) (295,750) Other assets...................................... (55,638) (13,493) (17,280) (5,665) (49,963) ---------- ----------- ----------- ----------- ----------- Net cash (used in) provided by investing activities................................ (3,277,559) (1,227,114) 2,521,672 2,514,396 (1,256,964) ---------- ----------- ----------- ----------- ----------- Cash Flows from Financing Activities: Net borrowings (repayments) under line of credit.......................................... 2,100,000 2,900,000 (3,936,775) Payments on capital lease obligations............. (4,901) (80,758) (110,472) (53,310) (67,407) Net proceeds from sale of preferred stock......... 4,489,844 8,190,638 Proceeds from the exercise of common stock options......................................... 75,649 5,550 154,331 Dividends......................................... (83,458) ---------- ----------- ----------- ----------- ----------- Net cash provided by (used in) financing activities................................ 4,401,485 10,209,880 2,865,177 (47,760) (3,849,851) ---------- ----------- ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents....................................... 313,605 361,191 4,945,833 (789,851) (2,627,077) Cash and Cash Equivalents, Beginning of Period...... 610,940 924,545 1,285,736 1,285,736 6,231,569 ---------- ----------- ----------- ----------- ----------- Cash and Cash Equivalents, End of Period............ $ 924,545 $ 1,285,736 $ 6,231,569 $ 495,885 $ 3,604,492 ========== =========== =========== =========== =========== Supplemental Disclosures of Cash Flow Information-- Cash Paid during the Year for: Interest........................................ $ 3,770 $ 137,438 $ 266,568 $ 101,806 $ 154,041 Income taxes.................................... 800 56,236 57,354 2,537 2,948 Foreign taxes withheld by customers............. 55,436 833,111 10,606 332,731 Noncash Investing and Financing Activities-- During the years ended December 31, 1997, 1998, and 1999 and the six months ended June 30, 2000, the Company financed acquisitions of equipment amounting to $74,598, $358,440, $3,779, and $158,556, respectively, under capital lease arrangements.
See accompanying notes to consolidated financial statements. F-6 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS Adexa, Inc. and its subsidiaries (collectively, the "Company") develop and market software products that enable collaborative commerce, or c-Commerce. The Company's applications provide visibility into multi-tiered supply chains and are designed to intelligently synchronize and optimize complex and interdependent supply chain activities. The Company's software enables companies to address the increasing volume, complexity and speed of business interactions within and across the extended supply chain and automates selected inter- and intra-company business processes based on user-defined rules. The Company's software allows electronic exchanges to provide value-added services to their participants, including collaborative demand planning, multi-tiered supply chain planning and available-to-promise capabilities. Fundamentally, the software enables enterprises and exchange participants to make faster, more informed decisions about their supply chain interactions, resulting in enhanced supply chain efficiency, greater customer responsiveness and improved strategic planning and flexibility. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION--The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company's financial statements reflect losses from operations, a stockholders' deficit and negative working capital. As discussed in Notes 4 and 12, subsequent to June 30, 2000, the Company has entered into a new line of credit arrangement with a bank and has completed the sale of its Series C redeemable convertible preferred stock. Management believes that its cash balances, the available line of credit and the additional equity referred to above will be sufficient to meet the Company's future operating needs for the next twelve months. CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS--The condensed consolidated statement of operations and condensed consolidated statement of cash flows for the six months ended June 30, 1999 are unaudited. In the opinion of management, the interim financial statements have been prepared on the same basis as the annual financial statements and include all adjustments necessary for a fair presentation of the financial statements. Results of interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS--Cash equivalents are highly liquid investments with insignificant interest rate risk and original maturities of 90 days or less and are stated at amounts that approximate fair values, based on quoted market prices. Cash equivalents consist principally of money market mutual funds and highly liquid debt securities of certain U.S. municipalities. INVESTMENTS--Investments consist primarily of highly liquid municipal bonds, commercial paper, and equity securities. Investments are categorized as available for sale and are carried at fair value. The fair value of investments is determined by the quoted market prices for each investment. Investments with a maturity of less than one year but greater than three months when purchased are classified as short-term investments. Realized and unrealized gains or losses on investments are measured using the specific F-7 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) identification method. Realized gains or losses on the sale of investments are recognized in the statements of operations in the period sold. Unrealized holding gains and losses on investments available for sale represent other comprehensive income (loss) and are included as a component of stockholders' equity until realized. Interest income and dividends on investment securities of $56,176, $162,555, and $52,750 are reflected as interest income during the years ended December 31, 1997, 1998, and 1999, respectively. CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents, investments, and accounts receivable. The Company places its cash, cash equivalents, and investments with high credit quality institutions. Three customers represented 28 percent, 13 percent and 11 percent of total revenues in 1997. Two customers represented 30 percent and 11 percent of total revenues in 1998. Three customers represented 13 percent, 12 percent and 11 percent of total revenues in 1999. For the six months ended June 30, 2000, two customers repesented 21 percent and 12 percent of total revenues. Four customers represented 24 percent, 15 percent, 11 percent, and 11 percent of total gross accounts receivable at December 31, 1998. Three customers represented 25 percent, 12 percent, and 11 percent of total gross accounts receivable at December 31, 1999. One customer represented 20 percent of total gross accounts receivable at June 30, 2000. The Company generally does not require collateral on accounts receivable, as the Company's customers are generally large, well-established companies. The Company periodically performs credit evaluations of its customers and maintains reserves for potential credit losses. PROPERTY AND EQUIPMENT--Property and equipment are stated at cost, less accumulated depreciation. Depreciation is provided for using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease terms or the useful lives of the improvements. PRO FORMA BALANCE SHEET (UNAUDITED)--The unaudited pro forma consolidated balance sheet at June 30, 2000 reflects the following: - the automatic conversion of Series A and B convertible preferred stock, outstanding as of June 30, 2000, into 6,622,594 additional shares of common stock immediately prior to the closing of the initial public offering of the Company's common stock; and - the issuance on August 24, 2000 of an aggregate 1,574,801 shares of Series C redeemable convertible preferred stock for gross proceeds of $19,999,973, the deemed payment of a dividend representing the value of the beneficial conversion feature of the Series C redeemable convertible preferred stock and the conversion of these shares into 1,574,801 shares of common stock REVENUE RECOGNITION--The Company's revenues consist of license revenues, service revenues, and maintenance revenues. Revenue is recognized in accordance with the American Institute of Certified Public Accountants Statement of Position ("SOP") No. 97-2, "Software Revenue Recognition," as amended by SOP No. 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition" and SOP No. 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions." Accordingly, software license revenue is recognized when persuasive evidence of an arrangement exists, delivery of the product component has occurred, the fee is fixed and determinable and F-8 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) collectibility is probable. If any of these criteria is not met, revenue recognition is deferred until such time as all of the criteria are met. The Company recognizes revenue for certain software contracts in accordance with paragraphs 48 and 49 of SOP No. 97-2, whereby customer contracts that require delivery of unspecified additional software products in the future are accounted for as subscriptions. The Company recognizes this revenue ratably over the term of the arrangement beginning with the delivery of the first product. Effective January 1, 2000, the Company adopted SOP No. 98-9 which specifies, when arrangements include multiple product components or other elements and vendor specific objective evidence exists for the value of all undelivered elements, the Company accounts for the delivered elements in accordance with the residual method. Revenues on undelivered elements are recognized once delivery is complete. The Company has established vendor specific objective evidence based on the price established for each element when that element is sold separately, or in the case of an element not yet sold separately, on the price established by management. In those instances where arrangements include contractual milestones, acceptance criteria or other contingencies, the Company accounts for the transaction using contract accounting. For those arrangements that include extended payment terms, the Company recognizes revenue when these fees are due and payable. The Company records amounts billed to customers in excess of recognizable revenue as deferred revenues in the accompanying consolidated balance sheets, as in cases involving license revenues when subscription accounting applies, when undelivered elements exist or when contract accounting applies, and maintenance revenues. Amounts recognized as revenue in advance of billing are recorded as unbilled receivables and generally involve maintenance and service revenues. Accounts receivable include unbilled revenue amounting to $132,500 as of December 31, 1998, $1,355,050 as of December 31, 1999, and $2,046,082 as of June 30, 2000. The Company generally enters into separate contracts for professional services. The Company recognizes revenues from services delivered on a time-and-materials basis as the services are performed. Revenues from fixed-price arrangements are recognized on a percentage-of-completion basis. The Company recognizes revenues from maintenance and support arrangements on a straight-line basis over the life of the agreement, which is typically one year. If maintenance and support are included in a license agreement, amounts related to this element are allocated based on vendor specific objective evidence. COST OF REVENUES--Cost of revenues consists of cost of license revenues, cost of service revenues and cost of maintenance revenues. The Company has not accounted for each of these costs separately. Cost of license revenues includes royalties to third parties for software embedded in the Company's products, royalties for the resale of third party software to the Company's customers and the costs of documentation, delivery, and packaging. Cost of service revenues include salaries and related expenses for the implementation and training services, travel, costs of third parties contracted to provide implementation services to the Company's customers and associated overhead expenses. Cost of maintenance revenues includes salaries and related expenses for the customer support organization, travel and associated overhead expenses. RESEARCH AND DEVELOPMENT--Research and development costs consist primarily of salaries and other personnel-related costs, bonuses, facility costs, and third party services. The Company maintains a research and development staff to enhance its products and to develop new products. In accordance with Statement F-9 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," software costs are expensed as incurred until technological feasibility of the software is determined and the recovery of the cost can reasonably be expected, after which any additional costs are capitalized. The Company has expensed all software development costs because the establishment of technological feasibility of products and their availability for sale have substantially coincided. PRODUCT WARRANTY--The Company generally warrants that its products will function substantially in accordance with documentation provided to customers for approximately 3 to 12 months following initial shipment to the customer. As of June 30, 2000, the Company had not incurred any significant expenses related to warranty claims. STOCK-BASED COMPENSATION--The Company accounts for stock-based employee compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No. 25, compensation expense is based on the difference, if any, on the date of grant, between the fair value of the Company's stock and the exercise price. The Company accounts for stock options issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." INCOME TAXES--Deferred income tax assets and liabilities are computed annually for temporary differences between the financial statement and income tax bases of assets and liabilities. Such deferred income tax asset and liability computations are based on enacted tax laws and rates applicable to years in which the differences are expected to reverse. Income tax expense is the tax payable or refundable for the year plus or minus the change during the year in deferred income tax assets and liabilities. A valuation allowance is established, when necessary, to reduce deferred income tax assets to the amount that is more likely than not to be realized. NET LOSS PER SHARE OF COMMON STOCK--Basic earnings or loss per share excludes dilution for potentially dilutive securities and is computed by dividing income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings or loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. Potentially dilutive securities are excluded from the computation of diluted earnings or loss per share when their inclusion would be antidilutive. Potentially dilutive securities outstanding as of June 30, 2000 consist of the following:
Series A convertible preferred stock........................ 4,130,170 Series B convertible preferred stock........................ 2,492,424 Series A convertible preferred stock warrants............... 228,012 Common stock options........................................ 4,987,393
FAIR VALUE OF FINANCIAL INSTRUMENTS--SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosure about the fair value of financial instruments whether or not such instruments are recognized in the balance sheet. Due to the short-term nature of the Company's financial F-10 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) instruments, other than debt, fair values are not materially different from their carrying values. Based on the borrowing rates available to the Company for similar variable rate debt, the carrying value of debt approximates fair value. The fair value of loans receivable from related parties cannot be determined due to their related party nature. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS--In December 1998, the American Institute of Certified Public Accountants issued SOP No. 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions," which amends SOP No. 97-2, and was effective for transactions entered into by the Company beginning January 1, 2000. Adoption of SOP No. 98-9 did not have a material impact on the Company's consolidated financial position or results of operation. In June 1998, June 1999, and June 2000, the Financial Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133," and SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities--An Amendment of SFAS No. 133." SFAS No. 133, as amended, requires the recognition of all derivatives as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the planned use of the derivative and the resulting designation. The Company is required to implement SFAS No. 133, as amended, in the first quarter of 2001. The Company has not determined the effects, if any, adoption of SFAS No. 133, as amended, will have on the its consolidated financial statements. In March 2000, the FASB issued FASB Interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation--an interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB Opinion No. 25 and, among other issues, clarifies the following: the definition of an employee for purposes of applying APB Opinion No. 25; the criteria for determining whether a plan qualifies as a noncompensatory plan; the accounting consequence of various modifications to the terms of the previously fixed stock options or awards; and the accounting for an exchange of stock compensation awards in a business combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44 cover specific events that occurred after either December 15, 1998 or January 12, 2000. The Company does not expect the application of FIN 44 to have a material impact on the Company's consolidated financial position or results of operations. In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements," which summarizes the views of the staff of the SEC in applying generally accepted accounting principles to revenue recognition in financial statements. In March 2000 and June 2000, the SEC issued SAB No. 101A and SAB No. 101B, which delayed the implementation dates of SAB No. 101. The Company will be required to adopt the accounting provisions of SAB No. 101, as amended, no later than the fourth quarter of 2000. The Company does not believe that the implementation of SAB No. 101 will have a material impact on the Company's consolidated financial position or results of operations. F-11 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. PROPERTY AND EQUIPMENT The major classes of property and equipment are as follows:
DECEMBER 31, USEFUL ----------------------- JUNE 30, LIVES 1998 1999 2000 -------- ---------- ---------- ---------- Computers and related equipment...................... 3 years $1,170,618 $1,573,044 $2,366,753 Furniture and fixtures........... 4 years 443,530 516,839 790,856 Leasehold improvements........... 5 years 16,528 82,744 84,825 ---------- ---------- ---------- 1,630,676 2,172,627 3,242,434 Less accumulated depreciation and amortization................... 633,456 1,023,172 1,401,936 ---------- ---------- ---------- Total............................ $ 997,220 $1,149,455 $1,840,498 ========== ========== ==========
Depreciation and amortization expense related to property and equipment was $151,121, $414,857, and $562,028 for the years ended December 31, 1997, 1998 and 1999 and $378,764 for the six months ended June 30, 2000. The total cost and accumulated depreciation of equipment acquired under capital leases were $433,038 and $129,070 as of December 31, 1998, $435,993 and $242,823 as of December 31, 1999, and $594,549 and $300,482 as of June 30, 2000. 4. LINE OF CREDIT In March 1999, the Company entered into a loan agreement with a bank. The agreement, as amended in July 2000, provided for line-of-credit borrowings based on a formula aggregating up to $5,000,000. The line of credit was secured by substantially all of the Company's assets. Borrowings under the line of credit bear interest at the bank's prime rate plus 1 percent (10.5 percent at June 30, 2000). On August 22, 2000, the Company entered into a new loan agreement with its bank that replaced the prior bank credit line. The amount available under this line of credit is generally limited to the lower of $5,000,000, or an amount equal to 70 percent of eligible domestic accounts receivable, and bears interest at the bank's prime rate plus 1.50 percent. Borrowings outstanding under the new loan agreement are due on August 22, 2001. The new loan agreement contains covenants that, among other things, limit the type and amount of additional indebtedness that may be incurred by the Company or any of its subsidiaries and impose limitations on investments, loans, advances, sales, or transfers of assets, the making of dividends and other payments, the creation of liens, and certain mergers. The Company is also required to maintain minimum tangible net worth, as defined in the agreement. 5. COMMITMENTS AND CONTINGENCIES LEASES--The Company leases its facilities and some equipment under lease agreements that expire at various dates through 2003. Rental expense under operating leases for the years ended December 31, 1997, 1998, and 1999 and the six months ended June 30, 2000 totaled approximately $170,000, $418,000, F-12 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) $492,661, and $778,327, respectively. Minimum annual payments under all leases as of June 30, 2000 are as follows:
CAPITAL OPERATING LEASES LEASES -------- ---------- 2000 (six months ending December 31, 2000)............. $ 95,661 $ 627,770 2001................................................... 146,347 980,968 2002................................................... 70,915 744,232 2003................................................... 43,683 156,236 2004................................................... 40,002 122,280 Thereafter............................................. 17,386 61,140 -------- ---------- 413,994 $2,692,626 ========== Less imputed interest.................................. 82,153 -------- Present value of minimum capital lease payments........ 331,841 Less current portion of capital lease obligations...... 155,030 -------- Capital lease obligations.............................. $176,811 ========
LITIGATION--The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a materially adverse effect on the Company's consolidated financial statements. 6. EMPLOYEE BENEFIT PLAN The Company has a 401(k) employee benefit plan covering eligible employees whereby the Company will match employee contributions up to an amount generally determined annually by the Board of Directors. The Company's contributions to the plan were approximately $7,140, $40,842, and $56,270 for the years ended December 31, 1997, 1998, and 1999, respectively, and $44,274 for the six months ended June 30, 2000. 7. INCOME TAXES The provision (benefit) for income taxes consists of the following:
YEAR ENDED DECEMBER 31, SIX MONTHS ----------------------------------- ENDED JUNE 30, 1997 1998 1999 2000 --------- ---------- ---------- -------------- Current: State....................................... $ 800 $ 800 $ 800 Foreign..................................... 55,436 2,113,667 $927,227 --------- ---------- ---------- -------- Total current................................. 800 56,236 2,114,467 927,227 --------- ---------- ---------- -------- Deferred: Federal..................................... (505,547) (2,430,855) (866,002) (776,203) State....................................... (87,314) (310,130) (225,160) (129,842) --------- ---------- ---------- -------- Total deferred................................ (592,861) (2,740,985) (1,091,162) (906,045) --------- ---------- ---------- -------- Valuation allowance........................... 403,603 2,930,243 1,091,162 906,045 --------- ---------- ---------- -------- Total......................................... $(188,458) $ 245,494 $2,114,467 $927,227 ========= ========== ========== ========
F-13 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) The components of net deferred income taxes consist of the following:
DECEMBER 31, ----------------------- JUNE 30, 1998 1999 2000 ---------- ---------- ---------- Current deferred income tax assets: Accounts receivable allowances........................... $ 205,515 $ 266,195 $ 147,190 Accrued vacation......................................... 255,097 322,798 Accrued bonuses.......................................... 323,736 331,435 Other.................................................... (4,684) 16,820 25,229 Valuation allowance...................................... (200,831) (821,848) (826,652) ---------- ---------- ---------- Total current deferred income tax assets................... -- -- -- ---------- ---------- ---------- Non-current deferred income tax assets: Net operating loss carryforwards......................... 3,621,330 3,942,980 4,759,265 Accrual to cash basis.................................... (488,315) (339,820) (254,865) Valuation allowance...................................... (3,133,015) (3,603,160) (4,504,400) ---------- ---------- ---------- Total non-current deferred income tax assets............... -- -- -- ---------- ---------- ---------- Net deferred income tax assets............................. $ -- $ -- $ -- ========== ========== ==========
The effective income tax rate differs from the federal statutory income tax rate applied to loss before income taxes due to the following:
YEAR ENDED DECEMBER 31, SIX MONTHS ------------------------------------ ENDED JUNE 30, 1997 1998 1999 2000 -------- -------- -------- -------------- Federal statutory income tax rate................ (35.0)% (35.0)% (35.0)% (35.0)% Foreign income taxes............................. 0.6 68.9 29.4 Valuation allowance.............................. 45.7 36.4 30.9 24.6 Non-deductible stock-based compensation.......... 9.5 Net deferred income tax benefit recognized upon conversion to a C corporation.................. (38.2) Other............................................ 3.2 0.7 4.1 0.9 -------- -------- -------- --------- (24.3)% 2.7 % 68.9 % 29.4 % ======== ======== ======== =========
Foreign income taxes arise from the Company's contractual arrangements to license its software or provide services to customers in certain foreign countries. Effective August 5, 1997, the Company changed its status for federal and state income tax purposes from an S corporation to a C corporation. As an S corporation, other than a 1.5 percent state surtax, the Company's income or loss passed through to its stockholders for income tax purposes. At December 31, 1999, the Company has net operating loss carryforwards totaling approximately $10,331,000 and $5,549,000 for federal and state income tax purposes, which may be used to offset future taxable income and expire in varying amounts in 2012 through 2019 and 2002 through 2004, respectively. F-14 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. STOCKHOLDERS' EQUITY CAPITAL STOCK--The Company's capital stock as of June 30, 2000 consisted of common stock, Series A preferred stock and Series B preferred stock. During 1997, the Company issued 4,075,170 shares of Series A convertible preferred stock at $1.18 per share for cash proceeds of $4,489,844, net of $320,708 in offering costs. The Company also issued a warrant to purchase 228,012 shares of Series A convertible preferred stock to an investment bank as consideration for its services rendered in connection with the private placement. The warrant issued to the investment bank expires August 1, 2002 and is convertible into Series A convertible preferred stock at an exercise price of $1.18 per share. The warrant was recorded as offering costs and an increase in additional paid-in capital at its estimated fair value of $269,054. In February 1998, the Company issued 55,000 shares of Series A preferred stock to unrelated third parties at $1.18 per share for proceeds of $64,900. During 1998, the Company issued 2,492,424 shares of Series B preferred stock for $3.30 per share. The Company received cash proceeds of $8,125,738, net of $99,261 in offering costs, from the Series B preferred stock transaction in 1998. Significant terms of the Series A and Series B preferred stocks are as follows: - At the option of the holder, each share of preferred stock is convertible at any time into one share of common stock, subject to adjustment for certain dilutive issuances. As of June 30, 2000, no such adjustments had occurred. Shares automatically convert into common stock upon the earlier of (a) completion of an initial public offering with aggregate proceeds greater than $10,000,000 at not less than $5.90 per share or (b) upon the consent of more than two-thirds of the holders of the preferred stock, voting together as a single class. - Series A and B preferred stockholders are entitled to annual noncumulative cash dividends when and if dividends are declared on common stock by the Company's Board of Directors. - In the event of any liquidation of the Company (which includes the acquisition of the Company by another entity), the holders of Series A and Series B preferred stock have a liquidation preference over common stock of $1.18 per share and $3.30 per share, respectively, plus all declared but unpaid dividends. In the event the assets are insufficient to cover the aforesaid amounts, the Series A and Series B stockholders would share in the assets ratably in proportion to the full preferential amount. After the Series A and Series B stockholders have received their full preferential distributions as described above, the remaining assets will be distributed to the Series A, Series B, and common stockholders on a pro rata as-converted basis until the Series B stockholders have received an aggregate of $6.60 per share. Thereafter, remaining assets will be distributed to the holders of Series A preferred stock and common stock on a pro rata as-converted basis until the holders of Series A preferred stock have received an aggregate of $5.90 per share. Thereafter, the holders of common stock shall receive all of the remaining assets of the Company pro rata based on number of shares held by each. - The preferred stock is not redeemable. - Holders of preferred stock have the same voting rights as the holders of common stock. STOCKHOLDER AGREEMENT AND INVESTOR RIGHTS AGREEMENT--The Company, the common stockholders and the preferred stockholders have entered into a Stockholder Agreement, which, among other things, establishes the voting criteria for the election of the Board of Directors and provides that the preferred F-15 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. STOCKHOLDERS' EQUITY (CONTINUED) stockholders participate in any sale of common shares to any party (other than in an initial public offering) on a pro rata basis. Additionally, the Company, the preferred stockholders, the common stockholders, and a warrant holder have entered into an Investor Rights Agreement, wherein the Company extended certain registration rights to the parties. 9. STOCK OPTION PLAN In February 1998, the Company established the 1998 Stock Option Plan (the "1998 Plan") under which employees, consultants, and directors may be granted options to purchase up to an aggregate of 4,620,118 shares of the Company's common stock. During the six months ended June 30, 2000, the Company increased the number of options available under the 1998 Plan to a total of 6,120,118. Options vest over a period of one to four years and expire ten years from the grant date. The 1998 Plan also provides for early exercise of options prior to full vesting. Any unvested shares purchased are subject to repurchase by the Company upon occurrence of certain events or conditions, such as employment termination, at the original purchase price. At June 30, 2000, there were 37,250 shares subject to repurchase at a weighted-average exercise price of $0.53 per share. When the exercise price of employee stock options issued under the 1998 Plan equals the fair value of the underlying stock on the grant date, no compensation expense is recorded. Compensation expense is recognized for the fair value of options granted to non-employees and to the extent the fair value of the underlying stock exceeds the exercise price of employee stock options. During the years ended December 1998 and 1999 and the six months ended June 30, 2000, the Company granted non-employees 52,000, 10,000, and 87,000 stock options, at a weighted-average exercise price of $0.84, $2.10 and $4.00, respectively, for services performed and to be rendered in the future. In each period in which the option shares are earned, stock option compensation will be recorded. The amount of stock option compensation will be the fair value of the option shares earned during the period. The fair value of the option shares earned is calculated using the Black-Scholes option-pricing model. The primary component in the Black-Scholes calculation is the value of the Company's common stock at the time the option shares are earned. The value of the option shares, and the corresponding stock option compensation, increases as the fair value of the Company's common stock increases. Conversely, the value of the option shares earned, and the corresponding stock option compensation, decreases as the fair value of the Company's common stock decreases. Since the fair value of the Company's common stock in the future cannot be estimated, it is not possible to estimate the amount of stock option compensation that could be recorded in connection with the non-employee stock options granted and outstanding as of June 30, 2000. During the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000 stock option compensation to non-employees amounting to $27,454, $69,946 and $309,899, respectively, was recognized in the accompanying consolidated statements of operations. During the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000 the Company issued employee common stock options with exercise prices less than the fair value of its underlying common stock. Accordingly, the Company recorded $1,950,681, $212,103 and $5,273,199 during the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000, respectively, as the intrinsic value of such options. Stock-based compensation of $1,296,575, $183,117 and $548,929 was amortized to expense during the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000, respectively. F-16 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCK OPTION PLAN (CONTINUED) At June 30, 2000, the Company had $5,407,362 in deferred stock compensation related to these options, which will be amortized to expense through 2004. A summary of the Company's stock option activity follows:
WEIGHTED- NUMBER AVERAGE RANGE OF OF EXERCISE EXERCISE OPTIONS PRICE PRICES --------- --------- ----------- Granted in 1998............................. 4,393,010 $0.31 $0.15-$1.95 Canceled.................................. (734,806) 0.16 0.15-1.00 --------- Outstanding, December 31, 1998.............. 3,658,204 0.34 0.15-1.95 Granted................................... 843,300 2.20 1.95-3.00 Exercised................................. (460,161) 0.16 0.15-1.95 Canceled.................................. (82,250) 1.17 0.15-1.95 --------- Outstanding, December 31, 1999.............. 3,959,093 0.74 0.15-3.00 Granted................................... 1,536,700 4.06 4.00-6.00 Exercised................................. (254,875) 0.61 0.15-2.10 Canceled.................................. (253,525) 2.49 0.15-6.00 --------- Outstanding, June 30, 2000.................. 4,987,393 $1.69 $0.15-$6.00 =========
Information regarding stock option grants during the years ended December 31, 1998 and 1999 and the six months ended June 30, 2000 is summarized as follows:
YEARS ENDED ----------------------------------------------------------------------- SIX MONTHS ENDED DECEMBER 31, 1998 DECEMBER 31, 1999 JUNE 30, 2000 ---------------------------------- ---------------------------------- ---------------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE SHARES PRICE FAIR VALUE SHARES PRICE FAIR VALUE SHARES PRICE FAIR VALUE --------- --------- ---------- --------- --------- ---------- --------- --------- ---------- Exercise price exceeds market price.............. 503,800 $1.96 $0.82 Exercise price is less than market price.............. 4,393,010 $0.31 $0.85 339,500 $2.55 $3.34 1,536,700 $4.06 $7.71
As of June 30, 2000, there were 417,689 shares available for future grant under the 1998 Plan. F-17 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCK OPTION PLAN (CONTINUED) The following table summarizes information about stock options outstanding at June 30, 2000:
OPTIONS OUTSTANDING --------------------------------- WEIGHTED- OPTIONS EXERCISABLE AVERAGE --------------------- REMAINING WEIGHTED- WEIGHTED- CONTRACT AVERAGE AVERAGE EXERCISE NUMBER OF LIFE EXERCISE NUMBER OF EXERCISE PRICE OPTIONS (YEARS) PRICE OPTIONS PRICE - -------- --------- --------- --------- --------- --------- $0.15..................... 2,525,793 7.62 $0.15 1,972,772 $0.15 1.00..................... 106,000 7.91 1.00 53,000 1.00 1.75..................... 22,500 8.03 1.75 8,750 1.75 1.85..................... 16,500 8.17 1.85 4,125 1.85 1.95..................... 497,300 8.75 1.95 107,325 1.95 2.10..................... 151,500 9.30 2.10 3.00..................... 168,500 9.44 3.00 4.00..................... 1,442,900 9.66 4.00 5.00..................... 15,000 9.92 5.00 6.00..................... 41,400 9.96 6.00 --------- ----- --------- 4,987,393.. 8.47 $1.69 2,145,972 $0.27 ========= ===== =========
As discussed in Note 2, the Company accounts for its stock-based awards to employees using the intrinsic value method in accordance with APB Opinion No. 25 and its related interpretations. SFAS No. 123 requires the disclosure of pro forma net income (loss) had the Company adopted the fair value method of that statement. The pro forma disclosures required by SFAS No. 123 are as follows:
YEAR ENDED DECEMBER 31, SIX MONTHS ------------------------- ENDED JUNE 30, 1998 1999 2000 ----------- ----------- -------------- Net Loss: As reported.......................... $(9,434,089) $(5,185,481) $(3,077,870) Pro forma............................ (9,588,427) (5,285,112) (3,341,029) Basic and diluted net loss per share: As reported.......................... $(0.94) $(0.51) $(0.29) Pro forma............................ (0.96) (0.52) (0.31)
The amounts above are based on the minimum value for each option computed as (a) the current price of the stock on the date of grant reduced to exclude the present value of any expected dividends during the options' minimum life and (b) the present value of the exercise price. Assumptions used in the computation include the following:
YEAR ENDED DECEMBER 31, SIX MONTHS ------------------- ENDED JUNE 30, 1998 1999 2000 -------- -------- -------------- Risk-free interest rate.......................... 5.2% 6.1% 6.6% Dividends yield.................................. -- -- -- Expected life (years)............................ 10 10 10
F-18 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. STOCK OPTION PLAN (CONTINUED) The weighted-average estimated minimum value of employee stock options granted was $0.64, $0.78, and $5.58 for the years ended December 31, 1998 and 1999, and the six months ended June 30, 2000, respectively. 10. LOANS RECEIVABLE FROM RELATED PARTIES On July 31, 1997, the Company loaned $200,000 to a stockholder/officer in the form of a note receivable. The note receivable accrues interest at five percent and is payable semiannually. Unpaid interest is added to principal. The outstanding principal and accrued interest on the note are due on July 31, 2002. The note is collateralized by 1,694,920 shares of the Company's common stock owned by the stockholder/officer. During the six months ended June 30, 2000, the Company loaned $300,000 to another officer, who is not a stockholder, in the form of a promissory note receivable. The unsecured loan accrues interest at five percent and is payable in full on or before May 19, 2008. Principal and accrued interest amounting to $301,708 is included in loans receivable from related parties in the accompanying consolidated balance sheet as of June 30 2000. 11. SEGMENT INFORMATION The Company is principally engaged in the design, development, marketing, licensing, and support of computer software products operating on a diverse range of hardware platforms and operating systems. Accordingly, the Company considers itself to be operating in a single industry segment. The Company's chief operating decision maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information about revenue, by geographic region for purposes of assessing financial performance and making operating decisions. The following table represents revenue in each of the geographical regions:
YEAR ENDED DECEMBER 31, SIX MONTHS ------------------------------ ENDED JUNE 30, 1997 1998 1999 2000 -------- -------- -------- -------------- Geographic region: United States........................... 48% 64% 43% 59% Japan................................... 31 13 35 24 Taiwan.................................. 14 14 15 6 Other................................... 7 9 7 11 ---- ---- ---- ---- 100% 100% 100% 100% ==== ==== ==== ====
12. SUBSEQUENT EVENTS PREFERRED STOCK--On August 24, 2000, the Company issued an aggregate of 1,574,801 shares of Series C redeemable convertible preferred stock for $12.70 per share and gross proceeds of $19,999,973. The Series C redeemable convertible preferred stock has rights and privileges similar to that of the Series A and B preferred stock (see Note 8), except as follows: - Series C preferred shares automatically convert into common stock upon the earlier of (a) an initial public offering of the Company's common stock for aggregate proceeds of $25,000,000 with an F-19 ADEXA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. SUBSEQUENT EVENTS (CONTINUED) offering price of at least $19.05 per share or (b) upon the consent of a majority of the holders of the Series C preferred stock. - In the event of a liquidation of the Company, the Series C preferred stockholders will be entitled to receive, in preference to the Series A and B preferred stockholders the greater of (i) the sum of $22.23 per share, plus declared and unpaid dividends, if any, or (ii) the amount per share that would have been payable had each share of Series C preferred stock been converted into common stock on the effective date of such liquidation. - The Series C preferred stock is mandatorily redeemable upon the election of at least a majority of the holders of the then-outstanding shares of Series C preferred stock, or at any time after July 30, 2005. The aggregate redemption amount is $12.70 per share plus all declared but unpaid dividends. The Series C redeemable convertible preferred stock was issued with a beneficial conversion feature that will be recorded in the third quarter of 2000 as an increase in additional paid-in capital and a deemed dividend to the preferred stockholders. 2000 STOCK INCENTIVE PLAN--On August 24, 2000, the Company's board of directors adopted the 2000 Stock Incentive Plan (the "2000 Plan"). Under the 2000 Plan, employees, consultants and directors may be granted options to purchase up to an aggregate of 2,000,000 shares of the Company's common stock. 1998 STOCK OPTION PLAN--On August 10, 2000, the Company increased the number of options available under the 1998 Plan to a total of 6,770,118. On August 24, 2000, the Company accelerated the vesting schedule of all unvested stock options outstanding that were granted prior to August 24, 2000. The Company converted the vesting schedule from 25 percent for each annual anniversary of optionee's vesting commencement date to 25 percent vesting one year after an optionee's vesting commencement date with the balance of shares vesting in equal monthly installments over the following 36 months. No compensation related to the accelerated vesting modification has been recognized as of August 24, 2000. In the future, should information become available that would indicate that stock options that would otherwise have been forfeited, absent the modification, will be retained and exercised, the Company will recognize the related compensation expense representing the difference between the original exercise price of the stock option grant and the estimated fair value at the date of the modification. 2000 EMPLOYEE STOCK PURCHASE PLAN--On August 24, 2000, the Board of Directors adopted the 2000 Employee Stock Purchase Plan (the "2000 Purchase Plan") to be effective upon completion of the Company's initial public offering. Under the 2000 Purchase Plan, eligible employees are allowed to have salary withholdings of up to 15 percent of their base compensation to purchase shares of common stock at a price equal to 85 percent of the lower of the market value of the stock at the beginning or end of defined purchase periods. The initial purchase period will commence on the effective date of the Company's initial public offering. The Company has reserved 750,000 shares of common stock for issuance under the 2000 Purchase Plan. F-20 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES [LOGO] COMMON STOCK ----------- PROSPECTUS ----------- CHASE H&Q MERRILL LYNCH & CO. DAIN RAUSCHER WESSELS ------------- , 2000 -------------- YOU SHOULD RELY ONLY ON INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT A PUBLIC OFFERING OF OUR COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN THAT JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES ARE REQUIRED TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS APPLICABLE TO THAT JURISDICTION. UNTIL , 2000, ALL DEALERS THAT BUY, SELL OR TRADE IN OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by Adexa in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the NASD filing fees. SEC Registration fee........................................ $19,800 NASD fee.................................................... 8,000 Nasdaq National Market listing fee.......................... Printing and engraving expenses............................. Legal fees and expenses..................................... Accounting fees and expenses................................ Blue sky fees and expenses.................................. Transfer agent fees......................................... Miscellaneous fees and expenses............................. ------- Total..................................................... $ =======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law authorizes a court to award or a corporation's board of directors to grant indemnification to directors and officers in terms sufficiently broad to permit indemnification under some circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's Bylaws provides for mandatory indemnification of its directors and officers and permissible indemnification of employees and other agents to the maximum extent permitted by the Delaware General Corporation Law. The Registrant's Certificate of Incorporation provides that, pursuant to Delaware law, its directors shall not be liable for monetary damages for breach of the directors' fiduciary duty as directors to Adexa and its stockholders. This provision in the Certificate of Incorporation does not eliminate the directors' fiduciary duty, and in appropriate circumstances equitable remedies including injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to Adexa for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, including the federal securities laws or state or federal environmental laws. The Registrant has entered into Indemnification Agreements with its officers and directors, a form of which is attached as Exhibit 10.1 hereto and incorporated herein by reference. The Indemnification Agreements provide the Registrant's officers and directors with further indemnification to the maximum extent permitted by the Delaware General Corporation Law." Reference is made to Section of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying officers and directors of the Registrant against some types of liabilities. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In the three years preceding the filing of this registration statement, the Registrant has issued and sold the following securities: - During the period between August 4, 1997 and February 28, 1998, Registrant sold an aggregate of 4,130,170 shares of its Series A Preferred Stock to 19 investors at a purchase price of $1.18 per share. - During the period between July 2, 1998 and October 30, 1998, Registrant sold an aggregate of 2,492,424 shares of its Series B Preferred Stock to 19 investors at a purchase price of $3.30 per share. - On August 24, 2000, Registrant sold an aggregate of 1,574,801 shares of its Series C Preferred Stock to 34 investors at a purchase price of $12.70 per share. - As of August 24, 2000, Registrant has sold and issued 715,036 shares of its common stock for an aggregate purchase price of $229,980 to employees and consultants pursuant to direct issuance and to exercises of options under its 1998 Stock Plan. The sale of the above securities was deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) of the Securities Act or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or transactions pursuant to compensation benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of securities in each transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution of those securities, and appropriate legends were affixed to the share certificates issued in those transactions. All recipients had adequate access, through their relationships with the Registrant, to information about the Registrant. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 1.1* Form of Underwriting Agreement 3.1* Certificate of Incorporation of the Registrant, as amended to date 3.2* Form of Restated Certificate of Incorporation to be filed upon the closing of this offering 3.3* Bylaws of the Registrant 3.4* Form of Amended and Restated Bylaws to take effect as of the closing of the offering 4.1* Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4 4.2* Specimen common stock certificate 4.3 Amended and Restated Investors' Rights Agreement 5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP 10.1* Form of Indemnification Agreement 10.2 Lease between the Registrant and Haseko Corporation, a Japanese corporation, dated June 20, 1996, as amended 10.3 Lease between the Registrant and 20 Adelaide St. East, a co-ownership, dated August 30, 1999 10.4 1998 Stock Plan
II-2
EXHIBIT NO. DESCRIPTION - ----------- ----------- 10.5 2000 Stock Incentive Plan 10.6 2000 Employee Stock Purchase Plan 10.7 Promissory note from K. Cyrus Hadavi to the Registrant dated July 31, 1997 10.8 Promissory note from Udo Dengler to the Registrant dated May 19, 2000 10.9 Loan from Silicon Valley Bank to the Company dated August 22, 2000 23.1 Consent of Independent Accountants 23.2* Consent of Counsel. Reference is made to Exhibit 5.1 24.1 Power of Attorney (see page II-4) 27.1 Financial Data Schedule
- ------------------------ * To be filed by amendment. (b) FINANCIAL STATEMENT SCHEDULES Schedule VIII--Valuation and Qualifying Accounts Schedules not listed above have been omitted because the information required to be presented therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS The Registrant undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in the denominations and registered in the names required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the Delaware General Corporation Law, the Certificate of Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against these liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by an director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether the indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of that issue. The Registrant undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be its initial bona fide offering. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on this 28th day of August, 2000. ADEXA, INC. By: /s/ K. CYRUS HADAVI ------------------------------------------ K. Cyrus Hadavi PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints K. Cyrus Hadavi and J. Timothy Romer, and each of them, his true and lawful attorneys-in-fact and agents with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED: /s/ K. CYRUS HADAVI President and Chief Executive August 28, ------------------------------------ Officer (Principal Executive 2000 K. Cyrus Hadavi Officer) and Director /s/ J. TIMOTHY ROMER Chief Financial Officer (Principal August 28, ------------------------------------ Financial and Accounting 2000 J. Timothy Romer Officer) /s/ DAVID R. GOLOB Director August 28, ------------------------------------ 2000 David R. Golob /s/ WILLIAM W. LATTIN Director August 28, ------------------------------------ 2000 William W. Lattin /s/ SAM H. LEE Director August 28, ------------------------------------ 2000 Sam H. Lee /s/ WILLIAM H. YOUNGER, JR. Director August 28, ------------------------------------ 2000 William H. Younger, Jr.
II-4 ADEXA, INC. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS/ BALANCE AT (DEDUCTIONS) BEGINNING CHARGED TO COSTS BALANCE AT DESRIPTION OF PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD - ---------- ---------- ---------------- ---------- ------------- FOR THE SIX MONTHS ENDED JUNE 30, 2000 Allowances Deducted from Assets Accounts receivable....................... $528,000 440,819 (105,048) $863,771 -------- ------- --------- -------- Total Allowances Deducted from Assets..... $528,000 440,819 (105,048) $863,771 ======== ======= ========= ======== FOR THE YEAR ENDED DECEMBER 31, 1999 Allowances Deducted from Assets Accounts receivable....................... $480,000 920,000 (872,000) $528,000 -------- ------- --------- -------- Total Allowances Deducted from Assets..... $480,000 920,000 (872,000) $528,000 ======== ======= ========= ======== FOR THE YEAR ENDED DECEMBER 31, 1998 Allowances Deducted from Assets Accounts receivable....................... $ 67,157 412,843 $480,000 -------- ------- --------- -------- Total Allowances Deducted from Assets..... $ 67,157 412,843 -- $480,000 ======== ======= ========= ======== FOR THE YEAR ENDED DECEMBER 31, 1997 Allowances Deducted from Assets Accounts receivable....................... $ 42,157 25,000 $ 67,157 -------- ------- --------- -------- Total Allowances Deducted from Assets..... $ 42,157 25,000 -- $ 67,157 ======== ======= ========= ========
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- ----------- 1.1* Form of Underwriting Agreement 3.1* Certificate of Incorporation of the Registrant, as amended to date 3.2* Form of Restated Certificate of Incorporation to be filed upon the closing of this offering 3.3* Bylaws of the Registrant 3.4* Form of Amended and Restated Bylaws to take effect as of the closing of the offering 4.1* Reference is made to Exhibits 3.1, 3.2, 3.3 and 3.4 4.2* Specimen common stock certificate 4.3 Amended and Restated Investors' Rights Agreement 5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP 10.1* Form of Indemnification Agreement 10.2 Lease between the Registrant and Haseko Corporation, a Japanese corporation, dated June 20, 1996, as amended 10.3 Lease between the Registrant and 20 Adelaide St. East, a co-ownership, dated August 30, 1999 10.4 1998 Stock Plan 10.5 2000 Stock Incentive Plan 10.6 2000 Employee Stock Purchase Plan 10.7 Promissory note from K. Cyrus Hadavi to the Company dated July 31, 1997 10.8 Promissory note from Udo Dangler to the Company dated May 19, 2000 10.9 Loan from Silicon Valley Bank to the Company dated August 22, 2000 23.1 Consent of Independent Accountants 23.2* Consent of Counsel. Reference is made to Exhibit 5.1 24.1 Power of Attorney (see page II-4) 27.1 Financial Data Schedule
- ------------------------ * To be filed by amendment. EX-4.3 2 ex-4_3.txt EXHIBIT 4.3 ADEXA, INC. AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT AUGUST 24, 2000 TABLE OF CONTENTS
PAGE 1. Registration Rights...........................................................................................2 1.1 Definitions.........................................................................................2 1.2 Request for Registration............................................................................3 1.3 Company Registration................................................................................4 1.4 Form S-3 Registration...............................................................................5 1.5 Obligations of the Company..........................................................................6 1.6 Information from Holder.............................................................................8 1.7 Expenses of Registration............................................................................8 1.8 Delay of Registration...............................................................................8 1.9 Indemnification.....................................................................................9 1.10 Reports Under Securities Exchange Act of 1934.....................................................11 1.11 Assignment of Registration Rights.................................................................11 1.12 Limitations on Subsequent Registration Rights.....................................................12 1.13 "Market Stand-Off" Agreement......................................................................12 1.14 Termination of Registration Rights................................................................13 2. Covenants of the Company.....................................................................................13 2.1 GAAP Accounting....................................................................................13 2.2 Delivery of Financial Statements...................................................................13 2.3 Inspection.........................................................................................14 2.4 Stock Vesting......................................................................................14 2.5 Proprietary Information and Inventions.............................................................15 2.6 Right of First Offer...............................................................................15 2.7 Board of Directors.................................................................................16 2.8 Termination of Certain Covenants...................................................................17 3. Miscellaneous................................................................................................17 3.1 Successors and Assigns.............................................................................17 3.2 Governing Law......................................................................................17 3.3 Counterparts.......................................................................................17 3.4 Titles and Subtitles...............................................................................17 3.5 Notices............................................................................................18 3.6 Expenses...........................................................................................18 3.7 Entire Agreement; Amendments and Waivers...........................................................18 3.8 Severability.......................................................................................18 3.9 Aggregation of Stock...............................................................................18 3.10 Prior Agreement...................................................................................18 3.11 Confidentiality of Records........................................................................18
i AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT is made as of the 24th day of August, 2000, by and among Adexa, Inc., a California corporation (the "Company"), and the investors listed on SCHEDULE A hereto, each of which is herein referred to as an "Investor" and the holders of Common Stock listed on SCHEDULE B hereto, each of which is herein referred to as a "Common Holder." RECITALS WHEREAS, certain of the Investors (the "Existing Investors") hold shares of the Company's Series A Preferred Stock and/or shares of Common Stock issued upon conversion thereof (the "Series A Preferred Stock"), and/or shares of the Company's Series B Preferred Stock and/or shares of Common Stock issued upon conversion thereof (the "Series B Preferred Stock") and possess registration rights, information rights, rights of first offer, and other rights pursuant to that certain Amended and Restated Investors' Rights Agreement dated as of July 2, 1998, among the Company and such Existing Investors (the "Prior Agreement"); WHEREAS, the Existing Investors are holders of at least a majority of the "Registrable Securities" of the Company (as defined in the Prior Agreement), and desire to terminate the Prior Agreement and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement; and WHEREAS, certain Investors are parties to that certain Series C Preferred Stock Purchase Agreement of even date herewith among the Company and certain of the Investors (the "Series C Agreement"), which provides that as a condition to the closing of the sale of the Series C Preferred Stock, this Agreement must be executed and delivered by such Investors, Existing Investors holding at least a majority of the "Registrable Securities" of the Company (as defined in the Prior Agreement) and the Company. NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Existing Investors hereby agree that the Prior Agreement shall be superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows: WHEREAS, in order to induce the Company to enter into the Series C Agreement and to induce certain of the Investors to invest funds in the Company pursuant to the Series C Agreement, the Prior Investors, the Common Holders and the Company desire to terminate the Prior Agreement and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement; WHEREAS, the Prior Agreement may be amended with the written consent of the Company, the holders of a majority of the outstanding Registrable Securities (as defined in the Prior Agreement) held by the Investors and the holders of a majority of the Registrable Securities (as defined in the Prior Agreement) held by the Common Holders; and WHEREAS, the Company, the holders of a majority of the outstanding Registrable Securities (as defined in the Prior Agreement) held by the Investors, and the holders of a majority of the Registrable Securities (as defined in the Prior Agreement) held by the Common Holders are parties hereto. NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: 1. REGISTRATION RIGHTS. The Company covenants and agrees as follows: 1.1 DEFINITIONS. For purposes of this Section 1: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (c) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.11 hereof. (d) The term "Initial Offering" means the Company's first firm commitment underwritten public offering of its Common Stock pursuant to a registration statement on Form S-1 under the Act. (e) The term "1934 Act" means the Securities Exchange Act of 1934, as amended. (f) The term "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (g) The term "Registrable Securities" means (i) the Company's Common Stock ("Common Stock") issuable or issued upon conversion of the Company's Series A Preferred Stock ("Series A Preferred Stock), Series B Preferred Stock ("Series B Preferred Stock"), or Series C Preferred Stock ("Series C Preferred Stock") purchased pursuant to the Series A Preferred Stock and Warrant Purchase Agreement ("Series A Agreement"), Series B Preferred Stock Purchase Agreement ("Series B Agreement") or Series C Agreement respectively, (ii) the shares of Common Stock issued to the Common Holders; (iii) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock issuable or issued upon the exercise or "net issue exercise" of the warrant to purchase 228,012 shares of Series A Preferred Stock issued to Sutro & Co. on August 4, 1997; and (iv) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i), (ii) and (iii) above, excluding in all cases, however, 2 any Registrable Securities sold by a person in a transaction in which his rights under this Agreement are not assigned. (h) The number of shares of "Registrable Securities" outstanding shall be determined by the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities. (i) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 REQUEST FOR REGISTRATION. (a) Subject to the conditions of this Section 1.2, if the Company shall receive, at any time after six (6) months after the effective date of the Initial Offering, a written request from either (i) the Investors holding fifty percent (50%) or more of the Registrable Securities then outstanding held by Investors or (ii) Common Holders holding fifty percent (50%) or more of the Registrable Securities then outstanding held by Common Holders (in either case, the "Initiating Holders"), that the Company file a registration statement under the Act covering the registration of at least thirty percent (30%) of the Registrable Securities with an anticipated aggregate offering price of at least $5,000,000, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 1.2, use its bests efforts to effect, as soon as practicable, and in any even within 120 days of the receipt of such request, the registration under the Act of all Registrable Securities that the Holders request to be registered in a written request received by the Company within twenty (20) days of the mailing of the Company's notice pursuant to this Section 1.2(a). (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(a). In such event the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company (which underwriter or underwriters shall be reasonably acceptable to a majority in interest of the Initiating Holders). Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company that marketing factors require a limitation of the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. 3 (c) The Company shall not be required to effect a registration pursuant to this Section 1.2: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; or (ii) after the Company has effected two (2) registrations pursuant to this Section 1.2, and such registrations have been declared or ordered effective; or (iii) during the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of the filing of, and ending on a date one hundred eighty (180) days following the effective date of, a registration subject to Section 1.3 below, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (iv) if the Initiating Holders propose to dispose of Registrable Securities that may be immediately registered on Form S-3 pursuant to Section 1.4 hereof; or (v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2, a certificate signed by the Company's Chief Executive Officer or Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12)-month period. 1.3 COMPANY REGISTRATION. (a) If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration relating to a corporate reorganization or other transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at least thirty (30) days prior to the filing of such registration statement, give each Holder written notice of such registration. Upon the written request of each Holder given within fifteen (15) days after mailing of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.3(c), use all reasonable efforts to cause to be registered 4 under the Act all of the Registrable Securities that each such Holder has requested to be registered. (b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 1.7 hereof. (c) UNDERWRITING REQUIREMENTS. In connection with any offering involving an underwriting of shares of the Company's capital stock, the Company shall not be required under this Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters) and enter into an underwriting agreement in customary form with an underwriter or underwriters selected by the Company, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling Holders according to the total amount of securities entitled to be included therein owned by each selling Holder or in such other proportions as shall mutually be agreed to by such selling Holders; provided, that in any case at least two-thirds (2/3) of the Holders' securities so included are held by Holders other than Common Holders), but in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities, in which case the selling Holders may be excluded if the underwriters make the determination described above and no other shareholder's securities are included, or (ii) notwithstanding (i) above, any shares being sold by a shareholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering. For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder that is a Holder of Registrable Securities and that is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling Holder," and any pro rata reduction with respect to such "selling Holder" shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals. 1.4 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders of at least three hundred thousand (300,000) shares of Registrable Securities then outstanding (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations) a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall: 5 (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) use its best efforts to effect as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company, provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this section 1.4: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; (iii) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer or Chairman of the Board of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any twelve month period; (iv) if the Company has, within the six (6) month period preceding the date of such request, already effected one registration on Form S-3 for the Holders pursuant to this Section 1.4; or (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as requests for registration or registrations effected pursuant to Sections 1.2. 1.5 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: 6 (a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to ninety (90) days provided, however, that such 90 day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; or, if earlier, until the distribution contemplated in the Registration Statement has been completed; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement; (c) furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; (d) use all reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions; (e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering; (f) notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act or the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and (h) provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) use all reasonable efforts to furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a 7 registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such Securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities, and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed (x) to the underwriters, if any and (y) to the Holders requesting registration of Registrable Securities, but only if independent certified public accountants are permitted by their professional rules and practices to so provide such a letter to such Holders. 1.6 INFORMATION FROM HOLDER. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.7 EXPENSES OF REGISTRATION. The Company shall pay all expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company (including the fees and disbursements of one special counsel to the selling Holders in an amount not to exceed $20,000). Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or Section 1.4 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be requested in the withdrawn registration), unless, in the case of a registration requested under Section 1.2, the Holders of a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2, provided, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2 or 1.4. Except as set forth above, all fees and disbursements of counsel for the selling Holder or Holders incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4 shall be borne by the selling Holder or Holders who engaged such counsel, unless otherwise agreed in writing by and among such selling Holders. 1.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 8 1.9 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners or officers, directors and shareholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws; and the Company will reimburse each such Holder, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection l.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person; provided further, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder or underwriter, or any person controlling such Holder or underwriter, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Holder or underwriter to such person, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information 9 furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any person intended to be indemnified pursuant to this subsection l.9(b), for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection l.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), provided that in no event shall any indemnity under this subsection l.9(b) exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the reasonable fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. (d) If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided, that in no event shall any contribution by a Holder under this subsection 1.9(d) exceed the net proceeds from the offering received by such Holder. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered 10 into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, after ninety (90) days after the effective date of the Initial Offering; (b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form. 1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that (i) is a subsidiary, parent, partner, limited partner, retired partner or shareholder of a Holder, (ii) is a Holder's family member or trust for the benefit of an individual Holder, or (iii) after such assignment or transfer, holds at least seven hundred thousand (700,000) shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations and other recapitalizations), provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.13 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. 11 1.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities held by the Investors and a majority of the Registrable Securities held by the Common Holders, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.3 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to make a demand registration of their securities. 1.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company's initial public offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (l80) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are then owned by the Holder or are thereafter acquired), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing provisions of this Section 1.13 shall apply only to the Company's initial public offering of equity securities, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers, directors, one percent (1%) security holders, and all other persons with registration rights enter into similar agreements. The underwriters in connection with the Company's initial public offering are intended third party beneficiaries of this Section 1.13 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. This Section 1.13 shall not apply to transactions relating to shares of Common Stock or other securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire Common Stock acquired in connection with the Initial Offering or in open market transactions after the consummation of the Initial Offering. The terms of Section 1.13 may not be amended as to any Investor that is an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"), without the consent of such investment company nor may the terms of Section 1.13 be amended as to Amerindo Investment Advisors Inc. or its affiliates without the consent Amerindo Investment Advisors Inc. In addition, any such lock-up shall provide that any release from the provisions of such lock-up shall be made pro-rata among shareholders that are locked-up based on their respective holdings of locked-up shares; provided, however, that up to 250,000 shares (as 12 adjusted for stock splits, stock dividends, combinations and other recapitalizations) of Common Stock may be released on a non pro-rata basis. 1.14 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted under this Section 1 shall terminate and be of no further force and effect five (5) years after the date of the Company's Initial Offering. In addition, a Holder's registration rights shall expire if (i) the Company has completed is Initial Offering and is subject to the provisions of the 1934 Act, (ii) such Holder (together with its affiliates, partners and former partners) holds less than 1% of the Company's outstanding common stock (treating all shares of convertible preferred stock on an as converted basis), (iii) all Registrable Securities held by and issuable to such Holder may be sold under Rule 144 during any ninety (90) day period, and (iv) the Company's common stock is traded on a national exchange or Nasdaq. 2. COVENANTS OF THE COMPANY. 2.1 GAAP ACCOUNTING. The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied. 2.2 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver the following: (a) to each Investor, as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of shareholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) to each Major Investor (as defined below), as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter. (c) to each Major Investor, as soon as practicable, but in any event within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail and including a comparison to plan figures for such period; (d) to each Major Investor, as soon as practicable, but in any event at least thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company; 13 (e) to each Major Investor, using its best efforts within twenty-four (24) hours of such event, a notice via facsimile sent to such person designated to obtain such notices, (i) that the Company has filed a registration statement under the Securities Act for purposes of a public offering of securities of the Company; (ii) if the Company issues a press release; (iii) if the Company issues additional shares of capital stock; (iv) if there is a change in any of the key personnel of the Company; (v) if there is a change in control of the Company; and (vi) if there is any other material corporate event. (f) with respect to the financial statements called for in subsections (b) and (c) of this Section 2.2, an instrument executed by the Chief Financial Officer or President of the Company certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment; and (g) such other information relating to the financial condition, business, prospects or corporate affairs of the Company as any Major Investor may from time to time request, provided, however, that the Company shall not be obligated under this subsection (g) or any other subsection of Section 2.1 to provide information that it deems in good faith to be a trade secret or similar confidential information. 2.3 INSPECTION. The Company shall permit each Major Investor, at such Major Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.3 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information. 2.4 STOCK VESTING. Unless otherwise approved by the Board of Directors, all stock options and other stock equivalents issued after the date of this Agreement to employees, directors, consultants and other service providers shall be subject to vesting on terms no more favorable than as follows: (a) twenty-five percent (25%) of such stock shall vest at the end of the first year following the earlier of the date of issuance or such person's services commencement date with the Company, and (b) seventy-five percent (75%) of such stock shall vest over the remaining three (3) years. With respect to any shares of stock purchased by any such person, the Company's repurchase option shall provide that upon such person's termination 14 of employment or service with the Company, with or without cause, the Company or its assignee (to the extent permissible under applicable securities laws and other laws) shall have the option to purchase at cost any unvested shares of stock held by such person. 2.5 PROPRIETARY INFORMATION AND INVENTIONS. The Company covenants to take appropriate actions, by way of agreements or instructions, to protect improper disclosure and use of Company confidential information by its and its subsidiaries' employees and to obtain appropriate rights in the inventions of such employees. 2.6 RIGHT OF FIRST OFFER. Subject to the terms and conditions specified in this paragraph 2.6, the Company hereby grants to each Major Investor (as hereinafter defined) a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). A "Major Investor" shall mean any Investor or permitted transferee that holds at least seven hundred thousand (700,000) shares of Registrable Securities or Common Holder holding at least four million (4,000,000) shares of Registrable Securities, as adjusted for stock splits, stock dividends, combinations and other recapitalizations. A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate. Each time the Company proposes to offer any shares of, or securities convertible into or exchangeable or exercisable for any shares of, any class of its capital stock ("Shares"), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions. (a) The Company shall deliver a notice in accordance with Section 3.5 ("Notice") to the Major Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms upon which it proposes to offer such Shares. (b) By written notification received by the Company, within fifteen (15) calendar days after receipt of the Notice, the Major Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares that equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock then held, by such Major Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full exercise of all outstanding options and warrants, and full conversion of all outstanding convertible securities) prior to the issuance of the Shares. The Company shall promptly, in writing, inform each Major Investor that elects to purchase all the shares available to it (a "Fully-Exercising Investor") of any other Major Investor's failure to do likewise. During the ten (10) day period commencing after such information is given, each Fully-Exercising Investor may elect to purchase that portion of the Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of Preferred Stock then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock then held, by all Fully-Exercising Investors who wish to purchase some of the unsubscribed shares. 15 (c) If all Shares that Investors are entitled to obtain pursuant to subsection 2.6(b) are not elected to be obtained as provided in subsection 2.6(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in subsection 2.6(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within ninety (90) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith. (d) The right of first offer in this paragraph 2.6 shall not be applicable to (i) the issuance or sale of Common Stock (or options therefor) to employees, directors and consultants in transactions approved by the Company's Board of Directors; (ii) the issuance of securities pursuant to a bona fide, firmly underwritten public offering of shares of Common Stock, registered under the Act, (iii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, (v) the issuance of stock, warrants or other securities or rights to persons or in connection with equipment leasing or debt financing transactions with a bank, venture leasing company or other similar institution, approved by the Company's Board of Directors, or (vi) securities issued pursuant to any rights or agreements outstanding as of the date of this Agreement. 2.7 BOARD OF DIRECTOR APPROVAL. The Company shall not without the approval of a majority of the Board of Directors take the following actions: (a) issue any equity securities (other than shares of Common Stock (or options therefor) to employees, directors and consultants for the primary purpose of soliciting or retaining their services) or rights to purchase any equity securities; (b) declare any dividend with respect to the Company's equity securities' (c) incur any long-term debt in the principal amount in excess of $1,000,000; (d) sell, lease or otherwise dispose of a material portion of the Company's assets outside the ordinary course of business; (e) incur a capital expense in excess of $1,000,000 or any other expense in excess of $1,000,000 not included in the Company's annual budget; (f) make material changes in the Company's accounting methods or accounting policies; (g) amend the Articles of Incorporation or Bylaws to alter the size of the Board of Directors; or 16 (h) amend this Section 2.7. 2.8 REMUNERATION AND THE 1940 ACT. (a) The Company shall not, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise to any Investor or other shareholder of the Company as consideration for or as an inducement to entering into by any Investor or other shareholder of the Company of any waiver or amendment of any of the terms and provisions of this Agreement, the Ancillary Agreements or the Amended and Restated Articles of Incorporation which affects any Investors' rights as an investor, unless such remuneration is concurrently paid, on the same terms, ratably to all Investors whether or not such Investors grant such wavier or agree to such amendment. (b) The Company shall not become an "investment company" or a company "controlled" by an "investment company," within the meaning of the 1940 Act. In the event the Company breaches the foregoing, the Company shall forthwith notify the Investors and shall take immediate corrective action to remedy such breach. 2.9 TERMINATION OF CERTAIN COVENANTS. The covenants set forth in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7 and 2.8 shall terminate and be of no further force or effect when the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur. 3. MISCELLANEOUS. 3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 3.2 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 3.3 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 3.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 17 3.5 NOTICES. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon delivery by confirmed facsimile transmission, nationally recognized overnight courier service, or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 3.6 EXPENSES. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 3.7 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company, the holders of a majority of the Registrable Securities held by the Investors (voting as a separate class) and the holders of a majority of Registrable Securities held by the Common Holders (voting as a separate class). Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities, each future holder of all such Registrable Securities, and the Company. 3.8 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law the parties agree to negotiate the provision in good faith. In the event the parties cannot reach a mutually agreeable and enforceable replacement for such provision then (a) such provision shall be excluded from this Agreement and (b) the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 3.9 AGGREGATION OF STOCK. All shares of Registrable Securities held or acquired by affiliated entities or persons, or investment companies managed by the same investment advisor, shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 3.10 PRIOR AGREEMENT The rights under the Prior Agreement, including without limitation the preemptive rights set forth in Section 4 of the Prior Agreement with regarding to the Series B Agreement, are hereby waived. Except for Section 3.11 of the Prior Agreement, the Prior Agreement is hereby superseded in its entirety and shall be of no further force and effect. 3.11 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to use its best efforts to insure that its authorized representatives use, the same degree of care as such Investor uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Investor may disclose such proprietary 18 or confidential information to any partner, subsidiary or parent of such Investor for the exclusive purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of and agrees to the confidentiality provisions of this Section 3.11. 19 Schedule A Schedule of Investors
NAME NUMBER OF SHARES - ---- ---------------- SERIES A David L. Anderson, Trustee of the Anderson Living Trust, 1/22/98 98,120 Arbor Company 42,356 G. Leonard Baker, Jr. 98,120 Nima Bakhtiary 42,352 Y. Eric Cho 84,713 Coxe, Tench, Trustee of the Coxe/Otus Revocable Trust, 4/23/98 134,759 Daou Tech, Inc. 169,426 James C. Gaither 8,807 Janet Greenbaum, Wells Fargo Bank, Trustee SHV M/P/T FBO Tench Coxe 118,369 Greg Easterlin 5,000 Timothy M. Haley 42,356 Sherryl W. Hossack Wells Fargo Bank, 1,589 Trustee SHV M/P/T William and June Lattin Revocable 42,356 Living Trust Krishna Rangarajan 4,237 Krishna Rangarajan and Ashu Suri 42,356 Allan Rosencwaig 42,356 Brooke A. & Patricia Seawell, TTEES, 50,000 Seawell Revocable Trust Martin J. Sprinzen, 42,356 Stanford University 42,356 Steve Wood 50,000 Sutro Group 42,356 Sutter Hill Associates 723,263 Sutter Hill Entrepreneurs Fund (AI), LP 19,572 Sutter Hill Entrepreneurs Fund (QP), LP 49,557 Sutter Hill Ventures, A California Limited Partnership 1,978,906 Paul M. Wythes, and Marsha R. Wythes, Trustees of the Wythes Living 43,288 Trust, 7/21/87 The Wythes 1999 Grandchildrens' Trust, Jennifer W. Vettel, Paul M. 13,124 Wythes, Jr. and Linda W. Knoll, Trustees William H. Younger, Jr., Trustee, The Younger Living Trust, 1/20/95 98,120 SERIES B David L. Anderson 8,771 Trustee of the Anderson Living Trust, 1/22/98 David L. Anderson, Trustee 7,691 NAME NUMBER OF SHARES - ---- ---------------- Anvest, L.P. 7,691 G. Leonard Baker, Jr. 15,382 G. Leonard Baker, Jr. 8,771 Tench Coxe, Trustee 3,582 Tench Coxe, Trustee of the Coxe/Otus Revocable Trust, 4/23/98 12,047 G & H Partners 7,259 James C. Gaither 787 Sherryl W. Hossack 48 John Hsuan 60,606 Information Technology Ventures II, L.P. 1,751,491 ITV Affiliates Fund II, L.P. 66,691 Sherryl W. Hossack (Keough) 145 Raymond Soong 121,212 Sutter Hill Entrepreneurs Fund (AI), LP 1,750 Sutter Hill Entrepreneurs Fund (QP), LP 4,430 Sutter Hill Ventures, A California Limited Partnership 176,902 Tench Coxe (Keough) 10,743 The Lin Family Trust 60,606 TOW Partners 14,325 Chih-Hao Tsao 60,606 UMB Bank, Trustee for Gunderson 317 Paul M. and Marsha R. Wythes, 3,870 Trustees of the Wythes Living Trust, 7/21/87 The Wythes 1999 Grandchildrens' Trust, Jennifer W. Vettel, Paul M. 1,173 Wythes, Jr., and Linda W. Knoll, Trustees William H. Younger, Jr., Trustee, The Younger Living Trust, 1/20/95 8,771 William H. Younger, Jr., Trustee 16,151 Wen-Chen Yuan 60,606 SERIES C Seligman New Technologies Fund, Inc. 98,003 Seligman New Technologies Fund II, Inc. 562,080 Seligman Investment Opportunities (Master) Fund - NTV Portfolio 32,213 Seligman Investment Opportunities (Master) Fund - NTV II Portfolio 50,400 Seligman New Technologies Venture Fund LLC 44,705 Amerindo Internet Fund PLC 113,510 Amerindo Technology Growth Fund II Inc. 78,740 Emerging Technology Portfolio 113,510 Mitchell Bartlett 1,200 Krista Bessinger 2,400 Daniel Chapey 2,000 William F. Hartfiel, III 1,600 James Stableford 2,000 Vitria Technology, Inc 236,220 DRW Venture Partners LP 59,055 ii NAME NUMBER OF SHARES - ---- ---------------- Information Technology Ventures II, L.P. 56,889 ITV Affiliates Fund II, L.P 2,166 Sutter Hill Ventures, A California Limited Partnership 69,029 Sutter Hill Entrepreneurs Fund (AI), L.P. 683 Sutter Hill Entrepreneurs Fund (QP), L.P. 1,729 Paul M & Marsha R. Wythes, Trustees, The Wythes Living Trust (7/21/87) 1,510 TOW Partners, A California Limited Partnership 5,513 The Wythes 1999 Grandchildren's Trust Jennifer W. Vettel, Paul M. 458 Wythes, Jr., and Linda W. Knoll, Trustees David L. Anderson, Trustee, The Anderson Living Trust, U/A/D 1/22/98 8,033 G. Leonard Baker, Jr. 8,033 William H. Younger, Jr. Trustee, The Younger Living Trust, U/A/D 1/20/95 8,287 Tench Coxe, Trustee, The Coxe/Otus Revocable Trust, U/A/D 4/23/98 8,781 James C. Gaither 2,953 Gregory P. and Sarah J.D. Sands, Trustees, The Gregory P. and Sarah 1,181 J.D. Sands Trust Agreement dated 2/24/99 Lawrence Ebringer 1,181 Sherryl W. Hossack 295 Michele Y. Phua 148 Lynne M. Brown 148 Patricia Tom 148 iii Schedule B Common Holders NAME NUMBER OF SHARES - ---- ---------------- Farhad Hadavi, 300,000 Dr. K. Cyrus Hadavi 8,700,000 Kameron Hadavi 1,000,000
iv EX-10.2 3 ex-10_2.txt EXHIBIT 10.2 Exhibit 10.2 OFFICE SPACE LEASE HASEKO CORPORATION, a Japanese corporation (Landlord) PARAGON MANAGEMENT SYSTEMS, INC., a California corporation (Tenant) 5933 West Century Boulevard Los Angeles, California Suite 1220 (Building and Premises) June 20, 1996 TABLE OF CONTENTS
Page ---- Basic Lease Information...........................................................1 1. PREMISES......................................................................2 2. TERM; COMPLETION OF IMPROVEMENTS..............................................2 3. Intentionally omitted.........................................................3 4. RENTAL PAYMENTS...............................................................3 5. BASE MONTHLY RENT.............................................................4 6. TENANT'S SHARE OF INCREASED COSTS.............................................4 7. USE...........................................................................6 8. SERVICES......................................................................6 9. TAXES PAYABLE BY TENANT.......................................................7 10. IMPROVEMENTS, REPAIRS AND ALTERATIONS.........................................7 11. LIENS.........................................................................8 12. DAMAGE AND DESTRUCTION........................................................8 13. WAIVER OF SUBROGATION.........................................................8 14. INDEMNIFICATION...............................................................9 15. COMPLIANCE WITH LAW...........................................................9 16. INSURANCE.....................................................................9 17. ASSIGNMENT AND SUBLETTING....................................................10 18. RULES........................................................................11 19. ENTRY BY LANDLORD............................................................11 20. EVENTS OF DEFAULT............................................................11 21. TERMINATION UPON DEFAULT.....................................................12 22. CONTINUATION AFTER DEFAULT...................................................12 23. OTHER RELIEF.................................................................12 24. PARKING......................................................................12 25. RIGHT TO RELOCATE............................................................13 26. TRADE FIXTURES...............................................................14 27. SUCCESSORS AND ASSIGNS.......................................................14 28. TIME.........................................................................14 29. LANDLORD'S DEFAULT...........................................................14 30. TENANT'S LEASE OF OTHER SPACE IN BUILDING....................................14 31. LANDLORD'S RIGHT TO CURE DEFAULTS............................................14 32. ATTORNEYS' FEES..............................................................15 33. EMINENT DOMAIN...............................................................15 34. SUBORDINATION................................................................15 35. NO MERGER....................................................................16 36. CONVEYANCE BY LANDLORD.......................................................16 37. ESTOPPEL CERTIFICATE.........................................................16 38. NO LIGHT, AIR OR VIEW EASEMENT...............................................16 39. HOLDING OVER.................................................................16 40. ABANDONMENT..................................................................16 41. SECURITY DEPOSIT.............................................................17 42. WAIVER.......................................................................17 43. NOTICES......................................................................17 44. COMPLETE AGREEMENT...........................................................17 45. CORPORATE AUTHORITY..........................................................17 46. HAZARDOUS MATERIALS..........................................................18 47. ADDITIONAL PROVISIONS........................................................18 48. MISCELLANEOUS................................................................18 49. EXHIBITS AND RIDER...........................................................19 50. LEASE AS SUB-SUBLEASE........................................................20
EXHIBIT "A" SITE PLAN OF PREMISES EXHIBIT "B" INTENTIONALLY OMITTED EXHIBIT "C" TERM COMMENCEMENT LETTER EXHIBIT "D" RULES AND REGULATIONS i BASIC LEASE INFORMATION DATE: June 20, 1996 BUILDING: 5933 West Century Boulevard Los Angeles, California LANDLORD: HASEKO CORPORATION, a Japanese corporation TENANT: PARAGON MANAGEMENT SYSTEMS, INC., a California corporation LEASE SECTION Section 1 PREMISES: Suite 1220 on the 12th floor, as more particularly described on EXHIBIT "A" attached hereto Section 2 TARGET COMMENCEMENT DATE: July 1, 1996 Section 2 TERM EXPIRATION: 36 months after the actual Commencement Date (defined in Section 2) Section 4 BASE MONTHLY RENT: $3,115.35 Section 6 TENANT'S SHARE OF INCREASED COSTS: Paragraphs 1.435% (based on 206,770 of rentable square feet (a) and (b) in the Building) Section 41 SECURITY DEPOSIT: $3,115.35 Section 43 LANDLORD'S ADDRESS FOR NOTICES: Haseko Corporation c/o Argus Commercial 350 South Figueroa Street, Suite 141 Los Angeles, California 90071 TENANT'S ADDRESS FOR NOTICES: Paragon Management Services 5933 West Century Boulevard, Suite 1220 Los Angeles, California 90045 Section 49 EXHIBITS AND RIDER: Exhibits A, C and D and a Rider are attached hereto and are incorporated herein by reference The Sections of the Lease identified above are the Sections which refer to the Basic Lease Information and each Section shall be deemed to incorporate by reference the applicable Basic Lease Information. In the event of any conflict between the foregoing Basic Lease Information and any of the terms of the Lease, the terms of the Lease shall control. 1 OFFICE SPACE LEASE THIS OFFICE SPACE LEASE ("Lease"), dated June 20, 1996, is entered into by and between HASEKO CORPORATION, a Japanese corporation, as Landlord, and PARAGON MANAGEMENT SYSTEMS, INC., a California corporation, as Tenant, with the consent of ROYAL INVESTMENT SYSTEM PARTNERSHIP (01), as Master Landlord. 1. PREMISES. Landlord hereby leases to Tenant, and Tenant hereby hires from Landlord, upon the terms and conditions hereinafter set forth, those certain premises ("Premises") outlined on EXHIBIT "A" attached hereto. The Premises are located on the 12th floor of the Building. As used in this Lease, the term "Building" shall mean the building described in the Basic Lease Information attached hereto and all common areas, parking areas and walkways serving said building and all areas adjacent to said building which are owned by Landlord. Landlord and Tenant hereby irrevocably stipulate and agree that the rentable area of the Building is 206,770. Landlord and Tenant hereby acknowledge that the rentable area of the Premises is 2,967; however, during the first thirty (30) days after the Commencement Date, Tenant may cause Tenant's space planner to re-measure the rentable area of the Premises and, if Tenant's re-measurement, as verified by Landlord's space planner, shows that the rentable area of the Premises is greater or less than 2,967 rentable square feet then Landlord and Tenant shall execute an amendment to this Lease adjusting the amount of Base Monthly Rent, the amount of the security deposit, and Tenant's Share of Increased Costs based upon the re-measurement of the rentable area of the Premises. If Tenant does not submit a re-measurement by Tenant's space planner to Landlord for verification prior to the end of the thirty (30) day period after the Commencement Date, then Tenant shall be deemed to have irrevocably stipulated and agreed that the rentable area of the Premises is 2,967. The Premises shall include the right to use, in common with others, walkways, lobbies, entrances, stairs, elevators and other public portions of the Building (collectively referred to as the "Common Areas"). All of the outside walls and windows of the Premises and any space in the Premises used for shafts, stacks, pipes, conduits, ducts, and electric or other Building facilities, and the use thereof and access thereto through the Premises for the purposes of operation, maintenance and repairs are reserved to Landlord. For purposes of this Lease, the term "rentable area" shall mean 113% of the "usable area." The term "usable area" shall mean all floor area in the Premises, measured to the inside glass surface of the outer building walls, to the interior side of corridors and other permanent partitions, and to the center of partitions that separate the Premises from adjoining tenant spaces, without deduction for columns and projections necessary to the Building. 2. TERM; COMPLETION OF IMPROVEMENTS The term ("Term") of this Lease shall be for 36 months and is tentatively scheduled to commence on July 1, 1996 ("Target Commencement Date"). The Target Commencement Date is based upon the lease commencing five (5) business days after lease execution. If Landlord, for any reason whatsoever, cannot deliver possession of the Premises to Tenant on the Target Commencement Date, this Lease shall not be voidable, nor shall Landlord or its agents be liable to Tenant for any loss or damage resulting therefrom; however, if Landlord is unable for any reason to deliver the Premises to Tenant by the date which is five (5) business days after execution of this Lease, then Tenant may terminate this Lease by written notice to Landlord given within five (5) business days after the end of said five (5) business day period and upon such termination, Landlord shall refund to Tenant all funds paid to or deposited with Landlord by Tenant under this Lease. Tenant is leasing the Premises in its current "as is" condition except that Landlord shall provide building standard window coverings (currently in the Premises) and Landlord shall steam clean the existing carpet prior to Tenant's occupancy thereof and, within five (5) business days after the Commencement Date, Tenant may deliver a written punch list to Landlord listing 2 defective light fixtures and electrical outlets, and provided such a punch-list is timely provided to Landlord, then Landlord shall use reasonable efforts to replace the defective fixtures or outlets with Building standard fixtures and outlets as soon as reasonably possible. Promptly after Landlord tenders possession of the Premises to Tenant, Tenant shall promptly and diligently install its trade fixtures and equipment in the Premises. The Term shall commence on the later of the date that is five (5) business days after lease execution, or the date on which Landlord delivers possession of the Premises to Tenant ("Commencement Date"). The Commencement Date shall be confirmed in writing by the parties in the form set forth in EXHIBIT "C" attached hereto promptly after the Commencement Date, and such written confirmation shall be attached hereto. Landlord shall clean the Premises, per Building standards, prior to and immediately after Tenant takes occupancy. Tenant shall have one option to extend the term of the Lease for a period of three (3) years (an "Extension Term"), provided that Tenant is not then in default under any of the terms or provisions of the Lease and also provided that Tenant has not been in default on three (3) or more separate occasions during the term of this Lease. Tenant may exercise the extension option by giving written notice of Tenant's intent to exercise the option to Landlord at least one hundred eighty (180) days prior to the expiration of the initial Term but no sooner than twelve (12) months prior to the expiration of the initial Lease Term. At the commencement of the Extension Term, the Base Rent shall be adjusted to be equal to ninety-five percent (95%) of the then fair market rental value of the Premises, but no less than the rate in effect immediately prior to the expiration of the Term and said adjustment may include future adjustments to Base Rent if such future adjustments are then being included in office lease transactions. If Landlord and Tenant cannot agree upon the fair market rental value of the Premises within sixty (60) days after Landlord's receipt of Tenant's notice exercising the option contained herein, Landlord and Tenant shall each appoint a "Qualified Arbitrator" (as defined below) within seven (7) days after the expiration of the aforementioned sixty (60) day period. Such arbitrators shall confer and select a third Qualified Arbitrator (the "Neutral Arbitrator"), who alone shall determine the fair market rental value of the Premises. Should the two (2) arbitrators fail to select a Third Qualified Arbitrator to act as the Neutral Arbitrator within seven (7) days, the Neutral Arbitrator shall be designated pursuant to California Code of Civil Procedure Section 1281.6, as that Section may be amended or redesignated from time to time provided, however, that the Neutral Arbitrator so appointed must be a Qualified Arbitrator. The determination of the Neutral Arbitrator shall be binding upon Landlord and Tenant. Landlord and Tenant shall bear the cost of the arbitrator appointed by such party and shall equally bear the cost of the Neutral Arbitrator. As used herein, the term "Qualified Arbitrator" shall mean a person who is an appraiser or real estate broker licensed by the State of California and who has not less than five (5) years' experience in commercial leasing or commercial real estate appraising. 3. FAILURE TO OCCUPY IMPROVED SPACE [INTENTIONALLY OMITTED] 4. RENTAL PAYMENTS. Tenant shall pay base rent ("Base Rent") for the Premises to Landlord throughout the Term on or before the first day of each calendar month during the Term, without deduction or offset, in amount(s) set forth in Section 5 hereof, as adjusted in accordance with Section 6, except that Tenant shall pay the first monthly installment concurrently with Tenant's execution hereof. If the Term commences on a day other than the first day of a calendar month, then the Base Rent for the first partial month shall be equitably prorated. All sums payable by Tenant to Landlord hereunder shall be paid to Landlord, without deduction or offset, in lawful money of the United States of America, addressed to Landlord c/o Argus Commercial, 350 S. Figueroa Street, Suite 141, Los Angeles, California, 90071, or to such other person or at such other place as Landlord may from time to time designate in writing. If any installment of Base Rent is not received by Landlord within ten (10) days after the date such installment is due, Tenant shall pay a late charge equal to eight percent (8%) of such installment and the installment and late charge shall bear interest at the highest rate permitted by law. Tenant recognizes and agrees that the late charge is intended to compensate Landlord for and is a reasonable estimate of the administrative, legal, bookkeeping and other expenses which will result from such delinquent rent payment, which costs and expenses would be extremely difficult and impractical to calculate. 3 Any payment by Tenant or receipt by Landlord of a lesser amount than stipulated herein for Base Rent, additional rent or any other charge hereunder shall be deemed payment of the earliest stipulated rent, additional rent or other charge then due. No endorsement or statement on a check and no letter accompanying any check or payment shall be deemed an accord and satisfaction. Landlord may accept any check or payment without prejudice to Landlord's rights to recover the balance of rent, additional rent or other charges then due or to pursue any other remedy set forth in this Lease or available at law or in equity. 5. BASE MONTHLY RENT Rent Per Rentable Month Square Foot Monthly Rent ----- ----------- ------------ 1-36 $1.05 $3,115.35 Notwithstanding the foregoing, and except for periods during which Tenant is in default, Base Rent shall be abated for the 2, 13, and 25 months of the Term. 6. TENANT'S SHARE OF INCREASED COSTS (a) The Base Rent payable during each calendar year or part thereof during the Term, after the calendar year 1996 (the calendar year 1996 being hereinafter referred to as the "Base Year") shall be increased by Tenant's Share of Increased Costs, as specified in the Basic Lease Information, of the total dollar increase, if any, in Operating Expenses paid or incurred by Landlord in the Base Year. However, Tenant shall not be obligated for Tenant's Share of Increased Costs for the first twelve (12) months of the initial Lease Term. As used herein "Operating Expenses" means all costs related to the administration, management, operation and maintenance of the Building, including without limitation, wages, salaries and other payroll costs and expenses, janitorial maintenance, guard and other services, Building office rent or rental value, power, water, waste disposal and other utilities, materials and supplies, maintenance and repairs, insurance, and depreciation on personal property and costs of making improvements to the Building or Common Areas that are required by laws (and amendments to laws) enacted after the Commencement Date, including, without limitation, improvements required by the amendments or modifications to Americans With Disabilities Act (42 U.S.C. Section 12181 et SEQ.) enacted after the Commencement Date; provided, however, that Operating Expenses shall not include taxes covered under paragraph (b) below, depreciation costs of tenants' improvements, real estate brokers' commissions, interest and, except as set forth in Section 6(f) below, capital items. Additionally, Operating Expenses shall shall not include Landlord's general corporate overhead and general administrative expenses; advertising and promotional expenses; fines, penalties or other impositions incurred as a result of Landlord's failure to make tax payments when due or to comply with laws, ordinances and regulations applicable to the Building; and any other expenses which would not normally be treated as an operating expense under generally accepted accounting principles, consistently applied, by landlords of comparable buildings. Actual Operating Expenses for both the Base Year and each subsequent calendar year shall be adjusted to equal Landlord's reasonable estimate of Operating Expenses had ninety five percent (95%) of the total rentable area of the Building been occupied. (b) The Base Rent payable during each calendar year, or part thereof during the Term, after the calendar year 1996 (the "Base Tax Year"), shall also be increased by Tenant's Share of Increased Costs, as specified in the Basic Lease Information, of the total dollar increase, if any, in real and personal property taxes, rental tax, gross receipts tax and any tax, tax assessment, special assessment, charges or other imposition of any nature whatsoever levied wholly or partly in lieu thereof, whether or not such tax, tax assessment, special assessment, charge or other imposition is presently within the contemplation of the parties, levied against the Building and fixtures and other property used in connection with the operation or maintenance of the Building for such calendar year (excluding, during the initial Term of this Lease only, increases in property taxes in excess of two percent (2%) per annum caused by the sale of the Building during the initial Term of this Lease) over such taxes for the Base Tax Year. However, 4 Tenant shall not be obligated to pay any such taxes during the first twelve (12) months of the initial Lease Term. (c) Prior to the start of each calendar year or as soon thereafter as practicable, Landlord shall give Tenant written notice of its estimate of amounts payable under paragraphs (a) and (b) above for the ensuing calendar year. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12) of such estimated amounts, provided that if such notice is not given in December. Tenant shall continue to pay on the basis of the prior year's estimate until the month after such notice is given. If at any time or times it appears to Landlord that the amounts payable under either paragraph (a) and (b) above for the current calendar year will vary from its estimate by more than five percent (5%), Landlord shall, by written notice to Tenant, revise its estimate for such year, and subsequent payments by Tenant for such year shall be based upon such revised estimate. (d) Within one hundred eighty (180) days after the close of each calendar year or as soon after such one hundred eighty (180) day period as practicable, Landlord shall deliver to Tenant a statement of amounts payable under paragraphs (a) and (b) above for such calendar year. If such statement shows an amount owing by Tenant that is less than the estimated payments for such calendar year previously made by Tenant, Tenant shall be given a credit towards future rents owed in an amount equivalent to the overpayment (or, if this Lease shall have expired or terminated, Landlord shall refund the overpayment to Tenant). If such statement shows an amount owing by Tenant that is more than the estimated payment for such calendar year previously made by Tenant, Tenant shall pay the deficiency to Landlord within thirty (30) days after delivery of the statement. (e) If, for any reason, this Lease shall terminate on a day other than the last day of a calendar year, the amount of increase (if any) in rent payable by Tenant applicable to the calendar year in which such termination shall occur shall be equitably prorated on the basis which the number of days from the commencement of such calendar year to and including such termination date bears to three hundred sixty-five (365). (f) Tenant shall be charged for the amortization, with a market rate of interest, of the cost of installation of capital investment items that are for the purpose of reducing operating costs or which result in energy conservation or that may be required by applicable law or governmental authority; however, in no event may the amount included in Operating Expenses of capital investment items that are for the purpose of reducing operating costs or which result in energy conservation exceed the amount of the actual applicable reduction in Operating Expenses and applicable reduction in energy costs (in each case, as reasonably determined by Landlord). All such costs shall be amortized over the reasonable life of the capital investment items, with the reasonable life and amortization schedule to be determined in accordance with sound management accounting principles. (g) All amounts payable under this Section 6 shall be considered additional rent. (h) Upon reasonable advance written notice by Tenant to Landlord, given not more often than once per statement described in Subsection 6(d) above and within one hundred and twenty (120) days after Tenant's receipt of the statement described in Subsection 6(d) above, Tenant shall be permitted to examine the books and records in Landlord's possession which are pertinent to the Operating Expenses and Taxes described in such statement. Such examination shall be conducted at Tenant's sole expense and at Landlord's office or at such other place where such books and records are commonly kept by Landlord (in either Los Angeles County or Orange County), and shall be conducted so as not to interfere with Landlord's normal business operations. If Tenant fails to conduct such examination within one hundred and twenty (120) days after its receipt of a statement as set forth above, then Tenant's right to conduct such examination shall be deemed waived with respect to such statement. If such examination reveals an overpayment of Operating Expenses or Taxes for the period covered by such statement, then, provided Landlord does not reasonably dispute the results thereof, Landlord shall credit such overpayment against the next monthly rent payment of Tenant, or if the Term hereof has expired, Landlord shall promptly refund the overpayment to Tenant. If such examination reveals an 5 underpayment of Operating Expenses or Taxes for the period covered by such statement, then Tenant shall pay the same with its next monthly rent payment, or if the term hereof has expired, Tenant shall pay the same within fifteen (15) days after receipt of the examination results. If Tenant's examination reveals an overstatement of Operating Expenses of three percent (3%) or more, then the reasonable costs and expenses of Tenant's examination shall be paid by Landlord. 7. USE (a) The Premises shall be used for general office purposes and for no other purpose without the written consent of Landlord. Tenant shall not do or permit to be done in or about the Premises, nor bring or keep or permit to be brought or kept therein, anything which is prohibited by or will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated or which is prohibited by the standard form of fire insurance policy, or will in any way increase the existing rate of or affect any fire or other insurance upon the Building or any of its contents, or cause a cancellation of any insurance policy covering the Building or any part thereof or any of its contents. Tenant shall not do or permit anything to be done in or about the Premises which will in any way obstruct or interfere with the rights of other tenants of the Building, or injure or annoy them, or use or allow the Premises to be used for any improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises or commit or suffer to be committed any waste in, on or about the Premises. (b) Tenant shall not use the name of the Building or any similar name in connection with any business carried on by Tenant (except as Tenant's address) without written consent of Landlord which Landlord may withhold in its sole and absolute discretion. (c) Tenant acknowledges that neither Landlord nor any agent of Landlord has made any representation or warranty as to the suitability of the Premises for the conduct of Tenant's business, nor whether said business is permitted by law. 8. SERVICES (a) Landlord shall maintain the public and common areas of the Building, such as lobbies, stairs, elevators, corridors and restrooms in reasonably good order and condition except for damage occasioned by the act of Tenant, which damage shall be repaired by Landlord at Tenant's expense. (b) Subject to events beyond Landlord's control and subject to Building security policies, Tenant will have access to the Premises twenty-four (24) hours a day, seven (7) days a week. Landlord shall furnish the Premises with (i) 8 watts/sq. ft. of electricity for lighting and the operation of office machines, (ii) heat and .8 CFM/sq. ft. of air conditioning to the extent reasonably required for the comfortable occupation of the Premises during the reasonable and usual business hours of 8:00 a.m. to 6:00 p.m., Monday through Friday, and between the hours of 8:00 a.m. and 1:00 p.m. on Saturday (exclusive of Sundays and Holidays) or such shorter period specified or prescribed by any applicable policies or regulations adopted by any utility or government agency, (iii) elevator service, (iv) lighting replacement (for building standard lights), (v) restroom supplies, and (vi) daily janitor service five nights per week (exclusive of holidays) furnished in the manner that such services are customarily furnished in comparable office buildings in the Los Angeles area. If Tenant requires any utilities or services during times other than the business hours set forth in item (ii) above, then Tenant shall promptly upon demand reimburse Landlord for all costs of providing the same, as reasonably estimated by Landlord. The initial charge for after-hours IIVAC shall be $50.00 per hour and such charge may increase from time to time as determined by Landlord. Landlord shall not be in default hereunder or be liable for any damages directly or indirectly resulting from, nor shall the rental herein reserved be abated by reason of (1) the installation, use or interruption of use of any equipment used for the furnishing of any of the foregoing services or of any phone lines, (2) failure to furnish or delay in furnishing any such services when such failure or delay is caused by repair, accident or any condition beyond the reasonable control of Landlord or by the making of necessary repairs or improvements to the Premises or to the Building, or (3) the limitation, curtailment, rationing or restrictions on use of water, electricity, gas or any other form of energy serving the Premises or 6 the Building. Landlord shall use reasonable efforts to remedy the interruption in the furnishing of such services. Landlord shall be entitled to cooperate voluntarily in a reasonable manner with the efforts of national, state or local agencies or utilities suppliers in reducing energy or other resource consumption. (c) Whenever heat generating machines or equipment or lighting other than Building standard lights are used in the Premises by Tenant which affect the temperature otherwise maintained by the air conditioning system, Landlord shall have the right to install supplementary air conditioning units in the Premises, and the cost thereof, including the cost of installation and the cost of operation and maintenance thereof, shall be paid by Tenant to Landlord upon billing by Landlord. If Tenant installs lighting or equipment requiring power in excess of that required for normal lighting or desk-top office equipment or normal copying equipment, Tenant shall pay for the costs of such excess power as additional rent, together with the cost of installing any additional risers or other facilities that may be necessary to furnish such excess power to the Premises. 9. TAXES PAYABLE BY TENANT In addition to the monthly rental and other changes to be paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all taxes payable by Landlord (other than net income taxes) whether or not now customary or within the contemplation of the parties hereto: (a) upon, measured by or reasonably attributable to the cost or value of Tenant's equipment, furniture, fixtures and other personal property located in the Premises or by the cost or value of any leasehold improvements made in or to the Premises by or for Tenant, other than improvements existing in the Premises as of the Commencement Date regardless of whether title to such improvements shall be in Tenant or Landlord: (b) upon or measured by the monthly rental payable hereunder, including, without limitation, any gross income tax or excise tax levied by the City of Los Angeles, the State of California, the Federal Government or any other governmental body with respect to the receipt of such rental (but not including Landlord's personal income, franchise, estate or inheritance tax); (c) upon or with respect to the possession, leasing, operation, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises or any portion thereof; (d) upon the transaction or any document to which Tenant is a party creating or transferring an interest or an estate in the Premises. In the event that it shall not be lawful for Tenant so to reimburse Landlord, the monthly rental payable to Landlord under this Lease shall be revised to net Landlord the same net rental after imposition of any such tax upon Landlord as would have been payable to Landlord prior to the imposition of any such tax. 10. IMPROVEMENTS, REPAIRS AND ALTERATIONS Upon taking possession of the Premises as set forth herein, Tenant shall be deemed to have accepted the Premises as being in tenantable and good condition. Tenant shall, at Tenant's sole cost and expense, repair and maintain the Premises and every part thereof in good order and condition and in compliance with all applicable laws, ordinances and regulations. Without limiting the foregoing, Tenant shall, at its sole cost and expense, cause the Premises to comply at all times with the requirements of amendments to Title III of the Americans With Disabilities Act (42 U.S.C. Section 12181 ET. SEQ.) enacted after the Commencement Date, any and all regulations adopted pursuant thereto, and any and all applicable laws, statutes, ordinances, rules and regulations concerning public accommodations for disabled persons ("Laws") enacted after the Commencement Date and amendments to Laws enacted after the Commencement Date. Notwithstanding the foregoing, and except for the construction of a conference room in the Premises (which shall be done by Landlord's contractor, with whom Landlord shall contract at Tenant's sole cost and expense, and shall be subject to Landlord's prior written approval of the plans and specifications therefor), Tenant shall not alter or change the Premises or any other portion of the Building without the prior written consent of Landlord, which shall not be withheld for changes required by law, except that such changes shall be subject to Landlord's reasonable approval of plans therefor and Landlord may elect to have its own contractors 7 perform any such alterations that affect Building systems, utilities or structural portions and Tenant shall reimburse Landlord for the reasonable costs thereof within five (5) business days after written demand. Tenant may deliver a punch list to Landlord with respect to the conference room work within five (5) business days after Landlord completes the conference room, and provided such punch-list is timely delivered, Landlord shall use reasonable efforts to correct all reasonable punch-list items within thirty (30) days after receipt of the punch list. Tenant hereby waives the provisions of Subdivision (1) of Section 1932 of the Civil Code of California, and any successor or similar statute or law. All improvements, repairs and/or alterations that may be required of or desired by Tenant shall be done by Landlord's contractor but at the cost of Tenant. All improvements, repairs, and alterations shall become the property of Landlord and shall remain upon and be surrendered with the Premises; provided, however, that at Landlord's option, Tenant shall, at Tenant's expense, when surrendering the Premises, restore the same to their original condition. All damage or injury done to the Premises by Tenant, or by any persons who may be in or upon the Premises with the consent of Tenant, shall be paid for by Tenant except to the extent covered by insurance (and not by any deductible). Tenant shall, at the termination of this Lease by the expiration of time or otherwise, surrender and deliver up the Premises to Landlord in as good condition as when received by Tenant from Landlord, reasonable wear, tear and casualty excepted. Tenant shall pay for all damage to the Building, as well as all damage to tenants or occupants thereof, caused by Tenant's misuse or neglect of the Premises or the appurtenances thereto. 11. LIENS Tenant shall keep the Premises and the Building free from any mechanic's and/or materialmens liens or other liens arising out of any work performed, materials furnished or obligations incurred by Tenant. Tenant shall notify Landlord at least seventy-two (72) hours prior to the commencement of any work or activity on the Premises which may give rise to such liens and Landlord shall have the right to post and keep posted on the Premises any notices that may be provided by law or which Landlord may deem to be proper for the protection of Landlord, the Premises and the Building from such liens. 12. DAMAGE AND DESTRUCTION If the Premises or the Building are completely destroyed by any cause insured against under a standard form fire and extended coverage policy of insurance, or are so damaged thereby that they are untenantable within one hundred eighty (180) days after the date of such destruction or damage, Landlord or Tenant may terminate this Lease by written notice to the other given within five (5) business days after the end of the one-hundred and eighty (180) day period. Within forty-five (45) days after the date of such destruction or damage, Landlord shall give written notice to Tenant as to whether or not the Premises will be rendered tenantable within one hundred eighty (180) days after the date of such destruction or damage. If this Lease is not terminated by Landlord or Tenant as set forth above, Landlord shall with due diligence render the Premises tenantable to the extent insurance proceeds are available therefor, and rent allocable to the untenantable portion of the Premises shall be abated while such portion remains untenantable. If the Premises or the Building are damaged or destroyed by any cause other than a cause insured against under a standard form fire and extended coverage policy of insurance, then Landlord may terminate this Lease by written notice to Tenant given within thirty (30) days after such damage or destruction, which termination shall be effective as of the date of the notice. Notwithstanding anything to the contrary herein, if the Building or the Premises are damaged or destroyed within the last twelve (12) months of the term of this Lease, then Landlord may terminate this Lease upon written notice to Tenant given within thirty (30) business days after the damage or destruction occurs. Tenant hereby waives the provisions of Subdivision 2 of Section 1932 of the California Civil Code and the provisions of Subdivision 4 of Section 1933 of the California Civil Code, and all successor and similar statutes and laws and agrees that this Section 12 is intended to govern damage and destruction to the Premises and the Building. 13. WAIVER OF SUBROGATION Each party shall procure from its insurers under all policies of fire, theft, workmen's compensation and other insurance now or hereafter existing during the Term, and 8 purchased by it insuring or covering the Premises or any portion thereof or operations therein, a waiver of all rights of subrogation which the insurer might otherwise have. Each party hereby waives any claims for property damage it may have against the other to the extent such damage is covered by the insurance required under this Lease. 14. INDEMNIFICATION Tenant hereby waives all claims against Landlord, its agents, employees and contractors for damage to Tenant's business or any of Tenant's or any other person's or entity's property or injury to or death of any person in, upon or about the Premises arising at any time and from any cause other than by reason of the negligent or willful act of Landlord, its agents, employees or contractors. Tenant shall defend (by counsel acceptable to Landlord), indemnify and hold Landlord harmless from and against any and all losses, claims, damages, liabilities and costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) arising directly or indirectly from Tenant's (or any of Tenant's subtenants', assignees', agents', contractors', employees', invitees', licensces' or guests') violation of any of the terms, covenants or conditions of this Lease or from the use or occupancy of the Premises and/or Building, except for those losses, claims, damages, liabilities and costs and expenses caused by the willful misconduct or negligence of Landlord, its agents, employees or contractors. Tenant's obligations and Landlord's rights under this Section 14 shall survive the expiration or earlier termination of this Lease. 15. COMPLIANCE WITH LAW Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances and governmental rules, regulations or requirements now in force or which may hereafter be in force, with the requirements of any board of fire underwriters or other similar body now or hereafter constituted, with any directions or occupancy certificates issued pursuant to any law by any public officer or officers, as well as the provisions of all recorded documents affecting the Premises, insofar as any thereof relate to or affect the condition, use or occupancy of the Premises, or Tenant's business conducted therein, excluding structural changes that are not required due to improvements made by or for Tenant or due to Tenant's acts, but including alterations to the Premises required by amendments or modifications to the Americans With Disabilities Act enacted after the Commencement Date. 16. INSURANCE (a) Tenant shall, at its sole cost and expense, during the term of this Lease, cause all improvements at any time located in the Premises (other than the Building standard tenant improvements) and all equipment and fixtures from time to time used or intended to be used in connection with the operation and maintenance of the Premises, to be insured for the mutual benefit of Landlord and Tenant against loss or damage by fire and against loss or damage by other risks now or hereafter included in the Special Form insurance policy, in an amount equal to the full insurable value thereof. All proceeds from such insurance shall be used for the repair or replacement of such improvements, equipment and fixtures. (b) Notwithstanding any other provisions of this Lease, Tenant, at its own expense, shall also maintain the following insurance coverage. All coverage shall be primary and non-contributory over any insurance the Landlord may elect to provide on his behalf. Upon the commencement of the Term, and upon renewal of such insurance coverage, Tenant shall deliver to the Landlord an original certificate of such insurance from the insurer providing a minimum of thirty (30) days' notice of cancellation. All policies of insurance required to be carried by Tenant under this Section 16 shall be in form satisfactory to Landlord, shall be issued by responsible insurance companies which are licensed to do business in the State of California, have a Best's rating of a least A+ and have been approved in writing by Landlord. (1) Worker's Compensation and Employer's Liability. Tenant shall maintain Worker's Compensation insurance sufficient to comply with all applicable State and/or Federal laws and an Employer's Liability policy with a limit of not less than $1,000,000. 9 (2) Commercial General Liability. Tenant shall maintain a Commercial General Liability policy with limits of liability not less than $1,000,000 per occurrence and $1,000,000 general aggregate for Bodily Injury and Property Damage. Such policy shall specifically name the Landlord as additional insured. Landlord may, at its discretion, request evidence of products insurance. (3) Business Interruption. Tenant shall also maintain a policy of (or obtain an endorsement providing) business interruption insurance insuring Tenant against losses from interruption of its use of the Premises for any reason with coverage for a period of not less than one (1) year. (4) Property Insurance. Tenant shall maintain a special form property insurance policy on all personal property and tenant improvements and betterments for not less than ninety percent (90%) of the replacement cost of the same. Tenant's property policy shall not provide for a deductible in excess of $5,000 without prior written approval of Landlord. (c) Landlord shall maintain property insurance equal to one hundred percent (100%) of the replacement cost of the Building but in no event shall Landlord be required to maintain earthquake or flood insurance. 17. ASSIGNMENT AND SUBLETTING Tenant shall not assign, mortgage, pledge or otherwise transfer this Lease, or any interest therein, either voluntarily, involuntarily, or by operation of law, and shall not sublet the Premises or any part thereof, or any right or privilege appurtenant thereto, or suffer any other person (the agents and employees of Tenant excepted) to occupy or use the Premises, or any portion thereof, without the written consent of Landlord, which consent shall not be unreasonably withheld; however, provided Tenant gives Landlord at least ten (10) days' prior written notice thereof, Tenant may sublet the Premises or assign this Lease to any entity which owns fifty percent (50%) or more of Tenant or to any entity fifty percent (50%) or more of which is owned by an entity which also owns fifty percent (50%) or more of Tenant or to an entity fifty percent (50%) or more of which is owned by Tenant (each such entity is referred to herein as an "Affiliate") and provided Tenant gives Landlord at least ten (10) days' prior written notice thereof, Tenant may assign this Lease in connection with a merger or consolidation of Tenant. If Tenant is a corporation, then a change or changes in the ownership of Tenant, whether voluntarily, involuntarily, or by operation of law, which aggregate(s) fifty percent (50%) or more of total capital stock of Tenant or fifty percent (50%) or more of voting capital stock of Tenant shall be deemed an assignment of this Lease. A consent to one assignment, mortgage, pledge, subletting, occupation, or use by any other person shall not relieve Tenant from any obligation under this Lease and shall not be deemed to be a consent to any subsequent assignment, mortgage, pledge, subletting, occupation or use by another person. Any assignment, mortgage, pledge, subletting, occupation or use without such consent shall be void, and shall, at the option of Landlord, terminate this Lease. Tenant's request for Landlord's consent pursuant to this Section 17 shall be submitted in writing at least twenty (20) days prior to the date Tenant desires to secure such consent. Such request shall be accompanied by all relevant information reasonably necessary for Landlord to consider such request. Any request for Landlord's consent pursuant to this Section 17 shall also be accompanied by a payment to Landlord of $500.00 for the review, evaluation, and/or preparation of any materials or documents. Fifty percent (50%) of any sums or other economic consideration paid to, or paid for the benefit of, Tenant in any calendar month as a result of such subletting (other than a subletting to an Affiliate, and except for the rental or other payments received which are attributable to the amortization of the cost of nonbuilding standard leasehold improvements made to the sublet portion of the Premises at the cost of Tenant) whether denominated rentals under the sublease or otherwise, which exceed in the aggregate the total sums which Tenant is obligated to pay Landlord under this Lease (prorated to reflect obligations allocable to that portion of the Premises subject to such sublease) shall be payable to Landlord on a monthly basis promptly after receipt by Tenant as additional rental under this Lease without affecting or reducing any other obligation of Tenant hereunder. 10 Whether or not Landlord's consent is required or obtained, no subletting or assignment shall release Tenant of Tenant's obligations hereunder or otherwise alter the primary liability of Tenant hereunder. The acceptance of rent or any other sum by Landlord from any person or entity shall not be deemed to be a waiver by Landlord of any provision hereof. In the event of default by any assignee of Tenant or any successor of Tenant in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against said assignee or successor. Landlord may consent to subsequent subletting or assignments of this Lease by assignees of Tenant without notifying Tenant or any successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of any liability under this Lease. 18. RULES Tenant shall faithfully observe and comply with the rules and regulations annexed to this Lease as EXHIBIT "D" and, after notice thereof, all reasonable modifications thereof and additions thereto from time to time promulgated in writing by Landlord. Landlord shall not be responsible to Tenant for the nonperformance by any other tenant or occupant of the Building of any of said rules and regulations. 19. ENTRY BY LANDLORD Landlord may enter the Premises at reasonable hours (and except in the event of an emergency or an entry pursuant to Subsection (d) below, upon at least twenty-four hours' notice) to: (a) inspect the same; (b) exhibit the same to prospective purchasers, lenders or tenants; (c) determine whether Tenant is complying with all of Tenant's obligations hereunder; (d) supply janitor service and any other service to be provided by Landlord to Tenant hereunder, (e) post notice of non-responsibility; and (f) make repairs required of Landlord under the terms hereof or repairs to any adjoining space or utility service or make repairs, alterations or improvements to any other portion of the Building, provided, however, that all such work shall be done as promptly as reasonably possible and so as to cause as little interference to Tenant as reasonably possible. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned by such entry. Landlord shall at all times have and retain a key with which to unlock all of the doors in, on or about Premises (excluding Tenant's vaults, safes and similar areas designated in writing by Tenant in advance) and Landlord shall have the right to use any and all means which Landlord may deem proper to open said doors in an emergency in order to obtain entry to the Premises. Any entry to the Premises obtained by Landlord by any of said means, or otherwise, shall not be construed or deemed to be a forcible or unlawful entry into or a detainer of the Premises or an eviction, actual or constructive, of Tenant from the Premises, or any portion thereof. 20. EVENTS OF DEFAULT The occurrence of any one or more of the following events ("Events of Default") shall constitute a breach of this Lease by Tenant: (a) if Tenant shall fail to pay any rent (including Base Rent and Tenant's Share of Increased Costs) when and as the same become due and payable, or (b) if Tenant shall fail to pay any other sum when and as the same becomes due and payable and such failure shall continue for more than ten (10) days; or (c) if Tenant shall fail to perform or observe any other term hereof or of the rules and regulations described in Section 18 to be performed or observed by Tenant, such failure shall continue for more than thirty (30) days after notice thereof from Landlord and Tenant shall not within such period commence with due diligence and dispatch the curing of such default, or, having so commenced, shall thereafter fail or neglect to prosecute or complete with due diligence and dispatch the curing of such default; or (d) if Tenant shall make a general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts as they become due or shall file a petition in bankruptcy, or shall be adjudicated as bankrupt or insolvent, or shall file a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, or shall fail any answer admitting or shall fail timely to contest the material allegations of a petition filed against it in any such proceeding, or shall seek or contest to or acquiesce in the appointment of any trustee, receiver or liquidator 11 of Tenant or any material part of its properties; or (e) if within thirty (30) days after the commencement of any proceeding against Tenant seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed, or if, within thirty (30) days after the appointment without the consent or acquiescence of Tenant or of any material part of its properties, such appointment shall not have been vacated; or (f) if this Lease or any estate of Tenant hereunder shall be levied upon under any attachment or execution and such attachment or execution is not vacated within ten (10) days; or (g) if any other event occurs which is described in this Lease as an Event of Default or a material breach of, or material default under, this Lease. 21. TERMINATION UPON DEFAULT If an Event of Default shall occur, Landlord at any time thereafter may give a written termination notice to Tenant, and on the date specified in such notice (which shall be not less than three (3) days after the giving of such notice) Tenant's right to possession and this Lease shall terminate, unless on or before such date all rent and other sums payable by Tenant under this Lease (together with interest thereon at the maximum rate allowable by law) and all costs have been paid by Tenant and all other breaches of this Lease by Tenant at the time existing shall have been fully remedied. Upon such termination, Landlord may recover from Tenant: (a) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (b) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (c) the worth at the time of award of the amount by which the unpaid rent for the balance of the Term after the time of award exceeds the amount of such rental loss that Tenant proves could be reasonably avoided; and (d) any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform its obligations under this Lease or which results therefrom. The "worth at the time of award" of the amounts referred to in clauses (a) and (b) above shall be computed by allowing interest at the rate of ten percent (10%) per annum. The worth at the time of award of the amount referred to in clause (c) above shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). For the purposes of determining unpaid rent under clauses (a), (b) and (c) above, the monthly rent reserved in this Lease shall be deemed to be the rent due under Sections 4 and 5 above, as adjusted by Section 6. 22. CONTINUATION AFTER DEFAULT Landlord also has the remedy described in California Civil Code Section 1951.4 (Lessor may continue Lease in effect after Lessee's breach and abandonment and recover rent as it becomes due, if Lessee has the right to sublet or assign, subject only to reasonable limitations). Acts of maintenance or preservation or efforts to relet the Premises or the appointment of a receiver upon application of Landlord to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. 23. OTHER RELIEF The remedies provided for in this Lease are in addition to any other remedies available to Landlord at law or in equity by statute or otherwise. 24. PARKING Unless Tenant is in default hereunder, Tenant shall be entitled to nine (9) unreserved vehicle parking spaces (based on 3 spaces per 1,000 rentable square feet in the Premises) in the building parking facility subject to a monthly parking fee for such spaces designated by the parking operator from time to time for parking; however, Tenant shall not be charged a greater monthly parking fee rate than Landlord is charged. Landlord may assign any unreserved and unassigned parking spaces and/or make all or a portion of such spaces reserved, if it determines in its sole discretion that it is necessary for orderly and efficient parking. Tenant shall not use more parking than said number. If Landlord has not assigned specific spaces to 12 Tenant, Tenant shall not use any spaces which have been so specifically assigned by Landlord to other tenants or for such other uses as visitor parking or which have been designated by governmental entities with competent jurisdiction as being restricted to certain uses. Tenant shall not permit or allow any vehicles that belong to or are controlled by Tenant or Tenant's employees, suppliers, shippers, customers, or invitees to be loaded, unloaded, or parking in areas other than those designated by Landlord for such activities. If Tenant permits or allows any of the prohibited activities described in this Section 24, then Landlord shall have the right, without notice, in addition to such other rights and remedies that it may have, to remove or tow away the vehicle involved and charge the cost to Tenant, which cost shall be immediately payable upon demand by Landlord. Landlord reserves the right at any time to relocate such spaces and to substitute an equivalent number of parking spaces in a parking structure or subterranean parking facility or in a surface parking area within a reasonable distance of the Premises. If requested by Landlord, Tenant shall submit a written notice in a form reasonably specified by Landlord containing the names, home and office addresses and telephone numbers of those persons who are authorized by Tenant to use the parking spaces on a monthly basis (the "Authorized Users") and shall use its best efforts to identify each automobile by make, model and license number. Such notice, as amended from time to time, is hereafter referred to as the "Parking Notice." No person whose name, address, and phone numbers are not contained in the Parking Notice shall have any right to park an automobile in the area of the parking facilities designated for monthly parking and no person whether or not their name is included in the Parking Notice shall have any right to park an automobile not identified in the Parking Notice without (in either case) paying the parking charge then applicable for daily parking in the parking facilities for the Building and parking in the area designated for daily parking. Tenant and Authorized Users shall comply with all rules and regulations as set forth in the Parking Rules and Regulations portion of the rules and regulations adopted by Landlord from time to time. Landlord may refuse to permit any person who violates the Parking Rules and Regulations to park in the parking facility, and any violation of the rules shall subject the car to removal. Tenant agrees to use its best efforts to acquaint all Authorized Users and visitors with the Parking Rules and Regulations. All responsibility for damage to cars is assumed by Authorized Users. Tenant shall repair or cause to be repaired at its sole cost and expense any and all damage to the parking facility or any part thereof caused by Tenant or its Authorized Users or resulting from vehicles of Authorized Users. 25. RIGHT TO RELOCATE Landlord shall have the right, upon providing Tenant forty-five (45) days' written notice describing the premises to which Tenant is to be relocated, to move Tenant to other space in the Building (the "Relocation Premises") if necessary to accommodate a tenant who requires at least 5,000 rentable square feet on the 12th floor of the Building. (Landlord shall also provide Tenant with a preliminary notice of possible relocation promptly after Landlord and the prospective tenant execute a letter of intent for the applicable space.) Tenant shall have the right to cancel this Lease by giving Landlord, within ten (10) days of Tenant's receipt of Landlord's 45 day notice exercising such relocation right, written notice of Lease cancellation with such cancellation to take effect thirty-five (35) days thereafter (the "Cancellation Date"), and during such ten (10) day period, Landlord shall give Tenant reasonable access to Relocation Premises to inspect the Relocation Premises, subject to the occupancy and rights of tenants in possession of the Relocation Premises, if any. In the event Tenant fails to provide Landlord with written notice of Lease cancellation within the aforesaid 10-day period, Tenant's right to cancel this Lease shall lapse. In the event Tenant cancels this Lease pursuant to this paragraph, Tenant shall vacate the Premises and the Building within thirty-five (35) days of Tenant's delivery to Landlord of its notice of cancellation, and Tenant shall not be liable for any further obligations of this Lease accruing after the Cancellation Date; however, if Tenant requests temporary space in its cancellation notice, Landlord shall use good faith efforts to provide Tenant with temporary space in the Building for a term of 120 days from the cancellation of this Lease, and any such temporary space shall be provided upon the terms of this Lease (including, without limitation, 13 the same Base Rent rate then applicable to the Premises), except that in no event shall Landlord be obligated to improve the temporary space or pay for any of Tenant's moving costs. Tenant's new space shall be no smaller than the Premises, and shall be provided with comparable improvements (upgrading only to the level of Tenant's prior space). Landlord shall pay the expenses reasonably incurred by Tenant in connection with such substitution of Premises including but not limited to, costs of moving, door lettering, telephone relocation and reasonable quantities of new stationery. In the event of such relocation, this Lease shall remain in full force and effect and be deemed applicable to the new space except that EXHIBIT "A" and Section 1 of the Basic Lease Provisions shall be amended to include and state all correct data as to the new space; however, the Base Rent and Tenant's Share of Increased Costs payable under this Lease shall not be increased. 26. TRADE FIXTURES Subject to the provisions of Sections 7 and 8 hereof, Tenant shall install and maintain its trade fixtures on the Premises, provided that such fixtures, by reason of the manner in which they are affixed, do not become an integral part of the Building or Premises. Tenant, if not in default hereunder, may at any time or from time to time during the Term, or upon the expiration or earlier termination of this Lease, alter or remove any such trade fixtures so installed by Tenant. If not so removed by Tenant on or before the expiration or earlier termination of this Lease, Tenant, upon the request of Landlord to do so, shall thereupon remove the same. Any damage to the Premises caused by any installation, alteration or removal of such trade fixtures shall be promptly repaired at the expense of Tenant. 27. SUCCESSORS AND ASSIGNS Subject to the provisions hereof relating to assignment, mortgaging, pledging and subletting, this Lease shall bind the heirs, executors, administrators, successors and assigns of any and all the parties hereto. 28. TIME Time is of the essence of this Lease. 29. LANDLORD'S DEFAULT If Landlord shall default in the performance of any of its obligations under this Lease, Tenant shall have no right to pursue any remedies against Landlord, including, without limitation, termination of this Lease, unless and until Tenant shall have given Landlord written notice of the default and Landlord shall not have commenced the cure of such default within thirty (30) days after receipt of the notice, or thereafter shall not diligently prosecute the cure to completion. Satisfaction of any money judgment obtained against Landlord shall be satisfied only out of: (i) proceeds of sale or disposition of Landlord's interest in the Building, whether by Landlord or by execution of judgment; or (ii) rentals and other payments from tenants in the Building. 30. TENANT'S LEASE OF OTHER SPACE IN BUILDING If Tenant leases space in the Building under a lease other than this Lease, then any default by Tenant under such other lease may be deemed by Landlord to be a default by Tenant under this Lease. 31. LANDLORD'S RIGHT TO CURE DEFAULTS All agreements and provisions to be performed by Tenant under any of the terms of this Lease shall be performed at Tenant's sole cost and expense and without any abatement of rent. If Tenant shall fail to pay any sum of money, other than rent, required to be paid by it hereunder or shall fail to perform any other act on its part to be performed hereunder and such failure shall continue for thirty (30) days after notice thereof by Landlord, Landlord may, but shall not be obligated to do so, and without waiving or releasing Tenant from any obligations of Tenant, make any such payment or perform any such other act on Tenant's part to be made or 14 performed as provided in this Lease. All sums so paid by Landlord and all necessary incidental costs shall be deemed additional rent payable hereunder and shall be payable to Landlord on demand, and Landlord shall have (in addition to any other right or remedy of Landlord) the same rights and remedies in the event of the nonpayment thereof by Tenant as in the case of default by Tenant in the payment of rental. 32. ATTORNEYS' FEES If as a result of any breach or default in the performance of any of the provisions of this Lease, either party shall use the services of any attorney in order to secure compliance with such provisions or recover damages therefore, or to enforce any judgment or to terminate this Lease (or, in the case of a default by Tenant, to evict Tenant), then the losing party (as determined by the trier of fact) shall reimburse the prevailing party upon demand for any and all attorneys' fees and expenses so incurred by the prevailing party, including but not limited to, fees and expenses incurred in connection with appellate proceedings, enforcement proceedings and bankruptcy proceedings (and the obligation to pay such fees and expenses shall survive and not be merged into any judgement). 33. EMINENT DOMAIN Should the whole or any part of the Premises be condemned and taken by any competent authority for any public or quasi-public use or purpose, all awards payable on account of such condemnation and taking shall be payable to Landlord, and Tenant hereby waives all interest in or claim to said awards, or any part thereof, except that Tenant shall be entitled to any award made to Tenant for Tenant's moving expenses and loss of trade fixtures owned by Tenant. If the whole of the Premises shall be so condemned and taken, then this Lease shall terminate. If a part only of the Premises is condemned and taken and the remaining portion thereof is not suitable for the purposes of which Tenant had leased said Premises, Tenant shall have the right to terminate this lease. If by such condemnation and taking a part only of the Premises is taken, and the remaining part thereof is suitable for the purposes for which Tenant has leased said Premises, this lease shall continue, but the rental shall be reduced in an amount proportionate to the value of the portion taken as it related to the total value of the Premises. A voluntary sale of the building by Landlord to any public or quasi-public body, agency or person, corporate or otherwise, having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed to be taking under the power of eminent domain for purposes of this Section 33. 34. SUBORDINATION This Lease, at Landlord's option, shall be subordinate to any ground lease, mortgage, deed of trust, or any other hypothecation for security now or hereafter placed upon the Building and to any and all advances made on the security thereof and to all renewals, modification, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Tenant's right to quiet possession of the Premises shall not be disturbed if Tenant is not in default and so long as Tenant shall pay the rent and observe and perform all of the provisions of the Lease, unless this Lease is otherwise terminated pursuant to its terms. If any mortgagee, trustee or ground landlord shall elect to have this Lease prior to the lien of its mortgage, deed of trust or ground lease, then this Lease shall be deemed prior to such mortgage, deed of trust or ground lease, whether this Lease is dated prior or subsequent to the date of said mortgage, deed of trust or ground lease or the date of recording thereof. Tenant agrees to execute any documents required to effectuate such subordination or to make this Lease prior to the lien of any mortgage, deed of trust or ground lease, as the case may be, and failing to do so within ten (10) days after demand, does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's name, place and stead, to do so. If Tenant fails to execute any documents required to be executed by Tenant under this Section within ten (10) days after written demand by Landlord, then such failure shall constitute an Event of Default under this Lease. 15 35. NO MERGER The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work at merger, and shall, at the option of Landlord, terminate all or any existing subleases or subtenancies, or may, at the option of Landlord, operate as an assignment to it of any or all such subleases or subtenancies. 36. CONVEYANCE BY LANDLORD In the event the original Landlord hereunder, or any successor owner of the Building, shall sell, assign or transfer the Building, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this Lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to such new owner. 37. ESTOPPEL CERTIFICATE Tenant shall execute and deliver within fifteen (15) days after written request by Landlord, a certificate certifying (a) that this lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the date and nature of each modification), (b) the date, if any, to which rental and other sums payable hereunder have been paid, (c) that no notice has been received by Tenant of any default which has not been cured, except as to defaults specified in said certificate and (d) such other matters as may be reasonably requested by Landlord to do so within said fifteen (15) day period. Tenant does hereby make, constitute and irrevocably appoint Landlord as Tenant's attorney in fact and in Tenant's name, place and stead, to execute and deliver such certificate on Tenant's behalf if Tenant fails to timely do so. Any such certificate may be relied upon by any prospective purchaser, mortgagee or beneficiary under any deed of trust of the Building or any part thereof. The failure of Tenant to deliver such certificate within the time specified above shall be deemed to be a material breach of this Lease and shall entitle Landlord without notice to terminate this Lease. 38. NO LIGHT, AIR OR VIEW EASEMENT Any diminution or shutting off of light, air or view by any structure which may be erected on lands adjacent to the Building shall in no way affect this Lease or impose any liability on Landlord. 39. HOLDING OVER If Tenant holds over after the Term (as extended if permitted in this Lease) with or without the express or implied consent of Landlord, Tenant shall be liable for all damages suffered by Landlord as a result of such holding over including but not limited to, the loss of prospective tenants and shall become a tenant from month to month upon the terms specified herein but at a monthly rent equivalent to one hundred and fifty percent (150%) of the then prevailing monthly rent paid by Tenant at the expiration of the Term payable in advance on or before the first day of each month and otherwise payable in accordance with the provisions of Sections 4, 5 and 6 hereof. Each party shall give the other notice at least one month prior to the date of termination of such monthly tenancy of its intention to terminate such tenancy. 40. ABANDONMENT In the event of the termination of this Lease by Landlord pursuant to Section 21 hereof, Landlord may remove any property of Tenant from the Premises and store the same elsewhere for the account and at the expense and risk of Tenant, and if Tenant shall fail to pay the cost of storing such property after it has been stored for a period of ninety (90) days or more, Landlord may sell any or all such property at public or private sale, in such manner and at such times and places as Landlord in its sole discretion, may deem proper, without notice to or demand upon Tenant, for the payment of any part of such charges or the removal of any such property, and shall apply the proceeds of such sale: first, to the cost and expenses of such, 16 including reasonable attorneys' fees actually incurred; second, to the payment of the cost of or charges for storing any such property; third, to the payment of any other sums of money which may then or thereafter be due to Landlord from Tenant under any of the terms thereof; and fourth, the balance, if any, to Tenant. 41. SECURITY DEPOSIT Tenant has deposited with Landlord the sum of $3,115.35 specified in the Basic Lease Information (the "Deposit"). The Deposit shall be held by Landlord as security for the faithful performance by Tenant of all of the provisions of this Lease to be performed or observed by Tenant. Landlord may commingle the Deposit with its general or other funds. Landlord's obligations with respect to the Deposit shall be limited to those stated herein and Landlord shall not be deemed a trustee with respect to the Deposit. If Tenant fails to perform or observe any of the provision of this Lease to be performed or observed by it, then, at the option of Landlord, Landlord may (but shall not be obligated so to do) apply the Deposit, or so much thereof as may be necessary to remedy such default or to repair damages to the Premises caused by the Tenant. If Landlord applies any portion of the Deposit to remedy any such default or to repair damages to the Premises caused by Tenant, Tenant shall pay to Landlord, within thirty (30) days after written demand for such payment by Landlord, all monies necessary to restore the Deposit up to the original amount. Any portions of the Deposit remaining upon termination of this Lease shall be returned to Tenant. If the monthly rental rate increases during the Term or any extensions thereof, Tenant shall increase the Deposit to equal the increased monthly rental. 42. WAIVER The waiver by Landlord of any agreement, condition or provision herein contained shall not be deemed to be a waiver of any subsequent breach of the same or any other agreement, condition or provision herein contained, nor shall any custom or practice which may be observed by the parties in the administration of the terms hereof be construed to waive or to lessen the right of Landlord to insist upon the performance by Tenant in strict accordance with said terms. The subsequent acceptance of rental hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any agreement, condition or provision of this Lease, other than the failure of Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of acceptance of such rental. 43. NOTICES All notices and demands which may or are required to be given by either party to the other hereunder shall be in writing and shall be deemed to have been fully given when deposited in the United States mail, certified or registered, postage prepaid, and addressed as follows: to Tenant at the address specified in the Basic Lease Information, or to such other place as Tenant may from time to time designate in a notice to Landlord; to Landlord c/o Argus Commercial, 350 S. Figueroa Street, Suite 141, Los Angeles, CA 90071 or to such other place as Landlord may from time to time designate in a notice to Tenant, or, in the case of Tenant, delivered to Tenant at the Premises. 44. COMPLETE AGREEMENT There are no oral agreements between Landlord and Tenant affecting this Lease and this Lease supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between Landlord and Tenant with respect to the subject matter of this Lease. There are no representations between Landlord and Tenant other than those contained in this Lease and all reliance with respect to any representations is solely upon such representations as are contained herein. 45. CORPORATE AUTHORITY Each of the persons executing this Lease hereby covenants and represents and warrants that (a) the entity for which it is executing this Lease is a duly authorized and validly existing corporation, (b) such entity has and is qualified to do business in California, (c) such 17 entity has full right and authority to enter into this Lease, and (d) each person executing this Lease was authorized to do so on behalf of the applicable entity for which he is executing this Lease. 46. HAZARDOUS MATERIALS Tenant shall not engage in any activity on or about the Premises or the Building that violates any Environmental Law and shall not use any Hazardous Materials in connection with its use or occupancy of the Premises, except in such small amounts as is normal and customary in general office use and occupancy, provided, however, that such use shall at all times comply with all Environmental Laws. Tenant shall promptly, at Tenant's sole cost and expense, take all investigatory and/or remedial action required or ordered by any governmental agency or Environmental Law for clean-up and removal of any contamination involving any Hazardous Material created or caused directly or indirectly by Tenant. The term "Environmental Law" shall mean any federal, state or local law, statute, ordinance or regulation pertaining to health, industrial hygiene or the environmental conditions on, under or about the Premises, including, without limitation, (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Sections 9601 ET SEQ.; (ii) the Resource Conservation and Recovery Act of 1976 ("RCPA"), 42 U.S.C. Sections 6901 ET SEQ.; ((iii) California Health and Safety Code Sections 25100 ET SEQ.; (iv) the Safe Drinking Water and Toxic Enforcement Act of 1986, California Health and Safety Code Section 25249.5 ET SEQ.; (v) the Federal Water Pollution Control Act, 33 U.S.C. Sections 1317 ET SEQ.; (vi) California Water Code Section 1300 ET SEQ.; and (vii) California Civil Code Section 3479 ET SEQ., as such laws are amended and the regulations and administrative codes applicable thereto. The term "Hazardous Material" includes, without limitation, any material or substance which is (i) defined or listed as a "hazardous waste", "extremely hazardous waste", "restrictive hazardous waste" or "hazardous substance" or considered a waste, condition of pollution or nuisance under the Environmental Laws; (ii) petroleum or a petroleum product or fraction thereof; (iii) asbestos; and/or (iv) substances known by the State of California to cause cancer and/or reproductive toxicity. It is the intent of the parties hereto to construe the term "Hazardous Materials" and "Environmental Laws" in its broadest sense. Tenant shall provide all notices required pursuant to the Safe Drinking Water and Toxic Enforcement Act of 1986, California Health and Safety Code Section 25249.5 ET SEQ. Tenant shall provide prompt written notice to Landlord of the existence of Hazardous Materials on the Premises and all notices of violation of the Environmental Laws received by Tenant. Tenant's obligations pursuant to this Section 46 shall be referred to in this Lease as "Environmental Compliance." 47. ADDITIONAL PROVISIONS Tenant shall pay or cause to be paid before delinquency any and all taxes levied or assessed, and which may become payable during the term upon any of Tenant's leasehold property located in the Premises. If any or all of Tenant's leasehold improvements, equipment, furniture, fixtures, and personal property are assessed with the Building, and cause any increase in the property taxes of the Building or any other tax levied on the Building, Tenant shall pay to Landlord its share of such taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's property. 48. MISCELLANEOUS The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. If more than one person or entity constitutes Tenant, the obligations hereunder imposed upon Tenant shall be joint and several. Time is of the essence of this Lease and each and all of its provisions. Submission of this instrument or examination or signature by Tenant does not constitute a reservation of or option for lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant. The agreements, conditions and provision herein contained shall, subject to the provisions as to assignment, apply to and bind the heirs, executors, administrators, successors and assignees of the parties hereto. Tenant shall not, without the written consent of Landlord, use the name of the Building for any purpose other than as the address of the business to be conducted by Tenant in the Premises. All amounts of money payable by Tenant to Landlord hereunder, if not paid when due, shall bear interest 18 from the date due until the date paid at the highest interest rate permitted by law. If any provision of this Lease or any portion thereof is determined to be illegal or unenforceable, such determination shall not affect any other provision or portion of this Lease and all such other provisions and portions shall remain in full force and effect. This Lease shall be governed by and construed in accordance with the laws of the State of California. 49. EXHIBITS AND RIDER The exhibits and rider, if any, specified in the Basic Lease Information are attached to this Lease and are incorporated herein by reference. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day and year first written above. "TENANT": "LANDLORD": PARAGON MANAGEMENT SYSTEMS, HASEKO CORPORATION INC., A CALIFORNIA CORPORATION a Japanese corporation By: /s/ K. Hadavi ------------------------ By: Haseko (California), Inc. Dr. K. Cyrus Hadavi a California corporation, President its authorized agent Date: 6/21, 1996 By: /s/ Takeshi Higashio ----------------------- Name: Takeshi Higashio Title:Senior Executive Vice President Date: 6/27, 1996 "MASTER LANDLORD": ROYAL INVESTMENT SYSTEM PARTNERSHIP (01) By: Haseko (California), Inc. a California corporation, its authorized agent By: /s/ Takeshi Higashio ----------------------- Name: Takeshi Higashio Title: Senior Executive Vice President Date: 6/27, 1996 19 RIDER ATTACHED TO AND MADE A PART OF LEASE DATED JUNE 20, 1996 BY AND BETWEEN HASEKO CORPORATION, AS LANDLORD, AND PARAGON MANAGEMENT SERVICES, INC., AS TENANT 50. LEASE AS SUB-SUBLEASE Supplementing Section 34, Tenant hereby acknowledges that Landlord has leased the Building and the land underlying the Building from Royal Investment System Partnership (01)"Master Lessor") pursuant to a master lease (the "Master Lease") and that Master Lessor has leased the land under the Building from Koar/Argosy Group, Inc. ("Ground Lessor") pursuant to a ground lease (the "Ground Lease") and that this Lease is actually a sub-sublease and is subject and subordinate to the Master Lease and the Ground Lease. If Landlord or Master Landlord gives written notice to Tenant at Tenant's address for notices in Section 43 hereof that Landlord is in default under the Master Lease or that the Master Lease has expired or has been terminated, then provided that this Lease has not expired or terminated: (i) Tenant shall thereafter deliver all sums payable by Tenant under this Lease to Master Landlord at such address as Master Landlord may direct and otherwise in accordance with this Lease, and Landlord hereby unconditionally directs Tenant to so pay such sums upon such written notice to Tenant; and (ii) provided Tenant is not in default under this Lease after the giving of any applicable notice and the expiration of any applicable cure period and provided, further, that Tenant pays all sums payable under this Lease to Master Landlord in accordance with subsection (i) above and attorns to Master Landlord as the landlord under this Lease, then Master Landlord shall observe and perform all of the obligations of Landlord to be observed and performed under this Lease for the remaining term of this Lease and shall not disturb or interfere with the quiet use, enjoyment and possession of the Premises by Tenant. In the event that the Master Lease expires or is terminated, Master Landlord hereby agrees not to disturb Tenant's possession of the Premises so long as Tenant is not in default under the terms of the Lease after the giving of any applicable notice and the notice and the expiration of any applicable cure period, continues to perform the terms of the Lease, and attorns to the Master Landlord as the landlord under the Lease, and upon the request of Master Landlord or Tenant, Master Landlord and Tenant shall enter into a new lease in substantially the form of the Lease covering the Term of the Lease that would remain had the Lease not been terminated. Master Landlord's execution of this Lease shall constitute Master Landlord's approval of: (a) this Rider; and (b) the sub-subleasing of the Premises by Landlord to Tenant. Tenant hereby acknowledges and agrees that Tenant is not a third party beneficiary or intended beneficiary of the Master Lease on the Ground Lease. In no event shall Master Landlord be responsible for any acts or omissions of Landlord. 20 EXHIBIT "A" SITE PLAN OF PREMISES [SITE PLAN] 12TH FLOOR 21 EXHIBIT "C" TERM COMMENCEMENT LETTER Date: _________________ To: _______________________ _______________________ _______________________ _______________________ Re: TERM/ACCEPTANCE OF Premises In accordance with Paragraph 2 of your lease dated June 20, 1996, please acknowledge your acceptance of possession of your Premises and your agreement that the Commencement Date of the lease is ________________ and the Termination Date of the lease is _______________. Tenant hereby agrees to forward all necessary and normal day-to-day lease requirements, such as rent and other charges, Insurance Certificates, property tax payments, etc., to the following, unless otherwise designated by Landlord: Argus Commercial 350 South Figueroa Street, Suite 141 Los Angeles, California 90071 Tenant hereby agrees with the dates set forth above and further acknowledges its acceptance of possession of the Premises. TENANT: PARAGON MANAGEMENT SYSTEMS, INC. a California corporation By:_______________________ Dr. K. Cyrus Hadavi, President 22 EXHIBIT "D" RULES AND REGULATIONS 1. The sidewalks, halls, passages, exits, entrances, elevators and stairways of the Building shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress to and egress from their respective Premises. The halls, passages, exits, entrances, elevators and stairways are not for the general public, and the Landlord shall in all cases retain the right to control and prevent access thereto of all persons whose presence in the judgment of Landlord would be prejudicial to the safety, character, reputation and interests of the Building and its tenants, provided that nothing herein contained shall be construed to prevent such access to persons with whom any tenant normally deals in the ordinary course of its business, unless such persons are engaged in illegal activities. No tenant and no employee or invitee of any tenant shall go upon the roof of the Building without the prior written consent of Landlord. 2. Tenant shall be entitled to one line on the directory board of the Building for each 1,000 rentable square feet leased by Tenant at Landlord's expense. No signs, placard, picture, name, advertisement or notice, visible from the exterior of any tenant's Premises shall be inscribed, painted, affixed or otherwise displayed by any tenant on any part of the Building without the prior written consent of Landlord. Landlord will adopt and furnish to tenant general guidelines relating to signs inside the Building on the office floors. Tenant agrees to conform to such guidelines, but may request approval of Landlord for modifications, which approval will not be unreasonably withheld. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of the tenant by a person approved by Landlord, which approval will not be unreasonably withheld. Landlord will provide, at Landlord's expense, one Building standard suite sign. 3. All cooking equipment must be U.L. tested and be in compliance with all applicable federal, state and city laws, codes, ordinances, rules and regulations. 4. No tenant shall employ any person or persons other than the janitor of Landlord for the purpose of cleaning the Premises, unless otherwise agreed to by Landlord in writing. Except with the written consent of Landlord, no person or persons other than those approved by Landlord shall be permitted to enter the Building for the purpose of cleaning the same. No tenant shall cause any unnecessary labor by reason of such tenant's carelessness or indifference in the preservation of good order and cleanliness. Janitor services will not be furnished on nights when rooms are occupied after 9:30 p.m. unless, by agreement in writing, service is extended to a later hour for specifically designated rooms. 5. Landlord will furnish each tenant free of charge with two keys to each door lock in the Premises. Landlord may make a reasonable charge for any additional Keys. No tenant shall have any keys made. No tenant shall alter any key or install a new or additional lock or any bolt on any door of its Premises without the prior written consent of Landlord. Tenant shall in each case furnish Landlord with a key for any such lock. Each tenant, upon the termination of its tenancy, shall deliver to Landlord all keys to doors in the Building which shall have been furnished to tenant. 6. Landlord shall designate how all office equipment, furniture, appliances and other large object or property ("Equipment") shall be moved in or out of the Building. The persons employed to move such Equipment in or out of the Building must be acceptable to Landlord. Landlord shall have the right to perscribe the weight, size and position of all Equipment brought into the Building. Heavy objects shall, if considered necessary by Landlord, stand on wood strips of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such Equipment from any cause, and all damage done to the Building by moving or maintaining such Equipment shall be repaired at the expense of Tenant. 23 7. No tenant shall use or keep in the Premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material other than limited quantities thereof reasonably necessary for the operation or maintenance of office equipment, or, without Landlord's prior written approval, use any method of heating or air conditioning other than that supplied by Landlord. No tenant shall use or keep or permit to be used or kept any foul obnoxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or to other occupants of the Building by reason of noise, odors or vibrations, or interfere in any way with other tenants or those having business therein. 8. Landlord shall have the right, exercisable without notice and without liability to any tenant, to change the name and street address of the Building. 9. Landlord reserves the right to exclude from the Building between the hours of 6 p.m. and 7 a.m. and at all hours on Sundays, legal holidays and on Saturdays, any person who, in Landlord's sole opinion has no legitimate business in the Building. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In the event of riot, invasion, public excitement or other circumstances rendering such action advisable in Landlord's opinion, Landlord reserves the right to prevent access to the Building during the continuance of the same by such action as Landlord may deem appropriate, including closing doors. 10. The directory of the Building will be provided for the display of the name and location of tenants and a reasonable number of the principal officers and employees of tenants, and Landlord reserves the right to exclude any other names therefrom. Any additional name which tenant shall desire to place upon said bulletin board must first be approved by Landlord, and, if so approved, a charge will be made therefore. 11. No curtains, draperies, blinds, shutters, shades, screens or other coverings, hangings or decorations shall be attached to, hung or placed in, or used in connection with any window of the Building without prior written consent of Landlord and such items shall be installed as instructed by Landlord. 12. No tenant shall obtain for use in the Premises, ice, drinking water, food beverage, towel or other similar services, except in accordance with reasonable regulations as may be fixed by Landlord. 13. Each tenant shall see that the doors of its Premises are closed and locked and that all water faucets, water apparatus and utilities are shut off before tenant or tenant's employees leave the Premises, so as to prevent waste or damage, and for any default or carelessness in this regard tenant shall make good all injuries sustained by other tenants or occupants of the Building or Landlord. All Tenants shall keep the doors to the Building corridors closed at all times except for ingress and egress. 14. The toilet rooms, toilets, urinals, wash bowls, and other apparatus shall not be used for any purpose other than that for which they were constructed, no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose employees or invitees, shall have caused it. 15. Except with the prior written consent of Landlord, no tenant shall sell, or permit the sale at retail, of newspapers, magazines, periodicals, theater tickets or any other goods or merchandise to the general public in or on the Premises, nor shall any tenant carry on, or permit or allow any employee or other person to carry on, the business of stenography, typewriting or any similar business in or from the Premises for the service or accommodation of occupants of any other portion of the Building, nor shall the Premises of any tenant be used for manufacturing of any kind, or any business or activity other than that specifically provided for in such tenant's lease. 24 16. No tenant shall install any radio or television antenna, loudspeaker, or other device on the roof or exterior walls of the Building, without Landlord's prior written consent. 17. There shall not be used any space, or in the public halls of the Building, either by any tenant or other, any hand trucks except those equipped with rubber tires and side guards or such other material-handling equipment as Landlord may approve. No other vehicles of any kind shall be brought by any tenant into the Building or kept in or about the Premises. 18. Each tenant shall store all its trash and garbage within its Premises. No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the Los Angeles area, without being in violation of any law or ordinance governing such disposal. All garbage and refuse disposal shall be made only through entry way and elevators provided for such purposes and at such times as Landlord shall designate. 19. Canvassing, soliciting, distribution of handbills, or any other written material peddling in the Building are prohibited, and each tenant shall cooperate to prevent the same. 20. Tenant agrees to abide all governmental rules and regulations pertaining to thermostatic control of the temperature on the Premises as required by said governmental rules and regulations, and agrees to maintain and keep the temperature for heat at or below the maximum temperature allowed from time to time by said governmental rules and regulations. Tenant agrees to indemnify and hold Landlord free and harmless from any liability incurred by Landlord as a result of Tenant's failure to comply with said governmental rules and regulations. 21. The requirements of the tenants will be attended to only upon application by telephone or in person at the office of Landlord. Employees of Landlord shall not perform any work or do anything outside of their regular duties unless under special instructions from Landlord. 22. Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenant or tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant or tenants, nor prevent Landlord from thereafter enforcing any such Rules and Regulations against any or all of the tenants of the Building. 23. These Rules and Regulations are in addition to, and shall not be construed to in any way modify or amend, in whole or in part, the terms, covenants, agreements and conditions of any lease of Premises in the Building. 24. Landlord reserves the right to make such other reasonable Rules and Regulations as in its judgment may from time to time be needed for the safety, care and cleanliness of the Building, and for the preservation of good order therein. 25 FIRST AMENDMENT OF LEASE This FIRST AMENDMENT OF LEASE (the "First Amendment") is dated as of July 1, 1996, and is entered into by and between HASEKO CORPORATION, a Japanese corporation ("Landlord") and PARAGON MANAGEMENT SYSTEMS, INC., a California corporation ("Tenant"). R E C I T A L S A. Landlord and Tenant entered into that certain Office Space Lease dated June 20, 1996 for Suite 1220 (the "Premises") in the building located at 5933 West Century Boulevard in Los Angeles (the "Building"). The Premises are more particularly described in the Lease. B. Landlord and Tenant desire to amend the Lease as hereinafter set forth. In consideration of the foregoing recitals, the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: A G R E E M E N T 1. SERVICES. Section 8(b) of the Lease is hereby amended by deleting the words ".8 CFM/sq. ft. of" from the fourth line thereof. 2. RIGHT TO RELOCATE. Section 25 of the Lease is hereby amended by adding the following sentence to the end thereof: Provided Tenant is not in default and Landlord receives a bona fide third party offer (a "Bona Fide Offer") to lease space on the twelfth floor of the Building that would require a relocation of Tenant under this Section 25, and provided, further, that Tenant is then as creditworthy as the prospective tenant or is otherwise a creditworthy tenant for the space to be leased, as reasonably determined by Landlord, then Tenant shall have a one time right of first refusal to lease the space described in the notice from Landlord on the terms described in said notice, which shall be the same terms as those contained in the Bona Fide Offer, IF AND ONLY if Tenant notifies Landlord by telecopy that Tenant accepts such space and terms within three (3) business days after Landlord provides said notice to Tenant (and Tenant's failure to timely and unconditionally accept such space and terms shall be conclusively deemed to be a rejection by Tenant and a waiver of Tenant's right of first refusal, and Tenant's right of first refusal shall thereafter no longer apply to any space in the Building). 3. LEASE AND SUB-SUBLEASE. Section 50 of the Lease (in the Rider) is hereby amended by adding the following paragraph between the third and fourth paragraphs thereof: If the Ground Lease is terminated as the result of a default by Landlord or Master Landlord thereunder, and Tenant is forced to vacate the Premises as a result of such termination, then Master Landlord or Landlord shall return any portion of Tenant's security deposit remaining after application of the security deposit as permitted by the Lease. 4. GOVERNING LAW. This First Amendment shall be construed in accordance with and governed by the laws of the State of California. 5. ENTIRE AGREEMENT. This First Amendment constitutes the entire agreement of Landlord and Tenant with respect to the specific subject matter hereof. -1- 6. SUCCESSORS AND ASSIGNS. Subject to Section 17 of the Lease, the Lease shall be binding upon and shall inure to the benefit of successors and assigns of any and all of the parties hereto. 7. ATTORNEYS' FEES. If either party commences an action or proceeding in connection with this First Amendment or to enforce or interpret this First Amendment, the prevailing party (as determined by the trier of fact and confirmed on appeal, if any) shall be entitled to collect its attorneys' fees and costs incurred in connection with such action or proceeding (including any appeals) from the other party, and the prevailing party's rights and the other party's obligations hereunder shall be severable from, and shall survive and not merge into, any judgment. IN WITNESS WHEREOF, Landlord and Tenant have executed this First Amendment as of the day and year first written above. "TENANT": "LANDLORD": PARAGON MANAGEMENT SYSTEMS, HASEKO CORPORATION, INC., a California corporation a Japanese corporation By: /s/ K. Cyrus Hadavi By: Haseko (California), Inc., ------------------- a California corporation, Dr. K. Cyrus Hadavi its authorized agent President Date: July 8, 1996 By: /s/ Takeshi Higashio ---------------------------- Name: Takeshi Higashio Title: Senior Executive Vice President Date: July 10, 1996 APPROVED BY "MASTER LANDLORD": ROYAL INVESTMENT SYSTEM PARTNERSHIP (01) By: Haseko (California), Inc., a California corporation, its authorized agent By: /s/ Takeshi Higashio ---------------------------- Name: Takeshi Higashio Title: Senior Executive Vice President Date: July 10, 1996 -2- SECOND AMENDMENT OF LEASE This SECOND AMENDMENT OF LEASE (the "Second Amendment is dated as of December 13, 1996, and is entered into by and between HASEKO CORPORATION, A Japanese corporation, as Landlord, and PARAGON MANAGEMENT SYSTEMS, INC., a California corporation, as Tenant, with the consent of ROYAL INVESTMENT SYSTEM PARTNERSHIP (01), as Master Landlord. R E C I T A L S A. Landlord, and Tenant entered into that certain Office Space Lease dated June 20, 1996, as amended by that certain First Amendment of Lease dated July 1, 1996 (collectively, the "Existing Lease") for Suite 1220 (the "Existing Premises") in the building located at 5933 West Century Boulevard, Los Angeles, California (the "Building"). B. Landlord and Tenant desire to expand the size of the Premises, extend the term of the Existing Lease and to further amend the Existing Lease as provided herein. In consideration of the foregoing recitals, the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: A G R E E M E N T 1. DEFINITIONS. All capitalized terms used in this Second Amendment which are not defined herein shall have the same meanings as set forth in the Existing Lease. Unless expressly stated otherwise herein, the term "Lease" shall mean the Existing Lease as amended hereby. 2. EXPANSION PREMISES. (a) Tenant acknowledges that it is currently in possession of the Existing Premises. Beginning on the Expansion Space Commencement Date (as defined below), the Existing Premises shall be expanded to include approximately an additional three thousand eight hundred thirty-one (3,831) rentable square feet (the "Expansion Space"). The Expansion Space is adjacent to the Existing Premises and is commonly known as Suite 1210 located on the twelfth (12th) floor of the Building, as indicated on the floor plan attached hereto as EXHIBIT "A." Accordingly, as of the Expansion Space Commencement Date, the term "Premises" shall mean and include the Existing Premises as expanded by the Expansion Space, unless specifically stated otherwise. The Premises, as expanded, is more particularly described on the floor plan attached hereto as EXHIBIT "B". (b) Landlord and Tenant hereby acknowledge that the rentable area of the Expansion Space is three thousand eight hundred thirty-one (3,831) rentable square feet; however, during the first thirty (30) days after the Expansion Space Commencement Date, Tenant may cause Tenant's space planner to re-measure the rentable area of the Expansion Space and, if Tenant's remeasurement, as verified by Landlord's space planner, shows that the rentable area of the Expansion Space is greater or less than three thousand eight hundred thirty-one (3,831) square feet, then Landlord and Tenant shall execute an amendment to the Lease adjusting the amount of Base Rent, the amount of the Deposit, Tenant's Share of Increased Costs, and the number of parking spaces based upon the re-measurement of the rentable area of the Expansion Space. If Tenant does not submit such re-measurement to Landlord for verification prior to the end of said thirty (30) day period, then Tenant shall be deemed to have irrevocably stipulated and agreed that the rentable area of the Expansion Space is three thousand eight hundred thirty-one (3,831) square feet. 3. TERM. (a) The term for the Expansion Space shall be for thirty-six (36) months and is tentatively scheduled to commence on January 6, 1997 (the "Target Commencement Date"). Notwithstanding Section 2 of the Existing Lease, as of the Expansion Space Commencement Date (as defined below), the Term of the Existing Lease shall be amended so that it shall be coterminous with the term for the Expansion Space and shall also expire on the date which is thirty-six (36) months after the Expansion Space Commencement Date. The Target Commencement Date is based upon an estimated three (3) week period to complete the Tenant Improvements (as defined below) from the execution of this Second Amendment. If Landlord, for any reason whatsoever, cannot deliver possession of the Expansion Space to Tenant on the Target Commencement Date, this Second Amendment shall not be voidable, nor shall Landlord or its agents be liable to Tenant for any loss or damage resulting therefrom. -2- (b) The Expansion Space shall be deemed completed and possession delivered when Landlord has substantially completed the Tenant Improvements, exclusive of installation of all telephone and other communications facilities, and other finish work or decorating work to be performed by Tenant. Tenant shall accept the Expansion Space upon notice from Landlord that the Tenant Improvements have been substantially completed. After Landlord tenders possession of the Expansion Space to Tenant, Tenant shall promptly and diligently install its trade fixtures and equipment in the Expansion Space. The Term shall commence on the earlier to occur of: (i) the date that is five (5) business days after the date on which Landlord has notified Tenant that the Tenant Improvements have been substantially completed; or (ii) the date on which Tenant commences the operation of its business in the Expansion Space or any part thereof (the "Expansion Space Commencement Date"). The Expansion Space Commencement Date shall be confirmed in writing by the parties in the form set forth in EXHIBIT "C" attached hereto promptly after the Expansion Space Commencement Date, and such written confirmation shall be attached hereto. (c) If Tenant causes any delay in the construction of the Tenant Improvements, then notwithstanding the provisions of this Second Amendment relating to the Term, the Expansion Space Commencement Date shall be the date which Landlord in its sole discretion determines would have been the Expansion Space Commencement Date without such Tenant caused delay. (d) Tenant accepts the Expansion Space in its current "AS-IS" condition. Tenant acknowledges and agrees that Landlord is not obligated to make any other improvements to the Existing Premises or the Expansion Space, nor to provide any allowance therefor, except as otherwise provided in Paragraph 4 below. Within five (5) business days after the Expansion Space Commencement Date, Tenant may deliver a written punch-list to Landlord listing defective light fixtures and electrical outlets, and provided such a punch-list is timely provided to Landlord, Landlord shall use reasonable efforts to replace or repair the defective fixtures or outlets HUAC defusors and thermostats and plumbing with Building standard fixtures and outlets HUAC defusors and thermostats and plumbing as soon as reasonably possible. 4. TENANT IMPROVEMENTS. Upon execution hereof and prior to the Expansion Space Commencement Date, Landlord shall, at Landlord's cost and expense, perform the following work in the Expansion -3- Space, using Building standard materials unless otherwise indicated: (1) Construct a ten foot (10') wide floor-to-ceiling opening in the reception area of Suite 1220 along the demising wall which separates Suite 1220 and Suite 1210; (2) Install a four inch (4") wide oak threshold (in a mutually acceptable color) along the floor in the space created by the construction of the above-mentioned opening in the demising wall; (3) steam clean the existing carpeting; (4) dry clean the existing curtains and replace any missing curtains; (5) replace any missing or stained ceiling tiles; and (6) remove any remaining loose cables or wires. The above items are collectively referred to herein as the "Tenant Improvements." During Landlord's construction of the Tenant Improvements, Landlord shall use commercially reasonable efforts to minimize interference with Tenant's use and enjoyment of the Existing Premises, and Tenant shall use commercially reasonable efforts to minimize interference with Landlord's construction of the Tenant Improvements. 5. BASE RENT. Section 5 of the Existing Lease is hereby deleted and replaced with this Paragraph 5. (a) Beginning on the Expansion Space Commencement Date and continuing throughout the Term, Tenant shall pay Base Rent for the Premises in accordance with the provisions of Section 4 of the Existing Lease, at the following rate:
Rate Per Rentable Monthly Square Foot Rent ----------- ------- Existing Premises $1.05 $3,115.35 Expansion Space $1.05 $4,022.55 --------- Total $7,137.90
Notwithstanding the foregoing, concurrent with Tenant's execution and delivery of this Second Amendment, Tenant -4- shall pre-pay to Landlord the first three (3) months of Base Rent owned for the existing premises and Expansion Space in the amount of (21,413.70) (which amount shall be applied to the Base Rent due on the existing premises and Expansion Space for the first three calendar months following the Expansion Space Commencement Date). Should the Expansion Space Commencement Date be any day other than the first day of a calendar month, then the Base Rent for the first partial month and the last partial month shall be equitably pro rated. (b) Notwithstanding the foregoing, and provided that Tenant has not been in material default under the terms of the Lease at any time prior to, or during, any Abatement Periods (as defined below), Base Rent for the Premises shall be abated during the 6th and 18th complete months of the Term following the Expansion Space Commencement Date (collectively, "Abatement Periods"). In the event that prior to, or during, any Abatement Periods Tenant materially defaults in the performance of any of its obligations under the Lease, and such material default is not cured within the applicable cure period, then the Base Rent abatement granted Tenant herein shall be null and void, and if such material default occurs during any of the Abatement Periods, then Tenant shall be obligated to immediately pay Landlord, as rent, any Base Rent so abated for that applicable Abatement Period. However, Landlord shall not be entitled to recover any Base Rent which has been so abated after the applicable Abatement Period has ended. The abatement granted pursuant to this Paragraph 5 shall apply only to Base Rent and shall have no effect on Tenant's obligations to pay Tenant's Share of Increased Costs and Taxes, or any other sums owing by Tenant under the Lease. 6. TENANTS SHARE OF INCREASED COSTS. Tenant shall pay Tenant's Share of Increased Costs in accordance with the terms of the Lease, except that the Base Year and Base Tax Year (as such terms are defined in Sections 6(a) and (b) of the Existing Lease) shall be the calendar year 1997. As of the Expansion Space Commencement Date, Tenant's Share of Increased Costs attributable to the Premises shall be increased to equal 3.288%. -5- 7. PARKING. As of the Expansion Space Commencement Date, Tenant shall be entitled to eleven (11) additional unreserved vehicle parking spaces (based on 3 spaces per 1,000 rentable square feet in the Expansion Space) in the Building parking facility, in accordance with the terms and provisions of Section 24 of the Existing Lease. 8. SECURITY DEPOSIT. Upon the execution of this Second Amendment by Tenant, Tenant shall deposit an amount equal to Four Thousand Twenty-two and 55/100 Dollars ($4,022.55) with Landlord, such that Landlord shall hold a Deposit in an amount equal to one (1) month's Base Rent for the Premises as hereby expanded. 9. RIGHT TO RELOCATE. Landlord hereby acknowledges and agrees that, during the initial thirty-six (36) months of the Term, it shall not be entitled to exercise the right to relocate Tenant to other space within the Building as provided in Section 25 of the Existing Lease. 10. CONSTRUCTION; REAFFIRMATION. Except as expressly amended hereby, all of the terms and conditions of the Existing Lease shall remain unmodified and in full force and effect. In the event of a conflict between the terms of the Existing Lease and the terms of this Second Amendment, the terms of this Second Amendment shall govern and prevail. The Existing Lease, as amended by this Second Amendment, is hereby reaffirmed. 11. GOVERNING LAW. This Second Amendment shall be construed in accordance with and governed by the laws of the State of California. 12. ENTIRE AGREEMENT. This Second Amendment constitutes the entire agreement of Landlord and Tenant with respect to the specific subject matter hereof. -6- 13. CORPORATE AUTHORITY. If Tenant is a corporation, each of the persons executing this Second Amendment on behalf of Tenant hereby covenants and represents and warrants that (a) Tenant is a duly authorized and validly existing corporation, (b) Tenant has and is qualified to do business in California, (c) Tenant has full right and authority to enter into this Second Amendment, and (d) each person executing this Second Amendment on behalf of Tenant was authorized to do so. 14. SUCCESSORS AND ASSIGNS. Subject to the provisions of the Existing Lease relating to assignment, mortgaging, pledging and subletting, the Existing Lease, as amended by this Second Amendment, shall bind the heirs, executors, administrators, successors and assigns of any and all of the parties hereto. 15. ATTORNEYS' FEES. If either party commences an action or proceeding to enforce or interpret this Second Amendment, the prevailing party (as determined by the trier of fact and confirmed on appeal, if any) shall be entitled to collect its attorneys' fees and costs incurred in connection with such action or proceeding (including any appeals) from the other party, and the prevailing party's rights and the other party's obligations hereunder shall be severable from, and shall survive and not merge into, any judgment. 16. BROKERS. Landlord shall be responsible for the payment of a brokerage fee in connection with the negotiation of this Second Amendment for the Expansion Space which may be due CB Commercial and Lee & Associates (collectively, the "Broker") pursuant to a separate agreement. Landlord and Tenant hereby represent and warrant to the other that no broker, salesperson or finder other than the Broker may claim a commission or fee in connection with this Second Amendment, and each party shall indemnify, defend and hold the other harmless from and against any claims for commissions or fees based on its communications or agreements with any such broker, salesperson or finder. -7- IN WITNESS WHEREOF, Landlord and Tenant have executed this Second Amendment as of the day and year first written above. "TENANT": "LANDLORD": PARAGON MANAGEMENT SYSTEMS, HASEKO CORPORATION, INC., a California a Japanese corporation corporation By: /s/ K. Hadavi By: Haseko (California), Inc., --------------------- a California corporation, Name: President its authorized agent ------------------- Title: ------------------ By: By: /s/ [ILLEGIBLE] --------------------- --------------------- Name: For Name: Takeshi Higashio ------------------- Title: Senior Executive Title: Vice President ------------------ Date: 12/14 , 1996 Date: 12/19 , 1996 "MASTER LANDLORD": ROYAL INVESTMENT SYSTEM PARTNERSHIP (01), a Japanese partnership By: Haseko (California), Inc., a California corporation, its authorized agent By: /s/ [ILLEGIBLE] -------------------- For Name: Takeshi Higashio Title: Senior Executive Vice President Date: 12/19 , 1996 -8- EXHIBIT "A" Floor Plan of Expansion Space [Attached.] EXHIBIT "A" [FLOOR PLAN] 12TH FLOOR EXHIBIT "B" Floor Plan of Existing Premises and Expansion Space [Attached.] EXHIBIT "B" [FLOOR PLAN] 12TH FLOOR EXHIBIT "C" Expansion Space Commencement Date Letter Date: _____________________, 1996 To: Haseko Corporation c/o Argus Commercial 350 South Figueroa Street, Suite 141 Los Angeles, California 90071 Re: Term/Acceptance of Expansion Space In accordance with Paragraph 3 of the Second Amendment dated December 13, 1996, please acknowledge your acceptance of the Expansion Space and your agreement that the Expansion Space Commencement Date is __________, 1997, and the expiration date for the Premises is __________, ____. Tenant hereby agrees with the dates set forth above and further acknowledges its acceptance of possession of the Expansion Space. TENANT: PARAGON MANAGEMENT SYSTEMS, INC., a California corporation By: ------------------------------ Name: ---------------------------- Title: --------------------------- THIRD AMENDMENT OF LEASE This THIRD AMENDMENT OF LEASE (this "Third Amendment") is dated as of October 6, 1997, and is entered into by and between HASEKO CORPORATION, a Japanese corporation, as Landlord, and PARAGON MANAGEMENT SYSTEMS, INC., a California corporation, as Tenant, with the consent of ROYAL INVESTMENT SYSTEM PARTNERSHIP (01), as Master Landlord. RECITALS A. Landlord and Tenant entered into that certain Office Space Lease dated June 20, 1996, as amended by that certain First Amendment of Lease dated July 1, 1996, and that certain Second Amendment of Lease dated December 13, 1996 (collectively, the "Existing Lease"), for Suites 1210 and 1220 (the "Existing Premises") in the building located at 5933 West Century Boulevard, Los Angeles, California (the "Building"). B. Landlord and Tenant desire to expand the size of the Premises, extend the term of the Existing Lease and to further amend the Existing Lease as provided herein. In consideration of the foregoing recitals, the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: AGREEMENT 1. DEFINITIONS. All capitalized terms used in this Third Amendment which are not defined herein shall have the same meanings as set forth in the Existing Lease. Unless expressly stated otherwise herein, the term "Lease" shall mean the Existing Lease as amended hereby. 2. EXPANSION SPACE. (a) Tenant acknowledges that it is currently in possession of the Existing Premises. Beginning on January 1, 1998, (the "Expansion Space Commencement Date"), the Existing Premises shall be expanded to include approximately three thousand nine hundred forty-five (3,945) additional rentable square feet (the "Expansion Space"). The Expansion Space is adjacent to the Existing Premises and is commonly known as Suite 1200B located on the twelfth (12th) floor of the Building, as indicated on the floor plan attached hereto as EXHIBIT "A." Accordingly, as of the Expansion Space Commencement Date, the term "Premises" shall mean and include the Existing Premises as expanded by the Expansion Space, unless specifically stated otherwise. (b) Landlord and Tenant hereby acknowledge that the rentable area of the Expansion Space is three thousand nine hundred forty-five (3,945) rentable square feet; however, during the first thirty (30) days after the Expansion Space Commencement Date, Tenant may cause Tenant's space planner to remeasure the rentable area of the Expansion Space and, if Tenant's remeasurement, as verified by Landlord's space planner, shows that the rentable area of the Expansion Space is greater or less than three thousand nine hundred forty-five (3,945) square feet, then Landlord and Tenant shall execute an amendment to the Lease adjusting the amount of Base Rent, the amount of the Deposit. Tenant's Share of Increased Costs, and the number of parking spaces based upon the remeasurement of the rentable area of the Expansion Space. If Tenant does not submit such remeasurement to Landlord for verification prior to the end of said thirty (30) day period, then Tenant shall be deemed to have irrevocably stipulated and agreed that the rentable area of the Expansion Space is three thousand nine hundred forty-five (3,945) square feet. 3. TERM. (a) The term for the Expansion Space shall be for thirty-six (36) months, commencing on the Expansion Space Commencement Date and expiring on December 31, 2000. Notwithstanding Section 2 of the Existing Lease, as of the effective date hereof, the Term of the Existing Lease shall be amended so that it shall be coterminous with the term for the Expansion Space and shall also expire on December 31, 2000. (b) The Expansion Space shall be deemed completed and possession delivered when Landlord has substantially completed the Tenant Improvements (as defined below), exclusive of installation of all telephone and other communications facilities, and other finish work or decorating work to be performed by Tenant. Tenant shall accept the Expansion Space upon notice from Landlord that the Tenant Improvements have been substantially completed. After Landlord tenders possession of the Expansion Space to Tenant, Tenant shall promptly and diligently install its trade fixtures and equipment in the Expansion Space. (c) If Tenant causes any delay in the construction of the Tenant Improvements, then notwithstanding the provisions of this Third Amendment relating to the Term, the Expansion Space Commencement Date shall be the date which Landlord in its sole discretion determines would have been the Expansion Space Commencement Date without such Tenant caused delay. (d) Tenant accepts the Expansion Space in its current "AS-IS" condition. Tenant acknowledges and agrees that Landlord is not obligated to make any other improvements to the Existing Premises or the Expansion Space, nor to provide any allowance therefor, except as otherwise provided in Paragraph 4 below. Landlord hereby represents that all existing lighting, electrical and HVAC systems in the Expansion Space shall be in good working order per Building standards as of the Expansion Space Commencement Date. Landlord further agrees to provide Building standard janitorial service to the Expansion Space once prior to and once immediately following Tenant's occupation of the Expansion Space. -2- 4. EARLY OCCUPANCY. Tenant shall have the right to enter onto the Expansion Space following substantial completion of the Tenant Improvements and prior to the Expansion Space Commencement Date for the purpose of installing, at Tenant's sole cost and expense, Tenant's equipment and trade fixtures and for the purpose of operating Tenant's business ("Early Occupancy"). Except as otherwise provided in this paragraph, all of the terms of this Lease, except for terms requiring the payment of rent, shall apply to Tenant's Early Occupancy of the Expansion Space hereunder. 5. TENANT IMPROVEMENTS. Upon execution hereof and prior to the Expansion Space Commencement Date, Landlord shall, at Landlord's cost and expense, perform the following work in the Expansion Space, using Building standard materials: (1) shampoo the existing carpet; (2) remove a four (4) foot wide portion of the partition between Suite 1200B and 1210, in a mutually acceptable location, such that Suite 1200B and Suite 1210 shall be connected. The opening shall be painted drywall partition; (3) paint the walls as shown on EXHIBIT "B" attached hereto; (4) provide and install vinyl composition tile in the kitchen area as shown on EXHIBIT "B" attached hereto; (5) install two (2) telephone conduit lines and two (2) electrical outlets as shown on EXHIBIT "B" attached hereto; (6) dry clean all existing drapery; (7) provide and install horizontal mini-blinds as shown on EXHIBIT "B" attached hereto; (8) provide and install black-out lining (white material) on the inside of the existing drapery as shown on EXHIBIT "B" attached hereto; (9) remove all existing chrome cover-plates and replace with Building standard ivory cover-plates; (10) patch the nail holes in the existing wallcovering with spackle (provided that such patched areas shall not be required to match the surrounding wallcovering); (11) commercially clean all existing vinyl wallcovering; and (12) patch the passageway between Suite 1200B and Suite 1210 with the existing carpet removed from the kitchen area. - 3 - The above items are collectively referred to herein as the "Tenant Improvements." Items (6), (7), and (8) above shall not be required to be completed in order to constitute "substantial completion" of the Tenant Improvements. As such, Landlord may complete such items during Tenant's Early Occupancy of the Expansion Space, but prior to the Commencement Date. Tenant hereby acknowledges Landlord's right to enter on to the Expansion Space during Tenant's Early Occupancy for the purposes of completing the Tenant Improvements and for such other purposes deemed necessary by Landlord. During Landlord's completion of the Tenant Improvements, Landlord shall use commercially reasonable efforts to minimize interference with Tenant's use and enjoyment of the Expansion Space, and Tenant shall use commercially reasonable efforts to minimize interference with Landlord's completion of the Tenant Improvements. Tenant hereby expressly waives any and all claims it may have against Landlord arising from future damage to Tenant's property by Landlord or its contractors during the completion of the Tenant Improvements, and Tenant hereby expressly agrees not to assert any such claims and to bear the risk of any and all such damage and any and all related losses, unless caused by the gross negligence of Landlord or Landlord's contractor(s). 6. BASE RENT. (a) Tenant shall continue to pay Base Rent on the Existing Premises in accordance with the Existing Lease. Beginning on the Expansion Space Commencement Date and continuing throughout the Term, Tenant shall pay Base Rent for the Expansion Space in accordance with the provisions of Section 4 of the Existing Lease, at the following rate: Rate Per Rentable Monthly Square Foot Rent ----------- ------- Expansion Space $1.05 $4,142.25 Notwithstanding the foregoing, concurrent with Tenant's execution and delivery of this Third Amendment, Tenant shall pre-pay to Landlord the first month's Base Rent owned for the Expansion Space in the amount of Four Thousand One Hundred Forty-Two and 25/100 Dollars ($4,142.25) (which amount shall be applied to the Base Rent due on the Expansion Space for the first calendar month following the Expansion Space Commencement Date). Should the Expansion Space Commencement Date be any day other than the first day of a calendar month, then the Base Rent for the first partial month and the last partial month shall be equitably pro rated. Tenant shall pay to Landlord within fifteen (15) business days of the Expansion Space Commencement Date the Base Rent due on the Expansion Space for the first partial month of the Term. 7. TENANTS SHARE OF INCREASED COSTS. Tenant shall pay Tenant's Share of Increased Costs for the Premises (as expanded hereby) in accordance with the terms of the Lease, except that as of the Expansion Space Commencement Date, the Base Year and Base Tax Year (as such terms are defined in Sections 6(a) and (b) of the Existing Lease) shall be the calendar - 4 - year 1998. As of the Expansion Space Commencement Date, Tenant's Share of Increased Costs attributable to the Premises shall be increased to equal 5.196%. 8. PARKING. As of Tenant's Early Occupancy, Tenant shall be entitled to twelve (12) additional unreserved vehicle parking spaces (based on 3 spaces per 1,000 rentable square feet in the Expansion Space) in the Building parking facility, in accordance with the terms and provisions of Section 24 of the Existing Lease. 9. SECURITY DEPOSIT. Upon the execution of this Third Amendment by Tenant, Tenant shall deposit an amount equal to Four Thousand One Hundred Forty-Two and 25/100 Dollars ($4,142.25) with Landlord, such that Landlord shall hold a Deposit in accordance with Section 41 of the Existing Lease in an amount equal to one (1) month's Base Rent for the Premises as hereby expanded. 10. RIGHT OF SECOND NEGOTIATION. If any of the space on the twelfth (12th) floor of the Building which is contiguous to the Premises becomes available for lease from Landlord after Landlord shall have leased such space and the tenant occupying such space shall have vacated the space, then provided Tenant is not then in default under the Lease and would not be in default under the Lease after notice or passage of time or both, and provided further that Tenant has not assigned the Lease or sublet any portion of the Premises, Tenant shall have a right of second negotiation (the "Right of Second Negotiation") to lease such space (the "Negotiable Space") as it becomes available; however, Tenant's rights under this Paragraph 10 shall be subject to and subordinate to the right of first negotiation held Trident Data Systems, Inc. ("Trident"). Within fifteen (15) days after Landlord elects in its sole discretion to so lease any Negotiable Space, Landlord shall so advise Trident by delivering to Trident a notice thereof. Upon its receipt of such notice, Trident has five (5) days to exercise its right of first negotiation as to the Negotiable Space by delivering written notice of Trident's decision to Landlord. If Trident timely exercises its right of first negotiation, Tenant shall have no further rights as to the Negotiable Space. If Trident chooses not to exercise its right of first negotiation as to the Negotiable Space, Trident shall be deemed to have waived and released its right of first negotiation as to the Negotiable Space and as to any additional Negotiable Space that may become available during the term of the Lease. Landlord shall then advise Tenant by delivering to Tenant a notice of the availability of the Negotiable Space. Upon receipt of such notice, Tenant shall have five (5) days to exercise its Right of Second Negotiation as to the Negotiable Space by delivering written notice of Tenant's decision to Landlord. If Tenant timely exercises its Right of Second Negotiation, then Landlord will negotiate with Tenant to lease the applicable Negotiable Space to Tenant on terms and conditions acceptable to Landlord, as determined by Landlord in good faith. If Tenant chooses not to exercise its Right of Second Negotiation as to the Negotiable Space either by written notice or failure to notify Landlord in writing within (5) days as provided above, Tenant shall - 5 - be deemed to have waived and released its Right of Second Negotiation as to the Negotiable Space and as to any additional Negotiable Space that may become available during the term of the Lease. If Tenant chooses not to exercise its Right of Second Negotiation as to the Negotiable Space described in Landlord's notice, Landlord may lease the Negotiable Space to any other person or entity upon any terms and conditions, whether more or less favorable than Landlord's proposal as set forth in Landlord's notice to Tenant. 11. OPTION. Tenant shall have one (1) option to extend the Term of the Lease as set forth in Section 2 of the Existing Lease. 12. SIGNAGE. At such time that Tenant has at least 17,500 rentable square feet of space under lease in the Building, if applicable, and provided that Tenant's lease term for such space has at least thirty (30) months remaining, Tenant shall have the right, at Tenant's sole cost and expense, subject to Landlord's approval as to size, design, color and method of mounting and subject to the rights of prior tenants in the Building, to install Tenant's name on one (1) line of the existing Building monument sign, provided that one (1) line is available on such sign. 13. CONSTRUCTION: REAFFIRMATION. Except as expressly amended hereby, all of the terms and conditions of the Existing Lease shall remain unmodified and in full force and effect. In the event of a conflict between the terms of the Existing Lease and the terms of this Third Amendment, the terms of this Third Amendment shall govern and prevail. The Existing Lease, as amended by this Third Amendment, is hereby reaffirmed. 14. GOVERNING LAW. This Third Amendment shall be construed in accordance with and governed by the laws of the State of California. 15. ENTIRE AGREEMENT. This Third Amendment constitutes the entire agreement of Landlord and Tenant with respect to the specific subject matter hereof. 16. CORPORATE AUTHORITY. If Tenant is a corporation, each of the persons executing this Third Amendment on behalf of Tenant hereby covenants and represents and warrants that (a) Tenant is a duly authorized and validly existing corporation, (b) Tenant has and is qualified to do business in California, (c) Tenant has full right and authority to enter into this Third Amendment, and (d) each person executing this Third Amendment on behalf of Tenant was authorized to do so. -6- 17. SUCCESSORS AND ASSIGNS. Subject to the provisions of the Existing Lease relating to assignment, mortgaging, pledging and subletting, the Existing Lease, as amended by this Third Amendment, shall bind the heirs, executors, administrators, successors and assigns of any and all of the parties hereto. 18. ATTORNEYS' FEES. If either party commences an action or proceeding to enforce or interpret this Third Amendment, the prevailing party (as determined by the trier of fact and confirmed on appeal, if any) shall be entitled to collect its attorneys' fees and costs incurred in connection with such action or proceeding (including any appeals) from the other party, and the prevailing party's rights and the other party's obligations hereunder shall be severable from, and shall survive and not merge into, any judgment. 19. BROKERS. Landlord and Tenant hereby represent and warrant to the other that no broker, salesperson or finder may claim a commission or fee in connection with this Third Amendment, and each party shall indemnify, defend and hold the other harmless from and against any claims for commissions or fees based on its communications or agreements with any such broker, salesperson or finder. IN WITNESS WHEREOF, Landlord and Tenant have executed this Third Amendment as of the day and year first written above. "TENANT": "LANDLORD": PARAGON MANAGEMENT HASEKO CORPORATION, SYSTEMS, INC., a Japanese corporation a California corporation By: Haseko (California), Inc., a California corporation, its authorized agent By: /s/ K. Hadavi --------------------- Name: K. Cyrus Hadavi --------------------- Title: CEO --------------------- By: /s/ Tom Sagawa -------------------------------- Name: Tom Sagawa Title: Executive Vice President By: --------------------- Name: --------------------- Title: --------------------- [Signatures continued on next page.] -7- EXHIBIT "A" Floor Plan of Expansion Space [Attached.] EXHIBIT A [FLOOR PLAN] ROYAL AIRPORT CENTER EXHIBIT "B" Location of Certain Tenant Improvements [Attached.] EXHIBIT "B" [MAP] ROYAL AIRPORT CENTER EXHIBIT "B" (continued) [MAP] ROYAL AIRPORT CENTER FOURTH AMENDMENT OF LEASE This FOURTH AMENDMENT OF LEASE (this "Fourth Amendment") is dated as of February 25, 2000, and is entered into by and between HASEKO CORPORATION, a Japanese corporation, as landlord ("Landlord"), and ADEXA, Inc., a California corporation, as tenant ("Tenant"), with the consent of ROYAL INVESTMENT SYSTEM PARTNERSHIP (01), as master landlord ("Master Landlord"). R E C I T A L S A. Landlord and Paragon Management Systems, Inc., a California corporation, as predecessor-in-interest to Tenant, entered into that certain Office Space Lease dated June 20, 1996, as amended by (i) that certain First Amendment of Lease dated July 1, 1996, (ii) that certain Second Amendment of Lease dated December 13, 1996, and (iii) that certain Third Amendment of Lease dated October 6, 1997 (collectively, the "Existing Lease"), for Suites 1200B, 1210 and 1220 (the "Existing Premises") in the building located at 5933 West Century Boulevard, Los Angeles, California (the "Building"). B. Landlord and Tenant desire to expand the size of the Premises, extend the term of the Existing Lease and to further amend the Existing Lease as provided herein. In consideration of the foregoing recitals, the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant hereby agree as follows: A G R E E M E N T 1. DEFINITIONS. All capitalized terms used in this Fourth Amendment which are not defined herein shall have the same meanings as set forth in the Existing Lease. Unless expressly stated otherwise herein, the term "Lease" shall mean the Existing Lease as amended hereby. 2. EXPANSION SPACE. (a) Tenant acknowledges that it is currently in possession of the Existing Premises. Beginning on the Expansion Space Commencement Date (as defined below), the Existing Premises shall be expanded to include that certain space on the eleventh (11th) floor of the Building containing approximately seven thousand six hundred ninety-eight (7,698) additional rentable square feet and commonly known as Suite 1100, as indicated on the floor plan attached hereto as EXHIBIT "A" (the "Expansion Space"). As of the Expansion Space Commencement Date, the term "Premises" shall mean and include the Existing Premises as expanded by the Expansion Space, unless specifically stated otherwise. Accordingly, except as expressly stated otherwise herein, or where the context would indicate otherwise, all terms and conditions applicable to the Existing Premises shall be equally applicable to the Expansion Space. (b) Landlord and Tenant hereby acknowledge that the rentable area of the Expansion Space is seven thousand six hundred ninety-eight (7,698) rentable square feet; however, prior to the Expansion Space Commencement Date, Tenant may cause Tenant's space planner to remeasure the rentable area of the Expansion Space and, if Tenant's remeasurement, as verified by Landlord's space planner, shows that the rentable area of the Expansion Space is greater or less than seven thousand six hundred ninety-eight (7,698) square feet, then Landlord and Tenant shall execute an amendment to the Lease adjusting the amount of Base Rent, the amount of the Deposit, Tenant's Share of Increased Costs, and the number of parking spaces available to Tenant based upon the remeasurement of the rentable area of the Expansion Space. If Tenant does not submit such remeasurement to Landlord for verification prior to the Expansion Space Commencement Date, the Tenant shall be deemed to have irrevocably stipulated and agreed that the rentable area of the Expansion Space is seven thousand six hundred ninety-eight (7,698) square feet. 3. TERM. (a) The term for the Expansion Space (the "Expansion Space Term") shall be for sixty (60) months, commencing on the Expansion Space Commencement Date, which is tentatively scheduled to occur on June 9, 2000 ("Target Expansion Space Commencement Date"). The Target Expansion Space Commencement Date is based upon an estimated ninety-eight (98) day period to complete the tenant improvement process from execution of this Lease. If Landlord, for any reason whatsoever, cannot deliver possession of the Expansion Space to Tenant on the Target Expansion Space Commencement Date, this Lease shall not be voidable, nor shall Landlord or its agents be liable to Tenant for any loss or damage resulting therefrom. As of the execution of this Fourth Amendment by both parties hereto (the "Effective Date"), the Term of the Existing Lease shall be amended so that it shall be conterminous with the term for the Expansion Space and shall also expire sixty (60) months after the Expansion Space Commencement Date. (b) The Expansion Space shall be deemed completed and possession delivered when the improvements to the Expansion Space ("Expansion Improvements") have been substantially completed as more particularly set forth on Exhibit "B" attached hereto and made a part hereof (the "Expansion Improvements"), exclusive of installation of all telephone and other communications facilities, and other finish work or decorating work to be performed by Tenant. Tenant shall accept the Expansion Space when the Expansion Improvements have been substantially completed. The Expansion Space Term shall commence on the earlier to occur of: (i) the date on which Tenant commences the operation of its business in the Expansion Space or any part thereof; or (ii) the date which is five (5) business days after the date on which Landlord has notified Tenant that the Expansion Improvements have been substantially completed (the "Expansion Space Commencement Date"). The Expansion Space Commencement Date shall be confirmed in writing by the parties in the form set forth in Exhibit "C" attached hereto promptly after the Expansion Space Commencement Date, and such written confirmation shall be attached hereto. As of the Expansion Space Commencement Date, "Term" shall include the Expansion Space Term unless specifically stated otherwise. -2- (c) If Tenant causes any delay in the construction of the Expansion Improvements, then notwithstanding the provisions of this Fourth Amendment relating to the Term, the Expansion Space Commencement Date shall be the date which Landlord in its sole discretion determines would have been the Expansion Space Commencement Date without such Tenant caused delay. (d) Tenant accepts the Expansion Space in its current "AS-IS" condition. Tenant acknowledges and agrees that Landlord is not obligated to make any other improvements to the Existing Premises or the Expansion Space, nor to provide any allowance therefor, except as otherwise expressly provided in EXHIBIT "B" (Expansion Space) or EXHIBITS "D" and "D-1" (Existing Premises) attached hereto. As of the Effective Date, Section 4 of the Second Amendment and Section 5 of the Third Amendment shall be deleted in their entirety and of no further force or effect. 4. EARLY OCCUPANCY. Tenant shall have the right to enter onto the Expansion Space not more than fourteen (14) days prior to the Expansion Space Commencement Date for the purpose of installing, during normal business hours and at Tenant's sole cost and expense, Tenant's equipment and trade fixtures. Tenant's installation of such equipment and trade fixtures shall be subject to the following conditions: (i) that Landlord approve in writing the location and the manner of installation of such equipment and trade fixtures (but Landlord shall not be liable in any way as a result of, or in connection with, such approval); (ii) that all governmental permits and approvals required for the installation and use of such equipment and trade fixtures shall have been obtained; (iii) that Tenant provide Landlord with reasonable evidence that Tenant and its contractors involved in the installation of such equipment and trade fixtures carry insurance satisfactory to Landlord for such activities; (iv) that the installation and use of such equipment and trade fixtures comply with all applicable laws and permits and do not interfere in any way with obtaining governmental approvals, permits and inspections for, or with Landlord's construction of, the Expansion Improvements described in EXHIBIT "B". Any such interference shall constitute delays caused by Tenant for purposes of Paragraph 3(c). Except as otherwise provided in this paragraph, all of the terms of this Lease, except for terms requiring the payment of rent, shall apply to Tenant's early entry onto the Expansion Space and the installation of such equipment and trade fixtures. Tenant hereby expressly waives any and all claims it may have against Landlord arising from future damage to such equipment and trade fixtures by Landlord or its contractors during the construction of the Expansion Improvements described in EXHIBIT "B", and Tenant hereby expressly agrees not to assert any such claims and to bear the risk of any and all such damage and any and all related losses. 5. BASE RENT. (a) Tenant's Base Rent for the Expansion Space shall be at the following rate (and otherwise payable in accordance with the provisions of Section 4 of the Existing Lease) commencing on the Expansion Space Commencement Date: -3-
Months After Rate Per Expansion Space Rentable Monthly Commencement Date Square Foot Rent - ----------------- ----------- ------- 1-36 $1.30 $10,007.40 37-48 $1.34 $10,315.32 49-60 $1.38 $10,623.24
(b) Tenant shall continue to pay Base Rent for the Existing Premises in accordance with the Existing Lease through December 31, 2000. Thereafter, for the remainder of the Term, Tenant shall pay Base Rent for the Existing Premises at the same rate per rentable square foot as Tenant is then paying for the Expansion Space (including increases at the same times as the Base Rent for the Expansion Space increases) as set forth in the chart in Section 5(a) above. By way of example only, during the forty-sixth (46th) month following the Expansion Space Commencement Date, Tenant shall pay Base Rent for the Existing Premises in the amount of $14,395.62 per month (based on $1.34 times 10,743 rentable square feet). Section 5 of the Second Amendment and Section 6 of the Third Amendment shall be deleted in their entirety as of January 1, 2001. (c) Notwithstanding the foregoing, concurrent with Tenant's execution and delivery of this Fourth Amendment, Tenant shall pre-pay to Landlord the first month's Base Rent owned for the Expansion Space in the amount of Ten Thousand Seven and 40/100 Dollars ($10,007.40)(which amount shall be applied to the Base Rent due on the Expansion Space for the first calendar month following the Expansion Space Commencement Date). Should the Expansion Space Commencement Date be any day other than the first day of a calendar month, then the Base Rent for the first partial month and the last partial month shall be equitably pro rated. Tenant shall pay to Landlord within fifteen (15) business days of the Expansion Space Commencement Date the Base Rent due on the Expansion Space for the first partial month of the Term. 6. TENANTS SHARE OF INCREASED COSTS. (a) As of the Expansion Space Commencement Date, Tenant shall pay the additional Tenant's Share of Increased Costs applicable to the Expansion Space in accordance with the provisions of the Existing Lease, except that with respect to the Expansion Space only, the Base Year and Base Tax Year (as such terms are defined in Sections 6(a) and (b) of the Existing Lease) shall be the calendar year 2000. Tenant's Share of Increased Costs applicable to the Expansion Space shall be 3.723%. (b) Tenant shall continue to pay Tenant's Share of Increased Costs applicable to the Existing Premises (i.e., 5.196%) in accordance with the provisions of the of the Existing Lease, except that as of January 1, 2001, the Base Year and Base Tax Year (as such terms are defined in Sections 6(a) and (b) of the Existing Lease) for the Existing Premises only shall be changed to the calendar year 2001. (c) Tenant's Share of Increased Costs during the first thirty (30) months following the Expansion Space Commencement Date shall not include any increases in real property taxes due to a reassessment of the real property upon which the -4- Building is located as a result of the sale of the Building during the first thirty (30) months following the Expansion Space Commencement Date. (d) Except as expressly amended hereby, Tenant's obligation to pay Tenant's Share of Increased Costs applicable to the Premises, including the Expansion Space, shall be subject to the terms and conditions of Section 6 of the Existing Lease. 7. PARKING. As of the Expansion Space Commencement Date, Tenant shall be entitled to twenty-three (23) additional unreserved vehicle parking spaces (based on 3 spaces per 1,000 rentable square feet in the Expansion Space) in the Building parking facility, in accordance with the terms and provisions of Section 24 of the Existing Lease. 8. SECURITY DEPOSIT. Upon the execution of this Fourth Amendment by Tenant, Tenant shall deposit with Landlord an amount equal to Twelve Thousand Six Hundred Ninety-Three and 15/100 Dollars ($12,693.15), such that Landlord shall hold a total Deposit in accordance with Section 41 of the Existing Lease in an amount equal to one (1) month's Base Rent for the Premises as hereby expanded, based on $1.30 per rentable square foot. 9. RIGHT OF SECOND NEGOTIATION. If any of the space on the eleventh (11th) or twelfth (12th) floors of the Building becomes available for lease from Landlord after Landlord shall have leased such space and the tenant occupying such space shall have vacated the space, then provided Tenant is not then in default under the Lease and would not be in default under the Lease after notice or passage of time or both, and provided further that Tenant has not been in default under the Lease on three (3) or more separate occasions during the Term, and provided further that Tenant has not assigned the Lease or sublet any portion of the Premises, Tenant shall have a right of second negotiation (the "Right of Second Negotiation") to lease such space (the "Negotiable Space") as it becomes available; provided, however, that Tenant's rights under this Section 9 shall be subject to and subordinate to any and all rights of first negotiation held by Trident Data Systems, Inc. ("Trident"). Within fifteen (15) days after Landlord elects in its sole discretion to so lease any Negotiable Space, Landlord shall so advise Trident by delivering to Trident a notice thereof. If Trident timely exercises its right of first negotiation, Tenant shall have no further rights as to the Negotiable Space. If Trident chooses not to exercise its right of first negotiation as to the Negotiable Space, Trident shall be deemed to have waived and released its right of first negotiation as to the Negotiable Space. Landlord shall then advise Tenant by delivering to Tenant a notice of the availability of the Negotiable Space. Upon receipt of such notice, Tenant shall have five (5) days to exercise its Right of Second Negotiation as to the Negotiable Space by delivering written notice of Tenant's decision to Landlord. If Tenant timely exercises its Right of Second Negotiation, then Landlord will negotiate with Tenant to lease the applicable Negotiable Space to Tenant on terms and conditions acceptable to Landlord, as determined by Landlord in good faith. If Tenant chooses not to exercise its Right of Second Negotiation as to the Negotiable Space either by written notice or failure to notify Landlord in writing within (5) days as provided above, Tenant shall be deemed to have waived and released its Right of Second -5- Negotiation as to the Negotiable Space and as to any additional Negotiable Space that may become available during the term of the Lease. If Tenant chooses not to exercise its Right of Second Negotiation as to the Negotiable Space described in Landlord's notice, Landlord may lease the Negotiable Space to any other person or entity upon any terms and conditions, whether more or less favorable than Landlord's proposal as set forth in Landlord's notice to Tenant. As of the Effective Date, Section 10 of the Third Amendment shall be deleted in its entirety and of no further force or effect. 10. OPTION. (a) The third (3rd) paragraph of the Existing Lease and Section 11 of the Third Amendment are hereby deleted in their entirety and are of no further force or effect. (b) Tenant shall have the option to extend the Term of the Lease, as amended hereby, for one (1) period of five (5) years of the ("Extension Term"), provided that Tenant is not then in default under any of the terms or provisions of the Lease beyond any applicable cure periods, and also provided that Tenant has not been in default on three (3) or more separate occasions during the Term of this Lease. (c) Tenant may exercise the extension option by giving written notice of Tenant's intent to exercise said option to Landlord at least two hundred ten (210) days prior to the expiration of the Term, but no earlier than three hundred (300) days prior to the expiration of the Term. (d) At the commencement of the Extension Term, the Base Rent shall be adjusted to be equal to ninety-five percent (95%) of the then fair market rental value of the Premises, but no less than the rate in effect immediately prior to the expiration of the Term, and said adjustment may include future adjustments to Base Rent if such future adjustments are then being included in office lease transactions. (e) If Landlord and Tenant cannot agree upon the fair market rental value of the Premises within sixty (60) days after Landlord's receipt of Tenant's notice exercising the option contained herein, Landlord and Tenant shall each appoint a "Qualified Arbitrator" (as defined below) within seven (7) days after the expiration of the aforementioned sixty (60) day period. Such arbitrators shall confer and select a third Qualified Arbitrator (the "Neutral Arbitrator"), who alone shall determine the fair market rental value of the Premises. Should the two (2) arbitrators fail to select a Third Qualified Arbitrator to act as the Neutral Arbitrator within seven (7) days, the Neutral Arbitrator shall be designated pursuant to California Code of Civil Procedure Section 1281.6, as that Section may be amended or redesignated from time to time; provided, however, that the Neutral Arbitrator so appointed must be a Qualified Arbitrator. The determination of the Neutral Arbitrator shall be binding upon Landlord and Tenant. Landlord and Tenant shall bear the cost of the arbitrator appointed by such party and shall equally bear the cost of the Neutral Arbitrator. As used herein, the term "Qualified Arbitrator" shall mean a person who is an appraiser or real estate broker licensed by the State of California and who has not less than five (5) years' experience in commercial leasing or commercial real estate appraising. -6- 11. SIGNAGE. Tenant shall have the right, subject to Landlord's approval as to size, design, color and method of mounting and subject to compliance with all governmental laws and regulations, to have Tenant's name installed on one (1) line of the existing Building monument sign using Building standard signage installed at Landlord's cost, Section 12 of the Third Amendment is hereby deleted in its entirety and of no further force or effect. 12. COMMON AREA IMPROVEMENTS. (a) Landlord shall, within twelve (12) months after the Effective Date, (i) replace the existing common area carpeting and (ii) replace the existing light fixtures and/or add new fixtures, in the elevator lobby area on the eleventh (11th) and twelfth (12th) floors of the Building using Building standard materials and procedures, Landlord shall, prior to selecting the color and style of such carpeting, notify Tenant of the applicable options and request Tenant's opinion thereof; provided, however, that Landlord's selection of the color and style of such carpet shall be made in Landlord's sole and absolute discretion. (b) Landlord is also planning to perform certain Improvements in the lobby area of the first (1st) floor of the Building, which may include chemically cleaning the travertine walls, painting the ceiling, replacing the existing carpeting or reducing the size of the carpeted areas in the lobby, all using Building standard materials and procedures (collectively, those items selected by Landlord, the "First Floor Work"). Subject to force majeure delays, the First Floor Work is anticipated to be completed within sixty (60) days following the Effective Date. Additionally, within twelve (12) months after the Effective Date, Landlord shall replace the existing light fixtures and/or add new fixtures in the first (1st) floor lobby as determined by Landlord in its sole and absolute discretion. (c) Landlord makes no representation or warranty as to the Common Area work set forth in this Section 13 and shall not be liable to Tenant for the results or appearance of the same. All Common Area work (including, without limitation, which portions of the First Floor Work Landlord elects to complete) shall be in Landlord's sole and absolute discretion. 13. EXISTING PREMISES IMPROVEMENTS. Following the Expansion Space Commencement Date, certain improvements shall be made to the Existing Premises, including without limitation repainting and recarpeting of the Existing Premises, remodeling the existing lobby, conference room, reception area and training room in the Existing Premises, and installing additional electric and phone outlets and wall covering in the president's office in the Existing Premises (collectively, the "Existing Premises Improvements"). Prior to the commencement of the Existing Premises Improvements, Tenant shall have the right to determine, by notifying Landlord in writing, whether (i) Landlord shall be required to complete the Existing Premises Improvements using Landlord's contractor, in which case the Existing Premises Improvements shall be performed in accordance with the terms and conditions of Exhibit "D-1", or (ii) Tenant shall complete the Existing Premises -7- Improvements using Tenant's Contractor, in which case the Existing Premises Improvements shall be performed in accordance with the terms and conditions of Exhibit "D-2". 14. RIGHT TO RELOCATE. Notwithstanding any provision of the Lease to the contrary, at any time after the Expansion Space Term, Landlord shall have the right, upon providing Tenant thirty (30) days' written notice, to move Tenant from any or all of the Suites comprising the Premises to other space in the Building. Such new space shall be approximately the same size as the Premises or the applicable portion thereof, and be provided with comparable improvements (upgrading only to the level of Tenant's prior space). In connection with such substitution of Premises, Landlord shall pay the costs of moving Tenant's equipment, furniture and furnishings, door lettering, telephone relocation and reasonable quantities of new stationery. In the event of such relocation, this Lease shall remain in full force and effect and be deemed applicable to the new space except that Exhibit "A" and Section 1 of the Basic Lease Information shall be amended to include and state all correct data as to the new space. 15. CONSTRUCTION; REAFFIRMATION. Except as expressly amended hereby, all of the terms and conditions of the Existing Lease shall remain unmodified and in full force and effect. In the event of a conflict between the terms of the Existing Lease and the terms of this Fourth Amendment, the terms of this Fourth Amendment shall govern and prevail. The Existing Lease, as amended by this Fourth Amendment, is hereby reaffirmed. 16. GOVERNING LAW. This Fourth Amendment shall be construed in accordance with and governed by the laws of the State of California. 17. ENTIRE AGREEMENT. This Fourth Amendment constitutes the entire agreement of Landlord and Tenant with respect to the specific subject matter hereof. 18. CORPORATE AUTHORITY. If Tenant is a corporation, each of the persons executing this Fourth Amendment on behalf of Tenant hereby covenants and represents and warrants that (a) Tenant is a duly authorized and validly existing corporation, (b) Tenant has and is qualified to do business in California, (c) Tenant has full right and authority to enter into this Fourth Amendment, and (d) each person executing this Fourth Amendment on behalf of Tenant was authorized to do so. -8- 19. SUCCESSORS AND ASSIGNS. Subject to the provisions of the Existing Lease relating to assignment, mortgaging, pledging and subletting, the Existing Lease, as amended by this Fourth Amendment, shall bind the heirs, executors, administrators, successors and assigns of any and all of the parties hereto. 20. ATTORNEYS' FEES. If either party commences an action or proceeding to enforce or interpret this Fourth Amendment, the prevailing party (as determined by the trier of fact and confirmed on appeal, if any) shall be entitled to collect its attorneys' fees and costs incurred in connection with such action or proceeding (including any appeals) from the other party, and the prevailing party's rights and the other party's obligations hereunder shall be severable from, and shall survive and not merge into, any judgment. 21. BROKERS. Landlord and Tenant hereby represent and warrant to the other that no broker, salesperson or finder other than Tom Torabi of Lee & Associates ("Broker") may claim a commission or fee in connection with this Fourth Amendment, and each party shall indemnify, defend and hold the other harmless from and against any claims for commissions or fees based on its communications or agreements with any such broker, salesperson or finder. All commissions or fees shall be payable to Broker pursuant to a separate written agreement. 22. CONFIDENTIALITY. The terms of the Lease shall be kept confidential by Tenant and shall not be disclosed in whole or in part to any third party unless so required by a court or governmental agency of competent jurisdiction. 23. NOTICES. Landlord's address for purposes of delivering rental payments in accordance with the provisions of Section 4 of the Lease shall be c/o Charles Dunn Real Estate Services, Inc., 800 West 6th Street, 6th Floor, Los Angeles, California 90017. Landlord's address for purposes of delivering notices pursuant to Section 43 of the Lease shall be c/o Haseko (California), Inc., Attn: John Troll, 350 S. Figueroa Street, Suite 255, Los Angeles, California 90071. [Signatures on next page.] -9- IN WITNESS WHEREOF, Landlord and Tenant have executed this Fourth Amendment as of the day and year first written above. "TENANT": "LANDLORD": ADEXA, INC., HASEKO CORPORATION, a California corporation, a Japanese corporation By: Haseko (California), Inc., a California corporation, its authorized agent By: ----------------------------- Name: --------------------------- Title: --------------------------- By: -------------------------- Name: Tom Sagawa Title: Executive Vice President By: ----------------------------- Name: --------------------------- Title: --------------------------- "MASTER LANDLORD": ROYAL INVESTMENT SYSTEM PARTNERSHIP (01), A Japanese Partnership By: Haseko (California), Inc., a California corporation, its authorized agent By: -------------------------- Name: Tom Sagawa Title: Executive Vice President -10- EXHIBIT "A" FLOOR PLAN OF EXPANSION SPACE [ATTACHED.] EXHIBIT A [GRAPHIC OF FLOOR PLAN ROYAL AIRPORT CENTER 11TH FLOOR] EXHIBIT "B" IMPROVEMENTS TO EXPANSION SPACE 1. GENERAL PROVISIONS RELATING TO PREPARATION OF SPACE STUDY, PRICING PLAN AND CONSTRUCTION DOCUMENTS. 1.1 Tenant and Landlord shall each cooperate with the other and with their representatives in the preparation of the space ("Space Study"), Pricing Plan (as defined below) and plans and specifications ("Construction Documents") for the construction of the Expansion Space for Tenant ("Tenant Improvements"), and construction of the Tenant Improvements. 1.2 [INTENTIONALLY OMITTED] 1.3 Within fifteen (15) business days after execution of the Fourth Amendment, City Spaces, Inc. (the "Space Planner") shall prepare and submit to Landlord for approval a complete set of Construction Documents, which shall (i) be based upon the Pricing Plan approved by Landlord and Tenant, (ii) include Tenant's written approval thereof in a form satisfactory to Landlord, (iii) meet all items and contain all information necessary to obtain all building and other permits and governmental licenses required for the proper execution and completion of the Tenant improvements, and (iv) include, without limitation, the location of doors, partitions, ceilings, lighting, heating, ventilation and air conditioning, electrical and telephone outlets, plumbing fixtures, heavy floor loads and any other special requirements, the "Finish Schedule" (as that term is hereinafter defined) and other construction detail. Tenant shall be required to utilize building standard window coverings, doors to exterior hallways and suite entrance detail, and no materials used in the Tenant Improvements shall deviate from building standard quality, without first obtaining Landlord's written consent. In connection with the preparation of the Construction Documents, Space Planner shall meet with the building engineers designated by Landlord from time to time, who shall include, but not be limited to plumbing, electrical and mechanical engineers, in order that the engineering plans and/or specifications may be prepared for the Expansion Space, which plans and/or specifications shall be part of the Construction Documents. For the purposes of this EXHIBIT "B", the term "Finish Schedule" shall mean the schedule prepared by Space Planner which locates and specifies the colors, materials and special finishes, if any, for all wall and floor coverings. Failure of Landlord to approve or disapprove the Construction Documents in writing (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) within five (5) business days after receipt of the Construction Documents shall be conclusively deemed a disapproval thereof by Landlord. If Landlord disapproves the Construction Documents, Space Planner shall revise and resubmit the same ("First Revised Construction Documents") to Landlord for approval on or before five (5) business days after the receipt of Landlord's disapproval. Failure of Landlord to approve or disapprove in writing the First Revised Construction Documents (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) and the delivery of such approval or disapproval to Tenant within five (5) business days shall be conclusively deemed disapproval thereof. If Landlord disapproves the First Revised Construction Documents, Space Planner shall again revise and resubmit the same ("Second Revised Construction Documents") to Landlord for approval. The procedure and timing for obtaining Landlord's approval of the Second Revised Construction Documents and any subsequent revised Construction Documents shall be the same as hereinabove provided for the First Revised Construction Documents. Revision and resubmission of the Construction Documents shall continue as set forth above until the Construction Documents are approved by Landlord. Each set of revised Construction Documents submitted to Landlord for approval shall include Tenant's written approval thereof in a form satisfactory to Landlord. 1.4 Landlord's approval of matters relating to Tenant Improvements shall not release or relieve Tenant from its obligations pursuant to Section 2 of this EXHIBIT B. 2. GENERAL PROVISIONS RELATING TO CONSTRUCTION 2.1 Landlord shall cause the Tenant Improvements to be installed by a licensed general contractor chosen by Landlord in its sole and absolute discretion ("Landlord's Contractor") pursuant to the Construction Documents approved by Landlord. 2.2 No change in the Construction Documents shall be made ("Change Order") without the prior written consent of Landlord. Concurrent with any request for approval of a Change Order of $1,000.00 or more and any request for approval of Change Orders aggregating $1,000.00 or more, Tenant shall pay to Landlord an amount equal to the cost of such Change Order, plus a Supervision Fee equal to five percent (5%) of the cost of such Change Order. 2.3 Landlord shall cause Landlord's Contractor to perform its work diligently and in a first-class workmanlike manner in compliance with applicable laws and codes. Neither Landlord nor Landlord's Contractor shall be liable for any direct or consequential damages resulting from delays in construction beyond the reasonable control of Landlord's Contractor, including, but not limited to, strikes, availability of labor or materials, or delays by Tenant or anyone performing services on behalf of Tenant. 2.4 All work shall be completed at the earliest possible date, subject to delays beyond the control of Landlord and/or Landlord's Contractor. 2.5 Tenant agrees at Tenant's expense to obtain and maintain public liability and workers' compensation insurance adequate to fully protect Tenant, Landlord and Landlord's Contractors (by naming Landlord, Master Landlord and Landlord's Contractors as additional insureds), from and against any and all liability for death or injury to persons or damage to property caused in or about the Expansion Space from Tenant performing its obligations under the Lease, including installation by Tenant of its fixtures and equipment. Tenant shall deliver to Landlord prior to the commencement of any work on the Tenant Improvements a certificate of insurance. 2.6 In the event of any delay caused by Tenant in providing information for preparation or approval of the Construction Documents in excess of the time periods provided, or in the event of any delay caused by making revisions to the Construction Documents after the First Revised Construction Documents, or in the event of any delay caused by revisions or changes to approved Construction Documents requested by -2- Tenant, or in the event of any delay in construction of the Tenant Improvements caused by Tenant, or in the event of any delay in performance or completion by any person employed or engaged by Tenant or by reason of building code problems arising from Tenant's design or requirements, Tenant at the time it accepts possession of the Expansion Space shall pay to Landlord an amount equal to the rent payable under this Lease for the period of time equal to the period of delay. The provisions of this Paragraph 2.6 shall be applicable whether or not Landlord makes the election provided for in Section 3(c) of the Fourth Amendment to establish the Expansion Space Commencement Date as the date Landlord could have expected but for such Tenant-caused delay. 2.7 Tenant agrees that upon substantial completion of the Tenant Improvements in accordance with the Construction Documents and upon delivery of possession to Tenant, Tenant will accept the Expansion Space in the condition in which it may then be. Upon acceptance of the Expansion Space, Tenant shall immediately specify to Landlord's Contractors those items, if any, with which Tenant is not satisfied. The fact that Tenant may enter into possession prior to substantial completion for the purpose of installing equipment or fixtures shall not be deemed an acceptance by Tenant of completion by Landlord, but in such event Tenant shall hold Landlord and/or Landlord's Contractor harmless and indemnify Landlord and/or Landlord's Contractor for any lesser damage to Tenant's equipment, fixtures or goods and for injury to any persons unless caused by the active negligence of Landlord and/or Landlord's Contractor or its agents; provided, however, no such entry by Tenant shall occur without the prior written consent of Landlord. 2.8 Tenant recognizes that Landlord may deliver the Expansion Space to Tenant ahead of schedule so that the Expansion Space Commencement Date may occur prior to the Target Expansion Space Commencement Date. 2.9 Upon substantial completion of the Tenant Improvements, Tenant shall commence and diligently complete the installation of its furniture, furnishings and equipment. 2.10 The Tenant Improvements, including, but not limited to, the preparation of the Space Study, Pricing Plan and the Construction Documents, and all costs and expenses related thereto shall be at Tenant's sole cost and expense, except as otherwise provided in this Paragraph 2.10 and in Paragraph 2.11 below. Without cost or expense to Tenant, Landlord shall (i) bring electricity to the distribution point on the floor, (ii) bring a main air-conditioning duct to the perimeter of the Expansion Space, and (iii) furnish construction sprinklers only. 2.11 Landlord agrees to build out the Expansion Space in accordance with (i) the Pricing Plan dated January 27, 2000 attached hereto as SCHEDULE 1 (the "Pricing Plan"), (ii) the Royal Airport Center Building Building Standard Work Construction Specifications attached hereto as SCHEDULE 2, and (iii) the Preliminary Tenant Improvement Construction Budget dated February 10, 2000 attached hereto as Schedule 3 (the "Preliminary Budget"), all of which have been approved by Landlord and Tenant. Landlord shall administer all payments due to Landlord's Contractor. Tenant shall be responsible for any and all costs which are the result of any change initiated by Tenant to the approved Pricing Plan. The Landlord shall be responsible for all other costs incurred -3- in connection with building out the Expansion Space. The Tenant Improvements shall include, using Building standard materials and procedures: (i) installation of mini-blinds on the exterior windows of the Expansion Space, (ii) installation of additional electrical outlets and conduit for Tenant's computers and telephone lines in the Expansion Space, (iii) up to $3,360 for the installation of bookshelves and/or cabinets in the Expansion Space, (iv) up to $2,480 for the installation of a projection screen in the training room in the Expansion Space, and (v) up to $2,780 for performance of millwork in the Expansion Space, all as referenced in the Preliminary Budget. 2.12 In no event shall Tenant be entitled to any payment, credit, refund or other sum by or from Landlord on account of any cost savings realized by Landlord in connection with the construction of the Tenant Improvements. -4- SCHEDULE 1 [FLOOR PLAN] SCHEDULE 2 EXHIBIT B ROYAL AIRPORT CENTER BUILDING BUILDING STANDARD WORK CONSTRUCTION SPECIFICATIONS Contractor agrees to furnish and install the following materials as the Building Standard Work, in the quantities specified by the Agent, as indicated on Tenant's approved plans and specifications. The Work shall comply with all National, State and Local Municipal Building Code Requirements. 1. SUBSTITUTION AND SUBMITTALS A. No substitutions allowed without written permission of the owner, or owner's Agent. B. Requests for substitutions must be made in writing 10 days prior to bid date, and must include the complete specification of the proposed substitution and the reason for the request. C. All materials must have current I.C.B.O. certification on file with the City of Los Angeles Building Department. 2. DEMISING PARTITIONS A. 2 1/2", 25 gauge steel studs, 24" on center. B. Full height from floor slab to ceiling slab. C. 5/8" type "x" drywall, one layer each side of studs. D. Drywall partition taped smooth, and sanded to receive paint or wallcovering from floorline to top of drywall board. E. Column furr-out to be constructed as demising and costed separately. F. All inside and outside corners to have corner "L" metal. 3. ONE HOUR RATED DEMISING PARTITIONS A. 2 1/2", 25 gauge steel studs, 24" on center. B. Full height from floor slab to ceiling slab. C. 5/8" type "x" drywall, one layer each side of studs. D. Drywall partition fire taped smooth, and sanded to receive paint or wallcovering from floorline to top of drywall board. E. All penetrations through wall have to be fire-stopped according to building codes. F. Column furr-out to be constructed as demising and costed separately. G. All inside and outside corners to have corner "L" metal. 4. SOUND RATED DEMISING PARTITIONS A. 2 1/2", 25 gauge steel studs, 24" on center. B. Full height from floor slab to ceiling slab. C. 5/8" type "x" drywall, one layer each side of studs. D. Drywall partition taped smooth, and sanded to receive paint or wallcovering from floorline to top of drywall board. E. R-11 Batt type fiberglass insulation in cavity. F. Column furr-out to be constructed as demising and costed separately. G. All inside and outside corners to have corner "L" metal. 5. INTERIOR PARTITIONS A. Floor slab to ceiling grid. B. 5/8" type "x" drywall, one layer each side of studs. C. 2 1/2", 25 gauge steel studs, 24" on center. D. Drywall partition taped smooth, and sanded to receive paint or wallcovering from floorline to top of drywall board. E. "Jamb-X" metal at termination of partition at ceiling grid. F. All inside and outside corners to have corner "L" metal. 6. PERIMETER DRYWALL ABOVE AND BELOW WINDOW WALL A. Drywall below exterior window wall to floor slab and above window wall, to 6" above suspended ceiling with 5/8" type "x" drywall. B. Perimeter drywall taped smooth and sanded to receive paint or wallcovering to floor. C. "L" metal at grid line on window wall to terminate drywall. EXHIBIT B (CONT'D) 7. TENANT ENTRY DOOR ASSEMBLY A. Doors: 3'0" x 8'7" x 1 3/4" solid core, walnut veneer, 20-minute fire-rated. B. Door Frames: With snap trim, 3'0" x 8'7", Western Integrated, three-piece dark bronze anodized aluminum, 29-minute fire-rated. C. Finish Hardware: See hardware specs, attached. 8. INTERIOR DOOR ASSEMBLY A. Doors: 3'0" x 8'7" x 1 3/4" solid core, walnut veneer. B. Door Frames: With snap trim, 3'0" x 8'7", Western Integrated, three-piece dark bronze anodized aluminum. C. Finish Hardware: See hardware specs, attached. 9. ACOUSTICAL CEILING A. Ceiling height on 2nd to 12th floor to be 9'0" above slab floor. B. Ground floor ceiling height to be 11' above slab floor. C. 2' x 2' Armstrong Cortega drop-in tile throughout demised area. D. Edge: Square edge, regular. E. Finish: Factory white. F. Reveal: White. G. Grid: Fine Line by Bonn. H. All ceilings to be finished with new "L" metal at Perimeter walls. I. All T-bars to be earthquake wired with compression struts per code requirements. 10. PAINTING A. One coat Frazee 065 Acry-Prime and one finish coat of Frazee Eggshell 022 Lo-Glo Acrylic as necessary to cover all partitioning. B. Two coats of Watco oil finish Natural Walnut. C. One coat Frazee 065 Acry-Prime and one finish coat of Frazee 328 Velglo Semi-gloss as necessary in kitchen and bathroom areas. 11. FLOOR COVERINGS A. Lotus, Diplomat 30, 30 oz. cut pile carpet or Substantial 24 loop pile. B. Installation over prepared floor and Princeton 40 oz. pad, or C. Installation over prepared floor direct glue-down. D. Armstrong Imperial Excelon VCT 12" x 12" squares. E. Colors: as selected by Tenant from Landlord's standard samples. 12. RUBBER BASE A. 4" rubber carpet and/or rubber topset base on all wall surfaces. B. Burke or Roppe. C. Color to be selected by Tenant from Landlord's standard samples. 13. FLUORESCENT LIGHT FIXTURES A. 2' x 4' T-bar lay-in type, Lithonia, one each, 3 tube #PN338-082 with electronic energy saving ballasts. B. Cool white fluorescent tubes, 35W each. C. Acrylic prismatic lens. D. 277v on all floors. E. 2' x 2' U-tube fixtures in corridors #2SP Air 2U40 with electronic energy saving ballasts. 14. LIGHT SWITCH ASSEMBLY A. Leviton #5600 series switch - two each. B. Switch paired in double gang box to meet Title 24 requirements. C. Switch height @ 48" AFF to center line of switch, and D. Color: white with white switch plate cover. 15. ELECTRICAL DUPLEX WALL OUTLET A. Leviton to match #5600 series, duplex receptacle - one each. B. Color: white with white switch plate cover. C. Six outlets per circuit, 120v, mounted vertically @ 12" AFF to center line of outlet. 16. TELEPHONE/COMPUTER WALL OUTLET A. Single gang outlet box in wall, mounted vertically @ 12" AFF to center. EXHIBIT B (CONT'D) B. 3/4" metal conduit from outlet box to just above ceiling grid with pull string, and C. Cover plate by contractor to match #5600 series, electrical white. 17. EXIT SIGNS A. Illuminated Lithonia FTE-SW2G277. B. Color: white. C. Green lens. 18. LIFE SAFETY Any tenant security requirement for other than standard speaker installation, e.g. D.O.D. contract, one-way horns, or end-line resistors, shall be installed, tested and approved at the sole expense of the tenant. The above will include dedicated connection to the Building Life Safety Control panel and all devices and material required for such connection. A. Speaker: Atlas/Soundolier Model, UH170C-US1-8 with U95-8 Backbox. B. Smoker Detector: Honeywell Model TC-100, or Pyrotector Model 700924AB&C C. Manual Fire Alarm Stations: Honeywell Model S464B 19. SPRINKLERS A. Semi-recessed chrome sprinkler. 20. PLUMBING A. Water Heater: I.S.B. Model #W-152, 2.5 Gals with brass unions for every disconnect. B. Garbage Disposal: I.S.E. Model #333 C. Sink: Just Single Compartment Model #S1.2019 B-GR D. Faucet: Delta Model #100 E. Water shut-off valves in ceiling for each fixture installed (Ball type). 21. MECHANICAL A. Air Conditioning Duct Specifications: i. All duct tape to be removed from joints and connections. ii. All joints are to be inspected and sealed if there is any indication of a leak. iii. All hanger straps shot to the slab above are to be one-piece construction forming a trapeze to support the duct, and must be sealed. iv. Where ducts are touching, insulation shall be placed between the ducts to insure against vibration and noise. v. Where flex duct joins the hard duct, spin ins, or other metal fittings, these ducts shall be screwed and banded, and sealed with Air-Bol, Teledyne-105. vi. Where flex duct is hung with a thin strap, a larger piece of metal shall be used as a sleeve between the duct and the strap to insure against collapsing of the flex duct. vii. No run of flex duct is to be over 10' in length, and two pieces of flex duct joined together will not be accepted. viii. Discretion shall be used in making bends in flex duct over a 90-degree radius. ix. All duct work is to be supported independently with hangers shot to the slab above, or as per mechanical code. x. Any leaks found in existing duct work must be sealed with Teledyne-105. xi. Room thermostats to be Johnson 14002 fully proportional and equipped with set point. xii. No air conditioning zone is to overlap into an adjacent suite. xiii. Air balance reports are to be turned in to the Project Manager's office within 10 days after job completion. xiv. All chilled water air handling units are to be provided with separate condensate pans, larger than the air handler itself, suspended independently of the air handler. Air handler drain to drain into the lower pan which will be provided with an insulated, dedicated, copper drain accessible for cleanout from inside pan. xv. All tenant air handling units are to be installed with controls to secure chill water flow through unit when fan unit is off. xvi. All tenant A/C units are to be monitored by the G.E. energy management controller. xvii. Any variance from the plans are to be clearly and accurately noted on a plan to be given to the Chief Engineer or Assistant Chief Engineer upon job completion. xviii. Unless absolutely necessary, no water cooled towers will be allowed for tenant auxiliary air conditioning. Page 3 EXHIBIT B (CONT'D) B. Thermostats i. Johnson Controls: Model #T4002 - 201 (DA) Cover #T4002 - 2139 (Horiz) Backplate - #T4002 - 124 ii. Conference Rooms - Johnson Controls: Model - #T4002 - 201 (DA) Cover - #T4502 - 1737 (Horiz/Ext./Adj) Backplate - #T4002-124 C. HVAC Diffusers i. Supply air: Anemustat PI.D ii. Return Air: Perforated lay-in type, 24"x24", Tru-Aire #900DBR, with sound insulating fiberglass boots. D. Return Air Exhaust Fan i. Pace model #DD450T with speed control, sound trap and egg crate grills. ii. An exhaust fan is installed in each conference room (one per 650 sq ft) as building standard. E. Variable Air Volume Boxes i. Permeter Boxes by Metalaire, Model #200 DD, direct acting with strip heaters. ii. Interior Permeter Boxes by Metalaire, Model #200 TH, direct acting. 22. DRAPERIES A. Fabric: Maharem. B. Style: "Crete". C. Specifications: Full height fabric material (68% verel modacryllic, 28% rayon, 4% nylon) with track attached to ceiling at all exterior windows. D. Color: 01-white. E. Mini-blinds - 1" horizontal Ball blinds with tilt control and drawstring. 23. TENANT DOOR SIGNAGE & DIRECTORY SIGNAGE A. Per building landlord. 24. SPACE PLANNING AND CONSTRUCTION DOCUMENTATION TO BE PROVIDED TO CONTRACTOR A. One space plan designed to incorporate building standard materials and initial tenant functional and aesthetic requirements as presented by the tenant at the space planning meeting, and B. Two sets of construction documents needed for building permitting using building standard materials and the tenant approved space plan as the basis for the design. C. Permit application with Plan Check sets. 25. STANDARDS Landlord shall have the right to substitute any of the above standard improvements in an equal and/or like manner. 26. PERMITS Contractor of record is responsible for the following permits: A. Building Permit B. Electrical Permit C. Telephone Cable Permit D. Data Cable Permit E. Life and Safety Permit F. Others as may be required in the performance of the Work. Page 4 - ------------------------------------------------------------------------------------------------------------------------------------ PRELIMINARY TENANT IMPROVEMENT CONSTRUCTION BUDGET - ------------------------------------------------------------------------------------------------------------------------------------ PROPERTY: ROYAL AIRPORT BUILDING TENANT: PARAGON MANAGEMENT SYSTEMS QUALIFICATIONS OWNER: RIS SUITE: 1100 ----------------------------------------------- MANAGING AGENT: CHARLES DUNN SQUARE FEET (Usable): 8,812 THE CONSTRUCTION BUDGET DOES NOT INCLUDE THE PROPERTY MANAGER: STEVE KARAS SQUARE FEET (Rentable): 7,598 FOLLOWING: T1 ALLOWANCE: $165,646.00 1) OVERTIME WORK. ESTIMATED T1 ALLOWANCE/R&F: $24.32 2) TELEPHONES, COMPUTERS, NOR THEIR RESPECTIVE CABLE INSTALLATION. SUBMISSION DATE: JANUARY 28, 1999 3) 24 HOUR A.C. UNITS, NEW CEILING GRID & TILE, NOR NEW LIGHT FIXTURES THROUGHO - ------------------------------------------------------------------------------------ 4) TRADE FIXTURES, ALARM SYSTEM, FURNITURE NOR PROJECT COST SUMMARY MOVING EXPENSES. - ------------------------------------------------------------------------------------ 5) WALL COVERING, NOR ELECTRICAL FLOOR BLD ABOVE TOTAL PRIME MONUMENTS. STD STD TOTAL COST CONTRACT OTHER 6) ELECTRICAL SUBPANELS. - --------------------- ----- ----------- ----- ----------- ------ --------- --------- 7) FURNITURE PARTITIONS. LINE ITEM COST COST COST USF. AMOUNT CONTRACTS 8) PROVIDING ELECTRICITY THROUGH THE FLOOR TO - --------------------- ----- ----------- ----- ----------- ------ --------- --------- POWER THE PARTITIONS. ENGINEERING FEES: $3,406.00 $3,406.00 0.50 10)WORK STATIONS, NOR DESKS. ARCHITECTURALS: $8,515.00 $8,515.00 1.25 11)ELECTRICAL RACEWAYS FOR THE TRAINING ROOM DEMOLITION: $930.00 $500.00 0.14 DESKS. DRYWALL: $16,280.00 $16,280.00 2.38 12)PARABOLIC LIGHT FIXTURES. CEILING PAINTING: $3,747.00 CEILING: $4,180.00 $4,180.00 0.81 ----------------------------------------------- DOORS ASSEMBLIES: $17,650.00 $17,650.00 2.59 ITEMS TO NOTE GLAZING: $1,000.00 ----------------------------------------------- CORRIDOR FINISHES: $1,660.00 $1,660.00 0.24 1) This a preliminary budget base upon City WINDOW COVERING: $410.00 $410.00 0.06 Spaces' pricing plan dated 1/27/00. Once PLUMBING: $1,391.00 $1,391.00 0.20 construction drawings have secured a more ELECTRICAL: $24,750.00 $24,750.00 3.63 precise estimate will be submitted. LIFE SAFETY SYSTEMS: $5,900.00 $5,900.00 0.87 2) The existing light fixtures, ceiling grid & FIRE SUPPRESSION tile, HVAC system, and sprinkler system will SYSTEMS: $3,570.00 $3,570.00 0.52 be reused. HVAC ALLOWANCE: $9,475.00 $9,475.00 1.39 3) The projection screen allowance includes the PAINTING: $3,810.00 $3,810.00 0.56 following electrical connection, structural PROJECTION SCREEN support, material cost of the screen and the ALLOWANCE: $2,480.00 $2,480.00 0.36 labor to install it. FLOOR COVERINGS: $15,458.00 $15,458.00 2.27 4) Pursuant to Tom Torabits request, this BOOKSHELVES preliminary budget includes the cost to ALLOWANCE: $3,360.00 $3,360.00 0.49 paint the existing ceiling tile and grid. MILLWORK ALLOWANCE: $2,780.00 $2,780.00 0.41 5) This preliminary budget includes allowances SECURITY: $1,100.00 $1,100.00 0.16 for the bookshelves outside the training MISCELLANEOUS: $890.00 $890.00 0.13 room and for the kitchen cabinets. PERMIT FEES: $2,900.00 $2,900.00 0.43 ----------------------------------------------- GENERAL CONDITIONS: $8,717.00 $8,717.00 1.28 CONTRACTOR'S FEE: $7,995.00 $7,995.00 1.17 ESTIMATED CONSTRUCTION SCHEDULE - --------------------- ----- ----------- ----- ----------- ------ --------- --------- ----------------------------------------------- SUBTOTAL: $0.00 $153,163.00 $0.00 $153,163.00 $22.48 CONSTRUCTION DRAWINGS: 3 WEEKS - --------------------- ----- ----------- ----- ----------- ------ --------- --------- BIDDING/PLAN CHECK: 3 WEEKS CONTINGENCY: $4,585.00 $4,585.00 $0.67 CONSTRUCTION: 8 WEEKS MANAGEMENT FEE: $7,888.00 $7,888.00 $1.16 ---------- ===================== ===== =========== ===== =========== ====== ========= ========= TOTAL: 14 WEEKS TOTAL: $0.00 $165,646.00 $0.00 $165,646.00 $24.32 ----------------------------------------------- - --------------------- ----- ----------- ----- ----------- ------ --------- --------- $24.32U.S.F $24.32 ----------- ----------- --------- --------- ___________________________ _______________ ______________________ CHARLES DUNN (CONSTRUCTION) HASEKO (ASSET MANAGER) - ------------------------------------------------------------------------------------------------------------------------------------
CHARLES DUNN CONSTRUCTION MANAGEMENT DIVISION PAGE 1 EXHIBIT "C" TERM COMMENCEMENT LETTER Date: July 11, 2000 To: Mr. Tom Tornbi Senior Vice President/Principal 1411 West 190th Street, Suite 450 Gardena, CA 90248 Re: TERM/ACCEPTANCE OF PREMISES In accordance with Paragraph 2 of your lease dated March 10, 2000, please acknowledge your acceptance of possession of your Premises and agreement that the Commencement Date of the lease is July 10, 2000, your Termination Date of the lease is July 9, 2005. Tenant hereby agrees to forward all necessary and normal day-to-day lease requirements, such as rent and other charges, Insurance Certificates, property tax payments, etc., to the following, unless otherwise designated by Landlord: Charles Dunn Company 350 South Figueroa Street, Suite 233 Los Angeles, California 90071 Tenant hereby agrees with the dates set forth above and further acknowledges its acceptance of possession of the Premises. TENANT: LANDLORD: - ------------------------- Royal Investment Systems - ------------------------- Partnership (01) By: /s/ J. Timothy Romer By: /s/ Stephen M. Karas --------------------------- ------------------------ Name: J. Timothy Romer Name: Stephen M. Karas Title: CFO Title: Senior Portfolio manager Date: July 20, 2000 Date: 8/1/00 EXHIBIT "D-1" IMPROVEMENTS TO EXISTING PREMISES - LANDLORD BUILD 1. GENERAL PROVISIONS RELATING TO PREPARATION OF SPACE STUDY AND CONSTRUCTION DOCUMENTS. 1.1 Tenant and Landlord shall each cooperate with the other and with their representatives in the preparation of the Space study ("Space Study"), the preparation of the plans and specifications ("Construction Documents") for the construction of the Existing Premises for Tenant ("Tenant Improvements"), and construction of the Tenant Improvements. 1.2 Tenant shall meet with City Spaces, Inc. (the "Space Planner") in order that a Space Study showing the location of all partitions and doors may be prepared by the Space Planner, such space study to be approved by Tenant (which approval shall appear in writing on the Space Study in a form satisfactory to Landlord) and submitted to Landlord on or before ten (10) business days after the execution of this Fourth Amendment. Failure of Landlord to approve or disapprove in writing such Space Study (specifying the reasons for any disapproval, which may include the estimated costs of the Tenant Improvements) and the delivery of such approval or disapproval to Tenant within five (5) business days after receipt of the same shall be conclusively deemed a disapproval thereof. If Landlord disapproves such Space Study, Space Planner shall revise and resubmit the same ("First Revised Space Study") to Landlord for approval on or before seven (7) business days after receipt of Landlord's disapproval. Failure of Landlord to approve or disapprove in writing the First Revised Space Study (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) and the delivery of such approval or disapproval to Tenant within five (5) business days after receipt of the same shall be conclusively deemed disapproval thereof. If Landlord disapproves the First Revised Space Study, Space Planners shall again revise and resubmit the same ("Second Revised Space Study") to Landlord for approval. The procedure and timing for obtaining Landlord's approval of the Second Revised Space Study and any subsequent revised Space Study shall be the same as hereinabove provided for in the First Revised Space Study. Revision and resubmission of the Space Study shall continue as set forth above until the Space Study is approved by Landlord. Each revised Space Study submitted to Landlord for approval shall include thereon Tenant's written approval thereof in a form satisfactory to Landlord. 1.3 Within fifteen (15) business days after approval of the Space Study by Landlord, Space Planner shall prepare and submit to Landlord for approval a complete set of Construction Documents, which shall (i) be based upon the Space Study approved by Landlord, (ii) include Tenant's written approval thereof in a form satisfactory to Landlord, (iii) meet all items and contain all information necessary to obtain all building and other permits and governmental license required for the proper execution and completion of the Tenant Improvements, and (iv) include, without limitation, the location of doors, partitions, ceilings, lighting, heating, ventilation and air conditioning, electrical and telephone outlets, plumbing fixtures, heavy floor loads and any other special requirements, the "Finish Schedule" (as that term is hereinafter defined) and other construction detail. Tenant shall be required to utilize building standard window coverings, doors to exterior hallways and suite entrance detail, and no materials used in the Tenant Improvements shall deviate from building standard quality, without first obtaining Landlord's written consent. In connection with the preparation of the Construction Documents, Space Planner shall meet with the building engineers designated by Landlord from time to time, who shall include, but not be limited to plumbing, electrical and mechanical engineers, in order that the engineering plans and/or specifications may be prepared for the Existing Premises, which plans and/or specifications shall be part of the Construction Documents. For the purposes of this EXHIBIT "D-1", the term "Finish Schedule" shall mean the schedule prepared by Space Planner which locates and specifies the colors, materials and special finishes, if any, for all wall and floor coverings. Failure of Landlord to approve or disapprove the Construction Documents in writing (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) within five (5) business days after receipt of the Construction Documents shall be conclusively deemed a disapproval thereof by Landlord. If Landlord disapproves the Construction Documents, Space Planner shall revise and resubmit the same ("First Revised Construction Documents") to Landlord for approval on or before five (5) business days after receipt of Landlord's disapproval. Failure of Landlord to approve or disapprove in writing the First Revised Construction Documents (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) and the delivery of such approval or disapproval to Tenant within five (5) business days shall be conclusively deemed disapproval thereof. If Landlord disapproves the First Revised Construction Documents, Space Planner shall again revise and resubmit the same ("Second Revised Construction Documents") to Landlord for approval. The procedure and timing for obtaining Landlord's approval of the Second Revised Construction Documents and any subsequent revised Construction Documents shall be the same as hereinabove provided for the First Revised Construction Documents. Revision and resubmission of the Construction Documents shall continue as set forth above until the Construction Documents are approved by Landlord. Each set of revised Construction Documents submitted to Landlord for approval shall include Tenant's written approval thereof in a form satisfactory to Landlord. 1.4 Landlord's approval of matters relating to Tenant Improvements shall not release or relieve Tenant from its obligations pursuant to Section 2 of this EXHIBIT D-1. 2. GENERAL PROVISIONS RELATING TO CONSTRUCTION 2.1 Landlord shall cause the Tenant Improvements to be installed by Landlord's Contractor (as hereinafter defined) pursuant to the Construction Documents approved by Landlord. Landlord shall obtain a bid for the construction of the Tenant Improvements in accordance with the Construction Documents from three (3) licensed general contractors two (2) of which shall be chosen by Landlord in its sole and absolute discretion and one (1) of which may be selected by Tenant with Landlord's prior written approval of said contractor, and shall deliver to Tenant a copy of the bids so obtained. The general contractor shall be selected by Landlord in Landlord's sole and absolute discretion ("Landlord's Contractor"). Tenant shall pay Landlord a fee ("Supervision Fee") on account of the supervision of Landlord's Contractor and Space Planner, equal to five percent (5t%) of the amount of the bid from Landlord's Contractor and Space Planner, which amount shall be added to and included in the bid delivered to Tenant for approval. Tenant shall within five (5) business days of receipt of said bid either (i) approve said bid in a writing delivered to Landlord, or (ii) provide Space Planner with a detailed list of revisions to the approved Construction Documents so as to reduce the cost of construction of the Tenant Improvements and if Tenant provides the Space -2- Planner with a detailed list of revisions, then the Space Planner shall revise the Construction Documents within five (5) business days thereafter. Failure of Tenant to do either of the foregoing shall be conclusively deemed an approval of the bid delivered to Tenant by Landlord. If Tenant disapproves said bid and submits to Landlord the revisions described in (ii) above, Landlord shall obtain from Landlord's Contractor a revised bid for the construction of the Tenant Improvements in accordance with the revised Construction Documents and deliver to Tenant a copy of the revised bid which shall have added to and included with it a revised Supervision Fee ("First Revised Bid"). Tenant shall within three (3) business days of receipt of the First Revised Bid either (x) approve the First Revised Bid in a writing delivered to Landlord, or (y) again provide Space Planner with a detailed list of revisions to the approved Construction Documents so as to further reduce the cost of construction of the Tenant Improvements and if Tenant provides the Space Planner with a detailed list of revisions, then the Space Planner shall revise the Construction Documents within five (5) business days thereafter. Failure of Tenant to do either of the foregoing shall be conclusively deemed an approval of the First Revised bid. If Tenant disapproves the First Revised Bid and submits the revisions described in (y) above, Landlord shall again obtain from Landlord's Contractor a revised bid for the construction of the Tenant Improvements in accordance with the revised Construction Documents and deliver to Tenant a copy of the revised bid which shall have added to and included with it a revised Supervision Fee ("Second Revised Bid"). The procedure and timing for obtaining Tenant's approval of the Second Revised Bid and any subsequent revised bid shall be the same as for the First Revised Bid. Revision and bidding of the Tenant Improvements shall continue as set forth above until a revised bid is approved by Tenant. 2.2 Tenant shall pay to Landlord prior to the commencement of any work on the Tenant Improvements an amount equal to the amount, if any, by which the bid (including the Supervision Fee) approved by Tenant exceeds the allowance referred to in Paragraph 2.11 below. No change in the Construction Documents shall be made ("Change Order") without the prior written consent of Landlord. Concurrent with any request for approval of a Change Order of $1,000.00 or more, and any request for approval of Change Orders aggregating $1,000.00 or more, Tenant shall pay to Landlord an amount equal to the cost of such Change Order, plus a Supervision Fee equal to five percent (5%) of the cost of such Change Order. In addition, if at any time during the work Landlord reasonably believes the allowance referred to in Paragraph 2.11 below, plus any payments by Tenant to Landlord on account of the Tenant Improvements, are not sufficient to fully pay for the cost thereof, plus the Supervision Fee, Landlord shall notify Tenant thereof and Tenant shall, within five (5) days after the date of any such notice, pay to Landlord the amount of any such deficiency. 2.3 Landlord shall cause Landlord's Contractor to perform its work diligently and in a first-class workmanlike manner in compliance with applicable laws and codes. Neither Landlord nor Landlord's Contractor shall be liable for any direct or consequential damages resulting from delays in construction beyond the reasonable control of Landlord's Contractor, including, but not limited to, strikes, availability of labor or materials, or delays by Tenant or anyone performing services on behalf of Tenant. 2.4 All work shall be completed at the earliest possible date, subject to delays beyond the control of Landlord and/or Landlord's Contractor. -3- 2.5 Tenant agrees at Tenant's expense to obtain and maintain public liability and workers' compensation insurance adequate to fully protect Tenant, Landlord and Landlord's Contractors (by naming Landlord, Master Landlord and Landlord's Contractors as additional insureds), from and against any and all liability for death or injury to persons or damage to property caused in or about the Existing Premises from Tenant performing its obligations under the Lease, including installation by Tenant of its fixtures and equipment. Tenant shall deliver to Landlord prior to the commencement of any work on the Tenant Improvements a certificate of insurance. 2.6 Tenant hereby acknowledges Landlord's right to enter on to the Existing Premises for the purposes of completing the Tenant Improvements. During Landlord's construction of the Tenant Improvements, Landlord shall use commercially reasonable efforts to minimize interference with Tenant's use and enjoyment of the Existing Premises, and Tenant shall use commercially reasonable efforts to minimize interference with Landlord's construction of the Tenant Improvements. Tenant shall hold Landlord and/or Landlord's Contractor harmless and indemnify Landlord and/or Landlord's Contractor for any lesser damage to Tenant's equipment, fixtures or goods and for injury to any persons unless caused by the active negligence of Landlord and/or Landlord's Contractor or its agents. 2.7 Intentionally Omitted. 2.8 Intentionally Omitted. 2.9 Intentionally Omitted. 2.10 The Tenant Improvements, including, but not limited to, the preparation of the Space Study and the Construction Documents, and all costs and expenses related thereto shall be at Tenant's sole cost and expense, except as otherwise provided in this Paragraph 2.10 and in Paragraph 2.11 below. Tenant shall pay one-half the cost of installing any new interior demising walls. Without cost or expense to Tenant, Landlord shall (i) bring electricity to the distribution point on the floor, (ii) bring a main air-conditioning duct to the perimeter of the Premises, (iii) furnish construction sprinklers only, and (iv) install Building standard mini-blinds on all exterior windows. 2.11 Landlord agrees to provide Tenant with an allowance of up to (Eighty Thousand Eight Hundred Nine and 50/100 Dollars ($80,809.50) (based on Eight and 50/100 Dollars [$8.50] per usable square foot of space in the Premises) for the Tenant Improvements pursuant to this Exhibit "D-1"; provided, however, in no event shall more than an aggregate of $7,500 from such allowance be expended in connection with the preparation and revision of the Space Study and/or Construction Documents. Landlord shall administer all payments due to Landlord's Contractor. Tenant shall be responsible for all other costs incurred in connection with building out the Premises. 2.12 In no event shall Tenant be entitled to any payment, credit, refund or other sum by or from Landlord on account of any cost savings realized by Landlord in connection with the construction of the Tenant Improvements. -4- EXHIBIT "D-2" IMPROVEMENTS TO EXISTING PREMISES - TENANT BUILD 1. GENERAL PROVISIONS RELATING TO PREPARATION OF SPACE STUDY AND CONSTRUCTION DOCUMENTS. 1.1 Tenant and Landlord shall each cooperate with the other and with their representatives in the preparation of the space study ("Space Study"), the preparation of the plans and specifications ("Construction Documents") for the construction of the Existing Premises for Tenant ("Tenant Improvements"), and construction of the Tenant Improvements. 1.2 Tenant shall meet with City Spaces, Inc. (the "Space Planner") in order that a Space Study showing the location of all partitions and doors may be prepared by the Space Planner, such space study to be approved by Tenant (which approval shall appear in writing on the Space Study in a form satisfactory to Landlord) and submitted to Landlord on or before ten (10) business days after the execution of this Fourth Amendment. Failure of Landlord to approve or disapprove in writing such Space Study (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) and the delivery of such approval or disapproval to Tenant within five (5) business days after receipt of the same shall be conclusively deemed a disapproval thereof. If Landlord disapproves such Space Study, Space Planner shall revise and resubmit the same ("First Revised Space Study") to Landlord for approval on or before seven (7) business days after receipt of Landlord's disapproval. Failure of Landlord to approve or disapprove in writing the First Revised Space Study (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) and the delivery of such approval or disapproval to Tenant within five (5) business days after receipt of the same shall be conclusively deemed disapproval thereof. If Landlord disapproves the First Revised Space Study, Space Planner shall again revise and resubmit the same ("Second Revised Space Study") to Landlord for approval. The procedure and timing for obtaining Landlord's approval of the Second Revised Space Study and any subsequent revised Space Study shall be the same as hereinabove provided for in the First Revised Space Study. Revision and resubmission of the Space Study shall continue as set forth above until the Space Study is approved by Landlord. Each revised Space Study submitted to Landlord for approval shall include thereon Tenant's written approval thereof in form satisfactory to Landlord. 1.3 Within fifteen (15) business days after approval of the Space Study by Landlord, Space Planner shall prepare and submit to Landlord for approval a complete set of Construction Documents, which shall (i) be based upon the Space Study approved by Landlord, (ii) include Tenant's written approval thereof in a form satisfactory to Landlord, (iii) meet all items and contain all information necessary to obtain all building and other permits and governmental licenses required for the proper execution and completion of the Tenant Improvements, and (iv) include, without limitation, the location of doors, partitions, ceilings, lighting, heating, ventilation and air conditioning, electrical and telephone outlets, plumbing fixtures, heavy floor loads and any other special requirements, the "Finish Schedule" (as that term is hereinafter defined) and other construction detail. Tenant shall be required to utilize building standard window -1- coverings, doors to exterior hallways and suite entrance detail, and no materials used in the Tenant Improvements shall deviate from building standard quality, without first obtaining Landlord's written consent. In connection with the preparation of the Construction Documents, Space Planner shall meet with the building engineers designated by Landlord from time to time, who shall include, but not be limited to plumbing, electrical and mechanical engineers, in order that the engineering plans and/or specifications may be prepared for the Existing Premises, which plans and/or specifications shall be part of the Construction Documents. For the purposes of this EXHIBIT "D-2", the term "Finish Schedule" shall mean the schedule prepared by Space Planner which locates and specifies the colors, materials and special finishes, if any, for all wall and floor coverings. Failure of Landlord to approve or disapprove the Construction Documents in writing (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) within five (5) business days after receipt of the Construction Documents shall be conclusively deemed a disapproval thereof by Landlord. If Landlord disapproves the Construction Documents, Space Planner shall revise and resubmit the same ("First Revised Construction Documents") to Landlord for approval on or before five (5) business days after the receipt of Landlord's disapproval. Failure of Landlord to approve or disapprove in writing the First Revised Construction Documents (specifying the reasons for any disapproval, which may include the estimated cost of the Tenant Improvements) and the delivery of such approval or disapproval to Tenant within five (5) business days shall be conclusively deemed disapproval thereof. If Landlord disapproves the First Revised Construction Documents, Space Planner shall again revise and resubmit the same ("Second Revised Construction Documents") to Landlord for approval. The procedure and timing for obtaining Landlord's approval of the Second Revised Construction Documents any any subsequent revised Construction Documents shall be the same as hereinabove provided for the First Revised Construction Documents. Revision and resubmission of the Construction Documents shall continue as set forth above until the Construction Documents are approved by Landlord. Each set of revised Construction Documents submitted to Landlord for approval shall include Tenant's written approval thereof in a form satisfactory to Landlord. 1.4 Landlord's approval of matters relating to Tenant Improvements shall not release or relieve Tenant from its obligations pursuant to Section 2 of this EXHIBIT D-2. 2. GENERAL PROVISIONS RELATING TO CONSTRUCTION. 2.1 Tenant shall cause the Tenant Improvements to be installed by a licensed general contractor selected by Tenant and approved in writing by Landlord ("Tenant's Contractor") pursuant to the Construction Documents approved by Landlord. The construction and installation of the Tenant Improvements shall be in strict compliance with the provisions of Exhibit "D-2A" attached hereto and made a part hereof. Tenant shall obtain a bid for the construction of the Tenant Improvements in accordance with the Construction Documents and shall deliver to Landlord a copy of the bid so obtained for Landlord's approval. Tenant shall pay Landlord a fee ("Supervision Fee") on account of the supervision of the Tenant Improvements and Space Planner, equal to five percent (5%) of the aggregate Tenant Improvement costs and space planning costs (preparation of the Space Study and Construction Documents), which amounts shall be added to and included in the bid delivered to Tenant and Landlord for approval. Tenant shall within five (5) business days of receipt of said bid either (i) approve of said bid in a writing -2- delivered to Landlord, or (ii) provide Space Planner with a detailed list of revisions to the approved Construction Documents so as to reduce the cost of construction of the Tenant Improvements and if Tenant provides the Space Planner with a detailed list of revisions, then the Space Planner shall revise the Construction Documents within five (5) business days thereafter. Failure of Tenant to do either of the foregoing shall be conclusively deemed an approval of the bid. If Tenant disapproves said bid and submits to Landlord the revisions described in (ii) above, Tenant shall obtain from Tenant's Contractor a revised bid for the construction of the Tenant Improvements in accordance with the revised Construction Documents which shall have added to and included with it a revised Supervision Fee ("First Revised Bid"). Tenant shall within three (3) business days of receipt of the First Revised Bid either (x) approve the First Revised Bid in a writing delivered to Landlord for Landlord's approval, or (y) again provide Space Planner with a detailed list of revisions to the approved Construction Documents so as to further reduce the cost of construction of the Tenant Improvements and if Tenant provides the Space Planner with a detailed list of revisions, then the Space Planner shall revise the Construction Documents within five (5) business days thereafter. Failure of Tenant to do either of the foregoing shall be conclusively deemed an approval of the First Revised Bid. If Tenant disapproves the First Revised Bid and submits the revisions described in (y) above, Tenant shall again obtain from Tenant's Contractor a revised bid for the construction of the Tenant Improvements in accordance with the revised Construction Documents and deliver to Landlord a copy of the revised bid for Landlord's approval which shall have added to and included with it a revised Supervision Fee ("Second Revised Bid"). The procedure and timing for obtaining Tenant's approval of the Second Revised Bid and any subsequent revised bid shall be the same as for the First Revised Bid. Revision and bidding of the Tenant Improvements shall continue as set forth above until a revised bid is approved by Tenant and Landlord. Landlord shall not be liable for any defect or failure resulting from Tenant's Contractor's negligence or willful misconduct, or otherwise be liable for any direct or consequential damages suffered by Tenant, or any party claiming through Tenant, due to the action or inaction of Tenant's Contractor. 2.2 Tenant shall pay to Landlord prior to the commencement of any work on the Tenant Improvements an amount equal to the amount, if any, by which the bid (including the Supervision Fee) approved by Tenant and Landlord exceeds the allowance referred to in Paragraph 2.11 below. No change in the Construction Documents shall be made ("Change Order") without the prior written consent of Landlord. Concurrent with any request for approval of a Change Order of $1,000.00 or more, and any request for approval of Change Orders aggregating $1,000.00 or more, Tenant shall pay to Landlord an amount equal to the cost of such Change Order, plus a Supervision Fee equal to five percent (5%) of the cost of such Change Order. In addition, if at any time during the work, Landlord reasonably believes the allowance referred to in Paragraph 2.11 below, plus any payments by Tenant to Landlord on account of the Tenant Improvements, are not sufficient to fully pay for the cost thereof, plus the Supervision Fee, Landlord shall notify Tenant thereof and Tenant shall, within five (5) days after the date of any such notice, pay to Landlord the amount of any such deficiency. 2.3 Tenant shall cause Tenant's Contractor to perform its work diligently and in a first-class workmanlike manner in compliance with applicable laws and codes. Landlord shall not be liable for any direct or consequential damages resulting from delays in construction beyond its reasonable control, including, but not limited to, strikes, -3- availability of labor or materials, or delays by Tenant or anyone performing services on behalf of Tenant. 2.4 All work shall be completed at the earliest possible date. 2.5 Tenant shall cause Tenant's Contractor and any other contractor performing work at the request of Tenant to obtain and maintain public liability and workers' compensation insurance adequate to fully protect Tenant, Landlord and Master Landlord (by naming Landlord and Master Landlord as additional insureds), from and against any and all liability for death or injury to persons or damage to property caused in or about the Existing Premises from their construction of the Tenant Improvements (including installation by Tenant of its fixtures and equipment). Tenant shall deliver to Landlord prior to the commencement of any work on the Tenant Improvements a certificate of insurance. 2.6 Tenant hereby acknowledges that it is currently in possession of the Existing Premises and that Landlord has no obligation to perform any improvement work therein. 2.7 Intentionally Omitted. 2.8 Intentionally Omitted. 2.9 Intentionally Omitted. 2.10 The Tenant Improvements, including, but not limited to, the preparation of the Space Study and the Construction Documents, and all costs and expenses related thereto shall be at Tenant's sole cost and expense, except as otherwise provided in this Paragraph 2.10 and in Paragraph 2.11 below. Tenant shall pay one-half the cost of installing any new interior demising walls. Without cost or expense to Tenant, Landlord shall (i) bring electricity to the distribution point on the floor, (ii) bring a main air-conditioning duct to the perimeter of the Premises, (iii) furnish construction sprinklers only and (iv) install Building standard mini-blinds on all exterior windows. 2.11 Landlords agrees to provide Tenant with an allowance of up to (Eighty Thousand Eight Hundred Nine and 50/100 Dollars ($80,809.50) (based on Eight and 50/100 Dollars [$8.50] per usable square foot of space in the Premises) (the "Allowance") for the Tenant Improvements pursuant to this Exhibit "D-2"; provided, however, in no event shall more than an aggregate of $7,500 from such Allowance be expended in connection with the preparation and revision of the Space Study and/or Construction Documents. Landlord shall administer all payments due to Tenant's Contractor. Tenant shall be responsible for all other costs incurred in connection with building out the Premises. Payments to Tenant's Contractor shall be made by means of joint checks issued by Landlord up to an amount equal to the Allowance. Landlord shall make such payments not more often than once per calendar month, and provided that appropriate invoices as described in subsection (i) below are submitted to Landlord by the 25th of each month, such payments shall be disbursed to Tenant's Contractor within fifteen (15) days after receipt by Landlord of (i) copies of all invoices from Tenant's Contractor and all subcontractors and material suppliers, (ii) conditional lien releases from each of the parties specified in (i) above, and (iii) unconditional lien releases for any previous -4- Payments made by Landlord to any of the parties specified in (i) above. Landlord shall have the right to retain ten percent (10%) of each payment otherwise due to Tenant's Contractor, which retainage shall be disbursed to Tenant's Contractor only after the Tenant Improvements have been fully completed and reasonably approved by Landlord, and Landord has received all final lien releases from the parties specified in subsection (i) above. Notwithstanding anything to the contrary herein, Landlord shall not be required to pay the Allowance, or any portion or installment thereof, at any time when Tenant is in material default under the terms of the Lease. In the event of any material default under the Lease, any sums previously paid by Landlord as part of the Allowance shall become immediately due and payable to Landlord by Tenant. 2.12 In no event shall Tenant be entitled to any payment, credit, refund or other sum by or from Landlord on account of any costs savings realized by Landlord in connection with the construction of the Tenant Improvements. -5- EXHIBIT "D-2A" SECTION I: CONTRACTOR RULES AND REGULATIONS 1. Contractor, subcontractors, and materialsmen will check in and out with Building Security. 2. Contractor, subcontractors, and materialsmen will be appropriately dressed to work in an office environment: shirts with sleeves (T-shirts with company name are acceptable), pants (no shorts), work shoes with socks, and whatever other clothing as may be appropriate. No torn or worn-out clothing is permitted. Contractor personnel will display a courteous demeanor towards tenants, customers, visitors and general public. There is no smoking permitted in occupied offices. In addition, construction personnel are not to remain in the building after work hours. 3. Contractor, subcontractors, and materialsmen are responsible for cleaning the Job Site after meals are eaten. Alcoholic beverages and drugs are not to be brought into, or consumed in the building. Personnel appearing to be under the influence of either alcoholic beverages or drugs will not be allowed into the building. TENANT SHALL INCLUDE THE FOREGOING THREE SENTENCES IN ITS CONTRACT WITH TENANT'S CONTRACTOR AND SAID CONTRACT SHALL PROVIDE THAT THE CONTRACT MAY BE TERMINATED BY TENANT IF TENANT'S CONTRACTOR DOES NOT COMPLY WITH ANY OF THE THREE SENTENCES. 4. Parking for all personnel must be arranged prior to commencement of work, and will be provided in designated areas only. Vehicles in unapproved areas will be subject to citation and towing without notice. Any costs assessed by the parking operator of the garage are the sole responsibility of the Contractor. 5. Contractor, subcontractors, and materialsmen personnel are to access the building by freight elevator only. 6. Contractor, subcontractors and materialsmen personnel are to use the restroom on the first (1st) floor only. The key may be checked out at the security desk. 7. Delivery of materials and use of loading dock, freight and passenger elevators must be scheduled with the Landlord's Agent prior to receipt of materials. Delivery Dock Hours: Monday-Friday 7:00 A.M. to 5:00 P.M. Freight Elevator Hours: Monday-Friday 6:00 A.M. to 6:00 P.M. Note: Other hours of access are available with prior arrangement. 8. Building access hours: Monday-Friday: 6:00 AM to 10:00 PM Saturday: 8:00 AM to 6:00 PM Sunday: 10:00 AM to 6:00 PM Note: Other hours of access are available with prior arrangement. 9. Contractor, subcontractors and materialsmen are responsible for maintaining the condition of docks, elevators and corridors used. Contractor is responsible to protect floor and walls in corridors leading from the freight elevator to the entrance of the construction sight, as well as freight door jams. 10. All materials are to be stored at the Job Site or in designated storage areas. No materials are to be stored in corridors or in public areas. The Landlord's Agent may provide minimum secured storage for materials with prior arrangement. 11. Contractor, subcontractors and materialsmen must arrange access to areas other than Job Site at a minimum of 48 hours in advance. 12. All work areas are to be visually and materially protected from the tenants and general public. Radios or other excessive noise are not permitted. All Contractors will be held responsible for compliance with O.S.H.A. Rules and Regulations. 13. Toxic materials or odor-causing liquids are not to be used without prior scheduling with the Landlord's Agent, and prior notice to the tenants in suites adjacent to the Job Site. 14. All non-Job Site areas of the building are to be kept clean; dust, debris and materials are to be cleaned immediately. There is to be no tracking of material residue through corridors or public areas. 15. The Contractor and subcontractors are to ensure the Job Site is left broom clean at the completion of each scheduled work day. No trash or excess materials are permitted to remain on, in, or at the Job Site. Materials are to be disposed of in bins or by truck promptly, not staged or stored at the Job Site in any public or adjacent areas, NOR DISPOSED OF IN THE BUILDING'S TRASH RECEPTACLES. 16. Tool clean-up is permitted in janitorial/utility closets only; no clean-up is permitted in rest rooms. 17. Contractor is to furnish adequate protection against personal injury to employees and public while work is in progress. In addition, all equipment, furniture and supplies shall be protected from damage. 18. The work area may be occupied during construction, which may require the Contractor to move and relocate furniture, files, machinery and equipment during construction. Upon the completion of the work, the contractor is to return all items relocated during the work to their original location. 19. All salvageable items removed during the course of the work that are to be reused in the job, whenever possible, are to be stored and maintained by the Contractor. All salvageable materials and items of value, as determined by Landlord's Agent, that are removed from the site, that are not to be reused in the work, shall remain the property of the Landlord's Agent, and shall be stored or disposed of as directed by the Landlord's Agent. 20. All work includes replacing, patching and finishing all adjacent surfaces or features displaced or disturbed in the performance of the work such as, but not limited to: acoustical tile, topset base, cove base, floor coverings, paint, etc. Upon completion of the work, there shall be no discrepancy between the new work and the existing work. 21. The Contractor shall not disable, interrupt or test any building utilities or systems without prior arrangement with the Agent, nor without the presence of Building Engineering personnel. 22. The Contractor shall be responsible for any stoppage, interruptions or failures to building services, utilities or incidental damages to the building during the course of the work being performed as a result of his performance of the work. 23. All Contractors are responsible for supplying the following tools or materials to the Job Site: a. Ladders b. Industrial vacuum cleaner c. Protection for corridor floor coverings, walls and ceilings from the Job Site to the elevators d. Protection for the elevators and the Job Site 24. All anchoring of studs, drilling or coring of holes in concrete, applying carpet tack, and applying noxious materials (stains, fire-sealers, etc.) should be done after hours. 25. The Landlord's Agent is not responsible for providing any tools, equipment, materials or labor for the work. 26. The Contractor is responsible for the compliance to these rules and regulations by all his own personnel and those of his subcontractors, materialsmen and any other parties who may be employed for the performance and completion of the work. EXHIBIT "D-2A" SECTION II: LANDLORD'S REQUIREMENTS FOR TENANT IMPROVEMENTS OR ALTERATIONS TO LEASED SPACE BY TENANT OR CONTRACTOR(S) HIRED BY TENANT The Tenant has certain requirements to provide information to the Landlord's Agent regarding any alteration to be performed in the leased premises by Tenant. Said information is to be submitted for approval by Landlord's Agent, which approval shall not be unreasonably withheld. Below is a listing of those requirements: 1. Two sets of plans (a.k.a. working drawings) of the work to be performed, including details of connections to any building system (i.e., electrical, life-safety, plumbing, HVAC, etc.). One set will be retained by Landlord's Agent. One set will be returned to Tenant, signed by Landlord's Agent, as the approval set of record. 2. List of all Contractors, sub-contractors and material suppliers. 3. A copy of the Contractor's and sub-contractors' current construction licenses including expiration date and type. 4. Certificates of Insurance from the Contractor, naming Master Landlord, Landlord, Landlord's Agent and Tenant as Additional Insureds, and an adequate amount of liability coverage, specifically: a. General & Public Liability, no less than $1,000,000. b. Workers' Compensation not less than statutory requirements. c. Contractor's Business Liability (Umbrella) coverage of no less than $1,000,000. Upon submittal to Landlord's Agent of the above items, Landlord's Agent shall review the plans, list of project participants and other documentation, and make recommendations, if any, for modifications and compliance with building standards, including materials, as well as proper connections to the building systems. After obtaining approval from the Landlord's Agent, and prior to the commencement of work, the Tenant shall provide: 1. Hold Harmless Agreements signed by the Tenant and the Tenant's Contractor for the purpose of indemnifying the Master Landlord, Landlord, and Landlord's Agent from any liabilities, including but not limited to, liens filed against the property by any and all General Contractors, sub-contractors and sub-sub-Contractors, material suppliers and laborers. 2. A copy of the fully executed Contract for Work between Tenant and Contractor. 3. A copy of all required Municipal Building Permits. The Tenant shall be responsible for instructing the Contractor and sub-contractors to follow the building's Rules and Regulations provided herewith. The Tenant will then advise the Landlord's Agent of the commencement date of work, upon which notification the Landlord's Agent shall complete a Notice of Non-Responsibility for filing with the County Recorder's Office and posting on the job site. The Tenant shall provide Landlord with an anticipated payment schedule prior to the commencement of work. During the performance of the work, if there is a change or addition of contractors, sub-contractors or material suppliers, the Tenant shall immediately notify the Landlord's Agent, in writing, of the change or addition. All the same qualifications shall apply to the changed or added parties. In the event a Preliminary Lien Notice or Lien Notice is received by the Tenant, Tenant shall immediately provide a copy of same to Landlord's Agent. Landlord's Agent may, at its option, inspect the work in progress to insure that the building's minimum standards of quality of craftsmanship are maintained. The Tenant is responsible for coordinating with the office of the building, any access requirements for the contractor for the purpose of stocking the job, work to be performed in adjacent space, or connecting to or testing of base building systems which may disturb the normal operation of the building. After completion of the alteration, Tenant shall obtain the completed Permit Job Card and a Temporary Certificate of Occupancy clearly indicating the City's final Inspection by signature and date. Tenant shall submit a copy of same to Landlord' Agent as evidence of the completed alteration. Tenant shall, at the conclusion of all work, provide original Unconditional Lien Release documents to the Landlord's Agent demonstrating the payment of all outstanding invoices for the work. Upon completion of the work, Contractor is to provide Landlord's Agent with a set of "as-built" plans, cut sheets and specifications on all installed equipment, all warranties, and the stamped plancheck approved drawings with the permit signature card. These plans would include, but not be limited to: architectural, structural, electrical, plumbing and mechanical drawings as applicable. If any reimbursement from Landlord's Agent is due Tenant, copies of all paid invoices to all Contractors, sub-contractors and material suppliers must accompany above said original Unconditional Lien Releases from each. Landlord's Agent shall then reimburse Tenant's costs up to the agreed upon Tenant Improvement Allowance, less any costs Landlord or Landlord's Agent may have incurred in association with the performance of the work. These requirements neither supersede or subjugate any of the terms and conditions of the Lease for the leased space. EX-10.3 4 ex-10_3.txt EXHIBIT 10.3 EXHIBIT 10.3 OFFICE LEASE BETWEEN 20 ADELAIDE ST. EAST, A CO-OWNERSHIP - AND - PARAGON MANAGEMENT SYSTEMS (CANADA) INC. - -------------------------------------------------------------------------------- LEASE ADELAIDE STREET EAST, SUITE 800, TORONTO, ONTARIO - -------------------------------------------------------------------------------- OFFICE LEASE TABLE OF CONTENTS PAGE ---- SPECIAL PROVISIONS.............................................................1 ARTICLE 1 Leased Premises, Term and Acceptance of Leased Premises...........5 Section 1.1 Leased Premises..............................................5 Section 1.2 Use of Additional Areas......................................5 Section 1.3 Storage Area - INTENTIONALLY DELETED.........................6 Section 1.4 Grant and Term...............................................6 Section 1.5 Construction of the Leased Premises - INTENTIONALLY DELETED..6 ARTICLE 2 Rent..............................................................6 Section 2.1 Covenant to Pay..............................................6 Section 2.2 Basic Rent...................................................6 Section 2.3 Advance Rent.................................................7 Section 2.4 Security Deposit - INTENTIONALLY DELETED.....................7 Section 2.5 Rent Past Due................................................7 ARTICLE 3 Taxes and Operating Costs.........................................7 Section 3.1 Taxes Payable by the Landlord................................7 Section 3.2 Taxes Payable by the Tenant..................................7 Section 3.3 Business Taxes and Other Taxes of the Tenant.................8 Section 3.4 Tenant's Responsibility......................................8 Section 3.5 Tenant's Proportionate Share of Operating Costs..............9 Section 3.6 Payment of Taxes and Operating Costs.........................9 ARTICLE 4 Building - Control and Services..................................10 Section 4.1 Control of the Building by the Landlord.....................10 Section 4.2 Landlord's Services.........................................11 ARTICLE 5 Utilities........................................................13 Section 5.1 Charges for Utilities.......................................13 i ARTICLE 6 Use of the Leased Premises.......................................14 Section 6.1 Use of the Leased Premises..................................14 Section 6.2 Conduct of Business.........................................14 Section 6.3 Observance of Law...........................................15 ARTICLE 7 Insurance and Indemnity..........................................16 Section 7.1 Tenant's Insurance..........................................16 Section 7.2 Increase in Insurance Premiums..............................18 Section 7.3 Cancellation of Insurance...................................18 Section 7.4 Loss or Damage..............................................19 Section 7.5 Landlord's Insurance........................................19 Section 7.6 Indemnification of the Landlord.............................19 ARTICLE 8 Maintenance, Repairs and Alterations.............................20 Section 8.1 Maintenance and Repairs by the Tenant.......................20 Section 8.2 Landlord's Approval of the Tenant's Repairs.................20 Section 8.3 Maintenance by the Landlord.................................21 Section 8.4 Repair on Notice............................................22 Section 8.5 Surrender of the Leased Premises............................22 Section 8.6 Repair Where the Tenant is at Fault.........................22 Section 8.7 Tenant Not To Overload Facilities...........................23 Section 8.8 Tenant Not To Overload Floors...............................23 Section 8.9 Removal and Restoration by the Tenant.......................23 Section 8.10 Notice by the Tenant........................................24 Section 8.11 Tenant to Discharge all Liens...............................24 Section 8.12 Signs and Advertising.......................................25 ARTICLE 9 Damage and Destruction...........................................25 Section 9.1 Destruction of the Leased Premises..........................25 Section 9.2 Destruction of the Building.................................26 Section 9.3 Expropriation...............................................26 Section 9.4 Architect's Certificate.....................................27 ARTICLE 10 Transfer and Sale................................................27 Section 10.1 Assignment and Subletting...................................27 Section 10.2 No Advertising of the Leased Premises.......................28 Section 10.3 Corporate Ownership.........................................28 Section 10.4 Assignment by the Landlord..................................29 ii ARTICLE 11 Access and Alterations...........................................29 Section 11.1 Right of Entry..............................................29 ARTICLE 12 Status Statement, Attornment and Subordination...................30 Section 12.1 Status Statement............................................30 Section 12.2 Subordination and Attornment................................30 Section 12.3 Attorney....................................................31 Section 12.4 Financial Information.......................................31 ARTICLE 13 Default..........................................................31 Section 13.1 Right to Re-enter...........................................31 Section 13.2 Right to Relet..............................................32 Section 13.3 Expenses....................................................33 Section 13.4 Waiver of Exemption from Distress...........................33 Section 13.5 Landlord May Cure the Tenant's Default or Perform the Tenant's Covenants........................................33 Section 13.6 Additional Rent.............................................34 ARTICLE 14 Miscellaneous....................................................34 Section 14.1 Rules and Regulations.......................................34 Section 14.2 Intent and Interpretation...................................35 Section 14.3 Overholding - No Tacit Renewal..............................36 Section 14.4 Successors..................................................36 Section 14.5 Tenant Partnership..........................................37 Section 14.6 Waiver......................................................37 Section 14.7 Accord and Satisfaction.....................................37 Section 14.8 No Partnership or Agency....................................37 Section 14.9 Force Majeure...............................................37 Section 14.10 Notices.....................................................38 Section 14.11 No Option...................................................38 Section 14.12 Registration................................................38 Section 14.13 Directory Board.............................................39 Section 14.14 Accrual of Basic Rent and Additional Rent...................39 Section 14.15 Compliance with the Planning Act............................39 Section 14.16 Survival of Covenants.......................................39 Section 14.17 Quiet Enjoyment.............................................39 SCHEDULES SCHEDULE "A" LEGAL DESCRIPTION OF THE LANDS SCHEDULE "B" FLOOR PLAN iii SCHEDULE "C" CONSTRUCTION OF THE BUILDING AND THE LEASED PREMISES SCHEDULE "D" INTENTIONALLY DELETED SCHEDULE "E" RULES AND REGULATIONS SCHEDULE "F" DEFINITIONS SCHEDULE "G" INTENTIONALLY DELETED SCHEDULE "H" INTENTIONALY DELETED iv THIS LEASE is dated the 30th day of August, 1999. B E T W E E N: 20 ADELAIDE ST. EAST, A CO-OWNERSHIP (the "Landlord") OF THE FIRST PART; - AND - PARAGON MANAGEMENT SYSTEMS (CANADA) INC. (THE "TENANT") OF THE SECOND PART. SPECIAL PROVISIONS The following are certain special provisions, which are part of, and are referred to in subsequent provisions of this Lease. Any conflict or inconsistency between these special provisions and the provisions contained elsewhere in this Lease will be resolved in favour of such other provisions: (a) Leased Containing a Rentable Area of approximately Premises: 11,700 square feet located on the 8th floor of the Building as shown outlined in yellow on the plan(s) attached as Schedule "B" and designated as Suite No. 800 (Section 1.1). (b) Commencement The period of Three (3) years commencing on of Date and Term: the 1st day November, 1999 (the "Commencement Date") and expiring on the 31st day of October, 2002; (c) Net Rent: It is understood and agreed by both the Landlord and the Tenant that the Net Rental Rate shall be charged per Rentable Square Foot of the Premises, per annum (the "Net Rent") plus GST for the Term of the Lease, payable to the Landlord in advance on the first day of each month in twelve (12) equal consecutive monthly installments. The Net Rent shall be Twelve Dollars ($12.00) per square foot per year. (Section 2.2). (d) Additional Rent: The Tenant and the Landlord agree that rent payable herein shall be net in all respects and carefree to the Landlord and that the Tenant shall pay its proportionate 1 share of Additional Rent as outlined below. The Additional Rent shall be paid to the Landlord in advance on the first day of each month in Twelve (12) consecutive monthly installments. The Tenant shall be responsible for its proportionate share of realty taxes, utilities and operating costs, which together are estimated to be Seventeen Dollars and Thirty-Nine Cents ($17.39) per square foot of rentable area. Additional rent shall be payable in advance in monthly installments on the first day of each month based on the Landlord's estimate from time to time. The Landlord will provide to the Tenant on an annual basis a detailed breakdown of the Additional Rent costs. (e) Advance Rent: The Tenant acknowledges that it will provide the Landlord with a deposit equal to four (4) months Basic Rent, Additional Rent in the amount of One Hundred and Fourteen Thousand Six Hundred and Twenty-One dollars ($114,621.00), said deposit to be payable in two (2) installments, the first ($57,310.50) being due upon unconditional acceptance of the Offer to Lease and the second (57,310.50) due on the 15th day of September, 1999, to be applied to the first renewal payments due hereunder. (f) Removal of Leaseholds: At the end of the Term, the Tenant shall not be required to remove leasehold improvements which have been approved by the Landlord; however, it may remove its equipment and trade fixtures, provided it shall repair any damage caused by said removal. (g) Signs: The Tenant, at the Landlord's cost, shall have the right to erect building standard signage on the outside of the Premises and on the Building Directory in the main lobby and in the elevator lobby located on the 8th Floor. All signage must be in a building standard design, size, location, and in all other respects satisfactory to the Landlord and all municipal and governmental authorities. (h) Access: Apart from "Normal Building Business Hours", the Tenant shall have access to the Premises twenty-four (24) hours a day each and every day of the year throughout the Term, except for unforeseen Building emergencies. The Tenant shall have the right to have 2 heating, ventilation, air conditioning, hydro and elevatoring as it may require upon reasonable request. (i) Address of 20 Adelaide Street East Landlord: Suite 1103 Toronto, Ontario M5C 2T6 (Section 14.10); (j) Address of 20 Adelaide Street East Tenant: Suite 800 Toronto, Ontario M5C 2T6 (Section 14.10); (k) Leasehold Improvement The Landlord will pay to the Tenant, as a Allowance: contribution towards the cost of the Tenant's Work and the disposition of the Tenant's existing Lease, the sum of $5.00 per square foot of Rentable Area plus applicable Goods and Services Tax. Such contribution shall be payable to the Tenant on the Commencement Date. Tenant's Work is defined strictly as leasehold improvements to the Leased Premises. All Tenant's Work and all related plans and specifications, as well as all trades to be approved by the Landlord in advance, such approval not to be unreasonably withheld. (1) As Is: The Tenant agrees to accept the Premises on an "as is" basis and in its present condition. Any and all costs of any other alteration and construction which may be required to make the Premises suitable for the Tenant's occupation and use shall be paid for entirely by the Tenant but shall, however, be subject to the Landlord's prior written approval of the work and supervision of same at Tenant's cost as required by the Lease. (m) Option to Renew: Provided the Tenant is not in breach of the Lease, the Tenant shall have one (1) option to renew the Lease with respect to the Leased Premises and any additional space leased for additional terms of three (3) years on the same terms and conditions, save only for the Basic Rent and Additional Rent, Tenant Allowances, any other allowances of any nature, Rent-Free Period, and any further option(s) to renew. The Basic Rent during the renew period will be the fair market rent, all economic 3 factors considered for comparable premises in comparable buildings agreed between the parties, and failing such agreement, as determined by arbitration pursuant to the Arbitrations Act, Ontario. To exercise an Option to Renew, the Tenant shall give written notice to the Landlord no later than six (6) months prior to the date of expiry of the current Term, failing which this option is null and void and of no further effect. This Option to Renew is personal to the Tenant, and cannot be exercised by any assignee or sub-tenant of the Tenant. (n) Assignment/Sublet: The Tenant shall not assign this Lease or sublet or part with possession of all or part of the Leased Premises or mortgage or encumber the Lease without the prior written consent of the Landlord, which consent shall not be unreasonably withheld or delayed. (o) H.V.A.C. System: The Landlord warrants that the H.V.A.C. system in the Building and the Leased Premises is in good working order and not in need imminent rep or upgrade. (o)(i) The Landlord represents to the Tenant that it has formally investigated the Building systems and to the best of its knowledge based upon representations by Building service providers, that all the Building systems (including, but not limited to, elevators, power, communication, telephone) have been investigated and are Y2K compatible and that third party service providers to the Building have indicated that they are Y2K compatible. (p) Additional H.V.A.C. Costs: The Tenant shall not be responsible for any additional H.V.A.C. costs from 6:30 p.m. until 8:30 p.m. from Monday to Friday. An after hour charge for H.V.A.C. of $15.00 per hour of use will apply to those hours outside of 4:30 a.m. and 8:30 p.m. (q) Early Access: The Tenant shall have access to the Leased Premises provided the Lease is executed by all parties for the purpose of the installation of telephone and communication systems, computer equipment, leasehold improvements, furniture and commencement of business as of September 1, 1999. All terms and conditions of the Lease will apply to the term of occupation prior to the 4 Commencement Date of the Lease except that no basic rent, additional rent or utilities will be payable. (r) Basic Rent and The Tenant shall have a Basic Rent and Additional Rent Free Additional Rent Free Period for One (1) Period: month from the commencement Date. During this period, the Tenant shall not be responsible to pay the Landlord its proportionate share of realty taxes, operating expenses, utilities and Basic Rent. (s) Parking: The Landlord shall provide to the Tenant four (4) reserved parking stalls in the Building. Rental for such stalls shall be $220.00 per stall per month payable in advance on the first day of each and every month during the term of the Lease and any renewal thereof and shall be subject to change from time to time. (t) Right of Fast Offer to Provided the Tenant has not been in breach Lease Adjoining Space: of its covenants and obligations under the Lease, the Landlord hereby grants to the Tenant the right of first offer to lease, during the Term or any renewal thereof, any adjoining space that may become available to be leased on the terms and conditions of fair market rent, both parties acting reasonably. The Landlord agrees to notify the Tenant of any available space as it becomes available. If the Tenant does not exercise this right of first offer to lease the said premises, the said premises may thereafter be freely leased by the Landlord. ARTICLE 1 Leased Premises, Term and Acceptance of Leased Premises Section 1.1 Leased Premises In consideration of the rents, covenants and agreements herein contained on the part of the Tenant to be paid, observed and performed, the Landlord leases to the Tenant, and the Tenant leases from the Landlord, the Leased Premises. The Leased Premises shall be measured and calculated by the Landlord in accordance with Schedule "D". Section 1.2 Use of Additional Areas The use and occupation by the Tenant of the Leased Premises includes the non-exclusive right of the Tenant, the Tenant's employees, agents, invitees, suppliers (subject to 5 Section 14.1 hereof), and Persons having business with the Tenant, in common with the Landlord, its other tenants, subtenants and all others entitled or permitted to the use of the following: (a) the entrance, foyer, lobby elevators and escalators of the Building; (b) the corridors on the floor of the Building on which the Leased Premises are situate, together with the public entrance doors, halls, stairways, passages, elevators, escalators and lavatories on the floor of the Building on which the Leased Premises are situate; and (c) the Common Areas and Facilities. Section 1.3 Storage Area - INTENTIONALLY DELETED. Section 1.4 Grant and Term The Tenant will have and hold the Leased Premises for and during the Term (being the period of time referred to in Paragraph (c) of the Special Provisions) subject to the payment of Basic Rent and Additional Rent and the observance and performance of the terms, covenants and conditions contained in this Lease. Section 1.5 Construction of the Leased Premises - INTENTIONALLY DELETED ARTICLE 2 Rent Section 2.1 Covenant to Pay The Tenant shall pay Basic Rent and Additional Rent. Section 2.2 Basic Rent The Tenant will pay from and after the Commencement Date to the Landlord at the office of the Landlord, or at such other place designated by the Landlord or to such other Person as the Landlord designates from time to time, in lawful money of Canada, without any prior demand therefor as Basic Rent, the annual sum specified in Paragraph (d) of the Special Provisions, payable in equal consecutive monthly installments each in advance on the first day of each calendar month of each Rental Year. When the Full Floor Rentable Area of the Leased Premises is calculated, by the Landlord, the Basic Rent will, if necessary, be adjusted accordingly. 6 Section 2.3 Advance Rent The Landlord acknowledges receipt of the sum specified in Paragraph (e) of the Special Provisions as Advance Rent, to be held without interest by the Landlord and to be applied on account of the Basic Rent in accordance with Paragraph (e) of the Special Provisions. Section 2.4 Security Deposit - INTENTIONALLY DELETED Section 2.5 Rent Past Due If the Tenant fails to pay, when the same is due and payable, any Basic Rent, Additional Rent or other amount payable by the Tenant under this Lease, such unpaid amounts bear interest from the due date thereof to the date of payment at a rate per annum which is five (5) percentage points in excess of the minimum lending rate to prime commercial borrowers current at such time charged by any Canadian chartered bank designated by the Landlord from time to time. ARTICLE 3 Taxes and Operating Costs Section 3.1 Taxes Payable by the Landlord The Landlord will, subject to Sections 3.2 and 3.3, pay directly to the appropriate taxing authority all Taxes in respect of the Building and the Lands, or any part thereof. However, the Landlord may defer payment of any such Taxes, to the fullest extent permitted by law, so long as it diligently prosecutes any contest or appeal of any such Taxes. Section 3.2 Taxes Payable by the Tenant (a) If there are separate tax bills and separate assessment notices in respect of Taxes for the Leased Premises and the non-leasable areas of the Building and the Lands, subject to subparagraph (b) below, the Tenant will (i) pay as Additional Rent to the Landlord or to the taxing authorities if the Landlord so directs, and discharge during the Term within the times provided for by the taxing authorities, all Taxes that are levied, rated, charged or assessed from time to time, respectively, against the Leased Premises or any part thereof, on the basis of such separate tax bill and separate assessment notice rendered by any lawful taxing authority; and (ii) pay as Additional Rent in accordance with Section 3.6, its Proportionate Share of all Taxes in respect of the Building and the Lands, excluding all portions thereof designated or intended by the Landlord to be leased to tenants. (b) If there are not separate tax bills and separate assessment notices for the Leased Premises and the non-leasable areas of the Building and the Lands or, in any event, if the Landlord so elects, the Tenant will pay monthly in advance or otherwise as the Landlord directs, in accordance with Section 3.6, its Proportionate Share of all Taxes levied, rated, charged or 7 assessed by any lawful authority against, or in relation to, the Building and the Lands, including the Common Areas and Facilities. (c) If the Landlord, acting equitably, determines that as a result of the construction or installation of any improvements in the Leased Premises, the use of the Leased Premises or the particular location of the Leased Premises within the Building, the Tenant's Proportionate Share of Taxes payable in accordance with subparagraph (b) above does not accurately reflect the proper share of the Taxes which should in the Landlord's opinion be payable by the Tenant, the Landlord may increase or decrease the Tenant's Proportionate Share of Taxes and the Tenant will pay such adjusted amount rather than the Tenant's Proportionate Share as set out in subparagraph (b) above. (d) In addition to the foregoing, but without duplication, the Tenant will reimburse the Landlord for each Rental Year and at the times and in the manner specified by the Landlord, the full amount of any Taxes in the nature of a business transfer tax, value-added tax, sales tax or any other taxes levied, rated, charged or assessed in respect of the Rent payable by the Tenant under this Lease or in respect of the rental of space by the Tenant under this Lease. It is agreed and understood that the Tenant shall reimburse the Landlord for such Taxes at the full tax rate applicable from time to time in respect of the Rent or the rental of space, without reference to any tax credits or exemptions available to the Landlord. Section 3.3 Business Taxes and Other Taxes of the Tenant The Tenant will pay as Additional Rent to the lawful taxing authorities, or to the Landlord, as the Landlord directs, and shall discharge when the same become due and payable (i) all taxes, rates, duties, assessments and other charges that are levied, rated, charged or assessed against or in respect of all improvements, equipment and facilities of the Tenant in the Leased Premises or the Building or the Lands or any part thereof, or the Landlord on account of its interest in the Building; and (ii) every tax and license fee which is levied, rated, charged or assessed against or in respect of any and every business carried on in the Leased Premises or in respect of the use or occupancy thereof or any other part of the Building and the Lands by the Tenant and every subtenant or licensee of the Tenant, or against the Landlord on account of its interest in the Building; all of the foregoing being collectively referred to as "Business Taxes" and whether in any case, any such taxes, rates, duties, assessments or license fees are rated, charged or assessed by any federal, provincial, municipal, school or other body during the Term. If there are not separate tax bills provided for Business Taxes, the Tenant will pay in accordance with Section 3.6 the Tenant's Proportionate Share of the total Business Taxes for the Building. Section 3.4 Tenant's Responsibility The Tenant will (a) upon request of the Landlord: (i) promptly deliver to the Landlord for inspection, receipts evidencing the payment of all Taxes and Business Taxes payable by the Tenant pursuant to Sections 3.2 and 3.3, respectively; (ii) promptly deliver to the Landlord copies of all bills and any notices of assessment in respect of any Taxes or Business Taxes received by the Tenant which relate to the Leased Premises; and (iii) furnish such other information in connection with any such Taxes or Business Taxes or other assessments payable 8 by the Tenant in respect of the Leased Premises as the Landlord reasonably determines from time to time; and (b) deliver to the Landlord at least ten (10) days prior to the last day permitted for filing an appeal, a notice of any appeal or contestation which the Tenant intends to institute with respect to Taxes or Business Taxes and consult with the Landlord in advance and obtain the prior written approval of the Landlord to any such appeal or contestation. If the Tenant obtains such approval, the Tenant will deliver to the Landlord such security for the payment of Taxes and Business Taxes as the Landlord deems advisable and the Tenant will diligently prosecute any such appeal or contestation to a speedy resolution and will keep the Landlord informed of its progress in that regard, from time to time. The Tenant will indemnify and hold harmless the Landlord from and against payment for all loss, costs, charges and expenses occasioned by or arising from all Taxes and Business Taxes and any taxes which may in future be levied in lieu of such Taxes or Business Taxes or which may be assessed against any rentals payable pursuant to this Lease in lieu of such Taxes or Business Taxes, whether against tile Landlord or the Tenant, including, without limitation, any increase whensoever occurring in Taxes or Business Taxes arising directly or indirectly out of any appeal or contestation by the Tenant of the Taxes or Business Taxes. The Tenant will deliver to the Landlord such security for any increase in Taxes and Business Taxes as the Landlord deems advisable. Section 3.5 Tenant's Proportionate Share of Operating Costs The Tenant will pay, in accordance with Section 3.6, the Tenant's Proportionate Share of Operating Costs. Section 3.6 Payment of Taxes and Operating Costs (a) The amounts payable by the Tenant pursuant to Sections 3.2 and 3.5 (and Section 3.3. if applicable) may be estimated by the Landlord for such period as the Landlord determines from time to time, and the Tenant agrees to pay to the Landlord the Tenant's Proportionate Share as so estimated, of such amounts in monthly installments in advance during such period as Additional Rent. Notwithstanding the foregoing, the Landlord's estimates may be revised from time to time and as soon as bills for all or any portion of the amounts so estimated are received, the Landlord may bill tile Tenant for the Tenant's Proportionate Share thereof and the Tenant will pay the Landlord the amounts billed (less all amounts previously paid by the Tenant on the basis of the Landlord's estimate) as Additional Rent within five (5) days after demand. (b) Within a reasonable period of time after the end of the period for which the estimated payments have been made, the Landlord will determine and advise the Tenant of (i) the amounts and costs referred to in Section 3.2 and Section 3.3 (if applicable) for such period, together with the calculation the Tenant's Proportionate Share of such amounts and costs pursuant to Section 3.2 and Section 3.3 (if applicable); and (ii) the Operating Costs referred to in Section 3.5 for such period, together with a calculation of the Tenant's Proportionate Share of such Operating Costs payable pursuant to Section 3.5; and if necessary, an adjustment shall be made between the parties in the following manner. If the Tenant has paid in excess of the 9 amounts due, the excess will be refunded by the Landlord within a reasonable period of time after the Landlord's determination, or, at the option of the Landlord, the excess will be credited to amounts payable pursuant to Sections 3.2, 3.5 (and 3.3. if applicable) in the immediately following Rental Year. If the amount the Tenant has paid is less than the amounts due, the Tenant will pay such additional amounts due within five (5) days after demand. If any Rental Year during the Term is greater or less than any such period determined by the Landlord, the Tenant's Proportionate Share pursuant to Sections 3.2 and 3.5 (and Section 3.3, if applicable) will be subject to a per diem, pro rata adjustment based upon a period of three hundred and sixty-five (365) days and will be made on or before the last day of the Term. If the Term expires or this Lease is terminated prior to a final determination of the Tenant's Proportionate Share of the costs and expenses set out in Sections 3.2 and 3.5 (and Section 3.3, if applicable), an amount payable for the last Rental Year of the Term will be estimated by the Landlord, acting reasonably. As soon as the amount payable by the Tenant for the last Rental Year of the Term has been determined, the amount will be adjusted between the Landlord and the Tenant. Section 3.7 The Tenant's proportionate share of all taxes, operating expenses and hydro are estimated at $17.39 per sq. ft. for the calendar year 1999. ARTICLE 4 Building - Control and Services Section 4.1 Control of the Building by the Landlord (a) The Landlord will operate and maintain the Building in such manner as the Landlord determines from time to time, and in a first-class and reputable manner as would a prudent landlord of a similar office building having regard to size, age and location. (b) The Building and the Lands are at all times subject to the exclusive control, management and operation of the Landlord. The Landlord has the right, in its control, management and operation of the Building and by the establishment of Rules and Regulations and general policies with respect to the operation of the Building or any part thereof, at all times throughout the Term, to: (i) obstruct or close off all or any part of the Building for the purpose of maintenance, repair or construction; (ii) employ all personnel necessary for the operation and management of the Building. The Tenant acknowledges that the Building may be managed by any Person designated by the Landlord; (iii) construct improvements in or to the Building and make alterations thereof, additions thereto, subtractions therefrom, rearrangements thereof (including all entrances and exits thereto), build additional stories on the Building and construct additional facilities adjoining or proximate to the Building; 10 (iv) relocate or rearrange the various facilities and improvements comprising the Building or erected on the Lands from those existing at the Commencement Date excluding the Leased Premises; (v) do and perform such other acts in and to the Building as, in the use of good business judgment, the Landlord determines to be advisable for the more efficient and proper operation of the Building; (vi) control, supervise and regulate any parking facilities which may be used in conjunction with the Building in such manner as the Landlord determines from time to time, including, without limitation, imposing charges or rates as may from time to time be determined by the Landlord for the use of any such parking facilities. (c) Notwithstanding anything contained in this Lease, it is understood and agreed that if as a result of the exercise by the Landlord of its rights set out in tins Section 4.1, the facilities in or improvements to the Building are diminished or altered in any manner whatsoever, the Landlord is not subject to any liability; nor is the Tenant entitled to any compensation, diminution or abatement of Basic Rent or Additional Rent; nor is any alteration or diminution of the facilities or improvements in or to the Building (including, the Leased Premises) deemed a breach of any covenant for quiet enjoyment contained in this Lease, or implied by law. Section 4.2 Landlord's Services (a) The Landlord will provide climate control to the Leased Premises during Normal Business Hours to maintain a temperature adequate for occupancy, except during the making of repairs, alterations or improvements to the climate control apparatus and provided that the Landlord shall have no responsibility or liability for failure to supply climate control service when stopped as aforesaid or when prevented from so doing by strikes or causes beyond the Landlord's reasonable control. The Tenant acknowledges that the Landlord has installed a system for the purpose of climate control, which system is designed to heat and cool during normal occupancy of the Leased Premises as general offices on the basis of one (1) person to every one hundred (100) square feet of space on an open floor basis and based on the window shading being fully closed in those offices having exterior windows exposed to the sun, without having regard to the Tenant's specific use thereof or the installation in the Leased Premises by the Tenant or by anyone on behalf of the Tenant of any excessive heat generating equipment. Any use of the Leased Premises not in accordance with the design standards or any arrangement of partitions which interferes with the normal operation of such system may require changes or alterations in the system or the ducts. Any changes or alterations so occasioned, if such changes can be accommodated by the Landlord's equipment, shall be made (i) by the Tenant (or, at the Landlord's option, by the Landlord), (ii) in either case, at the Tenant's expense and only with the Landlord's prior written consent, and (iii) in accordance with drawings and specifications and by a contractor first approved in writing by the Landlord. If installation of partitions, equipment or fixtures by or on behalf of the Tenant (other than the partitions installed pursuant to the Landlord's Work as set out in Schedule "C") necessitates the rebalancing of the portion of the 11 climate control equipment installed in the Leased Premises, such work will be performed by the Landlord at the Tenant's expense, together with an amount equal to fifteen percent (15%) of the total expense thereof representing the Landlord's overhead, payable by the Tenant within five (5) days after written demand as Additional Rent. The Tenant acknowledges that one (1) year may be required after the Tenant has fully occupied the Leased Premises in order to adjust and balance the climate control systems. (b) Subject to the Rules and Regulations, the Landlord will furnish, except when repairs to the elevator(s) are being made, elevator service during Normal Business Hours, in common with others, provided that the Tenant and its employees and all other Persons using the elevator service will do so at their own risk. At least one (1) elevator will be operated at all times after Normal Business Hours. There will be no liability on the Landlord for any claim in respect of any failure by the Landlord to provide elevator service during any power failure or other cause beyond the control of the Landlord or by reason of the carrying out of any repairs, maintenance or replacement of the elevators, nor shall there be, consequent upon the foregoing, any abatement or reduction in the Rent. If the Tenant requests the provision of climate control services to the Leased Premises after Normal Business Hours, the Landlord will provide such services to the Tenant at the Tenant's expense at the rate of $15.00 per hour, payable by the Tenant within five (5) days after written demand, i.e. those hours outside of 4:30 a.m. to 8:30 p.m. (c) The Landlord will provide a card-coded security system to control access to the Building after Normal Business Hours and on weekends and all employees of the Tenant shall comply with all regulations and rules promulgated by the Landlord for such system. Employees of the Tenant holding a security pass issued by the Landlord will be provided access to the Building for the whole year. (d) The Landlord will when reasonably necessary from time to time cause the floors to be swept, the windows to be cleaned and the desks, tables and other furniture of the Tenant to be dusted, all in keeping with a first-class office building and in accordance with the Landlord's cleaning schedule attached as Schedule "H". However, with the exception of the obligation to cause such work to be done, the Landlord will not be responsible for any act or omission or commission on the part of the Persons employed to perform such work and such work shall be done at the Landlord's direction without interference by the Tenant and its servants or employees. (e) The Landlord will make available water and electricity in adequate quantities, provided that if the Tenant's equipment requires utilities in excess of adequate quantities facilities to supply such excess quantities may be provided by the Landlord at the sole expense of the Tenant, subject to the following conditions and provided that: (i) the Landlord's electrical engineer or other consultants determines that such excess facilities are so required by the Tenant's equipment; 12 (ii) it is within the capabilities of the Landlord and the existing structure of the Building to provide such excess utilities; (iii) the Landlord will have the right of refusal to supply such excess utilities if the supplying of additional facilities or utilities shall in any way affect the operation, the aesthetics or the structure of the Building, or in any way reduce the efficiency of existing electricity, water or other utilities supplied to the Building; and (iv) the supplying of such additional facilities will be subject to compliance with all provisions of law including, without limitation, federal and provincial legislative enactments, building by-laws and other governmental or municipal regulations. ARTICLE 5 Utilities Section 5.1 Charges for Utilities (a) The Tenant will promptly pay to the Landlord, or as the Landlord otherwise directs, in the manner hereinafter provided, as Additional Rent, the aggregate, without duplication, of (i) all electricity, water, steam charges and other utility charges applicable to the Leased Premises (the "Utilities") on the basis of the Full Floor Rentable Area of the Leased Premises; (ii) the costs of any other charges levied or assessed in lieu of, or in addition to, such Utilities as determined by the Landlord; and (iii) all costs incurred by the Landlord in determining or allocating the charge for Utilities, including without limitation, professional engineering and consulting fees and an administration fee of five percent (5%) of the total cost of such Utilities. The Landlord will be entitled, acting equitably, to allocate to the Leased Premises an additional charge, as determined by the Landlord's engineer, for the excess supply to, and usage of, water, electricity, steam and other Utilities in the Leased Premises in excess of the standard usage of general office premises in the Building. Charges for Utilities will be payable in equal monthly installments in advance on the basis of an initial rate determined by the Landlord's engineers. If the public utility rate and other taxes or charges in connection therewith for the supply of any Utility is increased or decreased during the Term, the charges in respect thereof will be equitably adjusted and the decision of the Landlord, acting reasonably, will be final, and the Tenant agrees to pay such increased charges on demand as Additional Rent. The Tenant will in addition, pay for all costs of supplying Utilities to the Leased Premises after Normal Business Hours as determined by the Landlord's engineers. (b) The Landlord will have the exclusive right to attend to any replacement of electric light bulbs, tubes and ballasts in the Leased Premises. The Landlord may adopt a system of relamping and reballasting periodically on a group basis in accordance with good commercial practice. The Tenant will pay to the Landlord as Additional Rent, on the first day of each month during the Term, a competitive monthly charge per bulb, tube and ballast on account of the cost of replacement. If the cost of such replacement increases or decreases during the Term, the Landlord will adjust the Additional Rent payable for such replacement on an equitable basis and the Tenant will pay such Additional Rent, as adjusted on demand. The decision of the Landlord, 13 acting reasonably, with respect to any such adjustment, and the Additional Rent based thereon, will be final and binding on the parties hereto. If the Landlord does not adopt the system of relamping and reballasting, as aforesaid, then the replacement of electric light bulbs, tubes and ballasts in the Leased Premises will be undertaken by the Landlord at such time as they actually burn out and after notice from the Tenant that replacement is required. In such event, the cost of replacement and installation will be paid by the Tenant to the Landlord within five (5) days after demand as Additional Rent. (c) The Tenant will pay as Additional Rent any charges resulting from the use of equipment necessitating a dedicated circuitry or specialized power equipment. At the Landlord's reasonable discretion, such charges may be metered separately from general power consumption. (d) The Tenant will pay for the cost of any metering which the Tenant requests the Landlord to install in the Leased Premises or the Building, or which the Landlord wishes to install in the Building for the purpose of assisting in determining the consumption of any Utility (including electricity and water) in the Leased Premises or which may be required by the Landlord to measure or estimate any excess usage of electricity, water or other Utility. ARTICLE 6 Use of the Leased Premises Section 6.1 Use of the Leased Premises The Leased Premises will be used solely for general office purposes, provided such purposes comply with the terms, covenants and conditions of this Lease and with all applicable laws, bylaws, regulations or other governmental ordinances from time to time in existence. The Tenant shall have the right to use the Premises for any use permitted by the applicable zoning by-laws and other legislation, and approved by the Landlord. The Landlord represents and warrants that the Tenant's proposed use, namely as business offices, is permitted by the applicable zoning by-laws and other legislation for the Premises. Section 6.2 Conduct of Business The Tenant acknowledges and agrees that it is only one of many tenants in the Building and accordingly, the Tenant will conduct its business in the Leased Premises in a reputable manner. The Tenant will occupy the Leased Premises and commence its business operations in the Leased Premises from and after the Commencement Date and will thereafter throughout the Term conduct the business set out in Section 6.1 in the whole of the Leased Premises in a reputable and first-class manner. Any business, conduct or practice promulgated, carried on or maintained by the Tenant, whether through advertising or selling procedures or otherwise, which in the opinion of the Landlord, acting reasonably, may harm or tend to harm the business or reputation of the Landlord or reflect unfavorably on the whole or any part of the Building, the Landlord or other 14 tenants in the Building, will be immediately discontinued by the Tenant at the request of the Landlord and the Landlord shall use reasonable efforts to enforce compliance with this Section by all Tenants in the Building. The Tenant agrees not to refer to the Building by any name other than that designated from time to time by the Landlord and the Tenant will use the name of the Building for the business address of the Tenant but for no other purpose. Section 6.3 Observance of Law The Tenant will, at its expense and subject to Section 8.2, promptly: (a) comply with all provisions of law including, without limitation, all requirements of all governmental authorities, including federal, provincial and municipal legislative enactments, by-laws, police, fire and sanitary regulations (whether imposed by governmental authorities or fire insurance underwriters), and other regulations now or hereafter in force which pertain to or affect the Leased Premises, the Tenant's use of the Leased Premises or the conduct of any business in the Leased Premises, or the making of any repairs, replacements, alterations, or other changes to the Leased Premises; (b) obtain all necessary permits, licenses and approvals relating to the use and occupancy of the Leased Premises and the conduct of business therein, including without limitation, those required under the Business Corporations Act (Ontario) and the Investment Canada Act (Canada); (c) carry out all modifications, alterations or changes of or to the Leased Premises and the Tenant's conduct of business in or use of the Leased Premises which are required by any such authorities, as set out herein. Without limiting the generality of the foregoing, the Tenant will: (i) co-operate with the Landlord in, and comply with all laws, by-laws, regulations and orders relating to, the conservation of all forms of energy in and serving the Building and the Leased Premises; and (ii) at its own cost and expense comply with all reasonable requests and demands of the Landlord made with a view to such energy conservation. It is understood and agreed that: (1) any and all costs and expenses paid or incurred by the Landlord in installing energy conservation equipment and physical safety systems will be included in Operating Costs for the purposes of Section 3.5; and (2) the Landlord will not be liable to the Tenant in any way for any loss, costs, damages or expenses whether direct or consequential, paid, suffered or incurred by the Tenant due to any reduction in the services provided by the Landlord to the Tenant or to 15 the Building, or any part thereof, as a result of the Landlord's compliance with such laws, by-laws, regulations or orders. ARTICLE 7 Insurance and Indemnity Section 7.1 Tenant's Insurance (a) The Tenant will, throughout the Term (and at any other time during which the Tenant is in possession of the Leased Premises), at its expense, take out and keep in full force and effect and in the names of the Tenant, the Landlord and the Mortgagee, as their respective interests may appear, the following insurance: (i) fire and standard extended coverage insurance including sprinkler leakages (where applicable), earthquake, flood and collapse, in an amount equal to the full replacement cost (new) thereof upon all property of every description and kind owned by the Tenant, or for which the Tenant is legally liable, or installed by or on behalf of the Tenant, and which is located within or on the Building, including, without limitation, fittings, installations, alterations, additions, partitions, signs (interior and exterior) fixtures, leasehold improvements, stock-in-trade, furniture and moveable equipment. If there is a dispute as to the amount which comprises full replacement cost (new), the decision of the Landlord or the Mortgagee shall be conclusive; (ii) if applicable, broad form boiler and machinery insurance on a blanket repair and replacement basis with limits for each accident in an amount of not less than the replacement cost (new) of all leasehold improvements and of all boilers, pressure vessels, air-conditioning equipment and miscellaneous electrical apparatus owned or operated by the Tenant or by others (other than the Landlord) on behalf of the Tenant in the Leased Premises, or relating to or serving the Leased Premises; (iii) business interruption insurance in such amount as will reimburse the Tenant for direct or indirect loss of earnings attributable to all perils insured against in Sections 7.1(a)(i) and 7.1(a)(ii) and other perils commonly insured against by prudent tenants or attributable to prevention of access to the Leased Premises or the Building as a result of such perils; (iv) public liability and property damage insurance, including personal injury liability, contractual liability, employers' liability, non-owned automobile liability and owners' and contractors' protective insurance coverage with respect to the Leased Premises and the Tenant's use of the Building, coverage to include the activities and operations of the Tenant and any other Person on the Leased Premises or performing work on behalf of the Tenant and those for whom the Tenant is in law responsible in any other part of the Building and the Lands. Such policies will (1) be written on a comprehensive basis with inclusive limits of not less than $5,000,000 for bodily injury to any one or more Persons, or property damage, and such higher 16 limits as the Landlord, acting reasonably, or the Mortgagee requires from time to time; and (2) contain a severability of interests clause and a cross-liability clause; (v) tenants' legal liability insurance for the actual cash value of the Leased Premises, including loss of use thereof. Any and all claims in respect of such insurance shall be adjusted by the Landlord; and (vi) any other form of insurance as the Tenant or the Landlord, acting reasonably, or the Mortgagee requires from time to time in form, in amounts and for insurance risks against which a prudent tenant would insure. (b) The Tenant's insurance policies will: (i) where applicable, contain the Mortgagee's standard mortgage clause and a waiver of any subrogation rights which the Tenant's insurers may have against the Landlord and against those for whom the Landlord is in law responsible, whether any such damage is caused by the act, omission or negligence of the Landlord or those for whom the Landlord is in law responsible; (ii) be taken out with insurers acceptable to the Landlord and be in a form satisfactory from time to time to the Landlord; (iii) be non-contributing and apply only as primary and not as excess to, any other insurance available to the Landlord or the Mortgagee; (iv) not be invalidated with respect to the interests of the Landlord and the Mortgagee by reason of any breach or violation of any warranties, representations, declarations or conditions contained in the policies; and (v) contain an undertaking by the insurers to notify the Landlord and the Mortgagee in writing not less than thirty (30) days prior to any material change, cancellation or termination. (c) The Tenant agrees that certificates of insurance on the Landlord's standard form or, if required by the Landlord or the Mortgagee, certified copies of each such insurance policy, will be delivered to the Landlord as soon as practicable after the placing of the required insurance. No review or approval of any such insurance certificate by the Landlord shall derogate from or diminish the Landlord's rights or the Tenant's obligations contained in this Lease including, without limitation, those contained in this Article VII. (d) If the Tenant fails to take out or to keep in force any insurance referred to in this Section 7.1, or should any insurance not be approved by either the Landlord or the Mortgagee and should the Tenant not commence to diligently rectify (and thereafter proceed to diligently rectify) the situation within forty-eight (48) hours after written notice by the Landlord to the Tenant (stating, if the Landlord or the Mortgagee does not approve of such insurance, the reasons therefor) the Landlord has the right, without assuming any obligation in connection 17 therewith, to effect such insurance at the sole cost of the Tenant and all outlays by the Landlord, together with a sum equal to fifteen percent (15%) thereof representing the Landlord's overhead, will be paid by the Tenant to the Landlord as Additional Rent on the first day of the next month following said payment by the Landlord without prejudice to any other rights and remedies of the Landlord under this Lease. (e) If there is damage or destruction to the leasehold improvements in the Leased Premises, the Tenant will use the proceeds of its insurance for the purpose of repairing or restoring such leasehold improvements. In the event of damage to or destruction of the Building entitling the Landlord to terminate the Lease pursuant to Section 9.2, then, if the Leased Premises have also been damaged or destroyed, the Tenant will forthwith pay to the Landlord all of its insurance proceeds relating to the leasehold improvements in the Leased Premises and if the Leased Premises have not been damaged or destroyed, the Tenant will upon demand deliver to the Landlord, in accordance with the provisions of this Lease, the leasehold improvements and the Leased Premises. Section 7.2 Increase in Insurance Premiums If (a) the occupancy of the Leased Premises; (b) the conduct of business in the Leased Premises; or (c) any acts or omissions of the Tenant in the Building or any part thereof causes or results in any increase in premiums for the insurance carried from time to time by the Landlord with respect to the Building, the Tenant will pay any such increase in premiums as Additional Rent within five (5) days after invoices for such additional premiums are rendered by the Landlord. In determining whether increased premiums are caused by or result from the use or occupancy of the Leased Premises, a schedule issued by the organization computing the insurance rate on the Building showing the various components of such rate, will be conclusive evidence of the several items and charges which make up such rate. Section 7.3 Cancellation of Insurance If any insurance policy upon the Building or any part thereof is cancelled or threatened by the insurer to be cancelled, or the coverage thereunder reduced in any way by the insurer by reason of the use and occupation of the Leased Premises by the Tenant or by any Person permitted by the Tenant to be upon the Leased Premises, and if the Tenant fails to remedy the condition giving rise to cancellation, threatened cancellation or reduction of coverage within forty-eight (48) hours after notice by the Landlord, the Landlord may, at its option, either (a) re-enter and take possession of the Leased Premises pursuant to Article XIII, or (b) at the Tenant's expense, enter upon the Leased Premises and remedy the condition giving rise to such cancellation, threatened cancellation or reduction, including the removal of any offending article. The Landlord shall not be liable for any damage or injury caused to any property of the Tenant or of others located on the Leased Premises as a result of the exercise of any of its rights pursuant to this Section 7.3. 18 Section 7.4 Loss or Damage The Landlord is not liable for any death or injury arising from or out of any occurrence in, upon, at, or relating to the Building or the Lands, or damage to any of the property of the Tenant or of others wherever located, including without limitation, the Building, the Leased Premises or the Lands, whether or not resulting from (a) the negligence of the Landlord or those for whom it may in law be responsible; (b) the exercise by the Landlord of any of its rights under this Lease; or (c) the Landlord's failure to supply any services, facilities or utilities required by this Lease. Without limiting the generality of the foregoing, the Landlord shall not be liable for any injury or damage to Persons or property resulting from fire, explosion, falling plaster, falling ceiling tile, falling ceiling fixtures (including part or all of the ceiling T grid system) and diffuser coverings, steam, gas, electricity, water, rain, flood, snow or leaks from any part of the Building, including pipes, sprinklers, appliances, plumbing works, roof, windows or the surface of any floor or ceiling of the Building or from any lands adjoining the Building. All property of the Tenant kept or stored on the Leased Premises will be so kept or stored at the risk of the Tenant only and the Tenant shall indemnify the Landlord and save it harmless from any claims arising out of any damages to the same including, without limitation, any subrogation claims by the Tenant's insurers. Section 7.5 Landlord's Insurance The Landlord will at all times throughout the Term carry (a) insurance on the Building (excluding the foundations and excavations) and the machinery, boilers end equipment contained therein or servicing the Building and owned by the Landlord (specifically excluding any property with respect to which the Tenant and other tenants are obliged to insure pursuant to Section 7.1 or similar sections of their respective leases) against damage by fire and extended perils coverage in such reasonable amounts and with such reasonable deductions as would be carried by a prudent owner of a reasonably similar office building, having regard to size, age and location; (b) public liability and property damage insurance with respect to the Landlord's operations in the Building in such reasonable amounts and with such reasonable deductions as would be carried by a prudent owner of a reasonably similar office building, having regard to size, age and location; and (c) such other form or forms of insurance as the Landlord or the Mortgagee reasonably considers advisable. Notwithstanding the Landlord's covenant contained in this Section 7.5 and notwithstanding any contribution by the Tenant to the cost of the Landlord's insurance premiums, the Tenant acknowledges and agrees that (i) the Tenant is not relieved of any liability arising from or contributed to by its negligence or its willful acts or omissions, and (ii) no insurable interest is conferred upon the Tenant under any policies of insurance carried by the Landlord and the Tenant has no right to receive any proceeds of any such insurance policies carried by the Landlord. Section 7.6 Indemnification of the Landlord Notwithstanding any other terms, covenants and conditions contained in this Lease, the Tenant will indemnify the Landlord and save it harmless from and against any and all loss (including loss of all Basic Rent and Additional Rent payable by the Tenant pursuant to this 19 Lease), claims, actions, damages, liability and expense in connection with loss of life, personal injury, damage to property (including any part of tge Building) or any other loss or injury whatsoever arising from or out of this Lease, or any occurrence in, upon or at the Leased Premises, or the occupancy or use by the Tenant of the Leased Premises, or occasioned wholly or in part by any act or omission of the Tenant or by any Person permitted to be on the Leased Premises by the Tenant. If the Landlord will, without fault on its part, be made a party to any litigation commenced by or against the Tenant, then the Tenant will protect, indemnify and hold the Landlord harmless and will pay all costs, expenses and reasonable legal fees incurred or paid by the Landlord in connection with such litigation. The Tenant will also pay all costs, expenses and legal fees (on a solicitor and his client basis) that may be incurred or paid by the Landlord in enforcing the terms, covenants and conditions in this Lease. ARTICLE 8 Maintenance, Repairs and Alterations Section 8.1 Maintenance and Repairs by the Tenant (a) The Tenant will at all times at its expense maintain the whole of the Leased Premises, including without limitation, all interior partitions, signs, doors, fixtures, shelves, equipment and appurtenances thereof and improvements thereto (including without limitation, all electrical, lighting, wiring, plumbing fixtures and equipment and the heating, ventilating and air-conditioning systems and equipment within or installed by or on behalf of the Tenant for the Leased Premises), in good order, first-class condition and repair (which shall include, without limitation, periodic painting and decoration), as determined by the Landlord, acting reasonably, and the Tenant shall make all needed repairs and replacements with due diligence and dispatch. (b) The Tenant will leave the Leased Premises in a reasonably tidy condition at the end of each Business Day in order that the Landlord's cleaning services can be performed. (c) The Tenant will pay within five (5) days after demand, as Additional Rent, the cost of replacement of any glass broken on the Leased Premises including outside windows and doors of the perimeter of the Leased Premises (including perimeter windows in the exterior walls). Section 8.2 Landlord's Approval of the Tenant's Repairs The Tenant will not make any substantial repairs, alterations, replacements, decorations or improvements (the "Alterations") to any part of the Leased Premises without first obtaining the Landlord's written approval. The Tenant will submit to the Landlord: (a) details of the proposed work including professionally prepared drawings and specifications; (b) any indemnification against liens, costs, damages and expenses as the Landlord requires; and (c) evidence satisfactory to the Landlord that the Tenant has obtained, at its expense, all necessary consents, permits, licenses and inspections from all governmental and regulatory authorities having jurisdiction. All Alterations will be performed: (i) at the Tenant's expense; 20 (ii) by competent workmen; (iii) in a good and workmanlike manner; (iv) in accordance with the drawings and specifications approved by the Landlord; and (v) subject to the reasonable regulations, controls and inspection of the Landlord. Any Alterations made by the Tenant without the prior written consent of the Landlord or which are not made in accordance with the drawings and specifications approved by the Landlord will, if requested by the Landlord, be promptly removed by the Tenant at the Tenant's expense and the Leased Premises restored to their previous condition. Failing such removal, the Landlord will be entitled to remove any Alterations forthwith without notice and at the Tenant's expense. In any event, no Alterations will be permitted if the Landlord determines that such Alterations may weaken or endanger the structure of the Building, adversely affect the condition or operation of the Leased Premises or the Building or diminish the value thereof, exceed, restrict or reduce the Landlord's coverage for zoning purposes, or cause the Landlord to buy out or provide additional parking spaces. If, however, any Alterations approved by the Landlord affect the structure of the Leased Premises or any other part of the Building, or any of the electrical, mechanical or other base building systems, the Alterations (or the appropriate part thereof) will be performed only by the Landlord, at the Tenant's expense. Upon completion thereof, the Tenant will pay to the Landlord, as Additional Rent within five (5) days after demand, both the landlord's costs relating to any such Alterations, including the fees of any architectural and engineering consultants, and a sum equal to fifteen percent (15%) of the total cost thereof representing the Landlord's overhead. Section 8.3 Maintenance by the Landlord (a) The Landlord will, subject to Section 8.1 and Article IX, maintain and repair, or cause to be maintained and repaired, as would a prudent owner of a reasonably similar office building, the structure of the Building, including, without limitation, the foundations, exterior wall assemblies including weather walls, sub-floor, roof, bearing walls, and structural columns and beams of the Building and the mechanical, electrical and other base building systems of the Building. The cost of such maintenance and repairs will be included in Operating Costs in accordance with Paragraph 18 of Schedule "F". Notwithstanding the foregoing, if the Landlord is required, due to the business carried on by the Tenant, to make such repairs or replacements by reason of the application of laws, ordinances or other regulations of any governmental body, or by reason of any act, omission to act, neglect or default of the Tenant or those from whom the Tenant is in law responsible, then, in any such event, the Tenant will be liable for the total cost of any such repairs or replacements plus a sum equal to fifteen percent (15%) of the total cost of such repairs or replacements representing the Landlord's overhead, which shall immediately become due and payable to the Landlord as Additional Rent within five (5) days after demand. (b) The Tenant acknowledges and agrees that the Landlord is not liable for any damages, direct, indirect or consequential, or for damages for personal discomfort, illness or inconvenience of the Tenant or the Tenant's servants, clerks, employees, invitees or other Persons by reason of (i) the failure, cessation or interruption of any Utilities, equipment, facilities 21 or systems servicing the Building or the Leased Premises provided that these are not caused by Landlord's negligence, (whether or not supplied by the Landlord or others), or (ii) reasonable delays in the performance of any repairs, replacements and maintenance for which the Landlord is responsible pursuant to this Lease. (c) If the Tenant refuses or neglects to carry out any repairs as required pursuant to Section 8.1, and to the reasonable satisfaction of the Landlord, the Landlord may, but will not be obliged to, make such repairs without being liable for any loss or damage that may result to the Tenant's equipment, fixtures or other property or to the Tenant's business by reason thereof, and upon completion, the Tenant will pay to the Landlord as Additional Rent within five (5) days after demand, both the Landlord's costs relating to any such repairs and a sum equal to fifteen percent (15%) thereof representing the Landlord's overhead. (d) If any elevator servicing the Building or any of the mechanical or base building equipment, facilities or systems in respect of the Building are damaged or destroyed or are in need of repair, the Landlord will have a reasonable time in which to make the required repairs or replacements necessary for the resumption of such services to the Leased Premises (to the extent of the Landlord's obligations under this Lease) and the Tenant is not entitled to any compensation or damages therefor; but if any of the foregoing items become impaired, damaged or destroyed as a result of any of the circumstances referred to in Section 8.6, the Tenant will be responsible for the cost of repairing, restoring or making good such damage in accordance with the provisions of Section 8.6. Section 8.4 Repair on Notice In addition to the obligations of the Tenant contained in Section 8.1, the Tenant will effect all repairs or replacements referred to therein according to notice from the Landlord, but the failure to give notice will not relieve the Tenant from its obligation to repair. Section 8.5 Surrender of the Leased Premises At the expiration or earlier termination of the Term, the Tenant will peaceably surrender the Leased Premises to the Landlord in good condition, reasonable wear and tear excepted. The Tenant will surrender all keys for the Leased Premises to the Landlord at the place then fixed for the payment of Rent and will inform the Landlord of all combinations of locks, safes and vaults, if any, in the Leased Premises. Section 8.6 Repair Where the Tenant is at Fault Notwithstanding any other provisions of this Lease including, without limitation, the Landlord's obligations to repair set out in Section 8.3, the Landlord's obligations to take out insurance set out in Section 7.5, and the Tenant's obligation to pay its Proportionate Share of the cost of insurance set out in Paragraph 18(b)(i) of Schedule "F", if the Building or any part thereof, or any equipment, machinery, facilities or improvements contained therein or made thereto, or the roof or outside walls of the Building or any other structural portions thereof require repair or replacement or become damaged or destroyed through the negligence, 22 carelessness or misuse of the Tenant or those for whom it is in law responsible or by any Person having business with the Tenant or by the Tenant or those for whom it is in law responsible in any way stopping up or damaging the climate control, heating and air-conditioning apparatus, water pipes, drainage pipes or other equipment or facilities or parts of the Building, the cost of the resulting repairs, replacements or alterations plus a sum equal to fifteen percent (15%) of the cost thereof representing the Landlord's overhead will be paid by the Tenant to the Landlord as Additional Rent within five (5) days after presentation of an account of such expenses incurred by the Landlord. Section 8.7 Tenant Not To Overload Facilities The Tenant will not install any equipment which will exceed or overload the capacity of any utility, electrical or mechanical facilities in the Leased Premises and the Tenant will not bring into the Leased Premises or install any utility, electrical or mechanical facility or service which the Landlord does not approve. The Tenant agrees that if any equipment installed by the Tenant requires additional utility, electrical or mechanical facilities, the Landlord may, in its sole discretion, if they are available, elect to install them at the Tenant's expense and in accordance with plans and specifications to be approved in advance in writing by the Landlord. Section 8.8 Tenant Not To Overload Floors The Tenant will not bring upon the Building or the Leased Premises any machinery, equipment, article or thing that by reason of its weight, size or use, might in the opinion of the Landlord damage the Building or the Leased Premises and will not at any time overload the floors of the Leased Premises. If any damage is caused to the Building or the Leased Premises by any machinery, equipment, object or thing or by overloading, the Tenant will forthwith repair such damage, or at the option of the Landlord, pay the Landlord within five (5) days after demand as Additional Rent, the cost of repairing such damage plus a sum equal to fifteen percent (15%) of such cost representing the Landlord's overhead. Section 8.9 Removal and Restoration by the Tenant (a) All alterations, fixed decorations, additions and improvements (the "Improvements") made by the Tenant, or made by the Landlord on the Tenant's behalf (other than the Tenant's trade fixtures) will immediately become the property of the Landlord upon affixation or installation, without compensation therefor to the Tenant, but the Landlord is under no obligation to repair, maintain or insure the Improvements. Such Improvements will not be removed from the Leased Premises either during or at the expiration or earlier termination of the Term, except that: (i) the Tenant may during the Term in the usual or normal course of its business and with the prior written consent of the Landlord remove its trade futures, provided such trade fixtures have become excess for the Tenant's purposes or the Tenant is substituting new and similar trade fixtures therefor, and provided that in each case, (1) the Tenant is not in default under this Lease and (2) such removal is done at the Tenant's expense; and 23 (ii) the Tenant will, at the expiration of the Term, at its own cost, remove all of its trade fixtures installed in the Leased Premises. (b) If the Tenant does not remove its trade futures at the expiration or earlier termination of the Term, the trade fixtures will, at the option of the Landlord, become the property of the Landlord and may be removed from the Leased Premises and sold or disposed of by the Landlord in such manner as it deems advisable. (c) The Tenant will effect the installation or removal of any such trade futures or Improvements only at the times designated by the Landlord and will promptly make good any damage caused to the Leased Premises or the Building by the installation or removal of any such Improvements. (d) For greater certainty, the Tenant's trade fixtures exclude: (i) heating, ventilating or air conditioning systems, facilities and equipment; (ii) floor covering affixed to the floor of the Leased Premises; (iii) light fixtures; (iv) internal stairways and doors, if any; and (v) all futures, improvements, installations, alterations or additions which are installed by or at the expense of the Landlord pursuant to Schedule "C"; all of which are deemed to be leasehold improvements. Section 8.10 Notice by the Tenant The Tenant, as soon as it becomes aware, will notify the Landlord of any damage to, or deficiency or defect in any part of, the Building, including the Leased Premises, any equipment or utility systems, or any installations located therein, notwithstanding that the Landlord may have no obligation in connection therewith. Section 8.11 Tenant to Discharge all Liens The Tenant will promptly pay all of its contractors and other Persons supplying materials or performing work on its behalf in respect of the Leased Premises and will do all things necessary so as to ensure that no lien is registered against the Lands, the Building or the Tenant's leasehold interest therein. If any such lien is made, filed or registered, the Tenant will discharge it, or cause it to be discharged, forthwith at the Tenant's expense. If the Tenant fails to discharge, or cause any such lien to be discharged, then, in addition to any other right or remedy of the Landlord, the Landlord may, but it will not be obligated to, discharge the lien by paying the amount claimed to be due, and any additional amounts as may be required at law or otherwise, into Court and the amount so paid by the Landlord plus the sum of $750.00 representing the Landlord's overhead plus all costs and expenses including solicitor's fees (on a solicitor and his client basis) incurred as a result of the registration or discharge of any such lien, will be immediately due and payable by the Tenant to the Landlord as Additional Rent within five (5) days after demand. 24 Section 8.12 Signs and Advertising The Tenant will not place or permit to be placed any sign, picture, advertisement, notice, lettering or decoration on any part of the outside of the Building or the leased Premises or anywhere in the interior of the Leased Premises which is visible from the outside of the Building or the Leased Premises. The Landlord shall, at the Tenant's expense, provide signage indicating the Suite number and Tenant identification at the main entrance to the Leased Premises. This signage shall be in accordance with the Landlord's Building standards and shall be installed at the Tenant's expense. At the expiration of the Term or earlier termination of this Lease, the Tenant will remove all signs, pictures, advertisements, notices, letterings or decorations from the Leased Premises at the Tenant's expense and will promptly repair all damage cause by its installation and removal. ARTICLE 9 Damage and Destruction Section 9.1 Destruction of the Leased Premises (a) If the Leased Premises are destroyed or damaged (including, without limitation, smoke and water damage) as a result of fire, the elements, accident or other casualty required to be insured against by the Landlord pursuant to Section 7.5 or otherwise insured against by the Landlord and not caused by the Tenant, and if as a result of such occurrence: (i) the Leased Premises are rendered wholly or partially untenantable, this Lease will continue in full force and effect and the Landlord will, subject to Sections 9.1(b) and 9.2(a), commence diligently to restore the Leased Premises to the extent only of the Landlord's Work as set out in Schedule "C" and then only to the extent of the insurance proceeds actually received by the Landlord, and only Basic Rent (but not Additional Rent) will abate entirely or proportionately, as the case may be, to the portion of the Leased Premises rendered untenantable from the date of the destruction or damage until the Leased Premises have been restored and rendered tenantable by the Landlord to the extent of its obligations hereunder; or (ii) the Leased Premises are not rendered untenantable in whole or in part, the Lease will continue in full force and effect, the Rent and other amounts payable by the Tenant will not abate and the Landlord shall, subject to Sections 9.1(b) and 9.2(a), commence diligently to restore the Leased Premises to the extent set forth in this Section 9.1. (b) Notwithstanding Section 9.1(a), if the Leased Premises are damaged or destroyed by any cause whatsoever, and if, in the opinion of the Landlord, acting reasonably, the Leased Premises cannot be rebuilt or made fit for the purposes of the Tenant within sixty (60) days of the damage or destruction, the Landlord, instead of rebuilding or making the Leased Premises fit for the Tenant in accordance with Section 9.1(a) may, at its option, elect to terminate this Lease by giving to the Tenant, within thirty (30) days after such damage or destruction, notice of termination, and thereupon Rent and any other payments for which the Tenant is liable under this Lease will be apportioned and paid to the date of such damage or destruction. 25 (c) Upon the Tenant being notified in writing by the Landlord that the Landlord's Work as set out in Schedule "C" has been substantially completed, the Tenant will forthwith complete all Tenant's Work including, without limitation, such work as is set out in Schedule "C" and all work required to fully restore the Leased Premises for business. The Tenant will diligently complete the Tenant's Work and, if the Leased Premises have been closed for business, reopen for business within thirty (30) days after notice that the Landlord's Work is substantially completed. (d) Nothing in this Section 9.1 requires the Landlord to rebuild the Leased Premises in the condition and state that existed before any such damage or destruction, provided that the Leased Premises, as re-built, will have reasonably similar facilities and services to those in the Leased Premises prior to the damage or destruction having regard, however, to the age of the Building at such time. Section 9.2 Destruction of the Building (a) Notwithstanding the provisions of Section 9.1, if twenty-five percent (25%) or more of the Total Rentable Area of the Building is damaged or destroyed by any cause whatsoever (irrespective of whether the Leased Premises are damaged or destroyed) and if, in the opinion of the Landlord, acting reasonably, the Total Rentable Area of the Building so damaged or destroyed cannot be rebuilt or made fit for the purposes of the respective tenants of such space within one hundred and twenty (120) days of the damage or destruction, then, the Landlord may, at its option (to be exercised by written notice to the Tenant within sixty (60) days following such damage or destruction), elect to terminate this Lease. In the case of such election, the Term and the tenancy hereby created will expire upon the thirtieth day after such notice is given, without indemnity or penalty payable by, or any other recourse against, the Landlord, and the Tenant shall, within such thirty (30) day period, vacate and surrender the Leased Premises to the Landlord. Rent will be due and payable without reduction or abatement subsequent to the destruction or damage and until the date of termination, unless the Leased Premises will have been destroyed or damaged as well, in which event Section 9.1 will apply. (b) If any part of the Building is destroyed or damaged and the Landlord does not elect to terminate this Lease in accordance with Section 9.2(a), the Landlord will commence diligently to restore that part of the Building damaged or destroyed, but only to the extent of the Landlord's responsibilities pursuant to the terms of the various leases for the premises in the Building, and exclusive of any tenant's responsibilities set out therein. If the Landlord elects to restore the Building, or any part thereof, the Landlord may restore according to plans, specifications and working drawings other than those used in the original construction of the Building. Section 9.3 Expropriation Both the Landlord and the Tenant agree to co-operate with the other in respect of any expropriation of all or any part of the Leased Premises or the Building, so that each may receive the maximum award in the case of any expropriation to which they are respectively entitled at law. To the extent that any portion of the Building, other than the Leased Premises, is 26 expropriated, then, the full proceeds accruing or awarded as a result thereof will belong solely to the Landlord and the Tenant will abandon or assign to the Landlord any rights which the Tenant may have or acquire by operation of law to such proceeds or award and will execute all such documents as in the opinion of the Landlord are necessary to give effect to this intention. Section 9.4 Architect's Certificate The certificate of the Architect will bind the parties as to (a) the percentage of the Total Rentable Area of the Building damaged or destroyed; (b) the period of time required to restore the Leased Premises or the Building; (c) whether or not the Leased Premises are rendered untenantable and the extent of such untenantability; (d) the date upon which the Landlord's Work or Tenant's Work of restoration is completed or substantially completed and the date when the Leased Premises are rendered tenantable; and (e) the state of completion of any work of either the Landlord or the Tenant under this Lease. ARTICLE 10 Transfer and Sale Section 10.1 Assignment and Subletting (a) The Tenant will not: (i) assign this Lease in whole or in part; (ii) sublet, license, share or part with possession of all or any part of the Leased Premises; nor (iii) mortgage or encumber this Lease or the Leased Premises, to or in favour of any Person (collectively, a "Transfer") without the prior written consent of the Landlord in each instance which consent will not be unreasonably withheld or delayed. Provided however, notwithstanding any statutory provision to the contrary, it will not be considered unreasonable for the Landlord to take into account the following factors in deciding whether to grant or withhold its consent: (i) whether any such Transfer violates or breaches any covenants or restrictions granted by the Landlord to other existing or prospective tenants or occupants of the Building; (ii) whether in the Landlord's opinion the financial background, business history and capability of the proposed Transferee is satisfactory; and (iii) whether any such Transferee intends to actually use and occupy the Leased Premises in accordance with the terms of this Lease. The consent by the Landlord to any Transfer will not constitute a waiver of the necessity for consent to any subsequent Transfer. This restriction against a Transfer includes a prohibition against a Transfer by operation of law, including without limitation, an amalgamation. No Transfer will take place by reason of a failure by the Landlord to give notice to the Tenant within thirty (30) days as required by Section 10.1(b). (b) If the Tenant intends to effect a Transfer, in whole or in part, the Tenant will give prior written notice to the Landlord of such intent, specifying the proposed assignee, subtenant, occupant or other Person taking the Transfer (collectively, the "Transferee") and providing such information with respect thereto including, without limitation, information concerning the principals thereof and as to any credit, financial or business information relating to the proposed Transferee, as the Landlord or the Mortgagee requires. The Landlord will, within thirty (30) days after having received such notice and all such necessary information, notify the 27 Tenant in writing either that (i) it consents or does not consent to the Transfer in accordance with the provisions and qualifications of Section 10.1(a), (c) If there is a permitted Transfer, the Landlord may collect Rent from the Transferee and apply the net amount collected to the Rent required to be paid pursuant to this Lease, but no acceptance by the Landlord of any payments by a Transferee will be deemed a waiver of this covenant, or the acceptance of the Transferee as Tenant, or a release of the Tenant from the further performance by the Tenant of its covenants or obligations contained in this Lease. Any document evidencing the Transfer will be prepared by the Landlord or its solicitors, and all reasonable legal costs with respect thereto will be paid by the Tenant to the Landlord or its solicitors within five (5) days after demand as Additional Rent. Any consent by the Landlord will be subject to the Tenant executing and causing the Transferee to promptly execute an agreement directly with the Landlord agreeing (i) to be bound by all of the terms, covenants and conditions contained in this Lease as if the Transferee had originally executed this Lease as Tenant. Notwithstanding any Transfer, the Tenant will be jointly and severally liable with the Transferee on this Lease and will not be released from performing any of the terms, covenants and conditions of this Lease. Section 10.2 No Advertising of the Leased Premises The Tenant will not print, post, display or broadcast any notice or advertisement, for the purpose of a Transfer, and it will not permit any broker or other Person to do any of the foregoing, unless the complete text and format of any such notice or advertisement is first approved in writing by the Landlord, acting reasonably. In no event, will any text or format proposed by the Tenant contain any reference to the rental rate of the Leased Premises. Section 10.3 Corporate Ownership (a) If the Tenant is a corporation or if the Landlord has consented to a Transfer of this Lease to a corporation, any transfer or issue by sale, assignment, bequest, inheritance, operation of law or other disposition, or by subscription from time to time of all or any part of the corporate shares of the Tenant or of any holding body corporate or subsidiary body corporate of the Tenant or any corporation which is affiliated with the Tenant (as those terms are defined pursuant to the Canada Business Corporations Act and amendments thereto), which results in any change in the present effective voting control of the Tenant by the Person holding such voting control at the date of execution of this Lease (or at the date a Transfer of this Lease to a corporation is permitted) will for the purposes of this Section 10.3 be deemed to be a Transfer and the provisions of Sections 10.1(a) to 10.1(d), inclusive, will apply to a Transfer under this Section 10.3. (b) The Tenant will (i) when requesting consent to a Transfer pursuant to Section 10.3(a), provide the Landlord with such information as to the proposed purchaser as the Landlord requires including, without limitation, information concerning creditworthiness, financial standing and business history; and (ii) make available to the Landlord, or its lawful representatives, such corporate books and records of the Tenant for inspection at all reasonable times necessary, to ascertain whether there has been any change in control of the Tenant. 28 (c) However, this Section 10.3 shall not apply to the Tenant if the Tenant is a public corporation whose shares are traded and listed on any recognized stock exchange in Canada or the United States, and so long as the Landlord receives assurances satisfactory to the Landlord that there will be a continuity of management, of the Tenant, and of its business practices and policies, notwithstanding any such Transfer pursuant to Section 10.3(a). Section 10.4 Assignment by the Landlord If there is a sale, lease or other disposition by the Landlord of the Building and the Lands, or any part thereof, or the assignment by the Landlord of this Lease or any interest of the Landlord hereunder, and to the extent that the purchaser or assignee thereof assumes the covenants and obligations of the Landlord hereunder, the Landlord will, thereupon and without further agreement, be relieved of all liability with respect to its covenants and obligations. ARTICLE 11 Access and Alterations Section 11.1 Right of Entry (a) The Landlord and its agents have the right to enter the Leased Premises at all reasonable times (except in the event of an emergency, when the Landlord can enter at any time) to show them to prospective purchasers, lessees (during the last six (6) months of the Term or any renewal) or mortgagees, and to examine the Leased Premises and to make repairs, alterations or changes to the Leased Premises or the Building, or any part thereof, as the Landlord considers necessary including, without limitation, the pipes, conduits, wiring, ducts and other installations of any kind in the Leased Premises where necessary to serve another part of the Building. ALTERATIONS AND CHANGES TO BE MADE AT THE LANDLORD'S SOLE EXPENSE. For this purpose, the Landlord may take all required material into and upon the Leased Premises and may have access to the underfloor ducts and access panels to mechanical shafts and the Landlord has the right to check, calibrate, adjust and balance controls and other parts of the heating, ventilating, air-conditioning and climate control systems. The Rent will not abate or be reduced while any such repairs, alterations or changes are being made due to loss or interruption of business of the Tenant or otherwise, and the Landlord will not be liable for any damage, injury or death caused to any Person, or to the property of the Tenant or of others located on the Leased Premises as a result of such entry. The Tenant shall not unduly obstruct any such pipes, conduits, ducts or mechanical shafts so as to prevent reasonable access thereto. (b) If the Tenant is not present to open and permit an entry into the Leased Premises, at the time that an entry is necessary or permissible, the Landlord or its agents may, in the case of an emergency, real or reasonably apprehended, forcibly enter the Leased Premises, without rendering the Landlord or such agents liable therefor, and without in any manner affecting the obligations and covenants of this Lease. Nothing herein contained, however, is deemed or construed to impose upon the Landlord any obligation, responsibility or liability whatsoever for the care, maintenance or repair of the Leased Premises, or any part thereof, except as otherwise herein specifically provided. 29 ARTICLE 12 Status Statement, Attornment and Subordination Section 12.1 Status Statement Within ten (10) days after written request by the Landlord, the Tenant will deliver in a form supplied by the Landlord, a status statement or a certificate (which will be certified by the Tenant to be accurate) to any proposed purchaser, assignee, lessor or mortgagee, or to the Landlord, stating (if such is the case), (a) that this Lease is unmodified and in full force and effect (or if there have been modifications, that this Lease is in full force and effect as modified and identifying the modification agreements) or if this Lease is not in full force and effect, the certificate shall so state; (b) the Commencement Date; (c) the date to which Basic Rent and Additional Rent have been paid under this Lease; (d) whether or not there is any existing default by the Tenant in the payment of any Rent under this Lease, and whether or not there is any other existing or alleged default by either party under this Lease with respect to which a notice of default has been served and if there is any such default, specifying the nature and "extent thereof. (e) where there are any defences or counter-claims against enforcement of the obligations to be performed by the Tenant under this Lease; and, (f) with reasonable particularity, details respecting the Tenant's and any Indemnifier's financial standing and corporate organization. Section 12.2 Subordination and Attornment (a) This Lease and the rights of the Tenant hereunder are, and will at all times be, subject and subordinate to any and all ground or underlying leases, mortgages, trust deeds, financing, refinancing or collateral financing and the instruments, as well as the charge or lien resulting from, all or any of the foregoing, and any renewals or extensions from time to time (collectively, the "Encumbrances"). Upon request, the Tenant will subordinate this Lease and all of its rights hereunder in such form as the Landlord requires to any Encumbrance and, if requested, the Tenant will attorn to the holder of any such Encumbrance (the "Encumbrancer"). THE LANDLORD AGREES TO USE REASONABLE EFFORTS TO OBTAIN NONDISTURBANCE AGREEMENTS FROM ALL MORTGAGEES. (b) The Tenant will, if possession is taken under, or any proceedings are brought for possession under or the foreclosure of, or in the event of the exercise of the power of 30 sale under, any Encumbrance, attorn to the Encumbrancer or the purchaser upon any such foreclosure, sale or other proceeding and recognize the Encumbrancer or purchaser as the Landlord under this Lease. Section 12.3 Attorney The Tenant will, upon request of the Landlord or any Encumbrancer, execute and deliver promptly all statements, instruments and certificates to carry out the intent of Sections 12.1 and 12.2. If ten (10) days after the date of the request by the Landlord, the Tenant has not executed the same, the Tenant irrevocably appoints the Landlord as the Tenant's attorney with full power and authority to execute and deliver in the name of the Tenant any such statements, instruments or certificates. Section 12.4 Financial Information The Tenant will, upon request, provide the Landlord with such information as to the Tenant's or any Indemnifier's financial standing and corporate organization as the Landlord or the Mortgagee reasonably requires. ARTICLE 13 Default Section 13.1 Right to Re-enter If and whenever: (a) the Tenant fails to pay any Rent or other sum due hereunder on the day or dates appointed for the payment (provided the Landlord first gives five (5) days' written notice to the Tenant of any such failure); or (b) the Tenant fails to observe or perform any other of the terms, covenants or conditions of this Lease to be observed or performed by the Tenant (other than the terms, covenants or conditions set out below in subparagraphs (c) to (k), inclusive, for which no notice shall be required) provided the Landlord first gives the Tenant ten (10) days', or such shorter period of time as is otherwise provided in this Lease, written notice of any such failure to perform and the Tenant within such period of ten (10) days fails to commence diligently and thereafter to proceed diligently to cure any such failure to perform; or (c) the Tenant or any Indemnifier becomes bankrupt or insolvent or takes the benefit of any act now or hereafter in force for bankrupt or insolvent debtors or files any proposal or makes any assignment for the benefit of creditors or any arrangement or compromise; or (d) a receiver or a receiver-manager is appointed for all or a portion of the Tenant's or Indemnifier's property; or 31 (e) any steps are taken or any action or proceedings are instituted by the Tenant or by any other Person for the dissolution, winding-up or liquidation of the Tenant or its assets; or (f) the Tenant makes a sale in bulk of any of its assets, wherever situated, (other than a bulk sale to a permitted Transferee in compliance with the Bulk Sales Act (Ontario)); (g) the Tenant abandons or attempts to abandon the Leased Premises, or sells or disposes of the trade fixtures, goods or chattels of the Tenant or removes them from the Leased Premises so that there would not in the event of such sale or disposal be sufficient trade fixtures, goods or chattels of the Tenant on the Leased Premises subject to distress to satisfy all Rent due or accruing hereunder for a period of at least six (6) months; or (h) the Leased Premises become and remain vacant for a period of five (5) consecutive days or are used by any Persons other than such as are entitled to use them; or (i) the Tenant effects or permits a Transfer without the Landlord's consent; or (j) this Lease or any of the Tenant's assets are taken under any writ of execution; or (k) re-entry is permitted under any other terms of this Lease, then the Landlord, in addition to any other rights or remedies it has pursuant to this Lease or by law, has the immediate right of re-entry upon the Leased Premises and it may repossess the Leased Premises and enjoy them as of its former estate and may expel all Persons and remove all property from the Leased Premises and such property may be removed and sold or disposed of by the Landlord as it deems advisable or may be stored in a public warehouse or elsewhere at the cost and for the account of the Tenant, all without service of notice or resort to legal process and without the Landlord being considered guilty of trespass or becoming liable for any loss or damage which may be occasioned thereby. Section 13.2 Right to Relet (a) If the Landlord elects to re-enter the Leased Premises or if it takes possession pursuant to legal proceedings or pursuant to any notice provided for by law, it may either terminate this Lease or it may from time to time without terminating this Lease, make any alterations and repairs as are necessary in order to relet the Leased Premises, or any part thereof, for such term or terms (which may be for a term extending beyond the Term) and at such rent and upon such other terms, covenants and conditions as the Landlord in its sole discretion considers advisable. Upon each reletting all Rent received by the Landlord will be applied, first to the payment of any indebtedness other than Rent due hereunder from the Tenant to the Landlord; second, to the payment of any costs and expenses of reletting, including brokerage fees and solicitor's fees and the costs of alterations and repairs; third, to the payment of Rent due and unpaid hereunder; and the residue, if any, will be held by the Landlord and applied in payment of 32 future Rent as the same becomes due and payable hereunder. If the rent received from such reletting during any month is less than that payable by the Tenant under the terms of this Lease, the Tenant will pay any such deficiency in advance on the first day of each month. No re-entry or taking possession of the Leased Premises by the Landlord will be construed as an election on its part to terminate this Lease unless a written notice of such intention is given to the Tenant. Notwithstanding any reletting without termination the Landlord may at any time thereafter elect to terminate this Lease for the previous breach. (b) If the Landlord terminates this Lease, in addition to any other remedies it may have, the Landlord may recover from the Tenant all damages it incurs by reason of the Tenant's breach, including the cost of recovering the Leased Premises, solicitor's fees (on a solicitor and his client basis) and including the worth at the time of such termination of the excess, if any, of the amount of Basic Rent, Additional Rent and other charges required to be paid pursuant to this Lease for the remainder of the stated Term over the then reasonable rental value of the Leased Premises for the remainder of the stated Term, all of which amounts shall be immediately due and payable by the Tenant to the Landlord. In any of the events referred to in Section 13.1, in addition to all other rights, including the rights referred to in this Section and in Section 13.1, the full amount of the current month's installment of Basic Rent and all Additional Rent payments for the current month and any other payments required to be made monthly hereunder, together with the next three (3) months' installments of Basic Rent and all Additional Rent and such other payments for the next three (3) months, all of which will be deemed to be accruing due on a day-to-day basis, will immediately become due and payable as accelerated rent, and the Landlord may immediately distrain for the same, together with any arrears then unpaid. Section 13.3 Expenses If legal action is brought for recovery of possession of the Leased Premises, for the recovery of Basic Rent and Additional Rent or any other amount due under this Lease, or because of the breach of any other of the Tenant's obligations, the Tenant will pay to the Landlord all expenses incurred therefor, including a solicitor's fee (on a solicitor and his client basis), unless a court otherwise awards. Section 13.4 Waiver of Exemption from Distress The Tenant agrees that notwithstanding anything contained in Section 30 of the Landlord and Tenant Act (Ontario) or any statute or provision subsequently passed to take the place of or amend the Act, none of the goods and chattels of the Tenant which are on, or have at any time been on, the Leased Premises will be exempt from levy by distress for Rent in arrears by the Tenant. Section 13.5 Landlord May Cure the Tenant's Default or Perform the Tenant's Covenants If the Tenant fails to pay when due any Rent which is payable to third parties, the Landlord, after giving five (5) days' notice in writing to the Tenant, may, but shall not be obligated to, pay all or any part of the Rent. If the Tenant is in default in the performance of any 33 of its other covenants or obligations under this Lease (other than the payment of Rent) the Landlord may, but shall not be obligated to, after giving such notice as it considers sufficient (or without notice in the case of an emergency) perform or cause to be performed any of such covenants or obligations, and for such purpose may do such things as may be required including, without limitation, entering upon the Leased Premises and doing all things upon or in respect of the Leased Premises as the Landlord reasonably considers necessary. All expenses incurred and expenditures made by the Landlord plus a sum equal to fifteen percent (15%) thereof representing the Landlord's overhead shall be paid by the Tenant as Additional Rent within five (5) days after demand. The Landlord will have no liability to the Tenant for any loss or damages resulting from any such entry by the Landlord upon the Leased Premises pursuant to this Section 13.5. Section 13.6 Additional Rent If the Tenant is in default in the payment of any amounts or charges required to be paid pursuant to this Lease, they shall, if not paid when due, be collectible as Additional Rent within five (5) days after demand, but nothing herein contained is deemed to suspend or delay the payment of any amount of money at the time it becomes due and payable hereunder, or limit any other remedy of the Landlord. The Landlord may, at its option, apply or allocate any sums received from or due to the Tenant against any amounts due and payable under this Lease in any manner as the Landlord deems advisable. ARTICLE 14 Miscellaneous Section 14.1 Rules and Regulations The Rules and Regulations adopted and promulgated by the Landlord from time to time including, without limitation, those set out in Schedule "E" attached, are made a part of this Lease as if they were embodied herein, and the Tenant will comply with and observe all Rules and Regulations as though they were covenants. The Rules and Regulations may differentiate between different types of businesses in the Building, but the Rules and Regulations will be adopted and promulgated by the Landlord acting reasonably and in such manner as would a prudent landlord of a reasonably similar office building. The Tenant's failure to keep and observe the Rules and Regulations constitutes a default under this Lease. The Landlord reserves the right from time to time to amend or supplement the Rules and Regulations applicable to the Leased Premises or the Building as in the Landlord's judgment are from time to time needed for the safety, care, cleanliness and more efficient operation of the Building. Notice of the Rules and Regulations and amendments and supplements, if any, will be given to the Tenant and the Tenant will thereupon comply with and observe all such Rules and Regulations, provided that no Rules and Regulations will contradict any provisions of this Lease. The Landlord agrees to make reasonable efforts but is not under any obligation to enforce the Rules and Regulations against other tenants in the Building and is not responsible to the Tenant for the non-observance of any Rules or Regulations by any of the other tenants in the Building. 34 Section 14.2 Intent and Interpretation (a) Net Lease The Tenant acknowledges that it is intended that this Lease is a completely carefree net lease to the Landlord, except as expressly herein set out, that the Landlord is not responsible during the Term for any costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the Leased Premises, or the use and occupancy thereof, and the Tenant will pay all charges, impositions, costs and expenses of every nature and kind relating to the Leased Premises, except as expressly herein set out. (b) Obligations as Covenants Each obligation or agreement of the Landlord or the Tenant expressed in this Lease, even though not expressed as a covenant, is considered to be a covenant for all purposes. (c) Captions and Section Numbers The captions, section numbers, article numbers, and Table of Contents appearing in this Lease are inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or intent of such sections or articles of this Lease nor in any way affect this Lease. (d) Extended Meanings The words "hereof", "herein", "hereunder" and similar expressions used in any Section or subsection of this lease relate to the whole of this Lease and not to that Section or subsection only, unless otherwise expressly provided. The use of the neuter singular pronoun to refer to the Landlord or the Tenant is deemed a proper reference even though the Landlord or the Tenant is an individual, a partnership, a corporation or a group of two or more individuals, partnerships or corporations. The necessary grammatical changes required to make the provisions of this Lease apply in the plural sense where there is more than one Landlord or Tenant and to either corporations, associations, partnerships, or individuals, males or females, shall in all instances be assumed as though in each case fully expressed. (e) Partial Invalidity If any term, covenant or condition of this Lease, or the application thereof to any Person or circumstance, is to any extent held or rendered invalid, unenforceable or illegal, then such term, covenant or condition: (i) is deemed to be independent of the remainder of the Lease and to be severable and divisible therefrom, and its invalidity, unenforceability or illegality does not affect, impair or invalidate the remainder of the Lease or any part thereof; and 35 (ii) continues to be applicable to and enforceable to the fullest extent permitted by law against any Person and circumstances other than those as to which it has been held or rendered invalid, unenforceable or illegal. Neither party is obliged to enforce any term, covenant or condition of this Lease against any Person, if, or to the extent by so doing, such party is caused to be in breach of any laws, rules, regulations or enactments from time to time in force. (f) Entire Agreement This Lease and the Schedules and Riders, if any, attached, together with the Rules and Regulations, set forth all the covenants, promises, agreements, conditions and understandings between the Landlord and the Tenant concerning the Leased Premises and there are no other covenants, promises, agreements, conditions or understandings, either oral or written, between them. No alteration, amendment or addition to this Lease will be binding upon the Landlord or the Tenant unless in writing and signed by the Tenant and the Landlord. (g) Governing Law This Lease will be construed in accordance with and governed by the laws of the Province of Ontario. (h) Time of the Essence Time is of the essence of this Lease and of every part hereof. Section 14.3 Overholding - No Tacit Renewal If the Tenant remains in possession of the Leased Premises after the end of the Term without having executed and delivered a new lease or an extension agreement, there is no tacit renewal of this Lease, notwithstanding any statutory provisions or legal presumption to the contrary, and the Tenant will be deemed to be occupying the Leased Premises as a tenant from month to month at a monthly Basic Rent equal to twice the monthly amount of Basic Rent for the last month of the Term calculated in accordance with Section 1.1(d) and otherwise, upon the same terms, covenants and conditions as are set forth in this Lease (including the payment of all Additional Rent), so far as these are applicable to a monthly tenancy. Section 14.4 Successors All rights and liabilities under this Lease extend to and bind the successors and assigns of the Landlord and the heirs, executors, administrators and permitted successors and assigns of the Tenant. as the case may be. No rights, however, will enure to the benefit of any Transferee of the Tenant unless the Transfer has been consented to by the Landlord in writing as provided in Section 10.1. If there is more than one Tenant, they are all bound jointly and severally by the terms, covenants and conditions of this Lease. 36 Section 14.5 Tenant Partnership If the Tenant is a partnership (the "Tenant Partnership") each Person who is presently a member of the Tenant Partnership, and each Person who becomes a member of any successor Tenant Partnership will be and continue to be liable jointly and severally for the full and complete performance of, and will be and continue to be subject to, the terms, covenants and conditions of this Lease, whether or not such Person ceases to be a member of such Tenant Partnership or successor Tenant Partnership. Section 14.6 Waiver The waiver by the Landlord of any breach of any term, covenant or condition contained in this Lease is not deemed to be a waiver of such term, covenant or condition or of any subsequent breach of the same or of any other term, covenant or condition contained in this Lease. The subsequent acceptance of Rent by the Landlord is not deemed to be a waiver of any preceding breach by the Tenant of any term, covenant or condition of this Lease. regardless of the Landlord's knowledge of such preceding breach at the time of acceptance of Rent. No term, covenant or condition of this Lease is deemed to have been waived by the Landlord unless such waiver is in writing by the Landlord. All Basic Rent and Additional Rent to be paid by the Tenant to the Landlord will be paid without any deduction, abatement, set-off or compensation whatsoever (except for the Basic Rent to the extent it may be abated pursuant to Section 9.1), and the Tenant hereby waives the benefit of any statutory or other rights in respect of abatement, set-off or compensation in its favour at the time hereof or at any future time. Section 14.7 Accord and Satisfaction No payment by the Tenant or receipt by the Landlord of a lesser amount than the monthly payment of Basic Rent or Additional Rent herein stipulated is deemed to be other than on account of the earliest stipulated Basic Rent or Additional Rent, nor is any endorsement or statement on any cheque or any letter accompanying any cheque or payment of Rent deemed an acknowledgment of full payment or accord and satisfaction, and the Landlord may accept and cash any cheque or payment without prejudice to the Landlord's right to recover the balance of the Rent due or pursue any other remedy provided in this Lease. Section 14.8 No Partnership or Agency The Landlord does not in any way or for any purpose become a partner of the Tenant in the conduct of its business, or otherwise, or a joint venturer or a member of a joint enterprise with the Tenant, nor is the relationship of principal and agent created. Section 14.9 Force Majeure Notwithstanding anything in this Lease, if either party is bona fide delayed or hindered in or prevented from the performance of any term, covenant or act required hereunder 37 by reason of strikes, labour troubles; inability to procure materials or services; power failure; restrictive governmental laws or regulations; riots; insurrection; sabotage; rebellion; war; act of God; or other reason whether of a like nature or not which is not the fault of the party delayed in performing work or doing acts required under the terms of this Lease, then the performance of that term, covenant or act is excused for the period of the delay and the party delayed will be entitled to perform such term, covenant or act within the appropriate time period after the expiration of the period of such delay. However, the provisions of this Section do not operate to excuse the Tenant from the prompt payment of Rent. Section 14.10 Notices Any notice, demand, request or other instrument which may be or is required to be given under this Lease will be delivered in person or sent by registered mail postage prepaid and will be addressed (a) if to the Landlord, to c/o the address specified in Paragraph (h) of the Special Provisions, or to such other Person or at such other address as the Landlord designates by written notice, and (b) if to the Tenant, at the Leased Premises or, at the Landlord's option, to the Tenant's office at the address specified in Paragraph (i) of the Special Provisions. Any notice, demand, request or consent is conclusively deemed to have been given or made on the day upon which it is delivered, or, if mailed, then seventy-two (72) hours following the date of mailing, as the case may be. Either party may at any time give written notice to the other of any change of its address and thereafter the new address is deemed to be the address of that party for the giving of notices hereunder. If the postal service is interrupted or is substantially delayed, any notice, demand, request or other instrument will be delivered in person. Section 14.11 No Option The submission of this Lease for examination does not constitute a reservation of or option to lease, for the Leased Premises and this Lease becomes effective as a lease only upon its execution and delivery by the Landlord and the Tenant. Section 14.12 Registration Neither the Tenant, nor any one on the Tenant's behalf or claiming under the Tenant, will register this Lease or any assignment or sublease of this Lease or any document evidencing any interest of the Tenant in the Lease or the Leased Premises, against the Lands (or any part thereof) comprising the Building or the Leased Premises. If either party intends to register a document for the purpose only of giving notice of this Lease or of any assignment or sublease of this Lease, then, upon the request of either party, the other will join in the execution of a short form or notice of this Lease (the "Short Form") which will (i) be prepared by the Landlord or its solicitors at the Tenant's expense; (ii) only describe the parties, the Leased Premises and the Commencement Date and the expiration date of the Term; and (iii) at the Landlord's option, be accompanied by a registrable power of attorney whereby the Tenant appoints the Landlord as its attorney to execute any instruments required under Article XII. All costs, expenses and taxes necessary to register or file the Short Form will be the sole responsibility of the Tenant. 38 Section 14.13 Directory Board The Tenant will be entitled at Landlord's expense to have its name shown upon the directory board of the Building. The Landlord will design the style of such identification and the directory board will be located in an area designated by the Landlord in the main lobby of the Building. Section 14.14 Accrual of Basic Rent and Additional Rent Basic Rent and Additional Rent will be considered as annual and accruing from day to day and where it becomes necessary for any reason to calculate Rent for an irregular period of less than one (1) year, an appropriate apportionment and adjustment shall be made. Section 14.15 Compliance with the Planning Act It is a condition of this Lease that the subdivision control provisions of the Planning Act (Ontario), and amendments thereto, be complied with if they apply. If the provisions of the Planning Act do apply, then until any necessary consent to the Lease is obtained, the Term (including any extensions thereof) and the Tenant's rights and entitlement granted by this Lease are deemed to extend for a period not exceeding twenty-one (21) years less one (l) day from the Commencement Date. Section 14.16 Survival of Covenants The Tenant's obligation to observe and perform its covenants and agreements under this Lease, including without limitation, any obligations on its behalf (i) to make any necessary re-adjustments on account of Rent, or (ii) to repair the Leased Premises or remove its trade fixtures and leasehold improvements as required by the Landlord, will survive the expiration of the Term or earlier termination of this Lease. Section 14.17 Quiet Enjoyment If the Tenant pays the Rent and observes and performs its terms, covenants and conditions contained in this Lease, the Tenant will peaceably and quietly hold and enjoy the Leased Premises for the Term without hindrance or interruption by the Landlord, or any other Person lawfully claiming by, through or under the Landlord unless otherwise permitted by the terms of this Lease. The Tenant acknowledges that the exercise by the Landlord of any of the rights conferred on the Landlord under this Lease and the entry upon the Leased Premises for or in connection with such purposes will not be deemed to be a constructive or actual eviction of the Tenant and will not be considered to be a breach of the Landlord's covenant for quiet enjoyment. 39 IN WITNESS WHEREOF, the Landlord and the Tenant have signed and sealed this Lease. SIGNED, SEALED AND DELIVERED ) 20 ADELAIDE ST. EAST, in the presence of: ) A CO-OWNERSHIP ) (Landlord) ) ) ) Per: ) ----------------------------- ) Per: ) ----------------------------- ) ) PARAGON MANAGEMENT SYSTEMS ) (CANADA) INC. ) ) (Tenant) ) ) ) Per: ) ----------------------------- ) Per: ) ----------------------------- ) ) I/We have the authority to bind the ) Corporation. 40 SCHEDULE "A" TENANT: PARAGON MANAGEMENT SYSTEMS (CANADA) INC. FLOOR NO.: 8TH FLOOR DATE: AUGUST 30, 1999 LEGAL DESCRIPTION OF THE LANDS In the City of Toronto, in the Municipality of Metropolitan Toronto and Province of Ontario, being composed of Part of Town Lot 1 on the north side of Newgate Street, now Adelaide Street East and part of Old Toronto Street, closed by Act of Parliament in 1810, according to the Town of York Plan registered in the Land Registry Office for the Registry Division of Toronto (No. 63), the said parcel of land being designated as Part 1 on a Plan of Survey deposited in the said Land Registry Office as 63R-3209. The northerly limit of Adelaide Street East as confirmed under the Boundaries Act by Plan BA-789 registered on December 30, 1975 as Instrument No. CT 157878. The westerly limit of Victoria Street as confirmed under the Boundaries Act by Plan BA-2189 registered on April 26, 1985. Together with the easement over Part 2 on the said Reference Plan 63R-3209 as set out in Instrument No. CT 736794. 41 SCHEDULE "B" TENANT: PARAGON MANAGEMENT SYSTEMS (CANADA) INC. FLOOR NO.: 8TH FLOOR DATE: AUGUST 30, 1999 PLAN OF THE 8TH FLOOR OF THE BUILDING [MAP GOES HERE] 42 SCHEDULE "C" TENANT: PARAGON MANAGEMENT SYSTEMS (CANADA) INC. FLOOR NO.: 8TH FLOOR DATE: AUGUST 30, 1999 CONSTUCTION OF THE BUILDING AND THE LEASED PREMISES INTENTIONALLY DELETED 43 SCHEDULE "D" TENANT: PARAGON MANAGEMENT SYSTEMS (CANADA) INC. FLOOR NO.: 8TH FLOOR DATE: AUGUST 30, 1999 INTENTIONALLY DELETED 44 SCHEDULE "E" TENANT: PARAGON MANAGEMENT SYSTEMS (CANADA) INC. FLOOR NO.: 8TH FLOOR DATE: AUGUST 30, 1999 RULES AND REGULATIONS 1. The Tenant will not place or permit any debris, garbage, trash or refuse to be placed or left in or upon any part of the Building outside of the Leased Premises. 2. The Landlord will permit the Tenant and the Tenant's employees and all Persons lawfully requiring communication with them to have the use during Normal Business Hours in common with others entitled thereto of the main entrance and the stairways, corridors, elevators or other mechanical means of access leading to the Leased Premises, together with the Common Areas and Facilities located on the Tenant's floor of the Building. At times other than during Normal Business Hours the Tenant and its employees will have access to the Building and to the Leased Premises only in accordance with the Rules and Regulations and will be required to satisfactorily identify themselves and to register in any book which may at the Landlord's option be kept by the Landlord for such purpose. If identification is not satisfactory, the Landlord is entitled to prevent the Tenant or the Tenant's employees or other Persons lawfully requiring communication with the Tenant from having access to the Building. In addition, the Landlord is not required to open the door to the Leased Premises for the purpose of permitting entry therein to any Person not having a key to the Leased Premises. 3. The Landlord will permit the Tenant and its employees in common with others entitled thereto, to use the washrooms on the Tenant's floor of the Building or, in lieu thereof, those washrooms designated by the Landlord. 4. The Tenant will permit window cleaners to clean the windows of the Leased Premises during Normal Business Hours. 5. The sidewalks, entrances, passages, escalators, elevators and staircases will not be obstructed or used by the Tenant, its agents, servants, contractors, invitees or employees for any purpose other than ingress to and egress from the Leased Premises and the Building. The Landlord reserves the entire control of all parts of the Building employed for the common benefit of the tenants and without restricting the generality of the foregoing, the sidewalks, entrances, corridors and passages not within the Leased Premises, washrooms, lavatories, air-conditioning closets, fan rooms, janitor's closets, electrical closets and other closets, stairs, escalators, elevator shafts, flues, stacks, pipe shafts and ducts and will have the right to place such signs and appliances therein, as it deems advisable, provided that ingress to and egress from the Leased Premises is not unduly impaired thereby. 45 6. The Tenant, its agents, servants, contractors, invitees or employees, will not bring in or take out, position, construct, install or move any safe or other heavy machinery or equipment or anything liable to injure or destroy any part of the Building, including the Leased Premises, without first obtaining the written consent of the Landlord. The Landlord will have the right to prescribe the weight permitted and the position thereof, and the use and design of planks, skids or platforms, to distribute the weight. All damage done to any part of the Building by moving or using any such heavy equipment or other office equipment or furniture will be repaired at the expense of the Tenant. The moving of all heavy equipment or other office equipment or furniture will occur only by prior arrangement with the Landlord. The Tenant will not employ anyone to do its moving in the Building, including the Leased Premises, other than the staff of the Building, unless permission to employ anyone else is given by the Landlord and the reasonable cost of such moving will be paid by the Tenant. Safes and other heavy office equipment and machinery will be moved through the halls and corridors only upon steel bearing plates. No freight or bulky matter of any description will be received into the Building or carried in the elevators except during hours approved by the Landlord acting reasonably. 7. The Tenant will not place or cause to be placed any additional locks upon any doors of the Leased Premises without the approval of the Landlord and subject to any conditions imposed by the Landlord. Two keys will be supplied to the Landlord for each entrance door to the Leased Premises and all locks will be standard to permit access by the Landlord's master key. 8. The water closets and other water apparatus will not be used for any purpose other than those for which they were constructed. The Tenant will not (1) let the water run unless it is in actual use, (2) deface or mark any part of the Building, including the Leased Premises, (3) drive nails, spikes, hooks or screws into the walls or woodwork of the Building, including the Leased Premises, or (4) bore, drill or cut into the walls or woodwork of the Building including the Leased Premises, in any manner or for any reason without Landlord consent. 9. No one will use the Leased Premises for sleeping apartments or residential purposes, or for the long term storage of personal effects or articles other than those required for business purposes. 10. The Tenant will not permit any cooking or any heating of any foods or liquid in the Leased Premises without the written consent of the Landlord. 11. Canvassing, soliciting and peddling in or about the Building are prohibited. 12. No inflammable oils or other inflammable, dangerous or explosive materials except those approved in writing by the Landlord's or its insurers will be kept or permitted to be kept in the Leased Premises. 13. No bicycles or other vehicles will be brought within the Building without the consent of the Landlord. 14. No animals or birds will be brought into the Building without the consent of the Landlord. 46 15. The Tenant will not install or permit the installation or use of any machine dispensing goods for sale in the Leased Premises or the Building or permit the delivery of any food or beverage to the Leased Premises without the approval of the Landlord. 16. No gas pipe or electric wire will be permitted which has not been ordered or authorized by the Landlord. No outside radio or television aerials shall be allowed on the Leased Premises without authorization in writing by the Landlord. 17. The Tenant will not cover or obstruct any of the skylights and windows that reflect or admit light into any part of the Building, except for the proper use of approved blinds and drapes. 18. Any hand trucks, carryalls, or similar appliances used in the Building with the consent of the Landlord, will be equipped with rubber tires, slide guards and such other safeguards as the Landlord requires. 19. The Tenant will not permit or allow any odours, vapours, steam, water, vibrations, noises or other undesirable effects to emanate from the Leased Premises or any equipment or installation therein which in the Landlord's opinion, are objectionable or cause any interference with the safety, comfort or convenience of the Building by the Landlord or the occupants and tenants thereof or their agents, servants, invitees or employees. 20. The Tenant will not receive or ship articles of any kind except through facilities and designated doors and at hours designated by the Landlord acting reasonably and under the supervision of the Landlord acting reasonably. 47 SCHEDULE "F" TENANT: PARAGON MANAGEMENT SYSTEMS (CANADA) INC. FLOOR NO.: 8TH FLOOR DATE: AUGUST 30, 1999 DEFINITIONS In this Lease and in the Schedules; 1. "Additional Rent" means any and all sums of money or charges required to be paid by the Tenant under this Lease (except Basic Rent) whether or not the same are designated "Additional Rent" or are payable to the Landlord or otherwise, and all such sums are payable in lawful money of Canada without deduction, abatement, set-off or compensation whatsoever. 2. "Advance Rent" means the amount payable by the Tenant pursuant to and in the manner set out in Paragraph (e) of the Special Provisions. 3. "Architect" means the architect from time to time named by the Landlord. The decision of the Architect whenever required by this Lease (or requested by the Landlord) and any related certificate will be final and binding on the parties. 4. "Basic Rent" means the annual rent payable by the Tenant pursuant to and in the manner set out in Section 2.2 of this Lease. 5. "Building" means the multi-storey office building known municipally as 20 Adelaide Street East, Toronto, Ontario, including the Common Areas and Facilities, and the areas and facilities serving the Building or having utility in connection therewith as determined by the Landlord, whether or not located directly under the Building. 6. "Business Day" means any of the days from Monday to Friday of each week, and Saturday from 7:00 a.m. to 1:00 p.m. of each week, unless any of such days is a statutory holiday. 7. "Commencement Date" means the date specified in Paragraph (c) of the Special Provisions. If the Commencement Date is determined in accordance with Paragraph (c)B(ii) of the Special Provisions, the Landlord shall determine the actual Commencement Date and shall send a notice to the Tenant advising the Tenant of the actual Commencement Date and such notice shall form a part of this Lease. 8. "Common Areas and Facilities" means (a) those areas, facilities, utilities, improvements, equipment and installations (collectively, the "facilities") in the Building which, from time to time, are not designated or intended by the Landlord to be leased to tenants of the Building and (b) those facilities which serve or are for the benefit of the Building, whether or not located within, adjacent to, or near the Building and which are designated from time to time by 48 the Landlord as part of the Common Areas and Facilities. Common Areas and Facilities includes, without limitation, the facilities which are provided or designated (and which may be changed from time to time) by the Landlord for the use or benefit of the tenants, their employees, customers and other invitees in common with others entitled to the use or benefit thereof in the manner and for the purposes permitted by the Lease. Without limiting the generality of the foregoing, Common Areas and Facilities includes the roof, exterior wall assemblies (including weather walls), exterior and interior structural elements and bearing walls; parking areas (if any), all vestibules for and entrances and exits thereto and all structural elements thereof; driveways, truckways and related areas; pedestrian sidewalks; landscaped and planted areas; public seating and service areas; corridors and underground or above ground tunnels or passageways; equipment, furniture, furnishings and fixtures; stairways, escalators, ramps and elevators and other transportation equipment and systems; tenant common and public washrooms; telephone, meter, valve, mechanical, mail, storage, service and janitor rooms and galleries; music, fire prevention, security and communication systems; general signs; columns, pipes; electrical, plumbing, drainage, mechanical, and all other installations, equipment or services located therein or related thereto as well as the structures housing the same (including, without limitation, the heating, ventilating and air-conditioning system of the Building). 9. "C.P.I." means the Consumer Price Index (All Items for Regional Cities) for the Municipality of Metropolitan Toronto (or any index published in substitution for the Consumer Price Index or any other replacement index reasonably designated by the Landlord if it is no longer published) published by Statistics Canada (or by any successor thereof or any other governmental agency including a provincial agency). In the case of any required substitution, the Landlord shall be entitled to make all necessary conversions for comparison purposes. 10. "Full Floor Rentable Area of the Leased Premises" means the area expressed in square feet and in square metres set out in Paragraph (a) of the Special Provisions and determined in accordance with the method of floor measurement as set forth in Schedule "D" attached. 11. "Indemnifier' means the Person described in Paragraph (j) of the Special Provisions who has executed or agreed to execute the Indemnity Agreement which is attached to this Lease as Appendix "A", if applicable. 12. "Landlord" means the party of the First Part. Wherever the word "Landlord" is used in this Lease, it is deemed to have the same meaning as "lessor", and includes the Landlord and its duly authorized representatives. 13. "Lands" means the lands underneath, adjacent and appurtenant to the Building, as more particularly described in Schedule "A" attached or as such Lands may be altered, expanded or reduced from time to time. 14. "Leased Premises" means the premises leased to the Tenant as referred to and described in Section 1.1 hereof. 49 15. "Mortgagee" means any mortgagee or chargee (including any trustee for bondholders), from time to time, of the Building and the Lands, or any part thereof, or the Landlord's or the owners of the Building's or the Land's interest in them. The security documents held by the Mortgagee and any ground or underlying leases affecting the Lands or the Building are referred to as "Encumbrances", as more particularly defined in Section 12.2. 16. "Net Rentable Area of the Leased Premises" means the area expressed in square feet and in square metres set out in Paragraph (a) of the Special Provisions and determined in accordance with the method of floor measurements set forth in Schedule "D" attached. 17. "Normal Business Hours" means the hours from 7:00 a.m. to 6:00 p.m. on Mondays to Fridays and the hours from 7:00 a.m. to 1:00 p.m. on Saturdays, unless any of such days is a statutory holiday. 18. (a) "Operating Costs" means the total amounts incurred, paid or payable whether by the Landlord or by others on behalf of the Landlord for the maintenance, insurance, operation, repair, replacement and administration of the Building and the Lands, calculated as if the Building were fully leased, occupied and operational during each Rental Year of the Term. (b) Operating Costs include, without limitation and without duplication, the aggregate of: (i) the total annual costs and expenses (after deducting recoveries from tenants, pursuant to clauses similar to Section 7.2 of the Lease under leases for premises in the Building) of insuring the Lands, the Building and the improvements and equipment and other property servicing the Building from time to time, owned or operated by the Landlord or for which the Landlord is legally liable, in accordance with Section 7.5; (ii) cleaning (including window cleaning), snow removal, garbage and waste collection and disposal, including, without limitation, those costs referred to in Section 4.2(c); (iii) the aggregate of the costs and amounts paid for (1) all fuel used in heating, including the purchase of steam; (2) all electricity furnished by the Landlord to the Building other than electricity exclusively furnished to and paid for by tenants; (3) all hot and cold water other than that chargeable to tenants by reason of their extraordinary consumption of water; (4) climate control; (5) telephone and other utility costs, used in the maintenance and operation of the Building; and (6) installing and maintaining energy conservation equipment and safety or life support systems in any portion of the Building; (iv) the costs of policing, security and supervision, including all rental and other costs incurred in respect of the management office for the Building; (v) salaries, wages and other amounts paid or payable for all personnel including the Building manager, superintendent, operating and maintenance staff, end other employees of the Landlord involved in the maintenance and operation of the Building and the 50 Lands, including contributions and premiums towards reasonable fringe benefits, unemployment and Workmen's Compensation insurance, pension plan contributions and similar premiums and contributions and the total charges of any independent contractors or managers engaged in the repair, care, maintenance and cleaning of the Building and any portion of the Lands; (vi) the cost of the rental of any equipment and signs, and the cost of supplies, used by the Landlord in the maintenance and operation of the Building and the Lands; (vii) heating, ventilating and air-conditioning of the Building, including the individual premises; (viii) audit fees and the cost of accounting services incurred in the preparation of the certificates referred to in this Lease and related financial statements, and in the computation of the rents and charges payable by tenants of the Building; (ix) all repairs (including major repairs) and replacements to and maintenance (including, without limitation, gardening and landscaping maintenance, repair and replacement) and operation of the Building, and the systems, facilities and equipment serving the Building (including, without limitation, all escalators, elevators, and other transportation equipment and systems and the heating, ventilating, air-conditioning and climate control systems serving the Building); (x) depreciation or amortization of (1) the costs and expenses including, without limitation, repair and replacement, of all maintenance and cleaning equipment and master utility meters and all other fixtures, equipment and facilities serving or comprising the Building (including, without limitation, all supplies and inventory required for the maintenance, operation and repair of the Building and the heating, ventilating, air conditioning and climate control systems serving the Building) which by their nature, require periodic or substantial repair or replacement, unless, pursuant to Paragraph 18(b)(ix), they are charged fully in the Rental Year in which they are incurred, in accordance with sound accounting principles, and (2) the costs of improvements properly charged to capital account which substantially reduce Operating Costs, amortized over their useful life, as determined by the Landlord in accordance with sound accounting principles; (xi) all Capital Taxes as defined in Paragraph 18(c) hereof as they relate to or are attributed by the Landlord to the Building and the Lands; (xii) interest calculated at two (2) percentage points above the average daily prime bank commercial lending rate charged during such Rental Year by any Canadian chartered bank designated from time to time by the Landlord upon the undepreciated portion of the original cost of all fixtures, equipment and facilities referred to in Paragraph 18(b)(x); (xiii) a fee of five percent (5%) for the administration and management of the Building and the Lands applied against the Rent payable to the Landlord by tenants of the Building. 51 From the total of the above costs, there is deducted: (aa) all net recoveries which reduce the Operating Costs received by the Landlord from tenants as a result of any act, omission, default or negligence of such tenants or by reason of a breach by such tenants of provisions in their respective leases (other than recoveries from such tenants under clauses in their respective leases requiring their contribution to Operating Costs); and (bb) net proceeds received by the Landlord from insurance policies taken out by the Landlord to the extent that such proceeds relate to the Operating Costs. (c) Capital Tax is an imputed amount presently or hereafter imposed from time to time upon the Landlord or the owners of the Building and Lands and payable by the Landlord or the owners of the Building and Lands (or by any corporation acting on behalf of the Landlord or the owners) and which is levied or assessed against the Landlord or the owners on account of its ownership of or capital employed in the Building and the Lands. Capital Tax shall be imputed as if the amount of such tax were that amount due if the Building and the Lands were the only real property of the Landlord and Capital Tax includes the amount of any capital or place of business tax levied by the provincial government or other applicable taxing authority against the Landlord with respect to the Building and the Lands whether or not known as Capital Tax or by any other name. (d) The Tenant acknowledges that the Total Rentable Area of the Building contains a retail commercial area on the ground floor of the Building in addition to the office area of the Building. The Landlord, acting equitably, may adjust the Operating Costs pursuant to this Paragraph in accordance with reasonable and current practices relevant to a multi-use commercial building to include a reasonable proportion of the expenses incurred by or on behalf of retail and other tenants in the Building who, by agreement with the Landlord, or otherwise, have undertaken cleaning, maintenance work or other outlays usually performed by the Landlord to the extent that those expenses if directly carried out by the Landlord would have been included in Operating Costs. 52 SCHEDULE "G" TENANT: PARAGON MANAGEMENT SYSTEMS (CANADA) INC. FLOOR NO.: 8TH FLOOR DATE: AUGUST 30, 1999 INTENTIONALLY DELETED 53 SCHEDULE "H" TENANT: PARAGON MANAGEMENT SYSTEMS (CANADA) INC. FLOOR NO.: 8TH FLOOR DATE: AUGUST 30, 1999 LANDLORD'S CLEANING SCHEDULE ENTRANCE AND MAIN LOBBY A. NIGHTLY SERVICES 1. Floors will be swept, washed and rinsed using a neutral detergent. 2. Rubber matting and door rats will be thoroughly cleaned. 3. Finger marks and smudges will be removed from walls where wall finishes permit. 4. Door glass will be cleaned on both sides and metal wiped clean. 5. Directory Board will be cleaned. 6. All horizontal surfaces within normal arm's reach will be dusted using a traced cloth. 7. Ashtrays and stands will be emptied and wiped clean. B. PERIODIC SERVICES 1. Floors will be machine scrubbed weekly with a protective non-slip floor finish applied for surface protection. 2. All horizontal surfaces within normal arm's reach will be dusted monthly. 3. Walls to be kept free of dust. ELEVATORS A. NIGHTLY SERVICES 1. Carpets in elevator cabs to be vacuumed and spot cleaned as required. 2. Walls and metal work to be cleaned and polished. 54 3. Elevator doors and frames on all floors to be kept clean and free of finger marks and smudges. 4. Two (2) sets of elevator carpets will be supplied for periodic changing. The Landlord shall arrange for such changing and the cleaning of each set not less than twice annually. 5. Threshold plates on elevator cabs and elevator lobby floors to be cleaned or vacuumed. B. PERIODIC SERVICES 1. Floors under elevator carpets to be maintained in a clean condition and detergent washed not less than twice annually. ELEVATOR LOBBIES AND CORRIDORS A. NIGHTLY SERVICES 1. Tile floors will be swept with a treated dust mop four (4) nights per week and on the fifth night will be spray buffed on a rotational basis. 2. All cigarette urns will be emptied and cleaned 3. All horizontal ledges within normal arm's reach will be dusted using a treated cloth. 4. Drinking fountains will be cleaned and disinfected. 5. All carpeted floors will be vacuumed. B. PERIODIC SERVICES 1. Tile floors will be stripped and refinished as necessary to maintain a clean condition and to protect the floor covering. Frequency of stripping will vary according to traffic and soil conditions throughout the Building and shall be not less than twice yearly. 2. All baseboards, ledges or other surfaces not reached in nightly dusting will be dusted not less than once per month using a treated cloth or other suitable means. COMMON STAIRS AND LANDINGS A. NIGHTLY SERVICES 1. Landings will be swept. 2. All doors to be kept free of finger marks and smudges and washed not less than once per month or as necessary. 55 B. PERIODIC SERVICES 1. Handrails, stringers and riser under-sides and ledges where existing will be dusted or vacuumed weekly. 2. All baseboards, ledges or other surfaces will be dusted with a treated cloth as necessary but not less than once per month. 3. Stairs will be swept weekly for a three (3) week period. On the fourth week, stairs and landings will be washed and rinsed. JANITOR SERVICES ROOMS 1. These rooms will be maintained in a clean and orderly manner at all times. LEASED PREMISES A. NIGHTLY SERVICES (Monday to Friday, inclusive, unless any such day is a holiday) 1. All waste receptacles will be emptied and refuse removed in plastic garbage bags or other suitable containers to a designated area in the Building for disposal by others. 2. Waste receptacles will be damp wiped and washed on a rotating basis but not less than once every two (2) months. 3. All ashtrays will be emptied and cleaned The contents of ashtrays will be emptied into metal containers and left over night to ensure that any live cigarettes are extinguished. 4. The horizontal surfaces of fixture, fixtures, desk tops, table tops, business equipment and other working surfaces will be dusted by means of a treated feather type or similar hand duster four (4) nights per week and hand dusted with a treated cloth duster on the fifth night. 5. All other horizontal surfaces within normal arm's reach will be treated as (4) on the previous page. Floor Finishes (a) Tile Floors 1. All floors will be dusted with a treated dust mop. 56 (b) Carpeted Floors 1. All carpeted or rug areas to have traffic isles vacuumed. The balance of the area to receive a litter pick-up by vacuum or carpet sweeper four (4) nights per week and on the fifth night all carpeted and/or rugged areas to be thoroughly vacuumed. 2. All carpeted or rug areas to be spot cleaned provided such function can be carried out by the use of damp sponge. Where special solutions or other treatments are required, special spot cleaning will be for the Tenant's account. B. PERIODIC SERVICES 1. Dusting of wall hangings such as pictures, graphs, etc., tops of doors, high ledges above normal arm's reach to be dusted on a rotational basis, but not less than once per month. 2. Vertical surfaces, i.e. sides of desks, chairs, tables, filing cabinets and business equipment to be dusted with a treated dust cloth on a rotational basis but not less than once per month. 3. All bright work including push plates, kick plates, and the like will be cleaned as necessary, but no less than once per month. 4. Finger marks will be removed from glass desk or table tops, door glass and partition glass once per week. 5. Finger marks or smudges will be removed from walls or other painted surfaces once per week provided such surfaces lend themselves to this type of cleaning. 6. Venetian blinds will be dusted not less than once every three (3) months using a feather type hand duster or other suitable means. Floor Finishes (a) Tile Floors 1. Tile floors will be spray waxed and buffed every two (2) weeks. 2. Tile floors will be stripped and refinished as required to maintain a clean condition and protect the tile finish. Frequency of stripping will vary according to traffic and soil conditions in different tenant areas but shall be done not less than twice per year. (b) Carpeted Floors 1. Shampooing and spot cleaning of carpeted and rug areas, other than as specified under "Nightly Services", Carpeted Floors, item (2) will be as requested by the Tenant for the Tenant's account and shall not form part of the Landlord's obligations under this Schedule "H". 57 WASHROOMS STANDARD TO THE BUILDING A. NIGHTLY SERVICES 1. Sweep and wash all floors using a disinfectant. 2. Wash and polish all mirrors, powder shelves, bright work, i.e., faucets, flushometers, toilet seat hinges. 3. Wash and sanitize all basins, toilet bowls and urinals. 4. Wash and disinfect both sides of all toilet seats. 5. Dust tops of partitions and all other ledges within normal arm's reach. 6. Empty and clean paper towel and sanitary disposal receptacles. 7. Remove waste paper and refuse in plastic garbage bags or other suitable containers to a designated area in the Building for disposal by others. 8. Replenish all washroom supplies with materials supplied by the Landlord. B. PERIODIC SERVICES 1. Partitions and tile walls to be cleaned and disinfected as required but not less than once per month. 2. Floors shall be machine scrubbed as required but not less than once every three (3) months. 3. Urinals shall be decalcified as required but not less than once per week. 58 EX-10.4 5 ex-10_4.txt EXHIBIT 10.4 ADEXA, INC. 1998 STOCK PLAN ADOPTED ON FEBRUARY 11, 1998 AMENDED AND RESTATED ON MARCH 27, 2000 TABLE OF CONTENTS
PAGE NO. SECTION 1. ESTABLISHMENT AND PURPOSE.............................................1 SECTION 2. ADMINISTRATION........................................................1 (a) Committees of the Board of Directors......................................1 (b) Authority of the Board of Directors.......................................1 SECTION 3. ELIGIBILITY...........................................................1 (a) General Rule..............................................................1 (b) Ten-Percent Shareholders..................................................1 SECTION 4. STOCK SUBJECT TO PLAN.................................................2 (a) Basic Limitation..........................................................2 (b) Additional Shares.........................................................2 SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES...............................2 (a) Stock Purchase Agreement..................................................2 (b) Duration of Offers and Nontransferability of Rights.......................2 (c) Purchase Price............................................................2 (d) Withholding Taxes.........................................................3 (e) Restrictions on Transfer of Shares and Minimum Vesting....................3 (f) Accelerated Vesting.......................................................3 SECTION 6. TERMS AND CONDITIONS OF OPTIONS.......................................3 (a) Stock Option Agreement....................................................3 (b) Number of Shares..........................................................3 (c) Exercise Price............................................................3 (d) Withholding Taxes.........................................................4 (e) Exercisability............................................................4 (f) Accelerated Exercisability................................................4 (g) Basic Term................................................................4 (h) Nontransferability........................................................4 (i) Termination of Service (Except by Death)..................................4 (j) Leaves of Absence.........................................................5 (k) Death of Optionee.........................................................5 (l) No Rights as a Shareholder................................................5 (m) Modification, Extension and Assumption of Options.........................5 (n) Restrictions on Transfer of Shares and Minimum Vesting....................6 i (o) Accelerated Vesting.......................................................6 SECTION 7. PAYMENT FOR SHARES....................................................6 (a) General Rule..............................................................6 (b) Surrender of Stock........................................................6 (c) Services Rendered.........................................................6 (d) Promissory Note...........................................................6 (e) Exercise/Sale.............................................................7 (f) Exercise/Pledge...........................................................7 SECTION 8. ADJUSTMENT OF SHARES..................................................7 (a) General...................................................................7 (b) Mergers and Consolidations................................................7 (c) Reservation of Rights.....................................................8 SECTION 9. SECURITIES LAWS REQUIREMENTS..........................................8 (a) General...................................................................8 (b) Financial Reports.........................................................8 SECTION 10. NO RETENTION RIGHTS..................................................8 SECTION 11. DURATION AND AMENDMENTS..............................................8 (a) Term of the Plan..........................................................8 (b) Right to Amend or Terminate the Plan......................................9 (c) Effect of Amendment or Termination........................................9 SECTION 12. DEFINITIONS..........................................................9
ADEXA, INC. 1998 STOCK PLAN SECTION 1. ESTABLISHMENT AND PURPOSE. The purpose of the Plan is to offer selected individuals an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company's Stock. The Plan provides both for the direct award or sale of Shares and for the grant of Options to purchase Shares. Options granted under the Plan may include Nonstatutory Options as well as ISOs intended to qualify under Section 422 of the Code. Capitalized terms are defined in Section 12. SECTION 2. ADMINISTRATION. (a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered by one or more Committees. Each Committee shall consist of two or more members of the Board of Directors who have been appointed by the Board of Directors. Each Committee shall have such authority and be responsible for such functions as the Board of Directors has assigned to it. If no Committee has been appointed, the entire Board of Directors shall administer the Plan. Any reference to the Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom the Board of Directors has assigned a particular function. (b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of the Plan, the Board of Directors shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan. All decisions, interpretations and other actions of the Board of Directors shall be final and binding on all Purchasers, all Optionees and all persons deriving their rights from a Purchaser or Optionee. SECTION 3. ELIGIBILITY. (a) GENERAL RULE. Only Employees, Outside Directors and Consultants shall be eligible for the grant of Options or the direct award or sale of Shares. Only Employees shall be eligible for the grant of ISOs. (b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries shall not be eligible for designation as an Optionee or Purchaser unless (i) the Exercise Price is at least 110% of the Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if any) is at least 100% of the Fair Market Value of a Share and (iii) in the case of an ISO, such ISO by its terms is not exercisable after the expiration of five years from the date of grant. For purposes of this Subsection (b), in determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied. 1 SECTION 4. STOCK SUBJECT TO PLAN. (a) BASIC LIMITATION. The aggregate number of Shares that may be issued under the Plan (upon exercise of Options or other rights to acquire Shares) shall not exceed 6,120,1181 Shares, subject to adjustment pursuant to Section 8. The number of Shares that are subject to Options or other rights outstanding at any time under the Plan shall not exceed the number of Shares that then remain available for issuance under the Plan. The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan. (b) ADDITIONAL SHARES. In the event that any outstanding Option or other right for any reason expires or is canceled or otherwise terminated, the Shares allocable to the unexercised portion of such Option or other right shall again be available for the purposes of the Plan. In the event that Shares issued under the Plan are reacquired by the Company pursuant to any forfeiture provision, right of repurchase or right of first refusal, such Shares shall again be available for the purposes of the Plan, except that the aggregate number of Shares which may be issued upon the exercise of ISOs shall in no event exceed 6,120,118 Shares (subject to adjustment pursuant to Section 8). SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES. (a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser and the Company. Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Purchase Agreement. The provisions of the various Stock Purchase Agreements entered into under the Plan need not be identical. (b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to acquire Shares under the Plan (other than an Option) shall automatically expire if not exercised by the Purchaser within 30 days after the grant of such right was communicated to the Purchaser by the Company. Such right shall not be transferable and shall be exercisable only by the Purchaser to whom such right was granted. (c) PURCHASE PRICE. The Purchase Price of Shares to be offered under the Plan shall not be less than 85% of the Fair Market Value of such Shares, and a higher percentage may be required by Section 3(b). Subject to the preceding sentence, the Purchase Price shall be determined by the Board of Directors at its sole discretion. The Purchase Price shall be payable in a form described in Section 7. - --------------------- (1) Reflects a 1,000,000 share increase approved by the Board of Directors on January 27, 2000 and a 500,000 share increase approved by the Board of Directors on March 27, 2000. 2 (d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the Purchaser shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such purchase. (e) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares awarded or sold under the Plan shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine. Such restrictions shall be set forth in the applicable Stock Purchase Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally. In the case of a Purchaser who is not an officer of the Company, an Outside Director or a Consultant, any right to repurchase the Purchaser's Shares at the original Purchase Price (if any) upon termination of the Purchaser's Service shall lapse at least as rapidly as 20% per year over the five-year period commencing on the date of the award or sale of the Shares. Any such right may be exercised only within 90 days after the termination of the Purchaser's Service for cash or for cancellation of indebtedness incurred in purchasing the Shares. (f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement provides otherwise, any right to repurchase a Purchaser's Shares at the original Purchase Price (if any) upon termination of the Purchaser's Service shall lapse and all of such Shares shall become vested if (i) the Company is subject to a Change in Control before the Purchaser's Service terminates and (ii) the repurchase right is not assigned to the entity that employs the Purchaser immediately after the Change in Control or to its parent or subsidiary. SECTION 6. TERMS AND CONDITIONS OF OPTIONS. (a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. (b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 8. The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option. (c) EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the Fair Market Value of a Share on the date of grant, and a higher percentage may be required by Section 3(b). The Exercise Price of a Nonstatutory Option shall not be less than 85% of the Fair Market Value of a Share on the date of grant, and a higher percentage may be required by Section 3(b). Subject to the preceding two sentences, the Exercise Price under any Option shall be determined by the Board of Directors at its sole discretion. The Exercise Price shall be payable in a form described in Section 7. 3 (d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise. The Optionee shall also make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option. (e) EXERCISABILITY. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. In the case of an Optionee who is not an officer of the Company, an Outside Director or a Consultant, an Option shall become exercisable at least as rapidly as 20% per year over the five-year period commencing on the date of the grant. Subject to the preceding sentence, the exercisability provisions of any Stock Option Agreement shall be determined by the Board of Directors at its sole discretion. (f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option Agreement provides otherwise, all of an Optionee's Options shall become exercisable in full if (i) the Company is subject to a Change in Control before the Optionee's Service terminates, (ii) such Options do not remain outstanding, (iii) such Options are not assumed by the surviving corporation or its parent and (iv) the surviving corporation or its parent does not substitute options with substantially the same terms for such Options. (g) BASIC TERM. The Stock Option Agreement shall specify the term of the Option. The term shall not exceed 10 years from the date of grant, and a shorter term may be required by Section 3(b). Subject to the preceding sentence, the Board of Directors at its sole discretion shall determine when an Option is to expire. (h) NONTRANSFERABILITY. No Option shall be transferable by the Optionee other than by beneficiary designation, will or the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee's guardian or legal representative. No Option or interest therein may be transferred, assigned, pledged or hypothecated by the Optionee during the Optionee's lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. (i) TERMINATION OF SERVICE (EXCEPT BY DEATH). If an Optionee's Service terminates for any reason other than the Optionee's death, then the Optionee's Options shall expire on the earliest of the following occasions: (i) The expiration date determined pursuant to Subsection (g) above; (ii) The date three months after the termination of the Optionee's Service for any reason other than Disability, or such later date as the Board of Directors may determine; or (iii) The date six months after the termination of the Optionee's Service by reason of Disability, or such later date as the Board of Directors may determine. 4 The Optionee may exercise all or part of the Optionee's Options at any time before the expiration of such Options under the preceding sentence, but only to the extent that such Options had become exercisable before the Optionee's Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee's Service terminated (or vested as a result of the termination). The balance of such Options shall lapse when the Optionee's Service terminates. In the event that the Optionee dies after the termination of the Optionee's Service but before the expiration of the Optionee's Options, all or part of such Options may be exercised (prior to expiration) by the executors or administrators of the Optionee's estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee's Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee's Service terminated (or vested as a result of the termination). (j) LEAVES OF ABSENCE. For purposes of Subsection (i) above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company). (k) DEATH OF OPTIONEE. If an Optionee dies while the Optionee is in Service, then the Optionee's Options shall expire on the earlier of the following dates: (i) The expiration date determined pursuant to Subsection (g) above; or (ii) The date 12 months after the Optionee's death. All or part of the Optionee's Options may be exercised at any time before the expiration of such Options under the preceding sentence by the executors or administrators of the Optionee's estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee's death or became exercisable as a result of the death. The balance of such Options shall lapse when the Optionee dies. (l) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an Optionee, shall have no rights as a shareholder with respect to any Shares covered by the Optionee's Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option. (m) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Company or another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price. The foregoing notwithstanding, no modification of an 5 Option shall, without the consent of the Optionee, impair the Optionee's rights or increase the Optionee's obligations under such Option. (n) RESTRICTIONS ON TRANSFER OF SHARES AND MINIMUM VESTING. Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine. Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally. In the case of an Optionee who is not an officer of the Company, an Outside Director or a Consultant, any right to repurchase the Optionee's Shares at the original Exercise Price upon termination of the Optionee's Service shall lapse at least as rapidly as 20% per year over the five-year period commencing on the date of the option grant. Any such repurchase right may be exercised only within 90 days after the termination of the Optionee's Service for cash or for cancellation of indebtedness incurred in purchasing the Shares. (o) ACCELERATED VESTING. Unless the applicable Stock Option Agreement provides otherwise, any right to repurchase an Optionee's Shares at the original Exercise Price upon termination of the Optionee's Service shall lapse and all of such Shares shall become vested if (i) the Company is subject to a Change in Control before the Optionee's Service terminates and (ii) the repurchase right is not assigned to the entity that employs the Optionee immediately after the Change in Control or to its parent or subsidiary. SECTION 7. PAYMENT FOR SHARES. (a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in cash or cash equivalents at the time when such Shares are purchased, except as otherwise provided in this Section 7. (b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so provides, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee. Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value on the date when the Option is exercised. The Optionee shall not surrender, or attest to the ownership of, Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes. (c) SERVICES RENDERED. At the discretion of the Board of Directors, Shares may be awarded under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior to the award. (d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or Stock Purchase Agreement so provides, all or a portion of the Exercise Price or Purchase Price (as the case may be) of Shares issued under the Plan may be paid with a full-recourse promissory note. The Shares shall be pledged as security for payment of the principal amount of the promissory 6 note and interest thereon. The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code. Subject to the foregoing, the Board of Directors (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note. (e) EXERCISE/SALE. To the extent that a Stock Option Agreement so provides, and if Stock is publicly traded, payment may be made all or in part by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. (f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so provides, and if Stock is publicly traded, payment may be made all or in part by the delivery (on a form prescribed by the Company) of an irrevocable direction to pledge Shares to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company in payment of all or part of the Exercise Price and any withholding taxes. SECTION 8. ADJUSTMENT OF SHARES. (a) GENERAL. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a recapitalization, a spin-off, a reclassification or a similar occurrence, the Board of Directors shall make appropriate adjustments in one or more of (i) the number of Shares available for future grants under Section 4, (ii) the number of Shares covered by each outstanding Option or (iii) the Exercise Price under each outstanding Option. (b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party to a merger or consolidation, outstanding Options shall be subject to the agreement of merger or consolidation. Such agreement, without the Optionees' consent, may provide for: (i) The continuation of such outstanding Options by the Company (if the Company is the surviving corporation); (ii) The assumption of the Plan and such outstanding Options by the surviving corporation or its parent; (iii) The substitution by the surviving corporation or its parent of options with substantially the same terms for such outstanding Options; or (iv) The cancellation of such outstanding Options without payment of any consideration. 7 (c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an Optionee or Purchaser shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class. Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option. The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets. SECTION 9. SECURITIES LAW REQUIREMENTS. (a) GENERAL. Shares shall not be issued under the Plan unless the issuance and delivery of such Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company's securities may then be traded. (b) FINANCIAL REPORTS. The Company each year shall furnish to Optionees, Purchasers and shareholders who have received Stock under the Plan its balance sheet and income statement, unless such Optionees, Purchasers or shareholders are key Employees whose duties with the Company assure them access to equivalent information. Such balance sheet and income statement need not be audited. SECTION 10. NO RETENTION RIGHTS. Nothing in the Plan or in any right or Option granted under the Plan shall confer upon the Purchaser or Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause. SECTION 11. DURATION AND AMENDMENTS. (a) TERM OF THE PLAN. The Plan, as set forth herein, shall become effective on the date of its adoption by the Board of Directors, subject to the approval of the Company's shareholders. In the event that the shareholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, any grants of Options or sales or awards of Shares that have already occurred shall be rescinded, and no additional grants, sales or awards shall be made thereafter under the Plan. The Plan shall terminate automatically 10 years after its adoption by the Board of Directors and may be terminated on any earlier date pursuant to Subsection (b) below. 8 (b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may amend, suspend or terminate the Plan at any time and for any reason; provided, however, that any amendment of the Plan which increases the number of Shares available for issuance under the Plan (except as provided in Section 8), or which materially changes the class of persons who are eligible for the grant of ISOs, shall be subject to the approval of the Company's shareholders. Shareholder approval shall not be required for any other amendment of the Plan. (c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination. The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan. SECTION 12. DEFINITIONS. (a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the Company, as constituted from time to time. (b) "CHANGE IN CONTROL" shall mean: (i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity's securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not shareholders of the Company immediately prior to such merger, consolidation or other reorganization; or (ii) The sale, transfer or other disposition of all or substantially all of the Company's assets. A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction. (c) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" shall mean a committee of the Board of Directors, as described in Section 2(a). (e) "COMPANY" shall mean Adexa, Inc., a California corporation. (f) "CONSULTANT" shall mean a person who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors. 9 (g) "DISABILITY" shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment. (h) "EMPLOYEE" shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary. (i) "EXERCISE PRICE" shall mean the amount for which one Share may be purchased upon exercise of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement. (j) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as determined by the Board of Directors in good faith. Such determination shall be conclusive and binding on all persons. (k) "ISO" shall mean an employee incentive stock option described in Section 422(b) of the Code. (l) "NONSTATUTORY OPTION" shall mean a stock option not described in Sections 422(b) or 423(b) of the Code. (m) "OPTION" shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares. (n) "OPTIONEE" shall mean an individual who holds an Option. (o) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who is not an Employee. (p) "PARENT" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date. (q) "PLAN" shall mean this Adexa, Inc. 1998 Stock Plan. (r) "PURCHASE PRICE" shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Board of Directors. (s) "PURCHASER" shall mean an individual to whom the Board of Directors has offered the right to acquire Shares under the Plan (other than upon exercise of an Option). (t) "SERVICE" shall mean service as an Employee, Outside Director or Consultant. 10 (u) "SHARE" shall mean one share of Stock, as adjusted in accordance with Section 8 (if applicable). (v) "STOCK" shall mean the Common Stock of the Company. (w) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company and an Optionee which contains the terms, conditions and restrictions pertaining to the Optionee's Option. (x) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the Company and a Purchaser who acquires Shares under the Plan which contains the terms, conditions and restrictions pertaining to the acquisition of such Shares. (y) "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. 11 EX-10.5 6 ex-10_5.txt EXHIBIT 10.5 ADEXA, INC. 2000 STOCK INCENTIVE PLAN (AS ADOPTED EFFECTIVE August 24, 2000) TABLE OF CONTENTS
Page ARTICLE 1. INTRODUCTION.....................................................1 ARTICLE 2. ADMINISTRATION...................................................1 2.1 Committee Composition..........................................1 2.2 Committee Responsibilities.....................................1 2.3 Committee for Non-Officer Grants...............................1 ARTICLE 3. SHARES AVAILABLE FOR GRANTS......................................2 3.1 Basic Limitation...............................................2 3.2 Annual Increase in Shares......................................2 3.3 Additional Shares..............................................2 ARTICLE 4. ELIGIBILITY......................................................2 4.1 Nonstatutory Stock Options and Restricted Shares...............2 4.2 Incentive Stock Options........................................2 ARTICLE 5. OPTIONS..........................................................3 5.1 Stock Option Agreement.........................................3 5.2 Number of Shares...............................................3 5.3 Exercise Price.................................................3 5.4 Exercisability and Term........................................3 5.5 Effect of Change in Control....................................3 5.6 Modification or Assumption of Options..........................3 5.7 Buyout Provisions..............................................4 ARTICLE 6. PAYMENT FOR OPTION SHARES........................................4 6.1 General Rule...................................................4 6.2 Surrender of Stock.............................................4 6.3 Exercise/Sale..................................................4 6.4 Exercise/Pledge................................................4 6.5 Promissory Note................................................4 6.6 Other Forms of Payment.........................................5 ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS.....................5 7.1 Initial Grants.................................................5 7.2 Annual Grants..................................................5 7.3 Accelerated Exercisability.....................................5 7.4 Exercise Price.................................................5 7.5 Term...........................................................6 7.6 Affiliates of Outside Directors................................6 i ARTICLE 8. RESTRICTED SHARES................................................6 8.1 Restricted Stock Agreement.....................................6 8.2 Payment for Awards.............................................6 7.3 Vesting Conditions.............................................6 8.4 Voting and Dividend Rights.....................................6 ARTICLE 9. PROTECTION AGAINST DILUTION......................................7 9.1 Adjustments....................................................7 9.2 Dissolution or Liquidation.....................................7 9.3 Reorganizations................................................7 ARTICLE 10. DEFERRAL OF DELIVERY OF SHARES..................................7 ARTICLE 11. AWARDS UNDER OTHER PLANS........................................8 ARTICLE 12. LIMITATION ON RIGHTS............................................8 12.1 Retention Rights..............................................8 12.2 Stockholders' Rights..........................................8 12.3 Regulatory Requirements.......................................8 ARTICLE 13. WITHHOLDING TAXES...............................................8 13.1 General.......................................................8 13.2 Share Withholding.............................................9 ARTICLE 14. LIMITATION ON PAYMENTS..........................................9 14.1 Scope of Limitation...........................................9 14.2 Basic Rule....................................................9 14.3 Reduction of Payments.........................................9 14.4 Overpayments and Underpayments...............................10 14.5 Related Corporations.........................................10 ARTICLE 15. FUTURE OF THE PLAN.............................................10 15.1 Term of the Plan.............................................10 15.2 Amendment or Termination.....................................10 ARTICLE 16. DEFINITIONS....................................................11 ARTICLE 17. EXECUTION......................................................14
ii ADEXA, INC. 2000 STOCK INCENTIVE PLAN ARTICLE 1. INTRODUCTION. The Board adopted the Plan effective as of the date of the Company's initial public offering. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares or Options (which may constitute incentive stock options or nonstatutory stock options). The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except their choice-of-law provisions). ARTICLE 2. ADMINISTRATION. 2.1 COMMITTEE COMPOSITION. The Committee shall administer the Plan. The Committee shall consist exclusively of two or more directors of the Company, who shall be appointed by the Board. In addition, the composition of the Committee shall satisfy: (a) Such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and (b) Such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under section 162(m)(4)(C) of the Code. 2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the Employees, Outside Directors and Consultants who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such Awards, (c) interpret the Plan and (d) make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. 2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a secondary committee of the Board, which shall be composed of one or more directors of the Company who need not satisfy the requirements of Section 2.1. Such secondary committee may administer the Plan with respect to Employees and Consultants who are not considered officers or directors of the Company under section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and Consultants and may determine all features and conditions of such Awards. Within the limitations of this Section 2.3, any reference in the Plan to the Committee shall include such secondary committee. ARTICLE 3. SHARES AVAILABLE FOR GRANTS. 3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares. The aggregate number of Options and Restricted Shares awarded under the Plan shall not exceed (a) 2,000,000 plus (b) the aggregate number of Common Shares remaining available for grants under the Predecessor Plan on the date of the Company's initial public offering plus (c) the additional Common Shares described in Sections 3.2 and 3.3. No additional grants shall be made under the Predecessor Plan after the date of the Company's initial public offering. The limitations of this Section 3.1 and Section 3.2 shall be subject to adjustment pursuant to Article 9. 3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year, commencing with the year 2001, the aggregate number of Options and Restricted Shares that may be awarded under the Plan shall automatically increase by a number equal to the lowest of (a) 5% of the total number of Common Shares then outstanding, (b) 15,000,000 Common Shares or (c) the number determined by the Board. 3.3 ADDITIONAL SHARES. If Options granted under this Plan or the Predecessor Plan are forfeited or terminate for any other reason before being exercised, then the corresponding Common Shares shall again become available for the grant of Options or Restricted Shares under this Plan. If Common Shares issued upon the exercise of Options granted under this Plan or the Predecessor Plan are forfeited, then such Common Shares shall again become available for the grant of NSOs and Restricted Shares under this Plan. If Restricted Shares issued under this Plan or the Predecessor Plan are forfeited, then the corresponding Common Shares shall again become available for the grant of NSOs and Restricted Shares under this Plan. The aggregate number of Common Shares that may be issued under the Plan upon the exercise of ISOs shall not be increased when Restricted Shares or other Common Shares are forfeited. ARTICLE 4. ELIGIBILITY. 4.1 NONSTATUTORY STOCK OPTIONS AND RESTRICTED SHARES. Only Employees, Outside Directors and Consultants shall be eligible for the grant of NSOs and Restricted Shares. 4.2 INCENTIVE STOCK OPTIONS. Only Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, an Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(6) of the Code are satisfied. 2 ARTICLE 5. OPTIONS. 5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a reduction in the Optionee's other compensation. A Stock Option Agreement may provide that a new Option will be granted automatically to the Optionee when he or she exercises a prior Option and pays the Exercise Price in the form described in Section 6.2. 5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 9. Options granted to any Optionee in a single fiscal year of the Company shall not cover more than 2,000,000 Common Shares, except that Options granted to a new Employee in the fiscal year of the Company in which his or her service as an Employee first commences shall not cover more than 4,000,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Article 9. 5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise Price; provided that the Exercise Price under an ISO shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant and the Exercise Price under an NSO shall in no event be less than 50% of the Fair Market Value of a Common Share on the date of grant. In the case of an NSO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NSO is outstanding. 5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify the date or event when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the date of grant. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee's death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee's service. 5.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company or in the event that the Optionee is subject to an Involuntary Termination after a Change in Control. However, in the case of an ISO, the acceleration of exercisability shall not occur without the Optionee's written consent. In addition, acceleration of exercisability may be required under Section 9.3. 5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new options for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an Option shall, 3 without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. 5.7 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy out for a payment in cash or cash equivalents an Option previously granted or (b) authorize an Optionee to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish. ARTICLE 6. PAYMENT FOR OPTION SHARES. 6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash or cash equivalents at the time when such Common Shares are purchased, except as follows: (a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Article 6. (b) In the case of an NSO, the Committee may at any time accept payment in any form(s) described in this Article 6. 6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is applicable, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Common Shares that are already owned by the Optionee. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. The Optionee shall not surrender, or attest to the ownership of, Common Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes. 6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company. 6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to pledge all or part of the Common Shares being purchased under the Plan to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company. 6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) a full-recourse promissory note. However, the par value of the 4 Common Shares being purchased under the Plan, if newly issued, shall be paid in cash or cash equivalents. 6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid in any other form that is consistent with applicable laws, regulations and rules. ARTICLE 7. AUTOMATIC OPTION GRANTS TO OUTSIDE DIRECTORS. 7.1 INITIAL GRANTS. Each Outside Director who first becomes a member of the Board after the date of the Company's initial public offering shall receive a one-time grant of an NSO covering 25,000 Common Shares. Such NSO shall be granted on the date when such Outside Director first joins the Board and shall become exercisable in equal annual installments over the four-year period commencing on the date of grant. An Outside Director who previously was an Employee shall not receive a grant under this Section 7.1. 7.2 ANNUAL GRANTS. Upon the conclusion of each regular annual meeting of the Company's stockholders held in the year 2001 or thereafter, each Outside Director who will continue serving as a member of the Board thereafter shall receive an NSO covering 6,000 Common Shares, except that such NSO shall not be granted in the calendar year in which the same Outside Director received the NSO described in Section 7.1. NSOs granted under this Section 7.2 shall become exercisable in full on the first anniversary of the date of grant. An Outside Director who previously was an Employee shall be eligible to receive grants under this Section 7.2. 7.3 ACCELERATED EXERCISABILITY. An NSO granted to an Outside Director under this Article 7 may become exercisable on an accelerated basis as follows: (a) The NSO shall become exercisable in full if the Outside Director's service terminates because of his or her death, total and permanent disability or retirement at or after age 65. (b) The NSO shall become exercisable in full if (i) the Company is subject to a Change in Control before the Outside Director's service terminates, (ii) the Company does not continue the NSO and (iii) the surviving corporation or its parent or subsidiary does not assume the NSO or substitute its own option for the NSO. (c) The NSO shall become exercisable in full if (i) the Company is subject to a Change in Control and (ii) the Outside Director's service terminates for any reason at the time of the Change in Control or within 12 months after the Change in Control. 7.4 EXERCISE PRICE. The Exercise Price under all NSOs granted to an Outside Director under this Article 7 shall be equal to 100% of the Fair Market Value of a Common Share on the date of grant, payable in one of the forms described in Sections 6.1, 6.2 and 6.3. 5 7.5 TERM. All NSOs granted to an Outside Director under this Article 7 shall terminate on the earlier of (a) the 10th anniversary of the date of grant or (b) the date 12 months after the termination of such Outside Director's service for any reason. 7.6 AFFILIATES OF OUTSIDE DIRECTORS. The Committee may provide that the NSOs that otherwise would be granted to an Outside Director under this Article 7 shall instead be granted to an affiliate of such Outside Director. Such affiliate shall then be deemed to be an Outside Director for purposes of the Plan, provided that the service-related vesting and termination provisions pertaining to the NSOs shall be applied with regard to the service of the Outside Director. ARTICLE 8. RESTRICTED SHARES. 8.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under the Plan shall be evidenced by a Restricted Stock Agreement between the recipient and the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Restricted Stock Agreements entered into under the Plan need not be identical. 8.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including (without limitation) cash, cash equivalents, full-recourse promissory notes, past services and future services. To the extent that an Award consists of newly issued Restricted Shares, the consideration shall consist exclusively of cash, cash equivalents or past services rendered to the Company (or a Parent or Subsidiary) or, for the amount in excess of the par value of such newly issued Restricted Shares, full-recourse promissory notes, as the Committee may determine. 8.3 VESTING CONDITIONS. Each Award of Restricted Shares may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Agreement. A Restricted Stock Agreement may provide for accelerated vesting in the event of the Participant's death, disability or retirement or other events. The Committee may determine, at the time of granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company or in the event that the Participant is subject to an Involuntary Termination after a Change in Control. 8.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company's other stockholders. A Restricted Stock Agreement, however, may require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid. 6 ARTICLE 9. PROTECTION AGAINST DILUTION. 9.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares or a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, corresponding adjustments shall automatically be made in each of the following: (a) The number of Options and Restricted Shares available for future Awards under Article 3; (b) The limitations set forth in Section 5.2; (c) The number of Common Shares covered by each outstanding Option; or (d) The Exercise Price under each outstanding Option. In the event of a declaration of an extraordinary dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of the foregoing. Except as provided in this Article 9, a Participant shall have no rights by reason of any issuance by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. 9.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised, Options shall terminate immediately prior to the dissolution or liquidation of the Company. 9.3 REORGANIZATIONS. In the event that the Company is a party to a merger or other reorganization, outstanding Options and Restricted Shares shall be subject to the agreement of merger or reorganization. Such agreement shall provide for (a) the continuation of the outstanding Awards by the Company, if the Company is a surviving corporation, (b) the assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary, (c) the substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding Awards, (d) full exercisability or vesting and accelerated expiration of the outstanding Awards or (e) settlement of the full value of the outstanding Awards in cash or cash equivalents followed by cancellation of such Awards. ARTICLE 10. DEFERRAL OF DELIVERY OF SHARES. The Committee (in its sole discretion) may permit or require an Optionee to have Common Shares that otherwise would be delivered to such Optionee as a result of the exercise of an Option converted into amounts credited to a deferred compensation account established for such Optionee by the Committee as an entry on the Company's books. Such amounts shall be determined by reference to the Fair Market Value of such Common Shares as of the date when 7 they otherwise would have been delivered to such Optionee. A deferred compensation account established under this Article 10 may be credited with interest or other forms of investment return, as determined by the Committee. An Optionee for whom such an account is established shall have no rights other than those of a general creditor of the Company. Such an account shall represent an unfunded and unsecured obligation of the Company and shall be subject to the terms and conditions of the applicable agreement between such Optionee and the Company. If the conversion of Options is permitted or required, the Committee (in its sole discretion) may establish rules, procedures and forms pertaining to such conversion, including (without limitation) the settlement of deferred compensation accounts established under this Article 10. ARTICLE 11. AWARDS UNDER OTHER PLANS. The Company may grant awards under other plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan. Such Common Shares shall be treated for all purposes under the Plan like Restricted Shares and shall, when issued, reduce the number of Common Shares available under Article 3. ARTICLE 12. LIMITATION ON RIGHTS. 12.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve the right to terminate the service of any Employee, Outside Director or Consultant at any time, with or without cause, subject to applicable laws, the Company's certificate of incorporation and by-laws and a written employment agreement (if any). 12.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued or, in the case of an Option, the time when he or she becomes entitled to receive such Common Shares by filing a notice of exercise and paying the Exercise Price. No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan. 12.3 REGULATORY REQUIREMENTS. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. ARTICLE 13. WITHHOLDING TAXES. 13.1 GENERAL. To the extent required by applicable federal, state, local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the 8 Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Shares or make any cash payment under the Plan until such obligations are satisfied. 13.2 SHARE WITHHOLDING. To the extent that applicable law subjects a Participant to tax withholding obligations, the Committee may permit such Participant to satisfy all or part of such obligations by having the Company withhold all or a portion of any Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when they are withheld or surrendered. ARTICLE 14. LIMITATION ON PAYMENTS. 14.1 SCOPE OF LIMITATION. This Article 14 shall apply to an Award only if: (a) The independent auditors most recently selected by the Board (the "Auditors") determine that the after-tax value of such Award to the Participant, taking into account the effect of all federal, state and local income taxes, employment taxes and excise taxes applicable to the Participant (including the excise tax under section 4999 of the Code), will be greater after the application of this Article 14 than it was before the application of this Article 14; or (b) The Committee, at the time of making an Award under the Plan or at any time thereafter, specifies in writing that such Award shall be subject to this Article 14 (regardless of the after-tax value of such Award to the Participant). If this Article 14 applies to an Award, it shall supersede any contrary provision of the Plan or of any Award granted under the Plan. 14.2 BASIC RULE. In the event that the Auditors determine that any payment or transfer by the Company under the Plan to or for the benefit of a Participant (a "Payment") would be nondeductible by the Company for federal income tax purposes because of the provisions concerning "excess parachute payments" in section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount. For purposes of this Article 14, the "Reduced Amount" shall be the amount, expressed as a present value, which maximizes the aggregate present value of the Payments without causing any Payment to be nondeductible by the Company because of section 280G of the Code. 14.3 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment would be nondeductible by the Company because of section 280G of the Code, then the Company shall promptly give the Participant notice to that effect and a copy of the detailed calculation thereof and of the Reduced Amount, and the Participant may then elect, in his or her sole discretion, which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall advise the Company in writing of his or her election within 10 days of receipt of notice. If 9 no such election is made by the Participant within such 10-day period, then the Company may elect which and how much of the Payments shall be eliminated or reduced (as long as after such election the aggregate present value of the Payments equals the Reduced Amount) and shall notify the Participant promptly of such election. For purposes of this Article 14, present value shall be determined in accordance with section 280G(d)(4) of the Code. All determinations made by the Auditors under this Article 14 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit of the Participant in the future such amounts as become due to him or her under the Plan. 14.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the application of section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not have been made (an "Overpayment") or that additional Payments which will not have been made by the Company could have been made (an "Underpayment"), consistent in each case with the calculation of the Reduced Amount hereunder. In the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant which the Auditors believe has a high probability of success, determine that an Overpayment has been made, such Overpayment shall be treated for all purposes as a loan to the Participant which he or she shall repay to the Company, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code; provided, however, that no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount which is subject to taxation under section 4999 of the Code. In the event that the Auditors determine that an Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code. 14.5 RELATED CORPORATIONS. For purposes of this Article 14, the term "Company" shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code. ARTICLE 15. FUTURE OF THE PLAN. 15.1 TERM OF THE PLAN. The Plan, as set forth herein, shall become effective on the date of the Company's initial public offering. The Plan shall remain in effect until it is terminated under Section 15.2, except that no ISOs shall be granted on or after the 10th anniversary of the later of (a) the date when the Board adopted the Plan or (b) the date when the Board adopted the most recent increase in the number of Common Shares available under Article 3 which was approved by the Company's stockholders. 15.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any reason, amend or terminate the Plan. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by applicable laws, regulations or rules. No Awards shall be granted under the Plan after the termination thereof. The termination 10 of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan. ARTICLE 16. DEFINITIONS. 16.1 "AFFILIATE" means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity. 16.2 "AWARD" means any award of an Option or a Restricted Share under the Plan. 16.3 "BOARD" means the Company's Board of Directors, as constituted from time to time. 16.4 "CAUSE" means (a) the unauthorized use or disclosure of the confidential information or trade secrets of the Company, which use or disclosure causes material harm to the Company, (b) conviction of, or a plea of "guilty" or "no contest" to, a felony under the laws of the United States or any State thereof, (c) gross negligence, (d) willful misconduct or (e) a failure to perform assigned duties that continues after the Participant has received written notice of such failure from the Board. The foregoing, however, shall not be deemed an exclusive list of all acts or omissions that the Company (or the Parent, Subsidiary or Affiliate employing the Participant) may consider as grounds for the discharge of the Participant without Cause. 16.5 "CHANGE IN CONTROL" means: (a) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of each of (i) the continuing or surviving entity and (ii) any direct or indirect parent corporation of such continuing or surviving entity; (b) The sale, transfer or other disposition of all or substantially all of the Company's assets; (c) A change in the composition of the Board, as a result of which less than a majority of the incumbent directors are directors who either (i) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the "original directors") or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; or (d) Any transaction as a result of which any person is the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or 11 indirectly, of securities of the Company representing at least 50% of the total voting power represented by the Company's then outstanding voting securities. For purposes of this Subsection (d), the term "person" shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company. A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company's incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company's securities immediately before such transaction. 16.6 "CODE" means the Internal Revenue Code of 1986, as amended. 16.7 "COMMITTEE" means a committee of the Board, as described in Article 2. 16.8 "COMMON SHARE" means one share of the common stock of the Company. 16.9 "COMPANY" means Adexa, Inc., a Delaware corporation. 16.10 "CONSULTANT" means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor. Service as a Consultant shall be considered employment for all purposes of the Plan, except as provided in Section 4.2. 16.11 "EMPLOYEE" means a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate. 16.12 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. 16.13 "EXERCISE PRICE" means the amount for which one Common Share may be purchased upon exercise of an Option, as specified in the applicable Stock Option Agreement. 16.14 "FAIR MARKET VALUE" means the market price of Common Shares, determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in THE WALL STREET JOURNAL. Such determination shall be conclusive and binding on all persons. 16.15 "INVOLUNTARY TERMINATION" means the termination of the Participant's service by reason of: (a) The involuntary discharge of the Participant by the Company (or the Parent, Subsidiary or Affiliate employing him or her) for reasons other than Cause; or 12 (b) The voluntary resignation of the Participant following (i) a material adverse change in his or her title, stature, authority or responsibilities with the Company (or the Parent, Subsidiary or Affiliate employing him or her), (ii) a material reduction in his or her base salary or (iii) receipt of notice that his or her principal workplace will be relocated by more than 30 miles. 16.16 "ISO" means an incentive stock option described in section 422(b) of the Code. 16.17 "NSO" means a stock option not described in sections 422 or 423 of the Code. 16.18 "OPTION" means an ISO or NSO granted under the Plan and entitling the holder to purchase Common Shares. 16.19 "OPTIONEE" means an individual or estate who holds an Option. 16.20 "OUTSIDE DIRECTOR" means a member of the Board who is not an Employee. Service as an Outside Director shall be considered employment for all purposes of the Plan, except as provided in Section 4.2. 16.21 "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date. 16.22 "PARTICIPANT" means an individual or estate who holds an Award. 16.23 "PLAN" means this Adexa, Inc. 2000 Stock Incentive Plan, as amended from time to time. 16.24 "PREDECESSOR PLAN" means the Adexa, Inc. 1998 Stock Plan, as amended from time to time. 16.25 "RESTRICTED SHARE" means a Common Share awarded under the Plan. 16.26 "RESTRICTED STOCK AGREEMENT" means the agreement between the Company and the recipient of a Restricted Share that contains the terms, conditions and restrictions pertaining to such Restricted Share. 16.27 "STOCK OPTION AGREEMENT" means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her Option. 16.28 "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other 13 than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date. ARTICLE 17. EXECUTION. To record the adoption of the Plan by the Board on August 24, 2000, the Company has caused its duly authorized officer to execute this document in the name of the Company. ADEXA, INC. By: /s/ J. Timothy Romer ------------------------------- Title: Chief Financial Officer ---------------------------- 14 EX-10.6 7 ex-10_6.txt EXHIBIT 10.6 ADEXA, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN (AS ADOPTED EFFECTIVE August 24, 2000) TABLE OF CONTENTS
PAGE SECTION 1. PURPOSE OF THE PLAN..............................................1 SECTION 2. ADMINISTRATION OF THE PLAN.......................................1 (a) Committee Composition..........................................1 (b) Committee Responsibilities.....................................1 SECTION 3. ENROLLMENT AND PARTICIPATION.....................................1 (a) Offering Periods...............................................1 (b) Accumulation Periods...........................................1 (c) Enrollment.....................................................1 (d) Duration of Participation......................................2 (e) Applicable Offering Period.....................................2 SECTION 4. EMPLOYEE CONTRIBUTIONS...........................................2 (a) Frequency of Payroll Deductions................................2 (b) Amount of Payroll Deductions...................................2 (c) Changing Withholding Rate......................................3 (d) Discontinuing Payroll Deductions...............................3 (e) Limit on Number of Elections...................................3 SECTION 5. WITHDRAWAL FROM THE PLAN.........................................3 (a) Withdrawal.....................................................3 (b) Re-Enrollment After Withdrawal.................................3 SECTION 6. CHANGE IN EMPLOYMENT STATUS......................................3 (a) Termination of Employment......................................3 (b) Leave of Absence...............................................3 (c) Death..........................................................4 SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.............................4 (a) Plan Accounts..................................................4 (b) Purchase Price.................................................4 (c) Number of Shares Purchased.....................................4 (d) Available Shares Insufficient..................................4 (e) Issuance of Stock..............................................4 (f) Tax Withholding................................................5 (g) Unused Cash Balances...........................................5 (h) Stockholder Approval...........................................5 SECTION 8. LIMITATIONS ON STOCK OWNERSHIP...................................5 (a) Five Percent Limit.............................................5 (b) Dollar Limit...................................................5 i SECTION 9. RIGHTS NOT TRANSFERABLE..........................................6 SECTION 10. NO RIGHTS AS AN EMPLOYEE........................................6 SECTION 11. NO RIGHTS AS A STOCKHOLDER......................................7 SECTION 12. SECURITIES LAW REQUIREMENTS.....................................7 SECTION 13. STOCK OFFERED UNDER THE PLAN....................................7 (a) Authorized Shares..............................................7 (b) Anti-Dilution Adjustments......................................7 (c) Reorganizations................................................7 SECTION 14. AMENDMENT OR DISCONTINUANCE.....................................7 SECTION 15. DEFINITIONS.....................................................8 (a) Accumulation Period............................................8 (b) Board..........................................................8 (c) Code...........................................................8 (d) Committee......................................................8 (e) Company........................................................8 (f) Compensation...................................................8 (g) Corporate Reorganization.......................................8 (h) Eligible Employee..............................................8 (i) Exchange Act...................................................8 (j) Fair Market Value..............................................8 (k) IPO............................................................9 (l) Offering Period................................................9 (m) Participant....................................................9 (n) Participating Company..........................................9 (o) Plan...........................................................9 (p) Plan Account...................................................9 (q) Purchase Price.................................................9 (r) Stock..........................................................9 (s) Subsidiary.....................................................9 SECTION 16. EXECUTION......................................................10
ii ADEXA, INC. 2000 EMPLOYEE STOCK PURCHASE PLAN SECTION 1. PURPOSE OF THE PLAN. The Board adopted the Plan effective as of the date of the IPO. The purpose of the Plan is to provide Eligible Employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing Stock from the Company on favorable terms and to pay for such purchases through payroll deductions. The Plan is intended to qualify under section 423 of the Code. SECTION 2. ADMINISTRATION OF THE PLAN. (a) COMMITTEE COMPOSITION. The Committee shall administer the Plan. The Committee shall consist exclusively of one or more directors of the Company, who shall be appointed by the Board. (b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan and make all other policy decisions relating to the operation of the Plan. The Committee may adopt such rules, guidelines and forms as it deems appropriate to implement the Plan. The Committee's determinations under the Plan shall be final and binding on all persons. SECTION 3. ENROLLMENT AND PARTICIPATION. (a) OFFERING PERIODS. While the Plan is in effect, two overlapping Offering Periods shall commence in each calendar year. The Offering Periods shall consist of the 24-month periods commencing on each May 1 and November 1, except that the first Offering Period shall commence on the date of the IPO and end on October 31, 2002. (b) ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation Periods shall commence in each calendar year. The Accumulation Periods shall consist of the six-month periods commencing on each May 1 and November 1, except that the first Accumulation Period shall commence on the date of the IPO and end on April 30, 2001. (c) ENROLLMENT. Any individual who, on the day preceding the first day of an Offering Period, qualifies as an Eligible Employee may elect to become a Participant in the Plan for such Offering Period by executing the enrollment form prescribed for this purpose by the Committee. The enrollment form shall be filed with the Company at the prescribed location not later than 10 business days prior to the commencement of such Offering Period, except that the Company may announce a deadline that is less than 10 business days prior to the commencement of the first Offering Period. (d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant shall continue to participate in the Plan until he or she ceases to be an Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end of the Accumulation Period in which his or her employee contributions were discontinued under Section 4(d) or 8(b). A Participant who discontinued employee contributions under Section 4(d) or withdrew from the Plan under Section 5(a) may again become a Participant, if he or she then is an Eligible Employee, by following the procedure described in Subsection (c) above. A Participant whose employee contributions were discontinued automatically under Section 8(b) shall automatically resume participation at the beginning of the earliest Accumulation Period ending in the next calendar year, if he or she then is an Eligible Employee. (e) APPLICABLE OFFERING PERIOD. For purposes of calculating the Purchase Price under Section 7(b), the applicable Offering Period shall be determined as follows: (i) Once a Participant is enrolled in the Plan for an Offering Period, such Offering Period shall continue to apply to him or her until the earliest of (A) the end of such Offering Period, (B) the end of his or her participation under Subsection (d) above or (C) re-enrollment for a subsequent Offering Period under Paragraph (ii) or (iii) below. (ii) In the event that the Fair Market Value of Stock on the last trading day before the commencement of the Offering Period for which the Participant is enrolled is higher than on the last trading day before the commencement of any subsequent Offering Period, the Participant shall automatically be re-enrolled for such subsequent Offering Period. (iii) Any other provision of the Plan notwithstanding, the Company (at its sole discretion) may determine prior to the commencement of any new Offering Period that all Participants shall be re-enrolled for such new Offering Period. (iv) When a Participant reaches the end of an Offering Period but his or her participation is to continue, then such Participant shall automatically be re-enrolled for the Offering Period that commences immediately after the end of the prior Offering Period. SECTION 4. EMPLOYEE CONTRIBUTIONS. (a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares of Stock under the Plan solely by means of payroll deductions. Payroll deductions, as designated by the Participant pursuant to Subsection (b) below, shall occur on each payday during participation in the Plan. (b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate on the enrollment form the portion of his or her Compensation that he or she elects to have withheld for the purchase of Stock. Such portion shall be a whole percentage of the Eligible Employee's Compensation, but not less than 1% nor more than 15%. 2 (c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the rate of payroll withholding, he or she may do so by filing a new enrollment form with the Company at the prescribed location at any time. The new withholding rate shall be effective as soon as reasonably practicable after the Company has received such form. The new withholding rate shall be a whole percentage of the Eligible Employee's Compensation, but not less than 1% nor more than 15%. (d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to discontinue employee contributions entirely, he or she may do so by filing a new enrollment form with the Company at the prescribed location at any time. Payroll withholding shall cease as soon as reasonably practicable after the Company has received such form. (In addition, employee contributions may be discontinued automatically pursuant to Section 8(b).) A Participant who has discontinued employee contributions may resume such contributions by filing a new enrollment form with the Company at the prescribed location. Payroll withholding shall resume as soon as reasonably practicable after the Company has received such form. (e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than two elections under Subsection (c) or (d) above during any Accumulation Period. SECTION 5. WITHDRAWAL FROM THE PLAN. (a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by filing the prescribed form with the Company at the prescribed location at any time before the last day of an Accumulation Period. As soon as reasonably practicable thereafter, payroll deductions shall cease and the entire amount credited to the Participant's Plan Account shall be refunded to him or her in cash, without interest. No partial withdrawals shall be permitted. (b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has withdrawn from the Plan shall not be a Participant until he or she re-enrolls in the Plan under Section 3(c). Re-enrollment may be effective only at the commencement of an Offering Period. SECTION 6. CHANGE IN EMPLOYMENT STATUS. (a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible Employee for any reason, including death, shall be treated as an automatic withdrawal from the Plan under Section 5(a). (A transfer from one Participating Company to another shall not be treated as a termination of employment.) (b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be deemed to terminate when the Participant goes on a military leave, a sick leave or another BONA FIDE leave of absence, if the leave was approved by the Company in writing. Employment, however, shall be deemed to terminate 90 days after the Participant goes on a leave, unless a contract or statute guarantees his or her right to return to work. Employment shall be deemed to terminate in any event when the approved leave ends, unless the Participant immediately returns to work. 3 (c) DEATH. In the event of the Participant's death, the amount credited to his or her Plan Account shall be paid to a beneficiary designated by him or her for this purpose on the prescribed form or, if none, to the Participant's estate. Such form shall be valid only if it was filed with the Company at the prescribed location before the Participant's death. SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES. (a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on its books in the name of each Participant. Whenever an amount is deducted from the Participant's Compensation under the Plan, such amount shall be credited to the Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust funds and may be commingled with the Company's general assets and applied to general corporate purposes. No interest shall be credited to Plan Accounts. (b) PURCHASE PRICE. The Purchase Price for each share of Stock purchased at the close of an Accumulation Period shall be the lower of: (i) 85% of the Fair Market Value of such share on the last trading day in such Accumulation Period; or (ii) 85% of the Fair Market Value of such share on the last trading day before the commencement of the applicable Offering Period (as determined under Section 3(e)) or, in the case of the first Offering Period under the Plan, 85% of the price at which one share of Stock is offered to the public in the IPO. (c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation Period, each Participant shall be deemed to have elected to purchase the number of shares of Stock calculated in accordance with this Subsection (c), unless the Participant has previously elected to withdraw from the Plan in accordance with Section 5(a). The amount then in the Participant's Plan Account shall be divided by the Purchase Price, and the number of shares that results shall be purchased from the Company with the funds in the Participant's Plan Account. The foregoing notwithstanding, no Participant shall purchase more than 5,000 shares of Stock with respect to any Accumulation Period nor more than the amounts of Stock set forth in Sections 8(b) and 13(a). The Committee may determine with respect to all Participants that any fractional share, as calculated under this Subsection (c), shall be (i) rounded down to the next lower whole share or (ii) credited as a fractional share. (d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate number of shares that all Participants elect to purchase during an Accumulation Period exceeds the maximum number of shares remaining available for issuance under Section 13(a), then the number of shares to which each Participant is entitled shall be determined by multiplying the number of shares available for issuance by a fraction. The numerator of such fraction is the number of shares that such Participant has elected to purchase, and the denominator of such fraction is the number of shares that all Participants have elected to purchase. (e) ISSUANCE OF STOCK. Certificates representing the shares of Stock purchased by a Participant under the Plan shall be issued to him or her as soon as reasonably 4 practicable after the close of the applicable Accumulation Period, except that the Committee may determine that such shares shall be held for each Participant's benefit by a broker designated by the Committee (unless the Participant has elected that certificates be issued to him or her). Shares may be registered in the name of the Participant or jointly in the name of the Participant and his or her spouse as joint tenants with right of survivorship or as community property. (f) TAX WITHHOLDING. To the extent required by applicable federal, state, local or foreign law, a Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any shares of Stock under the Plan until such obligations are satisfied. (g) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan Account that represents the Purchase Price for any fractional share shall be carried over in the Participant's Plan Account to the next Accumulation Period. Any amount remaining in the Participant's Plan Account that represents the Purchase Price for whole shares that could not be purchased by reason of Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the Participant in cash, without interest. (h) STOCKHOLDER APPROVAL. Any other provision of the Plan notwithstanding, no shares of Stock shall be purchased under the Plan unless and until the Company's stockholders have approved the adoption of the Plan. SECTION 8. LIMITATIONS ON STOCK OWNERSHIP. (a) FIVE PERCENT LIMIT. Any other provision of the Plan notwithstanding, no Participant shall be granted a right to purchase Stock under the Plan if such Participant, immediately after his or her election to purchase such Stock, would own stock possessing more than 5% of the total combined voting power or value of all classes of stock of the Company or any parent or Subsidiary of the Company. For purposes of this Subsection (a), the following rules shall apply: (i) Ownership of stock shall be determined after applying the attribution rules of section 424(d) of the Code; (ii) Each Participant shall be deemed to own any stock that he or she has a right or option to purchase under this or any other plan; and (iii) Each Participant shall be deemed to have the right to purchase 5,000 shares of Stock under this Plan with respect to each Accumulation Period. (b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no Participant shall purchase Stock with a Fair Market Value in excess of the following limit: (i) In the case of Stock purchased during an Offering Period that commenced in the current calendar year, the limit shall be equal to (A) $25,000 minus (B) the Fair Market Value of the Stock that the Participant previously 5 purchased in the current calendar year (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company). (ii) In the case of Stock purchased during an Offering Period that commenced in the immediately preceding calendar year, the limit shall be equal to (A) $50,000 minus (B) the Fair Market Value of the Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the immediately preceding calendar year. (iii) In the case of Stock purchased during an Offering Period that commenced in the second preceding calendar year, the limit shall be equal to (A) $75,000 minus (B) the Fair Market Value of the Stock that the Participant previously purchased (under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company) in the current calendar year and in the two preceding calendar years. For purposes of this Subsection (b), the Fair Market Value of Stock shall be determined in each case as of the beginning of the Offering Period in which such Stock is purchased. Employee stock purchase plans not described in section 423 of the Code shall be disregarded. If a Participant is precluded by this Subsection (b) from purchasing additional Stock under the Plan, then his or her employee contributions shall automatically be discontinued and shall resume at the beginning of the earliest Accumulation Period ending in the next calendar year (if he or she then is an Eligible Employee). SECTION 9. RIGHTS NOT TRANSFERABLE. The rights of any Participant under the Plan, or any Participant's interest in any Stock or moneys to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or in any other manner other than by beneficiary designation or the laws of descent and distribution. If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than by beneficiary designation or the laws of descent and distribution, then such act shall be treated as an election by the Participant to withdraw from the Plan under Section 5(a). SECTION 10. NO RIGHTS AS AN EMPLOYEE. Nothing in the Plan or in any right granted under the Plan shall confer upon the Participant any right to continue in the employ of a Participating Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Participating Companies or of the Participant, which rights are hereby expressly reserved by each, to terminate his or her employment at any time and for any reason, with or without cause. 6 SECTION 11. NO RIGHTS AS A STOCKHOLDER. A Participant shall have no rights as a stockholder with respect to any shares of Stock that he or she may have a right to purchase under the Plan until such shares have been purchased on the last day of the applicable Accumulation Period. SECTION 12. SECURITIES LAW REQUIREMENTS. Shares of Stock shall not be issued under the Plan unless the issuance and delivery of such shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company's securities may then be traded. SECTION 13. STOCK OFFERED UNDER THE PLAN. (a) AUTHORIZED SHARES. The number of shares of Stock available for purchase under the Plan shall be 750,000 (subject to adjustment pursuant to this Section 13). On May 1 of each year, commencing with May 1, 2001, the aggregate number of shares of Stock available for purchase during the life of the Plan shall automatically be increased by the number of shares necessary to cause the number of shares then available for purchase to be restored to 750,000 (subject to adjustment pursuant to this Section 13). (b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock offered under the Plan, the 5,000-share limitation described in Section 7(c) and the price of shares that any Participant has elected to purchase shall be adjusted proportionately by the Committee for any increase or decrease in the number of outstanding shares of Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend, any other increase or decrease in such shares effected without receipt or payment of consideration by the Company, the distribution of the shares of a Subsidiary to the Company's stockholders or a similar event. (c) REORGANIZATIONS. Any other provision of the Plan notwithstanding, immediately prior to the effective time of a Corporate Reorganization, the Offering Period and Accumulation Period then in progress shall terminate and shares shall be purchased pursuant to Section 7, unless the Plan is continued or assumed by the surviving corporation or its parent corporation. The Plan shall in no event be construed to restrict in any way the Company's right to undertake a dissolution, liquidation, merger, consolidation or other reorganization. SECTION 14. AMENDMENT OR DISCONTINUANCE. The Board shall have the right to amend, suspend or terminate the Plan at any time and without notice. Except as provided in Section 13, any increase in the aggregate number of shares of Stock to be issued under the Plan shall be subject to approval by a vote of the stockholders of the Company. In addition, any other amendment of the Plan shall be subject to approval by a vote of the stockholders of the Company to the extent required by an applicable 7 law or regulation. The Plan shall terminate automatically 20 years after its adoption by the Board, unless (a) the Plan is extended by the Board and (b) the extension is approved within 12 months by a vote of the stockholders of the Company. SECTION 15. DEFINITIONS. (a) "ACCUMULATION PERIOD" means a six-month period during which contributions may be made toward the purchase of Stock under the Plan, as determined pursuant to Section 3(b). (b) "BOARD" means the Board of Directors of the Company, as constituted from time to time. (c) "CODE" means the Internal Revenue Code of 1986, as amended. (d) "COMMITTEE" means a committee of the Board, as described in Section 2. (e) "COMPANY" means Adexa, Inc., a Delaware corporation. (f) "COMPENSATION" means (i) the total compensation paid in cash to a Participant by a Participating Company, including salaries, wages, bonuses, incentive compensation, commissions, overtime pay and shift premiums, plus (ii) any pre-tax contributions made by the Participant under section 401(k) or 125 of the Code. "Compensation" shall exclude all non-cash items, moving or relocation allowances, cost-of-living equalization payments, car allowances, tuition reimbursements, imputed income attributable to cars or life insurance, severance pay, fringe benefits, contributions or benefits received under employee benefit plans, income attributable to the exercise of stock options, and similar items. The Committee shall determine whether a particular item is included in Compensation. (g) "CORPORATE REORGANIZATION" means: (i) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization; or (ii) The sale, transfer or other disposition of all or substantially all of the Company's assets or the complete liquidation or dissolution of the Company. (h) "ELIGIBLE EMPLOYEE" means any employee of a Participating Company whose customary employment is for more than five months per calendar year and for more than 20 hours per week. The foregoing notwithstanding, an individual shall not be considered an Eligible Employee if his or her participation in the Plan is prohibited by the law of any country which has jurisdiction over him or her or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan. (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (j) "FAIR MARKET VALUE" means the market price of Stock, determined by the Committee as follows: 8 (i) If the Stock was traded on The Nasdaq National Market or The Nasdaq SmallCap Market on the date in question, then the Fair Market Value shall be equal to the last-transaction price quoted for such date by such Market; (ii) If the Stock was traded on a stock exchange on the date in question, then the Fair Market Value shall be equal to the closing price reported by the applicable composite transactions report for such date; or (iii) If none of the foregoing provisions is applicable, then the Committee shall determine the Fair Market Value in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in THE WALL STREET JOURNAL or as reported directly to the Company by Nasdaq or a stock exchange. Such determination shall be conclusive and binding on all persons. (k) "IPO" means the initial offering of Stock to the public pursuant to a registration statement filed by the Company with the Securities and Exchange Commission. (l) "OFFERING PERIOD" means a 24-month period with respect to which the right to purchase Stock may be granted under the Plan, as determined pursuant to Section 3(a). (m) "PARTICIPANT" means an Eligible Employee who elects to participate in the Plan, as provided in Section 3(c). (n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each present or future Subsidiary designated by the Committee as a Participating Company. (o) "PLAN" means this Adexa, Inc. 2000 Employee Stock Purchase Plan, as it may be amended from time to time. (p) "PLAN ACCOUNT" means the account established for each Participant pursuant to Section 7(a). (q) "PURCHASE PRICE" means the price at which Participants may purchase Stock under the Plan, as determined pursuant to Section 7(b). (r) "STOCK" means the Common Stock of the Company. (s) "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 9 SECTION 16. EXECUTION. To record the adoption of the Plan by the Board on August 24, 2000, the Company has caused its duly authorized officer to execute this document in the name of the Company. ADEXA, INC. By: /s/ J. Timothy Romer -------------------------------- Title: Chief Financial Officer ----------------------------- 10 EX-10.7 8 ex-10_7.txt EXHIBIT 10.7 LOAN, PLEDGE AND OPTION AGREEMENT THIS LOAN, PLEDGE AND OPTION AGREEMENT (the "Agreement") is made as of July 31, 1997 between PARAGON MANAGEMENT SYSTEMS, INC., a California corporation ("Lender" or the "Company"), K. CYRUS HADAVI ("Borrower") and MANATT, PHELPS & PHILLIPS, LLP ("Pledgeholder"), and provides as follows: RECITALS A. Borrower desires to borrow Two Hundred Thousand Dollars ($200,000.00) from Lender on the terms and subject to the conditions of this Agreement. B. To induce Lender to make the loan, Borrower desires to pledge and grant to Lender a security interest in certain assets of Borrower, as more fully described herein. C. Borrower also desires to provide Lender an option to purchase certain capital stock owned by Borrower, upon the occurrence of certain events, as more fully described below. D. The parties desire Pledgeholder to secure the Collateral and perform other functions, as more fully described below. THE PARTIES AGREE AS FOLLOWS: 1. LOAN. 1.1 ADVANCE OF FUNDS. Subject to the terms and conditions of this Agreement Lender hereby loans to Borrower and Borrower hereby borrows the amount of Two Hundred Thousand Dollars ($200,000.00) (the "Loan") which Loan shall be evidenced by a Promissory Note in the form attached hereto as Exhibit A (the "Note"). 1.2 LIMITATION ON RECOURSE. In the event of any breach or default by Borrower of his obligations under this Agreement or the Note, and notwithstanding any other provision of this Agreement or the Note to the contrary, the sole recourse of Lender shall be the Collateral (as such term is defined in Section 2.1 hereof), and neither Borrower nor any person liable by, through or under Borrower shall be personally liable therefor, nor shall any of the property or assets of Borrower or of any such person, other than the Collateral, be subject to garnishment, attachment or other process for the enforcement of judgments or the collection of debts, except that the foregoing limitations shall not apply to any breach or default concerning any representation or warranty of Borrower or of any covenant of Borrower concerning the ownership of or transfer of any interest in the Collateral. This paragraph shall take priority over and be deemed to modify and supersede any inconsistent provision contained in this Agreement or the Note, and any such provision shall be null and void to the extent of the inconsistency. 1.3 ACCELERATION. Lender may, at its option and in its sole discretion, declare the then outstanding principal balance of the Loan, together with all accrued and unpaid interest thereon, to be immediately due and payable if any of the following (each of which is referred to herein as an "Event of Default") shall occur: 1. (a) the failure of Borrower to pay any amount under the Note when due, and upon written notice thereof given to Borrower, if such failure shall not have been cured or waived within ten (10) business days of such notice; (b) the commencement of any proceeding against Borrower in bankruptcy, or otherwise seeking any reorganization, arrangement or similar relief, or the appointment of a receiver, trustee, or liquidator to take possession of the assets of Borrower, or the commencement of any other proceeding under any law for the relief of creditors; (c) any assignment by Borrower for the benefit of Borrower's creditors; or (d) any other breach by Borrower of any of Borrower's representations, warranties or obligations under this Agreement which is not cured to the satisfaction of Lender within thirty (30) days after notice of such breach is deemed given pursuant to Section 6.6. 2. PLEDGE AS SECURITY. 2.1 PLEDGE AND GRANT OF SECURITY INTEREST. As security for all of Borrower's obligations and liabilities to Lender whether now existing or hereafter arising under this Agreement (the "Obligations"), Borrower hereby assigns as security and pledges to Lender One Million Six Hundred Ninety Four Thousand Nine Hundred Twenty (1,694,920) shares (the "Shares") of the Common Stock of Lender owned by Borrower, and grants Lender a security interest in Borrower's right, title and interest in and to the Shares, the proceeds (from disposition or otherwise) thereof and all proceeds (from disposition or otherwise) of the proceeds (collectively the "Collateral"). Borrower agrees to take such additional actions (including, without limitation, the filing of a Form UCC-1) as may be necessary or advisable at the reasonable request of Lender to perfect and continue Lender's security interest in the Collateral. 2.2 STOCK DISTRIBUTIONS AND ADJUSTMENTS OF COLLATERAL. If, during the term of this Agreement, any stock or other non-cash distribution, dividend, stock split, reclassification, readjustment, exchange, substitution or other change is declared or made in the capital structure of Lender, or there is any merger, consolidation, reorganization or sale of all or substantially all of the assets of Lender pursuant to which holders of Common Stock of Lender are entitled to receive cash, securities or other property (a "Reorganization"), all new, substituted and additional shares of stock or other securities or property issued by reason of any such change or Reorganization shall be immediately delivered by Borrower to Pledgeholder (as defined in Section 4.1), together with duly executed assignment(s) separate from certificate or other appropriate transfer and title documents, to be held by Pledgeholder in the same manner as the Shares originally pledged hereunder, and hereafter the term "Shares" or "Collateral" shall include such cash securities or property. Furthermore, after such event, all references to prices, number of Shares or number of shares of Common Stock of Lender in this Agreement shall be adjusted to give effect to such event. 2.3 RELEASE OF COLLATERAL. Lender and Borrower mutually acknowledge that the number of Shares pledged to secure the Loan is based on a fair market value equal to One Dollar 2. and Eighteen Cents ($1.18) per Share, as determined by the parties. Notwithstanding the fact that the Company's Board of Directors may determine at any time that the fair market value of shares of Common Stock of the Company is in excess of such amount, Pledgeholder (as such term is defined in Section 4.1 hereof) shall retain all Shares as Collateral. 2.4 SUBSTITUTION OF COLLATERAL. Borrower may substitute at any time, and from time to time, any Collateral, with the prior written consent of Lender, such consent to be given or withheld in Lender's sole discretion. 2.5 SALE OF COLLATERAL. In the event of the nonpayment of any Obligations when due, whether by acceleration or otherwise, or upon the happening of any Event of Default, Lender may then, or at any time thereafter, at its election, apply, set off, collect or sell in one or more sales, or take such steps as may be necessary to liquidate and reduce to cash in the hands of Lender in whole or in part, with or without any previous demands or demand of performance or notice or advertisement, the whole or any part of the Collateral in such order as Lender may elect and any such sale may be made either at public or private sale at its place of business or elsewhere, or at any broker's board or securities exchange, either for cash or upon credit or for future delivery. Lender-may be the purchaser of any or all Collateral so sold and hold the same thereafter in its own right free from any claim of Borrower or right of redemption. Demands of performance, notices of sale, advertisements and presence of property at sale are hereby waived. 3. OPTION. 3.1 OPTION TO PURCHASE SHARES. At any time from and after the date the Borrower terminates service as an employee of or director or consultant to the Company until repayment of the Loan and all accrued interest, Lender shall have the right and option (the "Option"), exercisable at its sole discretion by giving written notice to Borrower (with a copy to Pledgeholder), to purchase from Borrower the Shares (plus any additional stock of the Company, cash, securities or other property receivable on account thereof as a result of any distribution, dividend, stock split, reclassification, readjustment, exchange, substitution. Reorganization or similar transaction with respect to such Shares since the date hereof) for an aggregate price of Two Hundred Thousand Dollars ($200,000.00) (the "Purchase Price"). The Purchase Price may be paid by applying and setting off dollar for dollar the unpaid balance of principal and interest under the Note (whether or not then due and payable), with any remaining balance to be paid in cash. Lender shall have full power and authority to take any and all steps in the name of the Lender or of Borrower to complete the transfer of such Shares to Lender free of any rights of Borrower or any person claiming by, through or under Borrower, including, without limitation, delivery to the Lender of stock certificates representing such Shares and Assignments Separate from Certificate as delivered by Borrower pursuant to Section 4.1 below. 3. 4. PLEDGE. 4.1 APPOINTMENT OF PLEDGEHOLDER. Lender hereby appoints Manatt, Phelps & Phillips, LLP as "Pledgeholder" to accept and hold the deliveries described below on its behalf. To assure Borrower's ability to perform Borrower's Obligations under this Agreement, Borrower will, concurrently with the delivery of this Agreement, deliver Stock Certificate No(s). _________, together with duly executed blank Assignments Separate from Certificate (in the form attached hereto as Exhibit B) for such Certificate(s), to Pledgeholder, such Assignments to be held in pledge (the "Pledge") pursuant to the terms of this Section 4. 4.2 DUTIES AFTER AN EVENT OF DEFAULT OR OPTION EXERCISE. (a) Pledgeholder shall have no duty to determine the existence of an Event of Default and shall, subject to Section 4.15, without any liability whatsoever, rely upon the written notice of Lender that an Event of Default has occurred. If, following an Event of Default, Lender shall elect to exercise its right to realize on the Shares, Pledgeholder shall, upon the receipt of written notice from Lender (with a copy to Borrower), subject to Section 4.15, deliver possession of the Collateral to Lender, without warranty. Following an Event of Default, Pledgeholder shall dispose of the Collateral other than the Shares in accordance with written instructions of Lender. (b) If Lender exercises the Option pursuant to Section 3.1, Pledgeholder shall, upon the receipt of written notice of the exercise of the Option and delivery of payment in full of the Purchase Price, by any means provided in Section 3.1, deliver possession of the Shares to Lender and, if applicable, deliver the purchase funds to Borrower without warranty in either case. 4.3 ATTORNEY-IN-FACT; ADDITIONAL STOCK ASSIGNMENTS. Borrower hereby irrevocably constitutes and appoints Pledgeholder as Borrower's attorney-in-fact and agent for the term of this Pledge to execute, with respect to such securities or other Collateral as are deposited with Pledgeholder hereunder, all documents necessary or appropriate to make such securities or other Collateral negotiable and complete any transaction herein contemplated. Borrower shall deliver to Pledgeholder from time to time such number of stock assignments separate from certificate or other documents duly executed by Borrower as may be reasonably requested by Lender or Pledgeholder. 4.4 RETURN OF PROPERTY. If at the time of termination of this Agreement, Pledgeholder has in Pledgeholder's possession any documents, securities, or other property belonging to Borrower, Pledgeholder shall deliver all of same to Borrower and shall be discharged of all further obligations hereunder. 4.5 DUTIES; MODIFICATION OF DUTIES. Pledgeholder shall carry out Pledgeholder's duties hereunder to the best of Pledgeholder's ability and shall be liable only for willful misconduct. Pledgeholder's duties hereunder may be altered, amended, modified or revoked only by a written instrument signed by Lender, Borrower and Pledgeholder. 4. 4.6 OBLIGATIONS. Pledgeholder shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed by Pledgeholder to be genuine and to have been signed or presented by the proper party or parties. Pledgeholder shall not be personally liable for any act Pledgeholder may do or omit to do hereunder as Pledgeholder or as attorney-in-fact for Borrower while acting in good faith and in the exercise of Pledgeholder's own good judgment, and any act done or omitted by Pledgeholder pursuant to the advice of Pledgeholder's own attorneys shall be conclusive evidence of such good faith. 4.7 AUTHORIZATION TO ACT. Pledgeholder is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person or corporation, excepting only orders or process of courts of law, and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case Pledgeholder obeys or complies with any such order, judgment or decree of any court, Pledgeholder shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 4.8 AUTHORITY TO INVEST. Any cash received by Pledgeholder pursuant to this Agreement and designated by Lender as additional Collateral and which is to be retained in pledge by Pledgeholder for more than fifteen (15) days shall be invested in an interest bearing savings account specified by Lender and the interest therein shall constitute a part of such additional Collateral. 4.9 SUBSTITUTION OF COLLATERAL. If Pledgeholder receives securities or other property as substitute for Collateral, an assignment(s) separate from certificate if applicable and the consent of Lender in accordance with Section 2.4 above, Pledgeholder shall deliver to Borrower the stock certificates or other property for which Pledgeholder has received substitute collateral. 4.10 BANKRUPTCY. Bankruptcy, insolvency, or dissolution of any party hereto shall not affect Pledgeholder's performance hereunder. 4.11 STATUTE OF LIMITATIONS. Pledgeholder shall not be liable for the lapse of any rights because of any statute of limitation applicable with respect to this Agreement or any documents deposited with Pledgeholder. 4.12 LEGAL COUNSEL. Pledgeholder shall be entitled to employ such legal counsel and other experts as Pledgeholder may deem necessary to properly advise Pledgeholder in connection with Pledgeholder's obligations and may pay such counsel reasonable compensation therefor for which Pledgeholder shall be reimbursed by Lender. 4.13 TERMINATION OF DUTIES; SUCCESSOR. Pledgeholder's responsibilities as Pledgeholder hereunder shall terminate if (i) Pledgeholder shall resign by thirty (30) days' written notice to Borrower and Lender, (ii) Borrower and Lender jointly agree as to Pledgeholder's termination and appoint Pledgeholder's successor, or (iii) Pledgeholder ceases to exist or is 5. otherwise unable to continue to discharge its duties hereunder. In the event of Pledgeholder's termination as Pledgeholder by resignation, ceasing to exist or by otherwise becoming unable to perform, Lender and Borrower shall mutually appoint a successor. Upon Pledgeholder's receipt of notice of any such appointment of Pledgeholder's successor, all documents, shares and other property then in Pledgeholder's possession pursuant to this Agreement shall be delivered to such successor. 4.14 FURTHER INSTRUMENTS. If Pledgeholder reasonably requires other or further instruments in connection with this Agreement or obligations in respect hereto, the necessary parties hereto shall join in furnishing such instruments. 4.15 CONFLICTING NOTICES; DISPUTES. It is understood and agreed that should any dispute arise with respect to the delivery or ownership or right of possession of the Collateral, secruities or any other property held by Pledgeholder hereunder, Pledgeholder is authorized and directed to retain in its possession without liability to anyone all or any part of said Collateral, securities and such other property until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order, decree, or judgment of a court of competent jurisdiction after the time for appeal has expired and no appeal has been perfected, but Pledgeholder shall be under no duty whatsoever to institute or defend any such proceeding. 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BORROWER. 5.1 OWNERSHIP OF COLLATERAL; NO CONFLICTS. Borrower represents and warrants as of this date, and covenants for the period beginning on this date and ending upon the termination of this Agreement, that (i) Borrower has and will have the right to enter into this Agreement, to transfer to Pledgeholder all or any part of the Collateral, free and clear of any lien, claim, encumbrance or restriction of any type or nature whatsoever (other than restrictions on resale that may arise under applicable federal and state securities laws and the restrictions contained in the Company's Bylaws); (ii) the Collateral is not and will not be subject to any right of first refusal, right of repurchase or any similar right granted to, or retained by, the Company, any shareholder of the Company or any other person which has not been effectively waived or forfeited, other than the Option described in Section 3 herein and the rights and restrictions contained in the Company's Bylaws; and (iii) there is no provision of any existing agreement, and Borrower will not enter into an agreement, by which Borrower is or would be bound (or to which Borrower is or would become subject) that conflicts or would conflict with this Agreement or the performance of Borrower's obligations under this Agreement. 5.2 FURTHER ASSURANCES. Upon the reasonable request of Pledgeholder or Lender, Borrower will prepare, execute and deliver any further instruments and do any further acts that may be necessary to carry out more effectively the purpose of this Agreement. 6. MISCELLANEOUS. 6. 6.1 AMENDMENT. Except as provided in Section 4.5, this Agreement may only be amended by a writing signed by Borrower and Lender. The signature of Pledgeholder shall be required as well for any amendment affecting Article 4 or 6 hereof. 6.2 ASSIGNMENT. Borrower may not assign or otherwise transfer any of his rights or obligations under this Agreement. Except for any assignment of rights under this Agreement to affiliated partnerships of Lender, or to partners of Lender or such partnerships, Lender may assign all or any portion of its rights and obligations under this Agreement only with the prior written consent of Borrower, which consent shall not be unreasonably withheld or delayed. Subject to the foregoing, this Agreement shall be binding upon the heirs, executors and personal representatives of Borrower and shall be binding upon and inure to the benefit of the successors and assigns of Lender. 6.3 ENTIRE AGREEMENT; CONTROLLING DOCUMENT. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes any and all prior negotiations, correspondence and understandings between the parties with respect to the subject matter hereof, whether oral or in writing. 6.4 COSTS OF ENFORCEMENT. If either party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings or otherwise, the non-prevailing party shall pay all costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys' fees. 6.5 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into by California residents and to be performed wholly in the State of California. 6.6 NOTICES. All notices and other communications under this Agreement (other than payments hereunder, which shall be deemed made as of the date of receipt by Lender) shall be in writing, and shall be deemed to have been duly given on the date of delivery if delivered personally, or on the second day after mailing if mailed to the party to whom notice is to be given by first class mail, registered or certified, postage prepaid, and addressed as follows (until any such address is changed by notice duly given): To Borrower at: K. Cyrus Hadavi c/o Paragon Management Systems, Inc. 5933 W. Century Blvd., Suite 1220 Los Angeles, CA 90045 To Lender at: Paragon Management Systems, Inc. 5933 W. Century Blvd., Suite 1220 Los Angeles, CA 90045 To Pledgeholder at: Manatt, Phelps & Phillips, LLP Attn: T. Hale Boggs 11355 West Olympic Boulevard 7. Los Angeles, CA 90064-1614 Copies of all notices to be given to either Borrower or Lender pursuant to this Agreement also shall be delivered to Pledgeholder. 6.7 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.8 SEVERABILITY. If any provision of this Agreement shall be determined to be invalid or unenforceable, the remainder shall be valid and enforceable to the maximum extent possible. 6.9 HEADINGS. The section headings used in this Agreement are intended principally for convenience and shall not by themselves determine the rights and obligations of the parties to this Agreement. 6.10 DELAY AND WAIVER. No delay on the party of Lender in exercising any right under this Agreement shall operate as a waiver of such right. The waiver by Lender of any term or condition of this Agreement shall not be construed as a waiver of a subsequent breach or failure of the same term or condition or a waiver of any other term or condition contained in this Agreement. 6.11 TERM. This Agreement shall terminate on the later of (i) delivery by Lender, to Borrower and Pledgeholder, of notice that all Obligations of Borrower under this Agreement have been fulfilled, or (ii) exercise by Lender of the Option and the transfer to Lender of the Shares subject to the Option. 8. IN WITNESS WHEREOF, the undersigned have executed this Agreement the day and year first above written. BORROWER: /s/ K. Cyrus Hadavi --------------------------------------- K. Cyrus Hadavi LENDER: PARAGON MANAGEMENT SYSTEMS, INC. By: /s/ Nima Bakhtiary ------------------------------------ Name: Nima Bakhtiary ---------------------------------- Title: VP Strategic Partnerships --------------------------------- Upon reading and approving the foregoing, and in consideration of the consummation of the transactions contemplated hereby, I, SHIVA HADAVI, the spouse of K. Cyrus Hadavi, agree to be bound by the Agreement and further agree that any community property or other such interest shall be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. SPOUSE /s/ Shiva Hadavi --------------------------------------- The undersigned agrees to act as Pledgeholder under this Agreement pursuant to Section 4 and agrees to be bound only by Section 4 and Section 6. PLEDGEHOLDER MANATT, PHELPS & PHILLIPS, LLP By: ------------------------------------ 9. IN WITNESS WHEREOF, the undersigned have executed this Agreement the day and year first above written. BORROWER: --------------------------------------- K. Cyrus Hadavi LENDER: PARAGON MANAGEMENT SYSTEMS, INC. By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Upon reading and approving the foregoing, and in consideration of the consummation of the transactions contemplated hereby, I, __________________, the spouse of K. Cyrus Hadavi, agree to be bound by the Agreement and further agree that any community property or other such interest shall be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement. SPOUSE --------------------------------------- The undersigned agrees to act as Pledgeholder under this Agreement pursuant to Section 4 and agrees to be bound only be Section 4 and Section 6. PLEDGEHOLDER MANATT, PHELPS & PHILLIPS, LLP By: /s/ [ILLEGIBLE] ------------------------------------ 9. EXHIBIT A SECURED PROMISSORY NOTE Los Angeles, CA July __, 1997 FOR VALUE RECEIVED, the undersigned promises to pay to the order of PARAGON MANAGEMENT SYSTEMS, INC., a California corporation at 5933 W. Century Blvd., Suite 1220, Los Angeles, California 90045, or at such other place as the holder hereof may from time to time designate, the sum of Two Hundred Thousand Dollars ($200,000.00) in lawful money of the United States, together with interest on all unpaid principal at the rate of five percent (5%) per annum, commencing on the date of this Note and continuing until paid in full. Interest shall be payable semi-annually in arrears, not later than December 31st and June 30th. All outstanding principal and accrued interest shall be due and payable in full on or before July 31, 2002. In addition, upon an "Event of Default" as defined in that certain Loan. Pledge and Option Agreement of even date herewith (the "Loan Agreement"), the holder of this Note shall have the right to declare the entire sum of principal and accrued interest immediately due and payable. This Note may be prepaid in whole or in part at the option of the undersigned without premium or penalty at any time. In case suit or any legal proceeding is instituted to collect this Note or any portion thereof, the undersigned promises to pay, in addition to the costs and disbursements allowed by law, reasonable attorneys' fees as determined by the court. The makers, endorsers and all persons now or hereafter liable on this Note severally waive demand notice, presentment for payment and protest and notice of any default whereby this Note may be declared immediately due and payable. This Note is secured by the Loan Agreement, pursuant to which the undersigned has pledged certain shares of the Common Stock of Paragon Management Systems, Inc. In the event of any breach of or default under the Loan Agreement, the entire unpaid principal balance hereof, together with accrued interest, shall at the option of the holder, without notice, become immediately due and payable. This Note shall be governed by the laws of the State of California. --------------------------------------- K. Cyrus Hadavi EXHIBIT B ASSIGNMENT SEPARATE FROM CERTIFICATE FOR VALUE RECEIVED, I, K. Cyrus Hadavi, hereby sell, assign and transfer unto ____________________, __________ shares of the Common Stock of Paragon Management Systems, Inc. (the "Company") standing in my name on the books of the Company represented by Certificate No(s). ___________________ herewith and do hereby irrevocably constitute and appoint the Secretary or Assistant Secretary of the Company to transfer said stock on the books of the Company with full power of substitution in the premises. Dated: -------------------------- ----------------------------------- K. Cyrus Hadavi This Assignment Separate from Certificate was executed in conjunction with the terms of a Loan. Pledge and Option Agreement dated July __, 1997, and shall not be used in any manner except as provided in such Agreement. EX-10.8 9 ex-10_8.txt EXHIBIT 10.8 EXHIBIT 10.8 UNSECURED PROMISSORY NOTE $300,000 May 19, 2000 Los Angeles, California FOR VALUE RECEIVED, the undersigned Borrower promises to pay to Adexa, Inc. (the "Company") at its principal executive offices the principal sum of three hundred thousand dollars ($300,000), together with interest from the date of this Note on the unpaid principal balance, upon the terms and conditions specified below. 1. TERM. The principal balance of this Note, together with all interest accrued and unpaid to date, shall be due and payable in full at the close of business on May 19, 2008. 2. RATE OF INTEREST. Interest shall accrue under this Note on any unpaid principal balance at the rate of 5.00% per annum, compounded semi-annually. 3. PAYMENT. Interest payments shall be made at semi-annual intervals, on each November 19 and May 19, during the entire term of this Note. No principal payments shall be required prior to May 19, 2008 (subject to Paragraph 4 below). Prepayment of principal and interest may be made at any time, without penalty. 4. EVENTS OF ACCELERATION. The entire unpaid principal sum and accrued interest under this Note shall become immediately due and payable upon: (a) The date when the Borrower's employment with the Company terminates for any reason; (b) The failure of the Borrower to pay when due the principal balance and accrued interest under this Note; (c) The filing of a petition by or against the Borrower under any law relating to bankruptcy, insolvency, reorganization or other relief for debtors; (d) The appointment of a receiver, trustee, custodian or liquidator of or for any part of the assets or property of the Borrower; (e) The execution by the Borrower of a general assignment for the benefit of creditors; (f) The insolvency of the Borrower or the Borrower's failure to pay his or her debts as they become due; or (g) Any attachment or like levy on any property of the Borrower. 5. FULL RECOURSE. The Borrower shall be personally liable for the payment in full of the indebtedness owing under this Note, and the Company shall have recourse to any and all assets of the Borrower to satisfy the Borrower's obligations hereunder. 6. COLLECTION AND ATTORNEYS' FEES. If any action is instituted to collect this Note, the Borrower promises to pay all reasonable costs and expenses (including reasonable attorney's fees) incurred by the Company in connection with such action. 7. WAIVER. No previous waiver and no failure or delay by the Company or the Borrower in acting with respect to the terms of this Note shall constitute a waiver of any breach, default or failure of condition under this Note. A waiver of any term of this Note must be made in writing and signed by a duly authorized officer of the Company and shall be limited to the express terms of such waiver. The Borrower hereby expressly waives presentment and demand for payment when any payments are due under this Note. 8. CONFLICTING AGREEMENTS. In the event of any inconsistencies between the terms of this Note and the terms of any other document related to the loan evidenced by this Note, the terms of this Note shall prevail. 9. GOVERNING LAW. This Note shall be construed in accordance with the laws of the State of California (without regard to their choice-of-law provisions). /s/ Udo Dengler --------------------------------------- Signature of Udo Dengler Address: ----------------------------- ----------------------------- ----------------------------- 2 EX-10.9 10 ex-10_9.txt EXHIBIT 10.9 EXHIBIT 10.9 LOAN FROM SILICON VALLEY BANK TO THE COMPANY DATED AUGUST 22, 2000 SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT BORROWER: ADEXA, INC. ADDRESS: 5933 W. CENTURY BLVD. SUITE 1220 LOS ANGELES, CA 90045 DATE: AUGUST 22, 2000 THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is 3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named above (jointly and severally, the "Borrower"), whose chief executive office is located at the above address ("Borrower's Address"). The Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to be a part of this Agreement, and the same is an integral part of this Agreement. (Definitions of certain terms used in this Agreement are set forth in Section 8 below.) 1. LOANS. 1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in amounts determined by Silicon in its sole discretion, up to the amounts (the "Credit Limit") shown on the Schedule, provided no Default or Event of Default has occurred and is continuing, and subject to deduction of any Reserves for accrued interest and such other Reserves as Silicon deems proper from time to time. 1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest at the rate shown on the Schedule, except where expressly set forth to the contrary in this Agreement. Interest shall be payable monthly, on the last day of the month. Interest may, in Silicon's discretion, be charged to Borrower's loan account, and the same shall thereafter bear interest at the same rate as the other Loans. Silicon may, in its discretion, charge interest to Borrower's Deposit Accounts maintained with Silicon. Regardless of the amount of Obligations that may be outstanding from time to time, Borrower shall pay Silicon minimum monthly interest during the term of this Agreement in the amount set forth on the Schedule (the "Minimum Monthly Interest"). 1.3 OVERADVANCES. If at any time or for any reason the total of all outstanding Loans and all other Obligations exceeds the Credit Limit (an "Overadvance"), Borrower shall immediately pay the amount of the excess to Silicon, without notice or demand. Without limiting Borrower's obligation to repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay Silicon interest on the outstanding amount of any Overadvance, on demand, at a rate equal to the interest rate which would otherwise be applicable to the Overadvance, plus an additional 2% per annum. 1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule, which are in addition to all interest and other sums payable to Silicon and are not refundable. 1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its sole discretion, issue or arrange for the issuance of letters of credit for the account of Borrower, in each case in form and substance satisfactory to Silicon in its sole discretion (collectively, "Letters of Credit"). The aggregate face amount of all outstanding Letters of Credit from time to time shall not exceed the amount shown on the Schedule (the "Letter of Credit Sublimit"), and shall be reserved against Loans which would otherwise be available hereunder. Borrower shall pay all bank charges (including charges of Silicon) for the issuance of Letters of Credit, together with such additional fee as Silicon's letter of credit department shall charge in connection with the issuance of the Letters of Credit. Any payment by Silicon under or in connection with a Letter of Credit shall constitute a Loan hereunder on the date such payment is made. Each Letter of Credit shall have an expiry date no later than thirty days prior to the Maturity Date. Borrower hereby agrees to indemnify, save, and hold Silicon harmless from any loss, cost, expense, or liability, including payments made by Silicon, expenses, and reasonable attorneys' fees incurred by Silicon arising out of or in connection with any Letters of Credit. Borrower agrees to be bound by the regulations and interpretations of the issuer of any Letters of Credit -1- guarantied by Silicon and opened for Borrower's account or by Silicon's interpretations of any Letter of Credit issued by Silicon for Borrower's account, and Borrower understands and agrees that Silicon shall not be liable for any error, negligence, or mistake, whether of omission or commission, in following Borrower's instructions or those contained in the Letters of Credit or any modifications, amendments, or supplements thereto. Borrower understands that Letters of Credit may require Silicon to indemnify the issuing bank for certain costs or liabilities arising out of claims by Borrower against such issuing bank. Borrower hereby agrees to indemnify and hold Silicon harmless with respect to any loss, cost, expense, or liability incurred by Silicon under any Letter of Credit as a result of Silicon's indemnification of any such issuing bank. The provisions of this Loan Agreement, as it pertains to Letters of Credit, and any other present or future documents or agreements between Borrower and Silicon relating to Letters of Credit are cumulative.* *1.6 CASH MANAGEMENT SERVICES AND RESERVES. Borrower may use up to $20,000 of Loans available hereunder for Silicon's Cash Management Services (as defined below), including, merchant services, business credit card, ACH and other services identified in the cash management services agreement related to such service (the "Cash Management Services"). Silicon may, in its sole discretion, reserve against Loans which would otherwise be available hereunder such sums as Silicon shall determine in connection with the Cash Management Services, and Silicon may charge to Borrower's Loan account, any amounts that may become due or owing to Silicon in connection with the Cash Management Services. Borrower agrees to execute and deliver to Silicon all standard form applications and agreements of Silicon in connection with the Cash Management Services, and, without limiting any of the terms of such applications and agreements, Borrower will pay all standard fees and charges of Silicon in connection with the Cash Management Services. The Cash Management Services shall terminate on the Maturity Date. 2. SECURITY INTEREST. 2.1 SECURITY INTEREST. To secure the payment and performance of all of the Obligations when due, Borrower hereby grants to Silicon a security interest in all of Borrower's interest in the following, whether now owned or hereafter acquired, and wherever located: All Inventory, Equipment, Receivables, and General Intangibles, including, without limitation, all of Borrower's Deposit Accounts, and all money, and all property now or at any time in the future in Silicon's possession (including claims and credit balances), and all proceeds (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products and all books and records related to any of the foregoing (all of the foregoing, together with all other property in which Silicon may now or in the future be granted a lien or security interest, is referred to herein, collectively, as the "Collateral"). 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER. In order to induce Silicon to enter into this Agreement and to make Loans, Borrower represents and warrants to Silicon as follows, and Borrower covenants that the following representations will continue to be true, and that Borrower will at all times comply with all of the following covenants: 3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will continue to be, duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Borrower is and will continue to be qualified and licensed to do business in all jurisdictions in which any failure to do so would have a material adverse effect on Borrower. The execution, delivery and performance by Borrower of this Agreement, and all other documents contemplated hereby (i) have been duly and validly authorized, (ii) are enforceable against Borrower in accordance with their terms (except as enforcement may be limited by equitable principles and by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to creditors' rights generally), and (iii) do not violate Borrower's articles or certificate of incorporation, or Borrower's by-laws, or any law or any material agreement or instrument which is binding upon Borrower or its property, and (iv) do not constitute grounds for acceleration of any material indebtedness or obligation under any material agreement or instrument which is binding upon Borrower or its property. 3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the heading to this Agreement is its correct name. Listed on the Schedule are all prior names of Borrower and all of Borrower's present and prior trade names. Borrower shall give Silicon 30 days' prior written notice before changing its name or doing business under any other name. Borrower has complied, and will in the future comply, with all laws relating to the conduct of business under a fictitious business name. 3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the heading to this Agreement is Borrower's chief executive office. In addition, Borrower has places of business and Collateral is located only at the locations set forth on the Schedule. Borrower will give Silicon at least 30 days prior written notice before opening any additional place of business, changing its chief executive office, or moving any of the Collateral to a location other than Borrower's Address or one of the locations set forth on the Schedule. 3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all times in the future be, the sole owner of all the Collateral, except for items of Equipment which are leased by Borrower. The Collateral now is and will remain free and clear of any and all liens, charges, security interests, encumbrances and adverse claims, except for Permitted Liens. Silicon now has, and will continue to have, a first-priority perfected and -2- enforceable security interest in all of the Collateral, subject only to the Permitted Liens, and Borrower will at all times defend Silicon and the Collateral against all claims of others. None of the Collateral now is or will be affixed to any real property in such a manner, or with such intent, as to become a fixture. Borrower is not and will not become a lessee under any real property lease pursuant to which the lessor may obtain any rights in any of the Collateral and no such lease now prohibits, restrains, impairs or will prohibit, restrain or impair Borrower's right to remove any Collateral from the leased premises. Whenever any Collateral is located upon premises in which any third party has an interest (whether as owner, mortgagee, beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever requested by Silicon, use its best efforts to cause such third party to execute and deliver to Silicon, in form acceptable to Silicon, such waivers and subordinations as Silicon shall specify, so as to ensure that Silicon's rights in the Collateral are, and will continue to be, superior to the rights of any such third party. Borrower will keep in full force and effect, and will comply with all the terms of, any lease of real property where any of the Collateral now or in the future may be located. 3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good working condition, and Borrower will not use the Collateral for any unlawful purpose. Borrower will immediately advise Silicon in writing of any material loss or damage to the Collateral. 3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's Address complete and accurate books and records, comprising an accounting system in accordance with generally accepted accounting principles. 3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now or in the future delivered to Silicon have been, and will be, prepared in conformity with generally accepted accounting principles and now and in the future will completely and accurately reflect the financial condition of Borrower, at the times and for the periods therein stated. Between the last date covered by any such statement provided to Silicon and the date hereof, there has been no material adverse change in the financial condition or business of Borrower. Borrower is now and will continue to be solvent. 3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely filed, and will timely file, all tax returns and reports required by foreign, federal, state and local law, and Borrower has timely paid, and will timely pay, all foreign, federal, state and local taxes, assessments, deposits and contributions now or in the future owed by Borrower. Borrower may, however, defer payment of any contested taxes, provided that Borrower (i) in good faith contests Borrower's obligation to pay the taxes by appropriate proceedings promptly and diligently instituted and conducted, (ii) notifies Silicon in writing of the commencement of, and any material development in, the proceedings, and (iii) posts bonds or takes any other steps required to keep the contested taxes from becoming a lien upon any of the Collateral. Borrower is unaware of any claims or adjustments proposed for any of Borrower's prior tax years which could result in additional taxes becoming due and payable by Borrower. Borrower has paid, and shall continue to pay all amounts necessary to fund all present and future pension, profit sharing and deferred compensation plans in accordance with their terms, and Borrower has not and will not withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any such plan which could result in any liability of Borrower, including any liability to the Pension Benefit Guaranty Corporation or its successors or any other governmental agency. Borrower shall, at all times, utilize the services of an outside payroll service providing for the automatic deposit of all payroll taxes payable by Borrower. 3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all material respects, with all provisions of all foreign, federal, state and local laws and regulations relating to Borrower, including, but not limited to, those relating to Borrower's ownership of real or personal property, the conduct and licensing of Borrower's business, and all environmental matters. 3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit, litigation, proceeding or investigation pending or (to best of Borrower's knowledge) threatened by or against or affecting Borrower in any court or before any governmental agency (or any basis therefor known to Borrower) which may result, either separately or in the aggregate, in any material adverse change in the financial condition or business of Borrower, or in any material impairment in the ability of Borrower to carry on its business in substantially the same manner as it is now being conducted. Borrower will promptly inform Silicon in writing of any claim, proceeding, litigation or investigation in the future threatened or instituted by or against Borrower involving any single claim of $50,000 or more, or involving $100,000 or more in the aggregate. 3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for lawful business purposes. Borrower is not purchasing or carrying any "margin stock" (as defined in Regulation U of the Board of Governors of the Federal Reserve System) and no part of the proceeds of any Loan will be used to purchase or carry any "margin stock" or to extend credit to others for the purpose of purchasing or carrying any "margin stock." 4. RECEIVABLES. 4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants to Silicon as follows: Each Receivable with respect to which Loans are requested by Borrower shall, on the date each Loan is requested and made, (i) represent an undisputed bona fide existing unconditional obligation of the Account Debtor created by the sale, delivery, and acceptance of goods or the rendition of services in the ordinary course of -3- Borrower's business, and (ii) meet the Minimum Eligibility Requirements set forth in Section 8 below. 4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower represents and warrants to Silicon as follows: All statements made and all unpaid balances appearing in all invoices, instruments and other documents evidencing the Receivables are and shall be true and correct and all such invoices, instruments and other documents and all of Borrower's books and records are and shall be genuine and in all respects what they purport to be, and all signatories and endorsers have the capacity to contract. All sales and other transactions underlying or giving rise to each Receivable shall fully comply with all applicable laws and governmental rules and regulations. All signatures and endorsements on all documents, instruments, and agreements relating to all Receivables are and shall be genuine, and all such documents, instruments and agreements are and shall be legally enforceable in accordance with their terms. 4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to Silicon transaction reports and loan requests, schedules and assignments of all Receivables, and schedules of collections, all on Silicon's standard forms; provided, however, that Borrower's failure to execute and deliver the same shall not affect or limit Silicon's security interest and other rights in all of Borrower's Receivables, nor shall Silicon's failure to advance or lend against a specific Receivable affect or limit Silicon's security interest and other rights therein. Loan requests received after 12:00 Noon will not be considered by Silicon until the next Business Day. Together with each such schedule and assignment, or later if requested by Silicon, Borrower shall furnish Silicon with copies (or, at Silicon's request, originals) of all contracts, orders, invoices, and other similar documents, and all original shipping instructions, delivery receipts, bills of lading, and other evidence of delivery, for any goods the sale or disposition of which gave rise to such Receivables, and Borrower warrants the genuineness of all of the foregoing. Borrower shall also furnish to Silicon an aged accounts receivable trial balance in such form and at such intervals as Silicon shall request. In addition, Borrower shall deliver to Silicon the originals of all instruments, chattel paper, security agreements, guarantees and other documents and property evidencing or securing any Receivables, immediately upon receipt thereof and in the same form as received, with all necessary indorsements, all of which shall be with recourse. Borrower shall also provide Silicon with copies of all credit memos within two days after the date issued. 4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all Receivables, unless and until a Default or an Event of Default has occurred. Borrower shall hold all payments on, and proceeds of, Receivables in trust for Silicon, and Borrower shall immediately deliver all such payments and proceeds to Silicon in their original form, duly endorsed in blank, to be applied to the Obligations in such order as Silicon shall determine. Silicon may, in its discretion, require that all proceeds of Collateral be deposited by Borrower into a lockbox account, or such other "blocked account" as Silicon may specify, pursuant to a blocked account agreement in such form as Silicon may specify. Silicon or its designee may, at any time, notify Account Debtors that the Receivables have been assigned to Silicon. 4.5. REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of any Collateral shall be delivered, in kind, by Borrower to Silicon in the original form in which received by Borrower not later than the following Business Day after receipt by Borrower, to be applied to the Obligations in such order as Silicon shall determine; provided that, if no Default or Event of Default has occurred, Borrower shall not be obligated to remit to Silicon the proceeds of the sale of worn out or obsolete equipment disposed of by Borrower in good faith in an arm's length transaction for an aggregate purchase price of $25,000 or less (for all such transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral with any of Borrower's other funds or property, but will hold such proceeds separate and apart from such other funds and property and in an express trust for Silicon. Nothing in this Section limits the restrictions on disposition of Collateral set forth elsewhere in this Agreement. 4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or claims relating to Receivables. Borrower shall not forgive (completely or partially), compromise or settle any Receivable for less than payment in full, or agree to do any of the foregoing, except that Borrower may do so, provided that: (i) Borrower does so in good faith, in a commercially reasonable manner, in the ordinary course of business, and in arm's length transactions, which are reported to Silicon on the regular reports provided to Silicon; (ii) no Default or Event of Default has occurred and is continuing; and (iii) taking into account all such discounts settlements and forgiveness, the total outstanding Loans will not exceed the Credit Limit. Silicon may, at any time after the occurrence of an Event of Default, settle or adjust disputes or claims directly with Account Debtors for amounts and upon terms which Silicon considers advisable in its reasonable credit judgment and, in all cases, Silicon shall credit Borrower's Loan account with only the net amounts received by Silicon in payment of any Receivables. 4.7 RETURNS. Provided no Event of Default has occurred and is continuing, if any Account Debtor returns any Inventory to Borrower in the ordinary course of its business, Borrower shall promptly determine the reason for such return and promptly issue a credit memorandum to the Account Debtor in the appropriate amount (sending a copy to Silicon). In the event any attempted return occurs after the occurrence of any Event of Default, Borrower shall (i) hold the returned Inventory in trust for Silicon, (ii) segregate all returned Inventory from all of Borrower's other property, (iii) conspicuously label the -4- returned Inventory as Silicon's property, and (iv) immediately notify Silicon of the return of any Inventory, specifying the reason for such return, the location and condition of the returned Inventory, and on Silicon's request deliver such returned Inventory to Silicon. 4.8 VERIFICATION. Silicon may, from time to time, verify directly with the respective Account Debtors the validity, amount and other matters relating to the Receivables, by means of mail, telephone or otherwise, either in the name of Borrower or Silicon or such other name as Silicon may choose. 4.9 NO LIABILITY. Silicon shall not under any circumstances be responsible or liable for any shortage or discrepancy in, damage to, or loss or destruction of, any goods, the sale or other disposition of which gives rise to a Receivable, or for any error, act, omission, or delay of any kind occurring in the settlement, failure to settle, collection or failure to collect any Receivable, or for settling any Receivable in good faith for less than the full amount thereof, nor shall Silicon be deemed to be responsible for any of Borrower's obligations under any contract or agreement giving rise to a Receivable. Nothing herein shall, however, relieve Silicon from liability for its own gross negligence or willful misconduct. 5. ADDITIONAL DUTIES OF THE BORROWER. 5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with the financial and other covenants set forth in the Schedule. 5.2 INSURANCE. Borrower shall, at all times insure all of the tangible personal property Collateral and carry such other business insurance, with insurers reasonably acceptable to Silicon, in such form and amounts as Silicon may reasonably require, and Borrower shall provide evidence of such insurance to Silicon, so that Silicon is satisfied that such insurance is, at all times, in full force and effect. All such insurance policies shall name Silicon as an additional loss payee, and shall contain a lenders loss payee endorsement in form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such insurance, Silicon shall apply such proceeds in reduction of the Obligations as Silicon shall determine in its sole discretion, except that, provided no Default or Event of Default has occurred and is continuing, Silicon shall release to Borrower insurance proceeds with respect to Equipment totaling less than $100,000, which shall be utilized by Borrower for the replacement of the Equipment with respect to which the insurance proceeds were paid. Silicon may require reasonable assurance that the insurance proceeds so released will be so used. If Borrower fails to provide or pay for any insurance, Silicon may, but is not obligated to, obtain the same at Borrower's expense. Borrower shall promptly deliver to Silicon copies of all reports made to insurance companies. 5.3 REPORTS. Borrower, at its expense, shall provide Silicon with the written reports set forth in the Schedule, and such other written reports with respect to Borrower (including budgets, sales projections, operating plans and other financial documentation), as Silicon shall from time to time reasonably specify. 5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one Business Day's notice, Silicon, or its agents, shall have the right to inspect the Collateral, and the right to audit and copy Borrower's books and records. Silicon shall take reasonable steps to keep confidential all information obtained in any such inspection or audit, but Silicon shall have the right to disclose any such information to its auditors, regulatory agencies, and attorneys, and pursuant to any subpoena or other legal process. The foregoing inspections and audits shall be at Borrower's expense and the charge therefor shall be $600 per person per day (or such higher amount as shall represent Silicon's then current standard charge for the same), plus reasonable out of pocket expenses. Borrower will not enter into any agreement with any accounting firm, service bureau or third party to store Borrower's books or records at any location other than Borrower's Address, without first obtaining Silicon's written consent, which may be conditioned upon such accounting firm, service bureau or other third party agreeing to give Silicon the same rights with respect to access to books and records and related rights as Silicon has under this Loan Agreement. Borrower waives the benefit of any accountant-client privilege or other evidentiary privilege precluding or limiting the disclosure, divulgence or delivery of any of its books and records (except that Borrower does not waive any attorney-client privilege). 5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Borrower shall not, without Silicon's prior written consent, do any of the following: (i) merge or consolidate with another corporation or entity; (ii) acquire any assets, except in the ordinary course of business; (iii) enter into any other transaction outside the ordinary course of business; (iv) sell or transfer any Collateral, except for the sale of finished Inventory in the ordinary course of Borrower's business, and except for the sale of obsolete or unneeded Equipment in the ordinary course of business; (v) store any Inventory or other Collateral with any warehouseman or other third party; (vi) sell any Inventory on a sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii) make any loans of any money or other assets; (viii) incur any debts, outside the ordinary course of business, which would have a material, adverse effect on Borrower or on the prospect of repayment of the Obligations; (ix) guarantee or otherwise become liable with respect to the obligations of another party or entity; (x) pay or declare any dividends on Borrower's stock (except for dividends payable solely in stock of Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any of Borrower's stock; (xii) make any change in Borrower's capital structure which would have a material adverse effect on Borrower or on the prospect of repayment of the Obligations; or (xiii) pay total compensation, including salaries, fees, bonuses, commissions, and all other -5- payments, whether directly or indirectly, in money or otherwise, to Borrower's executives, officers and directors (or any relative thereof) in an amount in excess of the amount set forth on the Schedule; or (xiv) dissolve or elect to dissolve. Transactions permitted by the foregoing provisions of this Section are only permitted if no Default or Event of Default would occur as a result of such transaction. 5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be instituted by or against Silicon with respect to any Collateral or in any manner relating to Borrower, Borrower shall, without expense to Silicon, make available Borrower and its officers, employees and agents and Borrower's books and records, to the extent that Silicon may deem them reasonably necessary in order to prosecute or defend any such suit or proceeding. 5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by Silicon, to execute all documents and take all actions, as Silicon, may deem reasonably necessary or useful in order to perfect and maintain Silicon's perfected security interest in the Collateral, and in order to fully consummate the transactions contemplated by this Agreement. 6. TERM. 6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity date set forth on the Schedule (the "Maturity Date"), subject to Section 6.3 below. 6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three Business Days after written notice of termination is given to Silicon; or (ii) by Silicon at any time after the occurrence of an Event of Default, without notice, effective immediately. If this Agreement is terminated by Borrower or by Silicon under this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount equal to* of the Maximum Credit Limit, provided that no termination fee shall be charged if the credit facility hereunder is replaced with a new facility from another division of Silicon Valley Bank. The termination fee shall be due and payable on the effective date of termination and thereafter shall bear interest at a rate equal to the highest rate applicable to any of the Obligations. *ONE PERCENT (1.0%) 6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective date of termination, Borrower shall pay and perform in full all Obligations, whether evidenced by installment notes or otherwise, and whether or not all or any part of such Obligations are otherwise then due and payable. Without limiting the generality of the foregoing, if on the Maturity Date, or on any earlier effective date of termination, there are any outstanding Letters of Credit issued by Silicon or issued by another institution based upon an application, guarantee, indemnity or similar agreement on the part of Silicon, then on such date Borrower shall provide to Silicon cash collateral in an amount equal to the face amount of all such Letters of Credit plus all interest, fees and cost due or to become due in connection therewith, to secure all of the Obligations relating to said Letters of Credit, pursuant to Silicon's then standard form cash pledge agreement. Notwithstanding any termination of this Agreement, all of Silicon's security interests in all of the Collateral and all of the terms and provisions of this Agreement shall continue in full force and effect until all Obligations have been paid and performed in full; provided that, without limiting the fact that Loans are subject to the discretion of Silicon, Silicon may, in its sole discretion, refuse to make any further Loans after termination. No termination shall in any way affect or impair any right or remedy of Silicon, nor shall any such termination relieve Borrower of any Obligation to Silicon, until all of the Obligations have been paid and performed in full. Upon payment and performance in full of all the Obligations and termination of this Agreement, Silicon shall promptly deliver to Borrower termination statements, requests for reconveyances and such other documents as may be required to fully terminate Silicon's security interests. 7. EVENTS OF DEFAULT AND REMEDIES. 7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall constitute an "Event of Default" under this Agreement, and Borrower shall give Silicon immediate written notice thereof: (a) Any warranty, representation, statement, report or certificate made or delivered to Silicon by Borrower or any of Borrower's officers, employees or agents, now or in the future, shall be untrue or misleading in a material respect; or (b) Borrower shall fail to pay when due any Loan or any interest thereon or any other monetary Obligation; or (c) the total Loans and other Obligations outstanding at any time shall exceed the Credit Limit; or (d) Borrower shall fail to comply with any of the financial covenants set forth in the Schedule* or shall fail to perform any other non-monetary Obligation which by its nature cannot be cured; or (e) Borrower shall fail to perform any other non-monetary Obligation, which failure is not cured within 5 Business Days after the date due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made on all or any part of the Collateral which is not cured within 10 days after the occurrence of the same; or (g) any default or event of default occurs under any obligation secured by a Permitted Lien, which is not cured within any applicable cure period or waived in writing by the holder of the Permitted Lien; or (h) Borrower breaches any material contract or obligation, which has or may reasonably be expected to have a material adverse effect on Borrower's business or financial condition; or (i) Dissolution, termination of existence, insolvency or business failure of Borrower; or appointment of a receiver, trustee or custodian, for all or any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding by Borrower under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, -6- now or in the future in effect; or (j) the commencement of any proceeding against Borrower or any guarantor of any of the Obligations under any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, now or in the future in effect, which is not cured by the dismissal thereof within 30 days after the date commenced; or (k) revocation or termination of, or limitation or denial of liability upon, any guaranty of the Obligations or any attempt to do any of the foregoing, or commencement of proceedings by any guarantor of any of the Obligations under any bankruptcy or insolvency law; or (l) revocation or termination of, or limitation or denial of liability upon, any pledge of any certificate of deposit, securities or other property or asset of any kind pledged by any third party to secure any or all of the Obligations, or any attempt to do any of the foregoing, or commencement of proceedings by or against any such third party under any bankruptcy or insolvency law; or (m) Borrower makes any payment on account of any indebtedness or obligation which has been subordinated to the Obligations other than as permitted in the applicable subordination agreement, or if any Person who has subordinated such indebtedness or obligations terminates or in any way limits his subordination agreement; or (n) there shall be a change in the record or beneficial ownership of an aggregate of more than 20% of the outstanding shares of stock of Borrower, in one or more transactions, compared to the ownership of outstanding shares of stock of Borrower in effect on the date hereof, without the prior written consent of Silicon; or (o) Borrower shall generally not pay its debts as they become due, or Borrower shall conceal, remove or transfer any part of its property, with intent to hinder, delay or defraud its creditors, or make or suffer any transfer of any of its property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a material adverse change in Borrower's business or financial condition; or (q) Silicon, acting in good faith and in a commercially reasonable manner, deems itself insecure because of the occurrence of an event prior to the effective date hereof of which Silicon had no knowledge on the effective date or because of the occurrence of an event on or subsequent to the effective date. Silicon may cease making any Loans hereunder during any of the above cure periods, and thereafter if an Event of Default has occurred. *(PROVIDED, HOWEVER, BORROWER'S FAILURE TO COMPLY WITH THE PROFITABILITY FINANCIAL COVENANT SET FORTH IN THE SCHEDULE WILL NOT BE DEEMED AN EVENT OF DEFAULT HEREUNDER UNLESS BORROWER ALSO FAILS TO COMPLY WITH THE MINIMUM TANGIBLE NET WORTH FINANCIAL COVENANT SET FORTH IN THE SCHEDULE) 7.2 REMEDIES. Upon the occurrence of any Event of Default, and at any time thereafter, Silicon, at its option, and without notice or demand of any kind (all of which are hereby expressly waived by Borrower), may do any one or more of the following: (a) Cease making Loans or otherwise extending credit to Borrower under this Agreement or any other document or agreement; (b) Accelerate and declare all or any part of the Obligations to be immediately due, payable, and performable, notwithstanding any deferred or installment payments allowed by any instrument evidencing or relating to any Obligation; (c) Take possession of any or all of the Collateral wherever it may be found, and for that purpose Borrower hereby authorizes Silicon without judicial process to enter onto any of Borrower's premises without interference to search for, take possession of, keep, store, or remove any of the Collateral, and remain on the premises or cause a custodian to remain on the premises in exclusive control thereof, without charge for so long as Silicon deems it reasonably necessary in order to complete the enforcement of its rights under this Agreement or any other agreement; provided, however, that should Silicon seek to take possession of any of the Collateral by Court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security relating thereto required by any statute, court rule or otherwise as an incident to such possession; (ii) any demand for possession prior to the commencement of any suit or action to recover possession thereof; and (iii) any requirement that Silicon retain possession of, and not dispose of, any such Collateral until after trial or final judgment; (d) Require Borrower to assemble any or all of the Collateral and make it available to Silicon at places designated by Silicon which are reasonably convenient to Silicon and Borrower, and to remove the Collateral to such locations as Silicon may deem advisable; (e) Complete the processing, manufacturing or repair of any Collateral prior to a disposition thereof and, for such purpose and for the purpose of removal, Silicon shall have the right to use Borrower's premises, vehicles, hoists, lifts, cranes, equipment and all other property without charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its condition at the time Silicon obtains possession of it or after further manufacturing, processing or repair, at one or more public and/or private sales, in lots or in bulk, for cash, exchange or other property, or on credit, and to adjourn any such sale from time to time without notice other than oral announcement at the time scheduled for sale. Silicon shall have the right to conduct such disposition on Borrower's premises without charge, for such time or times as Silicon deems reasonable, or on Silicon's premises, or elsewhere and the Collateral need not be located at the place of disposition. Silicon may directly or through any affiliated company purchase or lease any Collateral at any such public disposition, and if permissible under applicable law, at any private disposition. Any sale or other disposition of Collateral shall not relieve Borrower of any liability Borrower may have if any Collateral is defective as to title or physical condition or otherwise at the time of sale; (g) Demand payment of, and collect any Receivables and General Intangibles comprising Collateral and, in connection therewith, Borrower irrevocably authorizes Silicon to endorse or sign Borrower's name on all collections, receipts, instruments and other documents, to take possession of and open mail addressed to Borrower and remove -7- therefrom payments made with respect to any item of the Collateral or proceeds thereof, and, in Silicon's sole discretion, to grant extensions of time to pay, compromise claims and settle Receivables and the like for less than face value; (h) Offset against any sums in any of Borrower's general, special or other Deposit Accounts with Silicon; and (i) Demand and receive possession of any of Borrower's federal and state income tax returns and the books and records utilized in the preparation thereof or referring thereto. All reasonable attorneys' fees, expenses, costs, liabilities and obligations incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. Without limiting any of Silicon's rights and remedies, from and after the occurrence of any Event of Default, the interest rate applicable to the Obligations shall be increased by an additional four percent per annum. 7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and Silicon agree that a sale or other disposition (collectively, "sale") of any Collateral which complies with the following standards will conclusively be deemed to be commercially reasonable: (i) Notice of the sale is given to Borrower at least seven days prior to the sale, and, in the case of a public sale, notice of the sale is published at least seven days before the sale in a newspaper of general circulation in the county where the sale is to be conducted; (ii) Notice of the sale describes the collateral in general, non-specific terms; (iii) The sale is conducted at a place designated by Silicon, with or without the Collateral being present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase price in cash or by cashier's check or wire transfer is required; (vi) With respect to any sale of any of the Collateral, Silicon may (but is not obligated to) direct any prospective purchaser to ascertain directly from Borrower any and all information concerning the same. Silicon shall be free to employ other methods of noticing and selling the Collateral, in its discretion, if they are commercially reasonable. 7.4 POWER OF ATTORNEY. Upon the occurrence of any Event of Default, without limiting Silicon's other rights and remedies, Borrower grants to Silicon an irrevocable power of attorney coupled with an interest, authorizing and permitting Silicon (acting through any of its employees, attorneys or agents) at any time, at its option, but without obligation, with or without notice to Borrower, and at Borrower's expense, to do any or all of the following, in Borrower's name or otherwise, but Silicon agrees to exercise the following powers in a commercially reasonable manner: (a) Execute on behalf of Borrower any documents that Silicon may, in its sole discretion, deem advisable in order to perfect and maintain Silicon's security interest in the Collateral, or in order to exercise a right of Borrower or Silicon, or in order to fully consummate all the transactions contemplated under this Agreement, and all other present and future agreements; (b) Execute on behalf of Borrower any document exercising, transferring or assigning any option to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any real or personal property which is part of Silicon's Collateral or in which Silicon has an interest; (c) Execute on behalf of Borrower, any invoices relating to any Receivable, any draft against any Account Debtor and any notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other lien, or assignment or satisfaction of mechanic's, materialman's or other lien; (d) Take control in any manner of any cash or non-cash items of payment or proceeds of Collateral; endorse the name of Borrower upon any instruments, or documents, evidence of payment or Collateral that may come into Silicon's possession; (e) Endorse all checks and other forms of remittances received by Silicon; (f) Pay, contest or settle any lien, charge, encumbrance, security interest and adverse claim in or to any of the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; (g) Grant extensions of time to pay, compromise claims and settle Receivables and General Intangibles for less than face value and execute all releases and other documents in connection therewith; (h) Pay any sums required on account of Borrower's taxes or to secure the release of any liens therefor, or both; (i) Settle and adjust, and give releases of, any insurance claim that relates to any of the Collateral and obtain payment therefor; (j) Instruct any third party having custody or control of any books or records belonging to, or relating to, Borrower to give Silicon the same rights of access and other rights with respect thereto as Silicon has under this Agreement; and (k) Take any action or pay any sum required of Borrower pursuant to this Agreement and any other present or future agreements. Any and all reasonable sums paid and any and all reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Silicon with respect to the foregoing shall be added to and become part of the Obligations, shall be payable on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. In no event shall Silicon's rights under the foregoing power of attorney or any of Silicon's other rights under this Agreement be deemed to indicate that Silicon is in control of the business, management or properties of Borrower. 7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale of the Collateral shall be applied by Silicon first to the reasonable costs, expenses, liabilities, obligations and attorneys' fees incurred by Silicon in the exercise of its rights under this Agreement, second to the interest due upon any of the Obligations, and third to the principal of the Obligations, in such order as Silicon shall determine in its sole discretion. Any surplus shall be paid to Borrower or other persons legally entitled thereto; Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its sole discretion, directly or indirectly enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, Silicon shall have the option, exercisable at any time, in -8- its sole discretion, of either reducing the Obligations by the principal amount of purchase price or deferring the reduction of the Obligations until the actual receipt by Silicon of the cash therefor. 7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in this Agreement, Silicon shall have all the other rights and remedies accorded a secured party under the California Uniform Commercial Code and under all other applicable laws, and under any other instrument or agreement now or in the future entered into between Silicon and Borrower, and all of such rights and remedies are cumulative and none is exclusive. Exercise or partial exercise by Silicon of one or more of its rights or remedies shall not be deemed an election, nor bar Silicon from subsequent exercise or partial exercise of any other rights or remedies. The failure or delay of Silicon to exercise any rights or remedies shall not operate as a waiver thereof, but all rights and remedies shall continue in full force and effect until all of the Obligations have been fully paid and performed. 8. DEFINITIONS. As used in this Agreement, the following terms have the following meanings: "ACCOUNT DEBTOR" means the obligor on a Receivable. "AFFILIATE" means, with respect to any Person, a relative, partner, shareholder, director, officer, or employee of such Person, or any parent or subsidiary of such Person, or any Person controlling, controlled by or under common control with such Person. "BUSINESS DAY" means a day on which Silicon is open for business. "CODE" means the Uniform Commercial Code as adopted and in effect in the State of California from time to time. "COLLATERAL" has the meaning set forth in Section 2.1 above. "DEFAULT" means any event which with notice or passage of time or both, would constitute an Event of Default. "DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code. "ELIGIBLE INVENTORY" [NOT APPLICABLE]. "ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course of Borrower's business from the sale of goods or rendition of services, which Silicon, in its sole judgment, shall deem eligible for borrowing, based on such considerations as Silicon may from time to time deem appropriate. Without limiting the fact that the determination of which Receivables are eligible for borrowing is a matter of Silicon's discretion, the following (the "MINIMUM ELIGIBILITY REQUIREMENTS") are the minimum requirements for a Receivable to be an Eligible Receivable: (i) the Receivable must not be outstanding for more than 90 days from its invoice date, (ii) the Receivable must not represent progress billings, or be due under a fulfillment or requirements contract with the Account Debtor, (iii) the Receivable must not be subject to any contingencies (including Receivables arising from sales on consignment, guaranteed sale or other terms pursuant to which payment by the Account Debtor may be conditional), (iv) the Receivable must not be owing from an Account Debtor with whom the Borrower has any dispute (whether or not relating to the particular Receivable), (v) the Receivable must not be owing from an Affiliate of Borrower, (vi) the Receivable must not be owing from an Account Debtor which is subject to any insolvency or bankruptcy proceeding, or whose financial condition is not acceptable to Silicon, or which, fails or goes out of a material portion of its business, (vii) the Receivable must not be owing from the United States or any department, agency or instrumentality thereof (unless there has been compliance, to Silicon's satisfaction, with the United States Assignment of Claims Act), (viii) the Receivable must not be owing from an Account Debtor located outside the United States or Canada (unless pre-approved by Silicon in its discretion in writing, or backed by a letter of credit satisfactory to Silicon, or FCIA insured satisfactory to Silicon), (ix) the Receivable must not be owing from an Account Debtor to whom Borrower is or may be liable for goods purchased from such Account Debtor or otherwise. Receivables owing from one Account Debtor will not be deemed Eligible Receivables to the extent they exceed 25% of the total Receivables outstanding. In addition, if more than 50% of the Receivables owing from an Account Debtor are outstanding more than 90 days from their invoice date (without regard to unapplied credits) or are otherwise not eligible Receivables, then all Receivables owing from that Account Debtor will be deemed ineligible for borrowing. Silicon may, from time to time, in its discretion, revise the Minimum Eligibility Requirements, upon written notice to the Borrower. "EQUIPMENT" means all of Borrower's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Borrower's operations or owned by Borrower and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of this Agreement. "GENERAL INTANGIBLES" means all general intangibles of Borrower, whether now owned or hereafter created or acquired by Borrower, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer -9- lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Borrower against Silicon, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Borrower, all rights to indemnification and all other intangible property of every kind and nature (other than Receivables). "INVENTORY" means all of Borrower's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Borrower's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "OBLIGATIONS" means all present and future Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties and indebtedness at any time owing by Borrower to Silicon, whether evidenced by this Agreement or any note or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, banker's acceptance, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by Silicon in Borrower's debts owing to others), absolute or contingent, due or to become due, including, without limitation, all interest, charges, expenses, fees, attorney's fees, expert witness fees, audit fees, letter of credit fees, collateral monitoring fees, closing fees, facility fees, termination fees, minimum interest charges and any other sums chargeable to Borrower under this Agreement or under any other present or future instrument or agreement between Borrower and Silicon. "PERMITTED LIENS" means the following: (i) purchase money security interests in specific items of Equipment; (ii) leases of specific items of Equipment; (iii) liens for taxes not yet payable; (iv) additional security interests and liens consented to in writing by Silicon, which consent shall not be unreasonably withheld; (v) security interests being terminated substantially concurrently with this Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or other similar liens arising in the ordinary course of business and securing obligations which are not delinquent; (vii) liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by liens of the type described above in clauses (i) or (ii) above, provided that any extension, renewal or replacement lien is limited to the property encumbered by the existing lien and the principal amount of the indebtedness being extended, renewed or refinanced does not increase; (viii) Liens in favor of customs and revenue authorities which secure payment of customs duties in connection with the importation of goods. Silicon will have the right to require, as a condition to its consent under subparagraph (iv) above, that the holder of the additional security interest or lien sign an intercreditor agreement on Silicon's then standard form, acknowledge that the security interest is subordinate to the security interest in favor of Silicon, and agree not to take any action to enforce its subordinate security interest so long as any Obligations remain outstanding, and that Borrower agree that any uncured default in any obligation secured by the subordinate security interest shall also constitute an Event of Default under this Agreement. "PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, government, or any agency or political division thereof, or any other entity. "RECEIVABLES" means all of Borrower's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Borrower, all guaranties and other security therefor, all merchandise returned to or repossessed by Borrower, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. "RESERVES" means, as of any date of determination, such amounts as Silicon may from time to time establish and revise in good faith reducing the amount of Loans, Letters of Credit and other financial accommodations which would otherwise be available to Borrower under the lending formula(s) provided in the Schedule: (a) to reflect events, conditions, contingencies or risks which, as determined by Silicon in good faith, do or may affect (i) the Collateral or any other property which is security for the Obligations or its value (including without limitation any increase in delinquencies of Receivables), (ii) the assets, business or prospects of Borrower or any Guarantor, or (iii) the security interests and other rights of Silicon in the Collateral (including the enforceability, perfection and priority thereof); or (b) to reflect Silicon's good faith belief that any collateral report or financial information furnished by or on behalf of Borrower or any Guarantor to Silicon is or may have been incomplete, inaccurate or misleading in any material respect; or (c) in respect of any state of facts which Silicon determines in good faith constitutes an Event of Default or may, with notice or passage of time or both, constitute an Event of Default. -10- OTHER TERMS. All accounting terms used in this Agreement, unless otherwise indicated, shall have the meanings given to such terms in accordance with generally accepted accounting principles, consistently applied. All other terms contained in this Agreement, unless otherwise indicated, shall have the meanings provided by the Code, to the extent such terms are defined therein. 9. GENERAL PROVISIONS. 9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all checks, wire transfers and other items of payment received by Silicon (including proceeds of Receivables and payment of the Obligations in full) shall be deemed applied by Silicon on account of the Obligations three Business Days after receipt by Silicon of immediately available funds, and, for purposes of the foregoing, any such funds received after 12:00 Noon on any day shall be deemed received on the next Business Day. Silicon shall not, however, be required to credit Borrower's account for the amount of any item of payment which is unsatisfactory to Silicon in its sole discretion, and Silicon may charge Borrower's loan account for the amount of any item of payment which is returned to Silicon unpaid. 9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may be applied, and in Silicon's sole discretion reversed and re-applied, to the Obligations, in such order and manner as Silicon shall determine in its sole discretion. 9.3 CHARGES TO ACCOUNTS. Silicon may, in its discretion, require that Borrower pay monetary Obligations in cash to Silicon, or charge them to Borrower's Loan account, in which event they will bear interest at the same rate applicable to the Loans. Silicon may also, in its discretion, charge any monetary Obligations to Borrower's Deposit Accounts maintained with Silicon. 9.4 MONTHLY ACCOUNTINGS. Silicon shall provide Borrower monthly with an account of advances, charges, expenses and payments made pursuant to this Agreement. Such account shall be deemed correct, accurate and binding on Borrower and an account stated (except for reverses and reapplications of payments made and corrections of errors discovered by Silicon), unless Borrower notifies Silicon in writing to the contrary within thirty days after each account is rendered, describing the nature of any alleged errors or admissions. 9.5 NOTICES. All notices to be given under this Agreement shall be in writing and shall be given either personally or by reputable private delivery service or by regular first-class mail, or certified mail return receipt requested, addressed to Silicon or Borrower at the addresses shown in the heading to this Agreement, or at any other address designated in writing by one party to the other party. Notices to Silicon shall be directed to the Commercial Finance Division, to the attention of the Division Manager or the Division Credit Manager. All notices shall be deemed to have been given upon delivery in the case of notices personally delivered, or at the expiration of one Business Day following delivery to the private delivery service, or two Business Days following the deposit thereof in the United States mail, with postage prepaid. 9.6 SEVERABILITY. Should any provision of this Agreement be held by any court of competent jurisdiction to be void or unenforceable, such defect shall not affect the remainder of this Agreement, which shall continue in full force and effect. 9.7 INTEGRATION. This Agreement and such other written agreements, documents and instruments as may be executed in connection herewith are the final, entire and complete agreement between Borrower and Silicon and supersede all prior and contemporaneous negotiations and oral representations and agreements, all of which are merged and integrated in this Agreement. THERE ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES WHICH ARE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS SIGNED BY THE PARTIES IN CONNECTION HEREWITH. 9.8 WAIVERS. The failure of Silicon at any time or times to require Borrower to strictly comply with any of the provisions of this Agreement or any other present or future agreement between Borrower and Silicon shall not waive or diminish any right of Silicon later to demand and receive strict compliance therewith. Any waiver of any default shall not waive or affect any other default, whether prior or subsequent, and whether or not similar. None of the provisions of this Agreement or any other agreement now or in the future executed by Borrower and delivered to Silicon shall be deemed to have been waived by any act or knowledge of Silicon or its agents or employees, but only by a specific written waiver signed by an authorized officer of Silicon and delivered to Borrower. Borrower waives demand, protest, notice of protest and notice of default or dishonor, notice of payment and nonpayment, release, compromise, settlement, extension or renewal of any commercial paper, instrument, account, General Intangible, document or guaranty at any time held by Silicon on which Borrower is or may in any way be liable, and notice of any action taken by Silicon, unless expressly required by this Agreement. 9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Silicon, nor any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower or any other party through the ordinary negligence of Silicon, or any of its directors, officers, employees, agents, attorneys or any other Person affiliated with or representing Silicon, but nothing herein shall relieve Silicon from liability for its own gross negligence or willful misconduct. -11- 9.10 AMENDMENT. The terms and provisions of this Agreement may not be waived or amended, except in a writing executed by Borrower and a duly authorized officer of Silicon. 9.11 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of each and every obligation under this Agreement. 9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all reasonable attorneys' fees and all filing, recording, search, title insurance, appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to, or in connection with, or relating to this Agreement (whether or not a lawsuit is filed), including, but not limited to, any reasonable attorneys' fees and costs Silicon incurs in order to do the following: prepare and negotiate this Agreement and the documents relating to this Agreement; obtain legal advice in connection with this Agreement or Borrower; enforce, or seek to enforce, any of its rights; prosecute actions against, or defend actions by, Account Debtors; commence, intervene in, or defend any action or proceeding; initiate any complaint to be relieved of the automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party claim, or other claim; examine, audit, copy, and inspect any of the Collateral or any of Borrower's books and records; protect, obtain possession of, lease, dispose of, or otherwise enforce Silicon's security interest in, the Collateral; and otherwise represent Silicon in any litigation relating to Borrower. IN SATISFYING BORROWER'S OBLIGATION HEREUNDER TO REIMBURSE SILICON FOR ATTORNEYS FEES, BORROWER MAY, FOR CONVENIENCE, ISSUE CHECKS DIRECTLY TO SILICON'S ATTORNEYS, LEVY, SMALL & LALLAS, BUT BORROWER ACKNOWLEDGES AND AGREES THAT LEVY, SMALL & LALLAS IS REPRESENTING ONLY SILICON AND NOT BORROWER IN CONNECTION WITH THIS AGREEMENT. If either Silicon or Borrower files any lawsuit against the other predicated on a breach of this Agreement, the prevailing party in such action shall be entitled to recover its reasonable costs and attorneys' fees, including (but not limited to) reasonable attorneys' fees and costs incurred in the enforcement of, execution upon or defense of any order, decree, award or judgment. All attorneys' fees and costs to which Silicon may be entitled pursuant to this Paragraph shall immediately become part of Borrower's Obligations, shall be due on demand, and shall bear interest at a rate equal to the highest interest rate applicable to any of the Obligations. 9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding upon and inure to the benefit of the respective successors, assigns, heirs, beneficiaries and representatives of Borrower and Silicon; provided, however, that Borrower may not assign or transfer any of its rights under this Agreement without the prior written consent of Silicon, and any prohibited assignment shall be void. No consent by Silicon to any assignment shall release Borrower from its liability for the Obligations. 9.14 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one Person, their liability shall be joint and several, and the compromise of any claim with, or the release of, any Borrower shall not constitute a compromise with, or a release of, any other Borrower. 9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower against Silicon, its directors, officers, employees, agents, accountants or attorneys, based upon, arising from, or relating to this Loan Agreement, or any other present or future document or agreement, or any other transaction contemplated hereby or thereby or relating hereto or thereto, or any other matter, cause or thing whatsoever, occurred, done, omitted or suffered to be done by Silicon, its directors, officers, employees, agents, accountants or attorneys, shall be barred unless asserted by Borrower by the commencement of an action or proceeding in a court of competent jurisdiction by the filing of a complaint within one year after the first act, occurrence or omission upon which such claim or cause of action, or any part thereof, is based, and the service of a summons and complaint on an officer of Silicon, or on any other person authorized to accept service on behalf of Silicon, within thirty (30) days thereafter. Borrower agrees that such one-year period is a reasonable and sufficient time for Borrower to investigate and act upon any such claim or cause of action. The one-year period provided herein shall not be waived, tolled, or extended except by the written consent of Silicon in its sole discretion. This provision shall survive any termination of this Loan Agreement or any other present or future agreement. 9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in this Agreement for convenience. Borrower and Silicon acknowledge that the headings may not describe completely the subject matter of the applicable paragraph, and the headings shall not be used in any manner to construe, limit, define or interpret any term or provision of this Agreement. The term "including", whenever used in this Agreement, shall mean "including (but not limited to)". This Agreement has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision of this Agreement shall be construed strictly against Silicon or Borrower under any rule of construction or otherwise. 9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and transactions hereunder and all rights and obligations of Silicon and Borrower shall be governed by the laws of the State of California. As a material part of the consideration to Silicon to enter into this Agreement, Borrower (i) agrees that all actions and proceedings relating directly or indirectly to this Agreement shall, at Silicon's option, be litigated in courts located within California, and that the exclusive venue therefor shall be Santa Clara County; (ii) consents to the jurisdiction and venue of any such court and consents to service of process in any such action or proceeding by personal delivery or any other method permitted by law; and (iii) waives any and all rights Borrower may have to -12- object to the jurisdiction of any such court, or to transfer or change the venue of any such action or proceeding. 9.18 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. BORROWER: ADEXA, INC. By /s/ [ILLEGIBLE] ------------------------------------ President or Vice President By /s/ [ILLEGIBLE] ------------------------------------ Secretary or Ass't Secretary SILICON: SILICON VALLEY BANK By /s/ [ILLEGIBLE] ------------------------------------ Title /s/ [ILLEGIBLE] --------------------------------- Form 3/24/99 Version -0 -13- SILICON VALLEY BANK SCHEDULE TO LOAN AND SECURITY AGREEMENT BORROWER: ADEXA, INC. ADDRESS: 5933 W. CENTURY BLVD. SUITE 1220 LOS ANGELES, CA 90045 DATE: AUGUST 22, 2000 This Schedule forms an integral part of the Loan and Security Agreement between Silicon Valley Bank and the above-borrower of even date. ================================================================================ 1. CREDIT LIMIT (Section 1.1): An amount not to exceed the lesser of: (i) $5,000,000 at any one time outstanding (the "Maximum Credit Limit"); or (ii) 70% of the amount of Borrower's Eligible Receivables (as defined in Section 8 above).* *AFTER EACH AUDIT OF THE BORROWER'S BOOKS AND RECORDS CONDUCTED IN ACCORDANCE WITH SECTION 5.4 HEREOF, SILICON WILL REVIEW THE AFOREMENTIONED ADVANCE RATE TO DETERMINE, IN ITS SOLE DISCRETION, IF THE SAME SHOULD BE ADJUSTED. LETTER OF CREDIT SUBLIMIT (Section 1.5): $75,000. ================================================================================ 2. INTEREST. INTEREST RATE (Section 1.2): A rate equal to the "Prime Rate" in effect from time to time, plus 1.5% per annum. Interest shall be calculated on the basis of a 360-day year for the actual number of days elapsed. "Prime Rate" means the rate announced from time to time by Silicon as its "prime rate;" it is a base rate upon which other rates charged by Silicon are based, and it is not necessarily the best rate available at Silicon. The interest rate applicable to the Obligations shall change on each date there is a change in the Prime Rate. -1- ================================================================================ Provided, however, after each instance in which Borrower fails to comply with the Profitability Financial Covenant set forth herein, the applicable interest rate shall be increased by an additional 0.50% per annum. The then applicable interest rate shall not later be reduced if Borrower achieves compliance with the Profitability Financial Covenant in any subsequent reporting period. MINIMUM MONTHLY INTEREST (Section 1.2): Not Applicable. ================================================================================ 3. FEES (Section 1.4): Loan Fee: $25,000, payable concurrently herewith. Collateral Monitoring Fee: $950, per month, payable in arrears (prorated for any partial month at the beginning and at termination of this Agreement). Covenant Fee: Borrower shall pay Silicon a fee of $6,250 each time Borrower fails to comply with the Profitability Financial Covenant set forth herein. Such fee shall be in addition to all interest and all other fees payable to Silicon and shall be non-refundable. ================================================================================ 4. MATURITY DATE (Section 6.1): One year from the date of this Agreement. ================================================================================ 5. FINANCIAL COVENANTS (Section 5.1): Borrower shall comply with each of the following covenant(s). Compliance shall be determined as of the end of each fiscal quarter, except as otherwise specifically provided below: PROFITABILITY: Borrower shall have a minimum net profit of at least the following: For the fiscal quarter ending June 30, 2000: < $1,188,000 >. For the fiscal quarter ending September 30, 2000: < $844,000 >. For the fiscal quarter ending December 31, 2000: < $454,000 >. For the fiscal quarter ending March 31, 2001: < $149,000 >. For the fiscal quarter ending June 30, 2001 and each fiscal quarter ending thereafter: $19,000. MINIMUM TANGIBLE NET WORTH: Borrower shall maintain a Tangible Net Worth of not less than < $8,000,000 >. -2- DEFINITIONS. For purposes of the foregoing financial covenants, the following term shall have the following meaning: "< >" shall denote negative figures or losses, as applicable. "Current assets", "current liabilities" and "liabilities" shall have the meaning ascribed thereto by generally accepted accounting principles. "Tangible Net Worth" shall mean the excess of total assets over total liabilities, determined in accordance with generally accepted accounting principles, with the following adjustments: (A) there shall be excluded from assets: (i) notes, accounts receivable and other obligations owing to the Borrower from its officers or other Affiliates, and (ii) all assets which would be classified as intangible assets under generally accepted accounting principles, including without limitation goodwill, licenses, patents, trademarks, trade names, copyrights, capitalized software and organizational costs, licenses and franchises (B) there shall be excluded from liabilities: all indebtedness which is subordinated to the Obligations under a subordination agreement in form specified by Silicon or by language in the instrument evidencing the indebtedness which is acceptable to Silicon in its discretion. ================================================================================ 6. REPORTING. (Section 5.3): Borrower shall provide Silicon with the following: 1. Monthly Receivable agings, aged by invoice date, within fifteen days after the end of each month. 2. Monthly accounts payable agings, aged by invoice date, and outstanding or held check registers, if any, within fifteen days after the end of each month. 3. Monthly reconciliations of Receivable agings (aged by invoice date), transaction reports, and general ledger, within fifteen days after the end of each month. 4. 5. -3- 6. *Compliance Certificates, within thirty days after the end of each** , in such form as Silicon shall reasonably specify, signed by the Chief Financial Officer of Borrower, certifying that as of the end of such month Borrower was in full compliance with all of the terms and conditions of this Agreement, and setting forth calculations showing compliance with the financial covenants set forth in this Agreement and such other information as Silicon shall reasonably request, including, without limitation, a statement that at the end of such** there were no held checks. *QUARTERLY **QUARTER 7. Quarterly unaudited financial statements, as soon as available, and in any event within thirty days after the end of each fiscal quarter of Borrower. 8. Annual operating budgets (including income statements, balance sheets and cash flow statements, by month) for the upcoming fiscal year of Borrower within thirty days prior to the end of each fiscal year of Borrower. 9. Annual financial statements, as soon as available, and in any event within 120 days following the end of Borrower's fiscal year, certified by independent certified public accountants acceptable to Silicon. ================================================================================ 7. COMPENSATION (Section 5.5): Without Silicon's prior written consent, Borrower shall not pay total compensation, including salaries, withdrawals, fees, bonuses, commissions, drawing accounts and other payments, whether directly or indirectly, in money or otherwise, during any fiscal year to all of Borrower's executives, officers and directors (or any relative thereof) as a group in excess of* of the total amount thereof in the prior fiscal year. *200% ================================================================================ 8. BORROWER INFORMATION: PRIOR NAMES OF BORROWER (Section 3.2): Paragon Management Systems, Inc. PRIOR TRADE NAMES OF BORROWER (Section 3.2): _________________ -4- EXISTING TRADE NAMES OF BORROWER (Section 3.2): _________________ OTHER LOCATIONS AND ADDRESSES (Section 3.3): _________________ MATERIAL ADVERSE LITIGATION (Section 3.10): None. ================================================================================ 9. OTHER COVENANTS (Section 5.1): Borrower shall at all times comply with all of the following additional covenants: (1) BANKING RELATIONSHIP. Borrower shall at all times maintain its primary banking relationship with Silicon. (2) SUBORDINATION OF INSIDE DEBT. All present and future indebtedness of the Borrower to its officers, directors and shareholders ("Inside Debt") shall, at all times, be subordinated to the Obligations pursuant to a subordination agreement on Silicon's standard form. Borrower represents and warrants that there is no Inside Debt presently outstanding, except for the following: NONE. Prior to incurring any Inside Debt in the future, Borrower shall cause the person to whom such Inside Debt will be owed to execute and deliver to Silicon a subordination agreement on Silicon's standard form. (3) COMPLIANCE WITH PROFITABILITY FINANCIAL COVENANT. In the event Borrower receives $13,000,000 cash consideration for the issuance of new equity securities of Borrower after the date hereof, Silicon will waive Borrower's compliance with the Profitability Financial Covenant after Silicon's review and approval of Borrower's financial statements showing Borrower is entitled to such waiver of compliance or after Silicon's review and approval of such other evidence as is acceptable to Silicon in its sole discretion. Borrower: Silicon: ADEXA, INC. SILICON VALLEY BANK By /s/ Stephanie Hamilton By /s/ Joseph L. L[ILLEGIBLE] ------------------------------- ------------------------------- President or Vice President Title SUP & MGR ---------------------------- By_______________________________ Secretary or Ass't Secretary -5- SILICON VALLEY BANK AMENDMENT TO LOAN DOCUMENTS BORROWER: ADEXA, INC. DATE: AUGUST 22, 2000 THIS AMENDMENT TO LOAN DOCUMENTS is entered into between SILICON VALLEY BANK ("Silicon") and the borrower named above (the "Borrower"), with reference to the various loan and security agreements and other documents, instruments and agreements between them, including but not limited to that certain Loan Agreement dated March 31, 1998 (as amended, if at all, the "Existing Loan Agreement"; the Existing Loan Agreement and all related documents, instruments and agreements may be referred to collectively herein as the "Existing Loan Documents"). The Parties agree to amend the Existing Loan Dosuments, as follows: 1. PRESENT LOAN BALANCE. Borrower acknowledges that the present unpaid principal balance of the Borrower's indebtedness, liabilities and obligations to Silicon under the Existing Loan Documents, including interest accrued through __________________________________ is $______________________ (the "Present Loan Balance"), and that said sum is due and owing without any defense, offset, or counterclaim of any kind. 2. AMENDMENT TO EXISTING LOAN DOCUMENTS. The Existing Loan Documents are hereby amended in their entirety to read as set forth in the Loan and Security Agreement, and related documents, being executed concurrently (collectively, the "New Loan Documents"). The Borrower acknowledges that the Present Loan Balance shall be the opening balance of the Loans pursuant to the New Loan Documents as of the date hereof, and shall, for all purposes, be deemed to be Loans made by Silicon to the Borrower pursuant to the New Loan Documents. Notwithstanding the execution of the New Loan Documents, the following Existing Loan Documents shall continue in full force and effect and shall continue to secure all present and future indebtedness, liabilities, guarantees and other Obligations (as defined in the New Loan Documents): All standard documents of Silicon entered into by the Borrower in connection with Letters of Credit and/or Foreign Exchange Contracts; all security agreements, collateral assignments and mortgages, including but not limited to those relating to patents, trademarks, copyrights and other intellectual property; all lockbox agreements and/or blocked account agreements; and all UCC-1 financing statements and other documents filed with governmental offices which perfect liens or security interests in favor of Silicon. In addition, in the event the Borrower has previously issued any stock options, stock purchase warrants or securities to Silicon, the same and all documents and agreements relating thereto shall also continue in full force and effect. -1- 3. GENERAL PROVISIONS. This Amendment and the New Loan Documents set forth in full all of the representations and agreements of the parties with respect to the subject matter. -2- hereof and supersede all prior discussions, representations, agreements and understandings between the parties with respect to the subject hereof. BORROWER: SILICON: ADEXA, INC. SILICON VALLEY BANK BY /s/ [ILLEGIBLE] BY /s/ [ILLEGIBLE] ----------------------------- ---------------------------- President or Vice President TITLE: SVP & [ILLEGIBLE] ------------------------- BY /s/ [ILLEGIBLE] ----------------------------- Secretary or Ass't Secretary -3- - ------------------------------------------------------------------------------- NOTES: 1. This is an "on-line" form designed to be filled out on your computer in Microsoft Word 97. 2. Tab to move from field to field. Shift-Tab to move back to a prior field. 3. If there is not enough space for your answer, please use the Continuation Sheet at the end of this form or attach a separate Word document with the additional information. 4. Please submit this by e-mail or on a Disk to Silicon Valley Bank. Please also print this form and submit a hard copy signed by an officer of the Company. - ------------------------------------------------------------------------------- REPRESENTATIONS AND WARRANTIES TO: SILICON VALLEY BANK COMMERCIAL FINANCE DIVISION 3003 TASMAN DRIVE MAIL SORT NC491 SANTA CLARA, CALIFORNIA 95054 The undersigned, ADEXA, INC., a CA corporation (the "Company") hereby represents and warrants to you that the following information is true, accurate and complete. (The Company acknowledges that your acceptance of these Representations and Warranties does not imply any commitment on your part to enter into a loan transaction with the Company, and that any such commitment may only be made by an express written loan commitment, signed by one of your authorized officers.) 1. NAMES OF THE COMPANY a. The exact corporate name of the Company as it appears in its current Articles or Certificate of Incorporation is as follows: ADEXA, INC. b. The federal employer identification number of the Company is as follows: 33-0616222 c. The Company was incorporated on MAY 9, 1994 under the laws of the State of CA and is in good standing under those laws. d. The following is a list of all other names (including fictitious names, d/b/a's, trade names or similar names) currently used by the Company or used within the past six years: NAME PERIOD OF USE - ------------------------------------------------------------------------------- PARAGON MANAGEMENT SYSTEMS 1994-2000 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1 e. The following are the names of all corporations which have been merged into the Company during the past six years: NAME OF MERGED COMPANY YEAR OF MERGER - ------------------------------------------------------------------------------- N/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- f. The following are the names and addresses of all entities from whom the Company has acquired any personal property in a transaction not in the ordinary course of business during the past six years, together with the date of such acquisition and the type of personal property acquired (e.g., equipment, inventory, etc.): NAME STREET AND MAILING ADDRESS DATE OF ACQUISITION TYPE OF PROPERTY - ------------------------------------------------------------------------------- N/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 2. NAMES OF SUBSIDIARIES/PARENT OF THE COMPANY. a. The exact corporate name of each subsidiary and parent of the Company is as follows. (A "parent" is a company owning more than 50% of the outstanding capital stock of the Company.) NAME SUBSIDIARY/PARENT FED. EMPLOYER ID NO. - ------------------------------------------------------------------------------- ADEXA JAPAN Sub /x/ Parent / / N/A - ------------------------------------------------------------------------------- ADEXA CANADA Sub /x/ Parent / / N/A - ------------------------------------------------------------------------------- ADEXA GERMANY Sub /x/ Parent / / N/A ADEXA SINGAPORE Sub /x/ Parent / / N/A ADEXA MAURITIUS Sub /x/ Parent / / N/A - ------------------------------------------------------------------------------- b. The following is a list of the jurisdiction and date of incorporation of each subsidiary of the Company: NAME JURISDICTION DATE OF INCORPORATION - ------------------------------------------------------------------------------- ADEXA JAPAN JAPAN 1997 ADEXA CANADA CANADA 1997 - ------------------------------------------------------------------------------- ADEXA GERMANY GERMANY 2000 - ------------------------------------------------------------------------------- ADEXA SINGAPORE SINGAPORE 1999 - ------------------------------------------------------------------------------- 2
ADEXA MAURITIUS MAURITIUS 1999 - --------------- --------- ----
c. The following is a list of all other names (including fictitious names, d/b/a's, trade names or similar names) used by each subsidiary of the Company during the past six years:
NAME SUBSIDIARY - ---- ---------- PARAGON MANAGEMENT SYSTEMS ______ _____ ______ _____ ______
d. The following are the names of all corporations which have been merged into a subsidiary of the Company during the six years:
NAME SUBSIDIARY - ---- ---------- N/A _____ _____ _____ _____ _____
e. The following are the names and addresses of all entities from whom each subsidiary of the Company has acquired any personal property in a transaction not in the ordinary course of business during the past six years, together with the date of such acquisition and the type of personal property acquired (e.g., equipment, inventory, etc.):
DATE OF TYPE OF NAME MAILING ADDRESS ACQUISITION PROPERTY SUBSIDIARY - ---- --------------- ----------- -------- ---------- N/A _____ _____ _____ ______ _____ _____ _____ _____ ______ _____ _____ _____ _____ ______
3. LOCATIONS OF COMPANY AND ITS SUBSIDIARIES. a. The chief executive offices of the Company and its subsidiaries are presently located at the following addresses:
COMPLETE STREET AND MAILING ADDRESS, INCLUDING COUNTY AND ZIP CODE COMPANY/SUBSIDIARY - ------------------------------------------------------------------ ------------------ 5933 WEST CENTURY BLVD, SUITE 1220 LOS ANGELES, CA 90045 Company /X/ OR Name of Sub 3-6 HAYABUSA-CHO, CHIYODA-KU, TOKYO 102-0092 JAPAN Company / / OR Name of Sub Japan 20 ADELAIDE STREET EAST, SUITE 800 Company / / OR TORONTO, ONTARIO, MSC 2T6 Name of Sub Canada CANADA
3 LILIENTHALSTR. 29 Company / / OR D-85399 HALLBERGMOOS/MUNICH Name of Sub Germany GERMANY 30 CECIL STREET, LEVEL 15, PRUDENTIAL TOWER 049712 Singapore SINGAPORE HAPPY WORLD HOUSE, SIR WILLIAM NEWTON STREET, PORT LOUIS, REPUBLIC OF Mauritius MAURITIUS
b. During the past six years, the Company's chief executive office and the chief executive offices of its subsidiaries have been located at the following additional addresses:
COMPLETE STREET AND MAILING ADDRESS, INCLUDING COUNTY AND ZIP CODE COMPANY/SUBSIDIARY - ------------------------------------------------------------------ ------------------ - ------------------------------------------------------------------------------------------------------- 5933 WEST CENTURY BLVD. SUITE 1220 LOS ANGELES, CA. 90045 Company /X/ OR Name of Sub - ------------------------------------------------------------------------------------------------------- _____ Company / / OR Name of Sub - ------------------------------------------------------------------------------------------------------- _____ Company / / OR Name of Sub - ------------------------------------------------------------------------------------------------------- _____ Company / / OR Name of Sub - -------------------------------------------------------------------------------------------------------
c. The following are all the locations in the United States where the Company and its subsidiaries maintain any books or records relating to any of their accounts receivable;
COMPLETE STREET AND MAILING ADDRESS, INCLUDING COUNTY AND ZIP CODE COMPANY/SUBSIDIARY - ------------------------------------------------------------------ ------------------ - ------------------------------------------------------------------------------------------------------- 5933 WEST CENTURY BLVD. SUITE 1220 LOS ANGELES, CA. 90045 Company /X/ OR Name of Sub - ------------------------------------------------------------------------------------------------------- _____ Company / / OR Name of Sub - ------------------------------------------------------------------------------------------------------- _____ Company / / OR Name of Sub - ------------------------------------------------------------------------------------------------------- _____ Company / / OR Name of Sub - -------------------------------------------------------------------------------------------------------
4 d. The following are alll of the locations in the United States where the Company and its subsidiaries maintain any equipment, fixutres, inventory or other property: COMPLETE STREET AND MAILING ADDRESS, INCLUDING COUNTY AND ZIP CODE COMPANY/SUBSIDIARY 9533 WEST CENTURY BLVD, SUITE 1220 LOS ANGELES, CA. Company /x/OR Name of Sub Name of Sub 10 WRIGHT ST. SUITE 110 WESTPORT, CT 06880 Company /x/OR Name of Sub Name of Sub 5010 INTERNATIONAL DRIVE, SUITE 300 MOUNT OLIVE, NJ 07828 Company /x/OR Name of Sub Name of Sub 800 HINGHAM STREET, SUITE 200N ROCKLAND, MA 02370 Company /x/OR Name of Sub Name of Sub c. The following are all the location in the United States where the Company and its subsidiaries own, lease, or occupy any real property: COMPLETE STREET AND MAILING ADDRESS, INCLUDING COUNTY AND ZIP CODE COMPANY/SUBSIDIARY 5933 WEST CENTURY BLVD. SUITE 1220 LOS ANGELES, CA. Company /x/OR Name of Sub Name of Sub 1080 HOLCOMB BRIDGE ROAD BUILDING 100, SUITE 135 ROSWELL, GA. 30076 Company /x/OR Name of Sub Name of Sub 10 WRIGHT ST. SUITE 110 WESTPORT, CT 06880 Company /x/OR Name of Sub Name of Sub 500 INTERNATIONAL DRIVE, SUITE 300 MOUNT OLIVE, NJ 07828 Company /x/OR Name of Sub Name of Sub 800 HINGHAM STREET, SUITE 200N ROCKLAND, MA 02370 Company /x/OR Name of Sub Name of Sub f. The following are the names and addresses of all warehousemen or bailees who have peossession of any of the Company's inventroy or any of the inventory of its subsidiaries: COMPANY/SUBSIDIARY NAME COMPLETE STREET AND MAILING ADDRESS, INCLUDING COUNTY AND ZIP Company / /OR Name of Sub CODE Name of Sub -- -- Company / /OR Name of Sub Name of Sub -- -- Company / /OR Name of Sub Name of Sub -- -- Company / /OR Name of Sub Name of Sub
5 NAME OF SUB 4. SPECIAL TYPES OF COLLATERAL a. The Company and its subsidiaries own the following kinds of assets. (If the answer is "Yes" to any of the following questions, attach a schedule describing each such asset owned by the Company or its subsidiaries and identifying which party owns the asset.) - --------------------------------------------------------------------------------------------------------- Copyrights or copyright applications registered with the U.S. Copyright Office Yes /X/ No / / - --------------------------------------------------------------------------------------------------------- Software registered with the U.S. Copyright Office Yes /X/ No / / - --------------------------------------------------------------------------------------------------------- Software NOT registered with the U.S. Copyright Office Yes /X/ No / / - --------------------------------------------------------------------------------------------------------- Patents and patent applications Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Trademarks or trademark applications (including any service marks, collective marks and certification marks) Yes /X/ No / / - --------------------------------------------------------------------------------------------------------- Licenses to use trademarks, patents and copyrights of others Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Franchise, marketing agreements or similar agreements: Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Stocks, Bonds or other securities: Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Promissory notes, or other instruments or evidence of indebtedness: Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Leases of equipment, security agreements naming such person as secured party, or other chattel paper: Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Aircraft: Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Vessels, Boats or Ships: Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Railroad Rolling Stock Yes / / No /X/ - --------------------------------------------------------------------------------------------------------- Motor Vehicles Yes / / No /X/ - ---------------------------------------------------------------------------------------------------------
b. The following are all governmental permits and licenses held by the Company and its subsidiaries:
DESCRIPTION OF LICENSE COMPANY/SUBSIDIARY - ---------------------- ------------------ - -------------------------------------------------------------------------------------- - ----- Company / / OR Name of Sub - -------------------------------------------------------------------------------------- - ----- Company / / OR Name of Sub - -------------------------------------------------------------------------------------- - ----- Company / / OR Name of Sub - -------------------------------------------------------------------------------------- - ----- Company / / OR Name of Sub - -------------------------------------------------------------------------------------- - ----- Company / / OR Name of Sub - --------------------------------------------------------------------------------------
6 c. The following are all banks or savings institutions at which the Company and its subsidiaries maintain deposit accounts:
- ------------------------------------------------------------------------------------------------- Bank Name Account Number Branch Address Company/Subsidiary - ------------------------------------------------------------------------------------------------- WELLS FARGO BANK 6714-233897 PO BOX 5190 SIOUX FALLS, Company /X/ OR 0744-097007 SD 57117 Name of Sub - ------------------------------------------------------------------------------------------------- SILICON VALLEY BANK 3300154227 PO BOX 2607 Company /X/ OR 3300116272 SANTA CLARA, CA. 95055 Name of Sub 3300111299 - ------------------------------------------------------------------------------------------------- DKB KOJIMACHI 1704978 2 KOJIMACHI 3-CHOME Company / / OR 1707047 CHIYODA TOKYO 102- Name of Sub Japan 9102748 0083 JAPAN - ------------------------------------------------------------------------------------------------- KORAM BANK 101-51472-248 SEO-YOIDO BRANCH Company /X/ OR 1 FL., ILSHIN BLDG., Name of Branch Korea #15-15 YOIDO-DONG YOUNGDUNGPO-KU, SEOUL, KOREA - ------------------------------------------------------------------------------------------------- THE FIRST COMMERCIAL 16210043884 NO. 168, 2nd SEC HSIN YI Company /X/ OR BANK 033-001- RD. TAIPIA, TAIWAN Name of Branch Taiwan 0000102-6 R.O.C. KONTOUMSATZE 815621 SPARKASSE HALLBERMOOS Germany 203117 THERESIENSTRASSE 29 85399 HALLBERMOOS/ GERMANY DBS BANK 022-02236-1 6 SHENTON WAY, DBS Singapore 5356577 BUILDING SINGAPORE 068809 HSBC MU MOBU ENTERPRISE SOLUTION FTE Mauritius 080-042658 LTD OVERSEAS CO. REGISTRATION AG M LTD 7th FLOOR HAPPY WORLD HOUSE SIR WILLIAM - -------------------------------------------------------------------------------------------------
7 NEWTON ST. PORT LOUIS #MU MOBU 080- 042658 Toronto 915 KINGSTON RD. CIBC 72-02911 TORONTO, ONTARIO M4E 1S4 CANADA
5. OFFICERS OF THE COMPANY AND ITS SUBSIDIARIES The following are the names and titles of the officers of the Company and its Subsidiaries.
Officer/Title Name of Officer Company/Subsidiary - ------------- --------------- ------------------ - --------------------------------------------------------------------------------- CEO DR. CYRUS HADAVI Company /X/ OR Name of Sub all subs - --------------------------------------------------------------------------------- CFO TIM ROMER Company /X/ OR Name of Sub all subs - --------------------------------------------------------------------------------- COO HOON CHUNG Company /X/ OR Name of Sub all subs - --------------------------------------------------------------------------------- CTO UDO DENGLER Company /X/ OR Name of Sub - --------------------------------------------------------------------------------- _____ _____ Company / / OR Name of Sub - --------------------------------------------------------------------------------- _____ _____ Company / / OR Name of Sub - ---------------------------------------------------------------------------------
6. LEGAL COUNSEL The following firm will represent the Company in connection with the loan documents:
ATTORNEY LAW FIRM TELEPHONE FAX EMAIL - -------- -------- --------- --- ----- Monte M. Lemann Manatt, Phelps, 310-312-4000 310-312-4224 mlemann@manatt.co II Philips, LLP m
8 The undersigned undertakes to advise you of any change or modification to any of the foregoing information. Until such notice is received by you, you shall be entitled to rely upon all of the foregoing and presume it is correct and accurate in all respects. DATE: 8-22-00 ADEXA, INC. By: /s/ [ILLEGIBLE] ------------------------------- Its: VP --------------------------- Email: 9 CONTINUATION PAGE--ADDITIONAL INFORMATION The following are exceptions to the representations and warranties set forth in the Loan and Security Agreement of Adexa, Inc. (the "Company" or "Adexa"), dated August 22, 2000 (the "Agreement"), and should be considered an integral part of the Agreement. Any terms defined in the Agreement shall have the same meaning when used in this Schedule as when used in the Agreement, unless the context indicates otherwise. The paragraph numbers of this Schedule correspond to the first, or principal, section of the Agreement to which the disclosures relate; however, all information disclosed herein shall be deemed disclosed under and incorporated into any other section of the Agreement where such disclosure would be appropriate. 3.4 TITLE TO COLLATERAL; PERMITTED LIENS. - The Company has not performed any copyright, patent or other searches to verify it has sufficient title and ownership of its Intellectual Property, nor has it conducted such scarches in order to determine whether any of its Intellectual Property infringes any rights of any third party. 3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS - From its inception, the Company had filed an election to be taxed as an S-corporation under the Code. The Company no longer qualified for S-corporation status upon consummation of its Series A Preferred Stock financing on August 4, 1997. The Company filed its 1997 tax return indicating that the S-corporation election was abandoned as of such date and files future tax returns as a C-corporation. - The Company has not paid sales tax on any sales of products within the United States based on electronic rather than physical delivery of its software. Such U.S. purchasers have agreed to reimburse the Company with respect to any state tax liability assessed. The Company has also established a reverse for potential sales tax liability. - The Company did not timely file its 1998 federal and state tax returns. Penalties are currently estimated to be no more than $10,000. - The Company is being audited by the City of Los Angeles for tax years 1998, 1999 and 2000 based on gross receipts in calendar years 1997, 1998 and 1999, respectively. - The Company has established a reserve for various withholding taxes that it believes may be imposed upon license and consulting revenues in Taiwan and other jurisdictions. The Company has retained D & T to develop a global tax minimization strategy. 3.10 LITIGATION - The Company received a letter from the Law Offices of Dean, Smith & Therrell, P.A. on behalf of C. Ernest Johnson, a former employee of the Company, dated February 25, 2000, alleging various claims for wrongful employment termination and failure to pay commissions. On March 23, 2000 Mr. Johnson filed a Charge of Discrimination with the Equal Employment Opportunity Commission ("EEOC") against the Company, alleging discrimination on the basis of age. On April 25, 2000 the Company filed its position statement, denying the allegations, and on June 28, 2000 the EEOC issued a "no finding" determination and issued a right-to-sue letter; Mr. Johnson has until September 26, 2000 to file a lawsuit in this matter. The Company is not aware of any lawsuit filed by Mr. Johnson. - Brad Forsythe's employment with the Company was terminated on February 14, 2000. Mr. Forsythe sued the Company in Connecticut alleging that he is entitled to unpaid commissions earned prior to the termination of his employment and that his stock options should have been vesting on a monthly basis following the one year anniversary of his vesting commencement date. The suit was brought in state court and removed to federal court. The Company maintains it has a consistent policy that commissions are earned upon cash receipt and revenue recognitiion by the Company and therefore no commissions were owing to Mr. Forsythe upon his termination of employment. Since Mr. Forsythe signed option documentation clearly stating that his stock options vested in annual installments, the Company intends to vigorously defend against any claims by Mr. Forsythe that his options should have been vesting on a montly basis. The two parties have agreed to enter arbitration negotiations scheduled for September, 2000. 10 - In June 2000, Craig Wibby, a former employee of the Company, threatened to sue the Company alleging he was owed commissions. The amount of the claim is undetermined but is less than $25,000. - The Company and former employee, Gary Brayton, have reached a verbal, non-binding agreement regarding a monetary settlement to resolve Mr. Brayton's allegations that the Company was contractually obligated to provide him additional stock option vesting following the termination of his employment. The dispute involves an option to purchase 12,500 shares of Common Stock and the verbal agreement will involve a payment by the Company of $45,000. - Dr. K. Cyrus Hadavi, President and Chief Executive Officer of the Company, has received letters from i2 Technologies Inc. ("i2") (previously known as Intellection) or its legal counsel dated March 3, 1994, March 16, 1994, July 3, 1995, and February 4, 1997, claiming that Dr. Hadavi, a former employee of i2, improperly solicited clients of i2, misused trade secrets and confidential information of i2 obtained during his employment with i2 and slandered and disparaged i2 and its products. The Company believes such claims are without merit. - On July 14, 2000, Company received a letter from Andre Reverdin of the law firm of Katzarov S.A. on behalf of his clients Logitech S.A. and Logitech International S.A. Switzerland (together "Logitech"). In his letter, Mr. Reverdin claimed that Company's trademark "Adexa" was confusingly similar to Logitech's trademark "Dexxa" which is registered in at least Germany, Spain and France (the letter does not explain the exact countries in which such mark is registered). Company believes that Logitech's claims are without merit and has retained counsel to respond to Mr. Reverdin's letter. 5.5 NEGATIVE COVENANTS - The Company has loaned $300,000 to Udo Dengler, the Company's Chief Technology Officer, at a 5% semi-annual interest rate pursuant to a promissory note due in 2008. In addition, in a letter dated March 3, 1999, the Company promised Mr. Dengler a total bonus payment of $145,000 upon the exercise of his vested options in exchange for increasing his option exercise price to $0.15 per share. Such bonus has been accrued. - The Company loaned $200,000 to K. Cyrus Hadavi, the Company's CEO and a director of the Company, pursuant to a Loan, Pledge and Option Agreement dated July 31, 1997. - The Company loaned $55,000 to Hoon Chung, currently the Company's Chief Operating Officer, pursuant to a promissory note in December 1997. TYPES OF COLLATERAL CHECKLIST FOLLOWING IS A LIST AND DESCRIPTION OF OUR SOFTWARE PRODUCTS. iCOLLABORATION COMPONENTS Our iCollaboration suite consists of the following components, which may be deployed and configured in various ways:
- ------------------------------------------------------------------------------- iCOLLABORATION DESCRIPTION COMPONENTS - ------------------------------------------------------------------------------- Supply Chain Planner iCollaboration's Supply Chain Planner is a constraint-based planning application that enables organizations to coordinate and synchronize global supply chain activities, including procurement, production and distribution. Supply Chain Planner uses a detailed, supply chain model that accounts for multiple production and distribution sites, transportation networks and supplier and customer connections to model enterprise-wide material and capacity constraints. - ------------------------------------------------------------------------------- Available-to-Promise iCollaboration's Available-to-Promise, or ATP, enables companies and electronic exchanges to provide their customers with real-time available-to-promise and capable-to-promise information. ATP simultaneously considers a variety of constraints provided by Supply Chain Planner, including current and projected inventory positions, production and distribution capacity, appropriate substitution and configuration alternatives and the priorities of competing commitments. - -------------------------------------------------------------------------------
11 - ---------------------------------------------------------------------------------------------------------------------------- Planet Planner iCollaboration's Plant Planner is a constraint-based planning application designed to optimize plant-level operations while respecting strategic business constraints, such as customer priority. Plant Planner uses configurable business rules to model complex production processes and advanced planning algorithms to quickly process and route large numbers of jobs. Plant Planer improves both the reliability and feasibility of production plans by balancing material and capacity constraints with supplier constraints and customer preferences as they change. - ---------------------------------------------------------------------------------------------------------------------------- Strategic Planner iCollaborations's Strategic Planner is a scenario-based, long-horizon planning and optimization application that enables companies to design their supply chain and business processes to achieve strategic business objectives, improve customer service levels and more accurately predict the impact of supply chain decisions on short-and long-term financial performance. - ---------------------------------------------------------------------------------------------------------------------------- Collaborative Demand iCollaboration's Collaborative Demand Planner enables multiple users within and outside the Planner enterprise to collaboratively plan for future demand. Designed for enterprises in demand-volatile industries where historical information cannot accurately predict future demand, Collaborative Demand Planner enables users to securely view, analyze and publish changes to forecasted demand. Collaborative Demand Planner allows enterprises to quickly reach a consensus forecast based on the input of a wide range of users. - ---------------------------------------------------------------------------------------------------------------------------- Collaborative Supply iCollaboration's Collaborative Supply Planner will complement Collaborative Demand Planner by Planner enabling enterprises to provide their suppliers with visibility into forecasted demand over the Internet. Collaborative Supply Planner will enable enterprises to collaborate with their suppliers on component-level demand from Supply Chain Planner. - ---------------------------------------------------------------------------------------------------------------------------- Product Development iCollaboration's Product Development Planner is designed to enable enterprises to optimize Planner their product development processes by intelligently allocating design resources, synchronizing multiple development projects and scheduling sequence-dependent activities. Product Development Planner uses a constraint-based planning engine to generate product development plans that are based on the enterprise's constraints. - ---------------------------------------------------------------------------------------------------------------------------- Shop Floor Sequencer iCollaboration's Shop Floor Sequencer translates work orders into detailed execution instructions for shop floor systems and sequences jobs across multiple plant resources to efficiently meet production requirements. Shop Floor Sequencer functions as an intelligent buffer between the production plan and shop floor systems and can reduce the impact of unexpected events--such as machine outages or inventory shortfalls--by automatically re-sequencing production events. - ---------------------------------------------------------------------------------------------------------------------------- Business Agents - ICOLLABORATION'S ATP AGENT is embedded in external applications, such as an order entry system, and works with our Available to Promise application to provide customers with real-time order promising information. - ICOLLABORATION'S BUSINESS ALERT AGENT is an exception-based messaging system that monitors supply chain activities and sends alerts when user-defined thresholds are exceeded. - ICOLLABORATION'S CUSTOMER AGENT monitors order status and notifies customers when user-defined thresholds are exceeded. - ICOLLABORATION'S SUPPLIER AGENT monitors the status of ordered components and provides users with immediate access to material requirement information when new production plans are created. - ---------------------------------------------------------------------------------------------------------------------------- Unified Data Server iCollaboration's Unified Data Server provides persistent data storage for all iCollaboration modules via a relational database. Unified Data Server manages the data required for distributed supply chain planning by enabling data. - ---------------------------------------------------------------------------------------------------------------------------- 12 - ---------------------------------------------------------------------------------------------------------------------------- communication between multiple Unified Data Server instances and supporting multiple supply chain models. - ---------------------------------------------------------------------------------------------------------------------------- Supply Chain iCollaboration's Supply Chain Controller is the workflow and integration module for the Controller iCollaboration suite. Supply Chain Controller consists of a graphical workflow modeling tool, application programming interfaces and certified connectors to external data sources and applications. - ----------------------------------------------------------------------------------------------------------------------------
13 SILICON VALLEY BANK CERTIFIED RESOLUTION AND INCUMBENCY CERTIFICATE BORROWER: ADEXA, INC., A CORPORATION ORGANIZED UNDER THE LAWS OF THE STATE OF CALIFORNIA DATE: AUGUST 22, 2000 I, the undersigned, Secretary or Assistant Secretary of the above-named borrower, a corporation organized under the laws of the state set forth above, do hereby certify that the following is a full, true and correct copy of resolutions duly and regularly adopted by the Board of Directors of said corporation as required by law, and by the by-laws of said corporation, and that said resolutions are still in full force and effect and have not been in any way modified, repealed, rescinded, amended or revoked. RESOLVED, that this corporation* borrow from Silicon Valley Bank ("Silicon"), from time to time, such sum or sums of money as, in the judgment of the officer or officers hereinafter authorized hereby, this corporation may require**. *MAY **UP TO TEN MILLION ($10,000,000) PRINCIPAL AMOUNT RESOLVED FURTHER, that any officer of this corporation be, and he or she is hereby authorized, directed and empowered, in the name of this corporation, to execute and deliver to Silicon, and Silicon is requested to accept, the loan agreements, security agreements, notes, financing statements, and other documents and instruments providing for such loans and evidencing and/or securing such loans, with interest thereon, and said authorized officers are authorized from time to time to execute renewals, extensions and/or amendments of said loan agreements, security agreements, and other documents and instruments. RESOLVED FURTHER, that said authorized officers be and they are hereby authorized, directed and empowered, as security for any and all indebtedness of this corporation to Silicon, whether arising pursuant to this resolution or otherwise, to grant, transfer, pledge, mortgage, assign, or otherwise hypothecate to Silicon, any property of any and every kind, belonging to this corporation, including, but not limited to, any and all accounts, inventory, equipment, general intangibles, instruments, documents, chattel paper, notes, money, deposit accounts, furniture, fixtures, goods, and other property of every kind, and to execute and deliver to Silicon any and all grants, transfers, trust receipts, loan or credit agreements, pledge agreements, mortgages, financing statements, security agreements and other hypothecation agreements, which said instruments and the note or notes and other instruments referred to in the preceding paragraph may contain such provisions, covenants, recitals and agreements as Silicon may require and said authorized officers may approve, and the execution thereof by said authorized officers shall be conclusive evidence of such approval. RESOLVED FURTHER, that Silicon may conclusively rely upon a certified copy of these resolutions and a certificate of the Secretary or* Secretary of this corporation as to the officers of this corporation and their offices and signatures, and continue to conclusively rely on such certified copy of these resolutions and said certificate for all past, present and future transactions until written notice of any change hereto or thereto is given to Silicon by this corporation by certified mail, return receipt requested. *ASSISTANT -1- The undersigned further hereby certifies that the following persons are the duly elected and acting officers of the corporation named above as borrower and that the following are their actual signatures: NAMES OFFICE(S) ACTUAL SIGNATURES Stephanie Hamilton CAO, VP /s/ Stephanie Hamilton ------------------------------ --------------------------------- X--------------------------- ------------------------------ --------------------------------- X--------------------------- ------------------------------ --------------------------------- X--------------------------- ------------------------------ --------------------------------- X---------------------------
IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary or Assistant Secretary on the date set forth above. /s/ Stephanie Hamilton ------------------------------------------- Secretary or Assistant Secretary ------------------- -2- THIS SPACE FOR USE OF FILING OFFICE FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY This Financing Statement is presented for filing pursuant to the Uniform Commercial Code and will remain effective, with certain exceptions, for 5 years from date of filing. - -------------------------------------------------------------------------------------------------------- A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional) - -------------------------------------------------------------------------------------------------------- C. RETURN COPY TO: (Name and Mailing Address) LEXIS DOCUMENT SERVICES INC. PO BOX 2969 SPRINGFIELD, IL 62708 - -------------------------------------------------------------------------------------------------------- D. OPTIONAL DESIGNATION (if applicable): / / LESSOR/LESSEE / / CONSIGNOR/CONSIGNEE / / NON-UCC FILING - ----------------------------------------------------------------------------------------------------------------------------------- 1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) ------------------------------------------------------------------------------------------------------------------------------- 1a. ENTITY'S NAME ADEXA, INC. OR ------------------------------------------------------------------------------------------------------------------------------- 1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX - ----------------------------------------------------------------------------------------------------------------------------------- 1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 5933 WEST CENTURY BLVD. #1220 LOS ANGELES CA USA 90045 - ----------------------------------------------------------------------------------------------------------------------------------- 1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D.#, if any ADD'NL INFO RE OR COUNTRY OF ENTITY DEBTOR ORGANIZATION / / NONE - ----------------------------------------------------------------------------------------------------------------------------------- 2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) ------------------------------------------------------------------------------------------------------------------------------- 2a. ENTITY'S NAME OR ------------------------------------------------------------------------------------------------------------------------------- 2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX - ----------------------------------------------------------------------------------------------------------------------------------- 2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE - ----------------------------------------------------------------------------------------------------------------------------------- 2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D.#, if any ADD'NL INFO RE OR COUNTRY OF ENTITY DEBTOR ORGANIZATION / / NONE - ----------------------------------------------------------------------------------------------------------------------------------- 3. SECURED PARTY'S (ORIGINAL S/P or IT'S TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only secured party name (3a or 3b) ------------------------------------------------------------------------------------------------------------------------------- 3a. ENTITY'S NAME SILICON VALLEY BANK OR ------------------------------------------------------------------------------------------------------------------------------- 3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX - ----------------------------------------------------------------------------------------------------------------------------------- 3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 3003 TASMAN DRIVE, MAIL SORT NC-661 SANTA CLARA CA USA 95054 - ----------------------------------------------------------------------------------------------------------------------------------- 4. This FINANCING STATEMENT covers the following types or items of property: Debtor hereby grants Secured Party a security interest in all of the following, whether now owned or hereafter acquired, and wherever located, as collateral for the payment and performance of all present and future indebtedness, liabilities, guarantees and obligations of Debtor to Secured Party: All "accounts," "general intangibles," "chattel paper," "documents," "letters of credit," "instruments," "deposit accounts," "inventory," "farm products," " fixtures," "equipment," "investment property," "securities," "financial assets," "securities accounts," and "security settlements" as such terms are defined in the California Uniform Commercial Code in effect on the date hereof, and all other types or items of property described on Exhibit A hereto (but this Financing Statement shall be fully effective notwithstanding any lack of any Exhibit A). Debtor is not authorized to sell, transfer, or further encumber any of the foregoing collateral, except for the sale of finished inventory in the ordinary course of business. CA-S0S - ----------------------------------------------------------------------------------------------------------------------------------- 5. CHECK / / This FINANCING STATEMENT is signed by the Secured Party instead of 7. If filed in Florida (check one) BOX the Debtor to perfect a security interest (a) in collateral already / / Documentary / / Documentary (if applicable) subject to a security interest in another jurisdiction when it was stamp tax stamp brought into this state, or when the debtor's location was changed paid tax not to this state, or (b) in accordance with other statutory provisions applicable (additional data may be required) - ----------------------------------------------------------------------------------------------------------------------------------- 6. REQUIRED SIGNATURE(S) 8. / / This FINANCING STATEMENT is to be filed (for record) (or recorded) in the REAL ESTATE RECORDS ADEXA, INC. /s/ [ILLEGIBLE], CFO Attach Addendum (if applicable) - ----------------------------------------------------------------------------------------------------------------------------------- 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s) (ADDITIONAL FEE) (optional) / / All Debtors / /Debtor 1 / / Debtor 2 - ----------------------------------------------------------------------------------------------------------------------------------- [LOGO]
EXHIBIT "A" TO FINANCING STATEMENT AND SECURITY AGREEMENT This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types or items of property (in addition to, and without limiting the types of property set forth on page 1 hereof): All "Inventory", "Equipment", "Receivables", and "General Intangibles", including, without limitation, all of Debtor's "Deposit Accounts" (as the foregoing terms are defined below), and all money, and all property now or at any time in the future in Secured Party's possession (including claims and credit balances), and all proceeds of the foregoing (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products of any of the foregoing, and all books and records related to any of the foregoing. As used in this Exhibit A the following terms have the following meanings: "Code" means the Uniform Commercial Code as adopted and in effect in the State of California at the date hereof. "Deposit Account" has the meaning set forth in Section 9105 of the Code. "Equipment" means all of Debtor's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Debtor's operations or owned by Debtor and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "General Intangibles" means all general intangibles of Debtor, whether now owned or hereafter created or acquired by Debtor, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Debtor against Secured Party, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Debtor, all rights to indemnification and all other intangible property of every kind and nature. "Inventory" means all of Debtor's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Debtor's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "Receivables" means all of Debtor's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Debtor, all guaranties and other security therefor, all merchandise returned to or repossessed by Debtor, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. THIS SPACE FOR USE OF FILING OFFICE FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY This Financing Statement is presented for filing pursuant to the Uniform Commercial Code and will remain effective, with certain exceptions, for 5 years from date of filing. - -------------------------------------------------------------------------------------------------------- A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional) - -------------------------------------------------------------------------------------------------------- C. RETURN COPY TO: (Name and Mailing Address) LEXIS DOCUMENT SERVICES INC. PO BOX 2969 SPRINGFIELD, IL 62708 - -------------------------------------------------------------------------------------------------------- D. OPTIONAL DESIGNATION (if applicable): / / LESSOR/LESSEE / / CONSIGNOR/CONSIGNEE / / NON-UCC FILING - ----------------------------------------------------------------------------------------------------------------------------------- 1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) ------------------------------------------------------------------------------------------------------------------------------- 1a. ENTITY'S NAME ADEXA, INC. OR ------------------------------------------------------------------------------------------------------------------------------- 1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX - ----------------------------------------------------------------------------------------------------------------------------------- 1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 5933 WEST CENTURY BLVD. #1220 LOS ANGELES CA USA 90045 - ----------------------------------------------------------------------------------------------------------------------------------- 1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D.#, if any ADD'NL INFO RE OR COUNTRY OF ENTITY DEBTOR ORGANIZATION / / NONE - ----------------------------------------------------------------------------------------------------------------------------------- 2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) ------------------------------------------------------------------------------------------------------------------------------- 2a. ENTITY'S NAME OR ------------------------------------------------------------------------------------------------------------------------------- 2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX - ----------------------------------------------------------------------------------------------------------------------------------- 2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE - ----------------------------------------------------------------------------------------------------------------------------------- 2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D.#, if any ADD'NL INFO RE OR COUNTRY OF ENTITY DEBTOR ORGANIZATION / / NONE - ----------------------------------------------------------------------------------------------------------------------------------- 3. SECURED PARTY'S (ORIGINAL S/P or IT'S TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only secured party name (3a or 3b) ------------------------------------------------------------------------------------------------------------------------------- 3a. ENTITY'S NAME SILICON VALLEY BANK OR ------------------------------------------------------------------------------------------------------------------------------- 3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX - ----------------------------------------------------------------------------------------------------------------------------------- 3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE 3003 TASMAN DRIVE, MAIL SORT NC-661 SANTA CLARA CA USA 95054 - ----------------------------------------------------------------------------------------------------------------------------------- 4. This FINANCING STATEMENT covers the following types or items of property: Debtor hereby grants Secured Party a security interest in all of the following, whether now owned or hereafter acquired, and wherever located, as collateral for the payment and performance of all present and future indebtedness, liabilities, guarantees and obligations of Debtor to Secured Party: All "accounts," "general intangibles," "chattel paper," "documents," "letters of credit," "instruments," "deposit accounts," "inventory," "farm products," " fixtures," "equipment," "investment property," "securities," "financial assets," "securities accounts," and "security settlements" as such terms are defined in the California Uniform Commercial Code in effect on the date hereof, and all other types or items of property described on Exhibit A hereto (but this Financing Statement shall be fully effective notwithstanding any lack of any Exhibit A). Debtor is not authorized to sell, transfer, or further encumber any of the foregoing collateral, except for the sale of finished inventory in the ordinary course of business. CA-S0S - ----------------------------------------------------------------------------------------------------------------------------------- 5. CHECK / / This FINANCING STATEMENT is signed by the Secured Party instead of 7. If filed in Florida (check one) BOX the Debtor to perfect a security interest (a) in collateral already / / Documentary / / Documentary (if applicable) subject to a security interest in another jurisdiction when it was stamp tax stamp brought into this state, or when the debtor's location was changed paid tax not to this state, or (b) in accordance with other statutory provisions applicable (additional data may be required) - ----------------------------------------------------------------------------------------------------------------------------------- 6. REQUIRED SIGNATURE(S) 8. / / This FINANCING STATEMENT is to be filed (for record) (or recorded) in the REAL ESTATE RECORDS ADEXA, INC. /s/ [ILLEGIBLE], CFO Attach Addendum (if applicable) - ----------------------------------------------------------------------------------------------------------------------------------- 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s) (ADDITIONAL FEE) (optional) / / All Debtors / /Debtor 1 / / Debtor 2 - ----------------------------------------------------------------------------------------------------------------------------------- [LOGO]
EXHIBIT "A" TO FINANCING STATEMENT AND SECURITY AGREEMENT This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types or items of property (in addition to, and without limiting the types of property set forth on page 1 hereof): All "Inventory", "Equipment", "Receivables", and "General Intangibles", including, without limitation, all of Debtor's "Deposit Accounts" (as the foregoing terms are defined below), and all money, and all property now or at any time in the future in Secured Party's possession (including claims and credit balances), and all proceeds of the foregoing (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products of any of the foregoing, and all books and records related to any of the foregoing. As used in this Exhibit A the following terms have the following meanings: "Code" means the Uniform Commercial Code as adopted and in effect in the State of California at the date hereof. "Deposit Account" has the meaning set forth in Section 9105 of the Code. "Equipment" means all of Debtor's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Debtor's operations or owned by Debtor and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "General Intangibles" means all general intangibles of Debtor, whether now owned or hereafter created or acquired by Debtor, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Debtor against Secured Party, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Debtor, all rights to indemnification and all other intangible property of every kind and nature. "Inventory" means all of Debtor's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Debtor's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "Receivables" means all of Debtor's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Debtor, all guaranties and other security therefor, all merchandise returned to or repossessed by Debtor, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. FORM UCC-1/UNIFORM COMMERCIAL CODE/FINANCING STATEMENT/STATE OF CONNECTICUT/Rev 10/97 PLEASE TYPE OR PRINT-SEE REVERSE SIDE FOR COMPLETE INSTRUCTION - ---------------------------------------------------------------------------------------------------------------------------------- SPACE FOR OFFICE USE ONLY SPACE FOR OFFICE USE ONLY WORK ORDER NUMBER FILING NUMBER - ---------------------------------------------------------------------------------------------------------------------------------- 1. SPECIAL DEBTOR/COLLATERAL INFORMATION-CHECK AND COMPLETE IF APPLICABLE a. Debtor is transmitting utility as defined in section 424-9-402 of the Connecticut General Statutes. - --- b. Debtor does not have an interest of record. The name of the owner of such interest is______________________________________ - --- X c. Products of collateral are claimed and thus covered. - --- d. (The Collateral is crops) The below described crops are growing or are to be gorwn on; (describe the real estate below or - --- on a separate sheet) e. (The below goods are to become fixtures) Describe real estate below or on a separate sheet and file a financing statement - --- on the real estate records. f. Party named in secured party block is a LESSOR and party named in debtor block is a LESSEE. - --- g. Party named in secured party block is a CONSIGNOR and party named in debtor block is a CONSIGNEE. - --- CT-SOS - ---------------------------------------------------------------------------------------------------------------------------------- 2. DEBTOR'S EXACT LEGAL NAME- Attach 8 1/2" x 11" sheet to present additional / / Check here for additional debtors. debtor information. -------------------------------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER IF INDIVIDUAL -------------------------------------------------------------------------------------------------------------------- IF BUSINESS NAME TAXPAYER I.D. # ADEXA, INC. - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) CITY STATE COUNTRY POSTAL CODE 5933 WEST CENTURY BLVD. #1220 LOS ANGELES CA USA 90045 - ---------------------------------------------------------------------------------------------------------------------------------- 3. SECURED PARTY'S FULL LEGAL NAME- Attach 8 1/2" x 11" sheet to present additional secured party information in conformity with the statement below. -------------------------------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER IF INDIVIDUAL -------------------------------------------------------------------------------------------------------------------- IF BUSINESS NAME TAXPAYER I.D. # SILICON VALLEY BANK - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) CITY STATE COUNTRY POSTAL CODE 3003 TASMAN DRIVE, MAIL SORT NC-661 SANTA CLARA CA USA 95054 - ---------------------------------------------------------------------------------------------------------------------------------- 4. (IF APPLICABLE) ASSIGNEE'S FULL LEGAL NAME debtor information. -------------------------------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER IF INDIVIDUAL -------------------------------------------------------------------------------------------------------------------- IF BUSINESS NAME TAXPAYER I.D. # - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) CITY STATE COUNTRY POSTAL CODE - ---------------------------------------------------------------------------------------------------------------------------------- 5. THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPES (or items) OF PROPERTY (Describe): Debtor hereby grants Secured Party a security interest in all of the following, whether now owned or hereafter acquired, and wherever located, as collateral for the payment and performance of all present and future indebtedness, liabilities, guarantees and obligations of Debtor to Secured Party: All "accounts," "general intangibles," "chattel paper," "documents," "letters of credit," "instruments," "deposit accounts," "inventory," "farm products," " fixtures," "equipment," "investment property," "securities," "financial assets," " securities accounts," and "security entitlements" as such terms are defined in the California Uniform Commercial Code in effect on the date hereof, and all other types or items of property described on Exhibit A hereto (but this Financing Statement shall be fully effective notwithstanding any lack of any Exhibit A). Debtor is not authorized to sell, transfer, or further encumber any of the foregoing collateral, except for the sale of finished inventory in the ordinary course of business. NUMBER OF ADDITIONAL SHEETS PRESENTED 1 ----- - ---------------------------------------------------------------------------------------------------------------------------------- ADEXA, INC. SILICON VALLEY BANK /s/ [ILLEGIBLE], CFO - ---------------------------------------------- --------------------------------------------------- SIGNATURE OF DEBTOR (or Assignor) SIGNATURE OF SECURED PARTY (or Assignee) - ----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT "A" TO FINANCING STATEMENT AND SECURITY AGREEMENT This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types or items of property (in addition to, and without limiting the types of property set forth on page 1 hereof): All "Inventory", "Equipment", "Receivables", and "General Intangibles", including, without limitation, all of Debtor's "Deposit Accounts" (as the foregoing terms are defined below), and all money, and all property now or at any time in the future in Secured Party's possession (including claims and credit balances), and all proceeds of the foregoing (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products of any of the foregoing, and all books and records related to any of the foregoing. As used in this Exhibit A the following terms have the following meanings: "Code" means the Uniform Commercial Code as adopted and in effect in the State of California at the date hereof. "Deposit Account" has the meaning set forth in Section 9105 of the Code. "Equipment" means all of Debtor's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Debtor's operations or owned by Debtor and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "General Intangibles" means all general intangibles of Debtor, whether now owned or hereafter created or acquired by Debtor, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Debtor against Secured Party, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Debtor, all rights to indemnification and all other intangible property of every kind and nature. "Inventory" means all of Debtor's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Debtor's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "Receivables" means all of Debtor's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Debtor, all guaranties and other security therefor, all merchandise returned to or repossessed by Debtor, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. FORM UCC-1/UNIFORM COMMERCIAL CODE/FINANCING STATEMENT/STATE OF CONNECTICUT/Rev 10/97 PLEASE TYPE OR PRINT-SEE REVERSE SIDE FOR COMPLETE INSTRUCTION - ---------------------------------------------------------------------------------------------------------------------------------- SPACE FOR OFFICE USE ONLY SPACE FOR OFFICE USE ONLY WORK ORDER NUMBER FILING NUMBER - ---------------------------------------------------------------------------------------------------------------------------------- 1. SPECIAL DEBTOR/COLLATERAL INFORMATION-CHECK AND COMPLETE IF APPLICABLE a. Debtor is transmitting utility as defined in section 424-9-402 of the Connecticut General Statutes. - --- b. Debtor does not have an interest of record. The name of the owner of such interest is______________________________________ - --- X c. Products of collateral are claimed and thus covered. - --- d. (The Collateral is crops) The below described crops are growing or are to be gorwn on; (describe the real estate below or - --- on a separate sheet) e. (The below goods are to become fixtures) Describe real estate below or on a separate sheet and file a financing statement - --- on the real estate records. f. Party named in secured party block is a LESSOR and party named in debtor block is a LESSEE. - --- g. Party named in secured party block is a CONSIGNOR and party named in debtor block is a CONSIGNEE. - --- CT-SOS - ---------------------------------------------------------------------------------------------------------------------------------- 2. DEBTOR'S EXACT LEGAL NAME- Attach 8 1/2" x 11" sheet to present additional / / Check here for additional debtors. debtor information. -------------------------------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER IF INDIVIDUAL -------------------------------------------------------------------------------------------------------------------- IF BUSINESS NAME TAXPAYER I.D. # ADEXA, INC. - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) CITY STATE COUNTRY POSTAL CODE 5933 WEST CENTURY BLVD. #1220 LOS ANGELES CA USA 90045 - ---------------------------------------------------------------------------------------------------------------------------------- 3. SECURED PARTY'S FULL LEGAL NAME- Attach 8 1/2" x 11" sheet to present additional secured party information in conformity with the statement below. -------------------------------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER IF INDIVIDUAL -------------------------------------------------------------------------------------------------------------------- IF BUSINESS NAME TAXPAYER I.D. # SILICON VALLEY BANK - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) CITY STATE COUNTRY POSTAL CODE 3003 TASMAN DRIVE, MAIL SORT NC-661 SANTA CLARA CA USA 95054 - ---------------------------------------------------------------------------------------------------------------------------------- 4. (IF APPLICABLE) ASSIGNEE'S FULL LEGAL NAME debtor information. -------------------------------------------------------------------------------------------------------------------- LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER IF INDIVIDUAL -------------------------------------------------------------------------------------------------------------------- IF BUSINESS NAME TAXPAYER I.D. # - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) CITY STATE COUNTRY POSTAL CODE - ---------------------------------------------------------------------------------------------------------------------------------- 5. THIS FINANCING STATEMENT COVERS THE FOLLOWING TYPES (or items) OF PROPERTY (Describe): Debtor hereby grants Secured Party a security interest in all of the following, whether now owned or hereafter acquired, and wherever located, as collateral for the payment and performance of all present and future indebtedness, liabilities, guarantees and obligations of Debtor to Secured Party: All "accounts," "general intangibles," "chattel paper," "documents," "letters of credit," "instruments," "deposit accounts," "inventory," "farm products," " fixtures," "equipment," "investment property," "securities," "financial assets," " securities accounts," and "security entitlements" as such terms are defined in the California Uniform Commercial Code in effect on the date hereof, and all other types or items of property described on Exhibit A hereto (but this Financing Statement shall be fully effective notwithstanding any lack of any Exhibit A). Debtor is not authorized to sell, transfer, or further encumber any of the foregoing collateral, except for the sale of finished inventory in the ordinary course of business. NUMBER OF ADDITIONAL SHEETS PRESENTED 1 ----- - ---------------------------------------------------------------------------------------------------------------------------------- ADEXA, INC. SILICON VALLEY BANK /s/ [ILLEGIBLE], CFO - ---------------------------------------------- --------------------------------------------------- SIGNATURE OF DEBTOR (or Assignor) SIGNATURE OF SECURED PARTY (or Assignee) - ----------------------------------------------------------------------------------------------------------------------------------
EXHIBIT "A" TO FINANCING STATEMENT AND SECURITY AGREEMENT This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types or items of property (in addition to, and without limiting the types of property set forth on page 1 hereof): All "Inventory", "Equipment", "Receivables", and "General Intangibles", including, without limitation, all of Debtor's "Deposit Accounts" (as the foregoing terms are defined below), and all money, and all property now or at any time in the future in Secured Party's possession (including claims and credit balances), and all proceeds of the foregoing (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products of any of the foregoing, and all books and records related to any of the foregoing. As used in this Exhibit A the following terms have the following meanings: "Code" means the Uniform Commercial Code as adopted and in effect in the State of California at the date hereof. "Deposit Account" has the meaning set forth in Section 9105 of the Code. "Equipment" means all of Debtor's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Debtor's operations or owned by Debtor and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "General Intangibles" means all general intangibles of Debtor, whether now owned or hereafter created or acquired by Debtor, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Debtor against Secured Party, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Debtor, all rights to indemnification and all other intangible property of every kind and nature. "Inventory" means all of Debtor's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Debtor's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "Receivables" means all of Debtor's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Debtor, all guaranties and other security therefor, all merchandise returned to or repossessed by Debtor, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT TO THE UNIFORM COMMERCIAL CODE, STATE OF GEORGIA. - --------------------------------------------------------------------- 1A. Debtor Name and Mailing Address: / / Individual (Last, First, Middle Name) ADEXA, INC. /X/ Business (Legal 5933 WEST CENTURY BLVD. Business Name) #1220 LOS ANGELES, CA 90045 1B. Enter Social Security/Tax ID#___________ 1C. / /Check if exempt under Item 6 - --------------------------------------------------------------------- 2A. Debtor Name and Mailing Address: / / Individual (Last, First, Middle Name) / / Business (Legal Business Name) 2B. Enter Social Security/Tax ID#___________ 2C. / /Check if exempt ABOVE SPACE FOR RECORDING INFORMATION ONLY under Item 6 - --------------------------------------------------------------------- 5. Assignee Name and Mailing Address / / Individual (Last, 3A. Debtor Name and Mailing Address: / / Individual (Last, First, First, Middle Middle Name) Name) / / Business (Legal / / Business (Legal Business Name) Business Name) ------------------------------------------------------------ 6. Exceptions for Social Security/Tax ID# - O.C.G.A. 11.9.4021(9): Financing Statement filed to perfect a security interest in collateral already subject to a 3B. Enter Social Security/Tax ID#___________ 3C. / /Check if exempt security interest in another jurisdiction when it is under Item 6 brought into this state or when the debtor's location - ---------------------------------------------------------------------- is changed to this state, or the debtor is not required 4. Secured Party Name and Mailing / / Individual (Last, First, have such a number. Address: Middle Name) ------------------------------------------------------------ /X/ Business (Legal 7. / / Check Only if BOTH: (I) Collateral is consumer SILICON VALLEY BANK Business Name) goods as defined in O.C.G.A. 11.9.109 and (II) the 3003 TASMAN DRIVE, MAIL secured obligation is originally $5,000 or less, SORT NC-661 and give maturity date (MONTH/DAY/YEAR) or state SANTA CLARA, CA 95054 "None" ________________________________. ------------------------------------------------------------ 8. Check ONLY if applicable. A. / / Collateral on Consignment. B. / / Collateral on Lease. - ----------------------------------------------------------------------------------------------------------------------------------- 9A. This financing statement covers the following types or items of collateral: 9C. Enter collateral code(s) from back of Debtor hereby grants Secured Party a security interest in all of the following, form that best describes collateral whether now owned or hereafter acquired, and wherever located, as collateral for covered by this filing: the payment and performance of all present and future indebtedness, liabilities, guarantees and obligations of Debtor to Secured Party: All "accounts," "general 0100 0700 intangibles," "chattel paper," "documents," "letters of credit," "instruments," ---------- ---------- "deposit accounts," "inventory," "farm products," "fixtures," "equipment," 0200 0900 "investment property," "securities," "financial assets," "securities accounts," ---------- ---------- and "security settlements" as such terms are defined in the California Uniform 0300 1000 Commercial Code in effect on the date hereof, and all other types or items of ---------- ---------- property described on Exhibit A hereto (but this Financing Statement shall be 0400 1100 fully effective notwithstanding any lack of any Exhibit A). Debtor is not ---------- ---------- authorized to sell, transfer, or further encumber any of the foregoing 0500 1200 collateral, except for the sale of finished inventory in the ordinary course ---------- ---------- of business. 0600 1300 ---------- ---------- ------------------------------------------ 9D. Number of additional sheets presented: 9B. /X/ Products of collateral are also covered. 1 --- - ----------------------------------------------------------------------------------------------------------------------------------- 10. Check if applicable and include reasonable description of real estate in Item 9A: A. / / Crops growing or to be grown. B. / / Minerals or the like (including oil and gas) C. / / Fixture filing pursuant to or accounts subject to O.C.G.A. 11.9-103(5). O.C.G.A. 11-9-313. - ----------------------------------------------------------------------------------------------------------------------------------- 11. Name of the Record Owner(s) of Record Lease(s) (if debtor does not have an interest of record in the real estate): - ----------------------------------------------------------------------------------------------------------------------------------- 12. County or Counties in which the affected real setae is located (Must be identified if filing covers crops, mineral or fixtures): - -------------- --------------- -------------- --------------- --------------- --------------- -------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------------- 13. This statement is filed without the debtor's signature to perfect a security interest in collateral (check only if applicable): A. / / already subject to a security interest in another jurisdiction when it was brought into this state or debtor's location changed to this state; B. / / which is proceeds of the original collateral description above in which a security interest was perfected; C. / / as to which the filing has lapsed; D. / / acquired after a change of debtor's name, identity or corporate structure; or E. / / described in a security agreement/real estate mortgage attached hereto in accordance with O.C.G.A. 11.9.402(1). GA-Barrow County - ----------------------------------------------------------------------------------------------------------------------------------- 14. Signature(s) of Debtor(s) 15. Signature(s) of Secured Party(ies) ADEXA, INC. SILICON VALLEY BANK -------------------------------------------------- ----------------------------------------------------- /s/ [ILLEGIBLE], CFO -------------------------------------------------- ----------------------------------------------------- -------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 15. Return Copy To: Name and Address STATE OF GEORGIA - FINANCING STATEMENT LEXIS DOCUMENT SERVICES INC. UCC-1 (REVISED 1/1/1995) PO BOX 2969 SPRINGFIELD, IL 62708 FORM MUST BE TYPED READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM. STANDARD FORM UCC-1 - APPROVED 1/1/1996 BY GEORGIA SUPERIOR COURT CLERK'S COOPERATIVE AUTHORITY
EXHIBIT "A" TO FINANCING STATEMENT AND SECURITY AGREEMENT This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types or items of property (in addition to, and without limiting the types of property set forth on page 1 hereof): All "Inventory", "Equipment", "Receivables", and "General Intangibles", including, without limitation, all of Debtor's "Deposit Accounts" (as the foregoing terms are defined below), and all money, and all property now or at any time in the future in Secured Party's possession (including claims and credit balances), and all proceeds of the foregoing (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products of any of the foregoing, and all books and records related to any of the foregoing. As used in this Exhibit A the following terms have the following meanings: "Code" means the Uniform Commercial Code as adopted and in effect in the State of California at the date hereof. "Deposit Account" has the meaning set forth in Section 9105 of the code. "Equipment" means all of Debtor's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Debtor's operations or owned by Debtor and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "General Intangibles" means all general intangibles of Debtor, whether now owned or hereafter created or acquired by Debtor, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Debtor against Secured Party, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Debtor, all rights to indemnification and all other intangible property of every kind and nature. "Inventory" means all of Debtor's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Debtor's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "Receivables" means all of Debtor's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Debtor, all guaranties and other security therefor, all merchandise returned to or repossessed by Debtor, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT TO THE UNIFORM COMMERCIAL CODE, STATE OF GEORGIA. - --------------------------------------------------------------------- 1A. Debtor Name and Mailing Address: / / Individual (Last, First, Middle Name) ADEXA, INC. /X/ Business (Legal 5933 WEST CENTURY BLVD. Business Name) #1220 LOS ANGELES, CA 90045 1B. Enter Social Security/Tax ID#___________ 1C. / /Check if exempt under Item 6 - --------------------------------------------------------------------- 2A. Debtor Name and Mailing Address: / / Individual (Last, First, Middle Name) / / Business (Legal Business Name) 2B. Enter Social Security/Tax ID#___________ 2C. / /Check if exempt ABOVE SPACE FOR RECORDING INFORMATION ONLY under Item 6 - --------------------------------------------------------------------- 5. Assignee Name and Mailing Address / / Individual (Last, 3A. Debtor Name and Mailing Address: / / Individual (Last, First, First, Middle Middle Name) Name) / / Business (Legal / / Business (Legal Business Name) Business Name) ------------------------------------------------------------ 6. Exceptions for Social Security/Tax ID# - O.C.G.A. 11.9.4021(9): Financing Statement filed to perfect a security interest in collateral already subject to a 3B. Enter Social Security/Tax ID#___________ 3C. / /Check if exempt security interest in another jurisdiction when it is under Item 6 brought into this state or when the debtor's location - ---------------------------------------------------------------------- is changed to this state, or the debtor is not required 4. Secured Party Name and Mailing / / Individual (Last, First, have such a number. Address: Middle Name) ------------------------------------------------------------ /X/ Business (Legal 7. / / Check Only if BOTH: (I) Collateral is consumer SILICON VALLEY BANK Business Name) goods as defined in O.C.G.A. 11.9.109 and (II) the 3003 TASMAN DRIVE, MAIL secured obligation is originally $5,000 or less, SORT NC-661 and give maturity date (MONTH/DAY/YEAR) or state SANTA CLARA, CA 95054 "None" ________________________________. ------------------------------------------------------------ 8. Check ONLY if applicable. A. / / Collateral on Consignment. B. / / Collateral on Lease. - ----------------------------------------------------------------------------------------------------------------------------------- 9A. This financing statement covers the following types or items of collateral: 9C. Enter collateral code(s) from back of Debtor hereby grants Secured Party a security interest in all of the following, form that best describes collateral whether now owned or hereafter acquired, and wherever located, as collateral for covered by this filing: the payment and performance of all present and future indebtedness, liabilities, guarantees and obligations of Debtor to Secured Party: All "accounts," "general 0100 0700 intangibles," "chattel paper," "documents," "letters of credit," "instruments," ---------- ---------- "deposit accounts," "inventory," "farm products," "fixtures," "equipment," 0200 0900 "investment property," "securities," "financial assets," "securities accounts," ---------- ---------- and "security settlements" as such terms are defined in the California Uniform 0300 1000 Commercial Code in effect on the date hereof, and all other types or items of ---------- ---------- property described on Exhibit A hereto (but this Financing Statement shall be 0400 1100 fully effective notwithstanding any lack of any Exhibit A). Debtor is not ---------- ---------- authorized to sell, transfer, or further encumber any of the foregoing 0500 1200 collateral, except for the sale of finished inventory in the ordinary course ---------- ---------- of business. 0600 1300 ---------- ---------- ------------------------------------------ 9D. Number of additional sheets presented: 9B. /X/ Products of collateral are also covered. 1 --- - ----------------------------------------------------------------------------------------------------------------------------------- 10. Check if applicable and include reasonable description of real estate in Item 9A: A. / / Crops growing or to be grown. B. / / Minerals or the like (including oil and gas) C. / / Fixture filing pursuant to or accounts subject to O.C.G.A. 11.9-103(5). O.C.G.A. 11-9-313. - ----------------------------------------------------------------------------------------------------------------------------------- 11. Name of the Record Owner(s) of Record Lease(s) (if debtor does not have an interest of record in the real estate): - ----------------------------------------------------------------------------------------------------------------------------------- 12. County or Counties in which the affected real setae is located (Must be identified if filing covers crops, mineral or fixtures): - -------------- --------------- -------------- --------------- --------------- --------------- -------------- --------------- - ----------------------------------------------------------------------------------------------------------------------------------- 13. This statement is filed without the debtor's signature to perfect a security interest in collateral (check only if applicable): A. / / already subject to a security interest in another jurisdiction when it was brought into this state or debtor's location changed to this state; B. / / which is proceeds of the original collateral description above in which a security interest was perfected; C. / / as to which the filing has lapsed; D. / / acquired after a change of debtor's name, identity or corporate structure; or E. / / described in a security agreement/real estate mortgage attached hereto in accordance with O.C.G.A. 11.9.402(1). GA-Barrow County - ----------------------------------------------------------------------------------------------------------------------------------- 14. Signature(s) of Debtor(s) 15. Signature(s) of Secured Party(ies) ADEXA, INC. SILICON VALLEY BANK -------------------------------------------------- ----------------------------------------------------- /s/ [ILLEGIBLE], CFO -------------------------------------------------- ----------------------------------------------------- -------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 15. Return Copy To: Name and Address STATE OF GEORGIA - FINANCING STATEMENT LEXIS DOCUMENT SERVICES INC. UCC-1 (REVISED 1/1/1995) PO BOX 2969 SPRINGFIELD, IL 62708 FORM MUST BE TYPED READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM. STANDARD FORM UCC-1 - APPROVED 1/1/1996 BY GEORGIA SUPERIOR COURT CLERK'S COOPERATIVE AUTHORITY
EXHIBIT "A" TO FINANCING STATEMENT AND SECURITY AGREEMENT This FINANCING STATEMENT and SECURITY AGREEMENT covers the following types or items of property (in addition to, and without limiting the types of property set forth on page 1 hereof): All "Inventory", "Equipment", "Receivables", and "General Intangibles", including, without limitation, all of Debtor's "Deposit Accounts" (as the foregoing terms are defined below), and all money, and all property now or at any time in the future in Secured Party's possession (including claims and credit balances), and all proceeds of the foregoing (including proceeds of any insurance policies, proceeds of proceeds and claims against third parties), all products of any of the foregoing, and all books and records related to any of the foregoing. As used in this Exhibit A the following terms have the following meanings: "Code" means the Uniform Commercial Code as adopted and in effect in the State of California at the date hereof. "Deposit Account" has the meaning set forth in Section 9105 of the code. "Equipment" means all of Debtor's present and hereafter acquired machinery, molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible personal property (other than Inventory) of every kind and description used in Debtor's operations or owned by Debtor and any interest in any of the foregoing, and all attachments, accessories, accessions, replacements, substitutions, additions or improvements to any of the foregoing, wherever located. "General Intangibles" means all general intangibles of Debtor, whether now owned or hereafter created or acquired by Debtor, including, without limitation, all choses in action, causes of action, corporate or other business records, Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent applications, trademarks and the goodwill of the business symbolized thereby, names, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, security and other deposits, rights in all litigation presently or hereafter pending for any cause or claim (whether in contract, tort or otherwise), and all judgments now or hereafter arising therefrom, all claims of Debtor against Secured Party, rights to purchase or sell real or personal property, rights as a licensor or licensee of any kind, royalties, telephone numbers, proprietary information, purchase orders, and all insurance policies and claims (including without limitation life insurance, key man insurance, credit insurance, liability insurance, property insurance and other insurance), tax refunds and claims, computer programs, discs, tapes and tape files, claims under guaranties, security interests or other security held by or granted to Debtor, all rights to indemnification and all other intangible property of every kind and nature. "Inventory" means all of Debtor's now owned and hereafter acquired goods, merchandise or other personal property, wherever located, to be furnished under any contract of service or held for sale or lease (including without limitation all raw materials, work in process, finished goods and goods in transit), and all materials and supplies of every kind, nature and description which are or might be used or consumed in Debtor's business or used in connection with the manufacture, packing, shipping, advertising, selling or finishing of such goods, merchandise or other personal property, and all warehouse receipts, documents of title and other documents representing any of the foregoing. "Receivables" means all of Debtor's now owned and hereafter acquired accounts (whether or not earned by performance), letters of credit, contract rights, chattel paper, instruments, securities, securities accounts, investment property, documents and all other forms of obligations at any time owing to Debtor, all guaranties and other security therefor, all merchandise returned to or repossessed by Debtor, and all rights of stoppage in transit and all other rights or remedies of an unpaid vendor, lienor or secured party. This STATEMENT is presented for filing pursuant to the California Uniform Commercial Code. - ---------------------------------------------------------------------------------------------------------------------------------- 1. FILE NO. OF ORIG. FINANCING 1A. DATE OF FILING OF ORIG. 1B. DATE OF ORIG. FINANCING 1C. PLACE OF FILING ORIG. STATEMENT FINANCING STATEMENT STATEMENT FINANCING STATEMENT 9913160414 05/05/1999 CA SOS - ---------------------------------------------------------------------------------------------------------------------------------- 2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY OR FEDERAL TAX NO. PARAGON MANAGEMENT SYSTEMS, INC. - ---------------------------------------------------------------------------------------------------------------------------------- 2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE 5933 WEST CENTURY BLVD. #1220 LOS ANGELES, CA 90045 - ---------------------------------------------------------------------------------------------------------------------------------- 3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR FEDERAL TAX NO. - ---------------------------------------------------------------------------------------------------------------------------------- 3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE - ---------------------------------------------------------------------------------------------------------------------------------- 4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK NAME SILICON VALLEY BANK TRANSIT AND A.B.A. NO. MAILING ADDRESS 3003 TASMAN DRIVE, MAIL SORT NC-661 CITY SANTA CLARA STATE CA ZIP CODE 95054 - ---------------------------------------------------------------------------------------------------------------------------------- 5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK NAME TRANSIT AND A.B.A. NO. MAILING ADDRESS CITY STATE ZIP CODE - ---------------------------------------------------------------------------------------------------------------------------------- 6. A / / CONTINUATION -- The original Financing Statement between the foregoing Debtor and Secured Party bearing the file number and date shown above is continued. If collateral is crops or timber, check here / / and Insert description of real property on which growing or to be grown in item 7 below. --------------------------------------------------------------------------------------------------------------------------- B / / RELEASE -- From the collateral described in the Financing Statement bearing the file number shown above, the Secured Party releases the collateral described in item 7 below. --------------------------------------------------------------------------------------------------------------------------- C / / ASSIGNMENT -- The Secured Party Certifies that the Secured Party has assigned to the Assignee above named, all the Secured Party's rights under the Financing Statement bearing the file number shown above in the collateral described in item 7 below. --------------------------------------------------------------------------------------------------------------------------- D / / TERMINATION -- The Secured Party certifies that the Secured Party no longer claims a security interest under the Financing Statement bearing the file number shown above. --------------------------------------------------------------------------------------------------------------------------- E /X/ AMENDMENT -- The Financing Statement bearing the file number shown above is amended as set forth in item 7 below. (Signature of Debtor required on all amendments.) --------------------------------------------------------------------------------------------------------------------------- F / / OTHER - ---------------------------------------------------------------------------------------------------------------------------------- 7. The original financing statement is amended to: 1. Change the Debtor's name from "Paragon Management Systems, Inc." to "Adexa, Inc." 2. Add "Paragon Management Systems, Inc." as Debtor's tradename. - ---------------------------------------------------------------------------------------------------------------------------------- 8. C 9. This Space for Use of Filing (DATE)___________________ 19_____ O Officer (Date, Time, Filing D Office) PARAGON MANAGEMENT SYSTEMS, INC. nka ADEXA, INC. E ------------------------------------------------------------------------------------ --- 1 BY: /s/ [ILLEGIBLE], CFO --------------------------------------------------------------------------------- 2 SIGNATURE(S) OF DEBTOR(S) (TITLE) 3 SILICON VALLEY BANK --------------------------------------------------------------------------------- 4 BY: --------------------------------------------------------------------------------- 5 SIGNATURE(S) OF SECURED PARTY(IES) (TITLE) - ----------------------------------------------------------------------------------------- 6 10. RETURN COPY TO CA-S0S 7 NAME LEXIS DOCUMENT SERVICES INC ADDRESS PO BOX 2969 8 CITY AND SPRINGFIELD, IL 62708 STATE 9 (1) FILING OFFICER COPY STANDARD FORM-FILING FEE Uniform Commercial Code-form UCC-2 APPROVED BY THE SECRETARY OF STATE
This STATEMENT is presented for filing pursuant to the California Uniform Commercial Code. - ---------------------------------------------------------------------------------------------------------------------------------- 1. FILE NO. OF ORIG. FINANCING 1A. DATE OF FILING OF ORIG. 1B. DATE OF ORIG. FINANCING 1C. PLACE OF FILING ORIG. STATEMENT FINANCING STATEMENT STATEMENT FINANCING STATEMENT 9913160414 05/05/1999 CA SOS - ---------------------------------------------------------------------------------------------------------------------------------- 2. DEBTOR (LAST NAME FIRST) 2A. SOCIAL SECURITY OR FEDERAL TAX NO. PARAGON MANAGEMENT SYSTEMS, INC. - ---------------------------------------------------------------------------------------------------------------------------------- 2B. MAILING ADDRESS 2C. CITY, STATE 2D. ZIP CODE 5933 WEST CENTURY BLVD. #1220 LOS ANGELES, CA 90045 - ---------------------------------------------------------------------------------------------------------------------------------- 3. ADDITIONAL DEBTOR (IF ANY) (LAST NAME FIRST) 3A. SOCIAL SECURITY OR FEDERAL TAX NO. - ---------------------------------------------------------------------------------------------------------------------------------- 3B. MAILING ADDRESS 3C. CITY, STATE 3D. ZIP CODE - ---------------------------------------------------------------------------------------------------------------------------------- 4. SECURED PARTY 4A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK NAME SILICON VALLEY BANK TRANSIT AND A.B.A. NO. MAILING ADDRESS 3003 TASMAN DRIVE, MAIL SORT NC-661 CITY SANTA CLARA STATE CA ZIP CODE 95054 - ---------------------------------------------------------------------------------------------------------------------------------- 5. ASSIGNEE OF SECURED PARTY (IF ANY) 5A. SOCIAL SECURITY NO., FEDERAL TAX NO. OR BANK NAME TRANSIT AND A.B.A. NO. MAILING ADDRESS CITY STATE ZIP CODE - ---------------------------------------------------------------------------------------------------------------------------------- 6. A / / CONTINUATION -- The original Financing Statement between the foregoing Debtor and Secured Party bearing the file number and date shown above is continued. If collateral is crops or timber, check here / / and Insert description of real property on which growing or to be grown in item 7 below. --------------------------------------------------------------------------------------------------------------------------- B / / RELEASE -- From the collateral described in the Financing Statement bearing the file number shown above, the Secured Party releases the collateral described in item 7 below. --------------------------------------------------------------------------------------------------------------------------- C / / ASSIGNMENT -- The Secured Party Certifies that the Secured Party has assigned to the Assignee above named, all the Secured Party's rights under the Financing Statement bearing the file number shown above in the collateral described in item 7 below. --------------------------------------------------------------------------------------------------------------------------- D / / TERMINATION -- The Secured Party certifies that the Secured Party no longer claims a security interest under the Financing Statement bearing the file number shown above. --------------------------------------------------------------------------------------------------------------------------- E /X/ AMENDMENT -- The Financing Statement bearing the file number shown above is amended as set forth in item 7 below. (Signature of Debtor required on all amendments.) --------------------------------------------------------------------------------------------------------------------------- F / / OTHER - ---------------------------------------------------------------------------------------------------------------------------------- 7. The original financing statement is amended to: 1. Change the Debtor's name from "Paragon Management Systems, Inc." to "Adexa, Inc." 2. Add "Paragon Management Systems, Inc." as Debtor's tradename. - ---------------------------------------------------------------------------------------------------------------------------------- 8. C 9. This Space for Use of Filing (DATE)___________________ 19_____ O Officer (Date, Time, Filing D Office) PARAGON MANAGEMENT SYSTEMS, INC. nka ADEXA, INC. E ------------------------------------------------------------------------------------ --- 1 BY: /s/ [ILLEGIBLE], CFO --------------------------------------------------------------------------------- 2 SIGNATURE(S) OF DEBTOR(S) (TITLE) 3 SILICON VALLEY BANK --------------------------------------------------------------------------------- 4 BY: --------------------------------------------------------------------------------- 5 SIGNATURE(S) OF SECURED PARTY(IES) (TITLE) - ----------------------------------------------------------------------------------------- 6 10. RETURN COPY TO CA-S0S 7 NAME LEXIS DOCUMENT SERVICES INC ADDRESS PO BOX 2969 8 CITY AND SPRINGFIELD, IL 62708 STATE 9 (1) FILING OFFICER COPY STANDARD FORM-FILING FEE Uniform Commercial Code-form UCC-2 APPROVED BY THE SECRETARY OF STATE
FORM UCC-3/UNIFORM COMMERCIAL CODE/STATE OF CONNECTICUT PLEASE TYPE OR PRINT - SEE REVERSE SIDE FOR COMPLETE INSTRUCTION UCC-3 New. 5/99 - ---------------------------------------------------------------------------------------------------------------------------------- SPACE FOR OFFICE USE ONLY SPACE FOR OFFICE USE ONLY WORK ORDER NUMBER FILING NUMBER - ---------------------------------------------------------------------------------------------------------------------------------- 1. TYPE OF FILING - Place a check mark next to the appropriate selection. Only one selection may be made. CT-SOS a. Continuation: The financing statement between the parties named below and bearing the number indicated in item 3 is - --- continued for a subsequent term. X b. Amendment: The financing statement bearing the number indicated in item 3 is amended as set forth in item 7. - --- c. Assignment: The secured party assigns to the assignee named below all rights established under the financing statement - --- bearing the number indicated in item 3. d. Partial Assignment: The secured party assigns to the assignee named below rights established under the financing - --- statement bearing the number indicated in item 3 to the extend stated in item 7. e. Partial Release: The secured party releases the property set forth in item 7 from the collateral presented in the original - --- financing statement bearing the number indicated in item 3. f. Termination: The secured party no longer claims a security interest under the financing statement bearing the number - --- indicated in item 3. - ---------------------------------------------------------------------------------------------------------------------------------- 2. THIS STATEMENT REFERS TO THE ORIGINAL FINANCING STATEMENT NO. 0001922091 --------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 3. DEBTOR'S FULL LEGAL NAME - Attach 8 1/2" x 11" sheet to present additional debtor information. / / Check here for additional debtors. - ---------------------------------------------------------------------------------------------------------------------------------- INDIVIDUAL LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER ------------------------------------------------------------------------------------------------------------------ BUSINESS NAME TAXPAYER I.D.# PARAGON MANAGEMENT SYSTEMS, INC. - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) 5933 WEST CENTURY BLVD. #1220 - ---------------------------------------------------------------------------------------------------------------------------------- CITY STATE COUNTRY POSTAL CODE LOS ANGELES CA USA 90045 - ---------------------------------------------------------------------------------------------------------------------------------- 4. SECURED PARTY'S FULL LEGAL NAME - Attach 8 1/2" x 11" sheet to present additional secured party / / Check here for information. additional secured parties. - ---------------------------------------------------------------------------------------------------------------------------------- INDIVIDUAL LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER ------------------------------------------------------------------------------------------------------------------ BUSINESS NAME TAXPAYER I.D.# SILICON VALLEY BANK - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) 3003 TASMAN DRIVE, MAIL SORT NC-661 - ---------------------------------------------------------------------------------------------------------------------------------- CITY STATE COUNTRY POSTAL CODE SANTA CLARA CA USA 95054 - ---------------------------------------------------------------------------------------------------------------------------------- 5. (IF APPLICABLE) ASSIGNEE'S FULL LEGAL NAME - Attach 8 1/2" x 11" sheet to present additional assignee / / Check here for information. additional assignees. - ---------------------------------------------------------------------------------------------------------------------------------- INDIVIDUAL LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER ------------------------------------------------------------------------------------------------------------------ BUSINESS NAME TAXPAYER I.D.# - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) - ---------------------------------------------------------------------------------------------------------------------------------- CITY STATE COUNTRY POSTAL CODE - ---------------------------------------------------------------------------------------------------------------------------------- 6. Use the following space and attachments referenced below to set forth any information relating to the selection made in item 2 above. The original financing statement is amended to: 1. Change the Debtor's name from "Paragon Management Systems, Inc." to "Adexa, Inc." 2. Add "Paragon Management Systems, Inc." as Debtor's tradename. NUMBER OF ADDITIONAL SHEETS PRESENTED _____________ - ---------------------------------------------------------------------------------------------------------------------------------- PARAGON MANAGEMENT SYSTEMS, INC. nka ADEXA, SILICON VALLEY BANK INC. /s/ [ILLEGIBLE], CFO -------------------------------------------------- ---------------------------------------- SIGNATURE(S) OF DEBTOR(S) SIGNATURE(S) OF SECURED PARTY(IES) - ----------------------------------------------------------------------------------------------------------------------------------
FORM UCC-3/UNIFORM COMMERCIAL CODE/STATE OF CONNECTICUT PLEASE TYPE OR PRINT - SEE REVERSE SIDE FOR COMPLETE INSTRUCTION UCC-3 New. 5/99 - ---------------------------------------------------------------------------------------------------------------------------------- SPACE FOR OFFICE USE ONLY SPACE FOR OFFICE USE ONLY WORK ORDER NUMBER FILING NUMBER - ---------------------------------------------------------------------------------------------------------------------------------- 1. TYPE OF FILING - Place a check mark next to the appropriate selection. Only one selection may be made. CT-SOS a. Continuation: The financing statement between the parties named below and bearing the number indicated in item 3 is - --- continued for a subsequent term. X b. Amendment: The financing statement bearing the number indicated in item 3 is amended as set forth in item 7. - --- c. Assignment: The secured party assigns to the assignee named below all rights established under the financing statement - --- bearing the number indicated in item 3. d. Partial Assignment: The secured party assigns to the assignee named below rights established under the financing - --- statement bearing the number indicated in item 3 to the extend stated in item 7. e. Partial Release: The secured party releases the property set forth in item 7 from the collateral presented in the original - --- financing statement bearing the number indicated in item 3. f. Termination: The secured party no longer claims a security interest under the financing statement bearing the number - --- indicated in item 3. - ---------------------------------------------------------------------------------------------------------------------------------- 2. THIS STATEMENT REFERS TO THE ORIGINAL FINANCING STATEMENT NO. 0001922091 --------------------------- - ---------------------------------------------------------------------------------------------------------------------------------- 3. DEBTOR'S FULL LEGAL NAME - Attach 8 1/2" x 11" sheet to present additional debtor information. / / Check here for additional debtors. - ---------------------------------------------------------------------------------------------------------------------------------- INDIVIDUAL LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER ------------------------------------------------------------------------------------------------------------------ BUSINESS NAME TAXPAYER I.D.# PARAGON MANAGEMENT SYSTEMS, INC. - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) 5933 WEST CENTURY BLVD. #1220 - ---------------------------------------------------------------------------------------------------------------------------------- CITY STATE COUNTRY POSTAL CODE LOS ANGELES CA USA 90045 - ---------------------------------------------------------------------------------------------------------------------------------- 4. SECURED PARTY'S FULL LEGAL NAME - Attach 8 1/2" x 11" sheet to present additional secured party / / Check here for information. additional secured parties. - ---------------------------------------------------------------------------------------------------------------------------------- INDIVIDUAL LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER ------------------------------------------------------------------------------------------------------------------ BUSINESS NAME TAXPAYER I.D.# SILICON VALLEY BANK - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) 3003 TASMAN DRIVE, MAIL SORT NC-661 - ---------------------------------------------------------------------------------------------------------------------------------- CITY STATE COUNTRY POSTAL CODE SANTA CLARA CA USA 95054 - ---------------------------------------------------------------------------------------------------------------------------------- 5. (IF APPLICABLE) ASSIGNEE'S FULL LEGAL NAME - Attach 8 1/2" x 11" sheet to present additional assignee / / Check here for information. additional assignees. - ---------------------------------------------------------------------------------------------------------------------------------- INDIVIDUAL LAST NAME FIRST NAME MIDDLE NAME SUFFIX S.S. NUMBER ------------------------------------------------------------------------------------------------------------------ BUSINESS NAME TAXPAYER I.D.# - ---------------------------------------------------------------------------------------------------------------------------------- MAILING ADDRESS (Street or P.O. Box) - ---------------------------------------------------------------------------------------------------------------------------------- CITY STATE COUNTRY POSTAL CODE - ---------------------------------------------------------------------------------------------------------------------------------- 6. Use the following space and attachments referenced below to set forth any information relating to the selection made in item 2 above. The original financing statement is amended to: 1. Change the Debtor's name from "Paragon Management Systems, Inc." to "Adexa, Inc." 2. Add "Paragon Management Systems, Inc." as Debtor's tradename. NUMBER OF ADDITIONAL SHEETS PRESENTED _____________ - ---------------------------------------------------------------------------------------------------------------------------------- PARAGON MANAGEMENT SYSTEMS, INC. nka ADEXA, SILICON VALLEY BANK INC. /s/ [ILLEGIBLE], CFO -------------------------------------------------- ---------------------------------------- SIGNATURE(S) OF DEBTOR(S) SIGNATURE(S) OF SECURED PARTY(IES) - ----------------------------------------------------------------------------------------------------------------------------------
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT TO THE UNIFORM COMMERCIAL CODE, STATE OF GEORGIA. - --------------------------------------------------------------------- 1A. Debtor Name and Mailing Address: / / Individual (Last, First, Middle Name) PARAGON MANAGEMENT SYSTEMS, /X/ Business (Legal INC. Business Name) 5933 WEST CENTURY BLVD. #1220 LOS ANGELES, CA 90045 1B. Enter Social Security/Tax ID#___________ 1C. / /Check if exempt under Item 6 - --------------------------------------------------------------------- 2A. Debtor Name and Mailing Address: / / Individual (Last, First, Middle Name) / / Business (Legal Business Name) 2B. Enter Social Security/Tax ID#___________ 2C. / /Check if exempt ABOVE SPACE FOR RECORDING INFORMATION ONLY under Item 6 - --------------------------------------------------------------------- 5. Assignee Name and Mailing Address / / Individual (Last, 3A. Debtor Name and Mailing Address: / / Individual (Last, First, First, Middle Middle Name) Name) / / Business (Legal / / Business (Legal Business Name) Business Name) ------------------------------------------------------------ 6A. Exceptions for Social Security/Tax ID# - O.C.G.A. 11.9.402(9): this UCC-3 statement relates to an original financing statement filed to perfect a 3B. Enter Social Security/Tax ID#___________ 3C. / /Check if exempt a security interest in collateral a ready subject to a under Item 6 security interest in another jurisdiction when it was - ---------------------------------------------------------------------- changed to this state, at the debtor was not required 4. Secured Party Name and Mailing / / Individual (Last, First, to have such a number; or (2) Pursuant to O.C.G.A. Middle Name) 11-12-102(2)-(3), this statements is a Transaction Filing relating to an original financing statement Address: filed prior to January 1, 1995. /X/ Business (Legal ------------------------------------------------------------ SILICON VALLEY BANK Business Name) 6B. / / This statement is a transitional filing relating 3003 TASMAN DRIVE, MAIL SORT to January 1, 1996. NC-661 and give maturity date (MONTH/DAY/YEAR) or state SANTA CLARA, CA 95054 "None" ________________________________. - ----------------------------------------------------------------------------------------------------------------------------------- 7A. File Number of Original Financing Statement 7B. County in which filed 7C. Date of Original Filing 00799004927 GA-Barrow County 05/05/1999 - ----------------------------------------------------------------------------------------------------------------------------------- 8. Type of Statement (Check only one) A. / / Continuation. The original Financing Statement between the Debtor and Secured Party bearing the file number shown above is still effective. If collateral consists ONLY of consumer goods as defined in O.C.G.A. 11.9.109 and the secured obligation is originally $5,000 or less, give maturity date (MONTH/DAY/YEAR) of state "None"________________ B. / / Release. The Secured Party release the collateral described in item 2A below from the Financing Statement bearing the file number shown above. C. / / Partial Assignment. Some of the Secured Party's rights under the financing Statement bearing the file number shown above have been assigned to the assignee above named. A jurisdiction of the collateral subject to the assignment is set forth in item 2A below. D. / / Assignment. The Secured Party has assigned to the Assignee above named all the Secured Party's rights under the financing Statement bearing the file number shown above. E. /X/ Amendment. The Financing Statement bearing the file number shown above is amended as set forth in item 9A below. F. / / Termination. The Secured Party no longer claims a security interest under the Financing Statement bearing the file number shown above. - ----------------------------------------------------------------------------------------------------------------------------------- 9A. Description (Required for Release, Assignment or Amendment) 9C. Enter collateral code(s) from back of form that best describes collateral The original financing statement is amended to: covered by this filing: 1. Change the Debtor's name from "Paragon Management Systems, Inc." to ------------ ------------ "Adexa, Inc." ------------ ------------ ------------ ------------ 2. Add "Paragon Management Systems, Inc." as Debtor's tradename. ------------ ------------ ------------ ------------ ------------ ------------ 9D. Number of additional sheets 9B. / /Products of collateral are also covered. presented: ________________ - ----------------------------------------------------------------------------------------------------------------------------------- 10. Signature(s) of Debtor(s) 11. Signature(s) of Secured Party(ies) PARAGON MANAGEMENT SYSTEMS, INC. nka SILICON VALLEY BANK ADEXA, INC. -------------------------------------------------- ----------------------------------------------------- [ILLEGIBLE], CFO -------------------------------------------------- ----------------------------------------------------- -------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 12. Return Copy To: Name and Address STATE OF GEORGIA - STATEMENTS OF CONTINUATION LEXIS DOCUMENT SERVICES INC. RELEASE, ASSIGNMENT, AMENDMENT, TERMINATION, PO BOX 2969 UCC-3 (REVISED 1/1/1995) SPRINGFIELD, IL 62708 FORM MUST BE TYPED READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM. STANDARD FORM UCC-3 - APPROVED 1/1/1996 BY GEORGIA SUPERIOR COURT CLERK'S COOPERATIVE AUTHORITY FILING OFFICER COPY
THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER FOR FILING PURSUANT TO THE UNIFORM COMMERCIAL CODE, STATE OF GEORGIA. - --------------------------------------------------------------------- 1A. Debtor Name and Mailing Address: / / Individual (Last, First, Middle Name) PARAGON MANAGEMENT SYSTEMS, /X/ Business (Legal INC. Business Name) 5933 WEST CENTURY BLVD. #1220 LOS ANGELES, CA 90045 1B. Enter Social Security/Tax ID#___________ 1C. / /Check if exempt under Item 6 - --------------------------------------------------------------------- 2A. Debtor Name and Mailing Address: / / Individual (Last, First, Middle Name) / / Business (Legal Business Name) 2B. Enter Social Security/Tax ID#___________ 2C. / /Check if exempt ABOVE SPACE FOR RECORDING INFORMATION ONLY under Item 6 - --------------------------------------------------------------------- 5. Assignee Name and Mailing Address / / Individual (Last, 3A. Debtor Name and Mailing Address: / / Individual (Last, First, First, Middle Middle Name) Name) / / Business (Legal / / Business (Legal Business Name) Business Name) ------------------------------------------------------------ 6A. Exceptions for Social Security/Tax ID# - O.C.G.A. 11.9.402(9): this UCC-3 statement relates to an original financing statement filed to perfect a 3B. Enter Social Security/Tax ID#___________ 3C. / /Check if exempt a security interest in collateral a ready subject to a under Item 6 security interest in another jurisdiction when it was - ---------------------------------------------------------------------- changed to this state, at the debtor was not required 4. Secured Party Name and Mailing / / Individual (Last, First, to have such a number; or (2) Pursuant to O.C.G.A. Middle Name) 11-12-102(2)-(3), this statements is a Transaction Filing relating to an original financing statement Address: filed prior to January 1, 1995. /X/ Business (Legal ------------------------------------------------------------ SILICON VALLEY BANK Business Name) 6B. / / This statement is a transitional filing relating 3003 TASMAN DRIVE, MAIL SORT to January 1, 1996. NC-661 and give maturity date (MONTH/DAY/YEAR) or state SANTA CLARA, CA 95054 "None" ________________________________. - ----------------------------------------------------------------------------------------------------------------------------------- 7A. File Number of Original Financing Statement 7B. County in which filed 7C. Date of Original Filing 00799004927 GA-Barrow County 05/05/1999 - ----------------------------------------------------------------------------------------------------------------------------------- 8. Type of Statement (Check only one) A. / / Continuation. The original Financing Statement between the Debtor and Secured Party bearing the file number shown above is still effective. If collateral consists ONLY of consumer goods as defined in O.C.G.A. 11.9.109 and the secured obligation is originally $5,000 or less, give maturity date (MONTH/DAY/YEAR) of state "None"________________ B. / / Release. The Secured Party release the collateral described in item 2A below from the Financing Statement bearing the file number shown above. C. / / Partial Assignment. Some of the Secured Party's rights under the financing Statement bearing the file number shown above have been assigned to the assignee above named. A jurisdiction of the collateral subject to the assignment is set forth in item 2A below. D. / / Assignment. The Secured Party has assigned to the Assignee above named all the Secured Party's rights under the financing Statement bearing the file number shown above. E. /X/ Amendment. The Financing Statement bearing the file number shown above is amended as set forth in item 9A below. F. / / Termination. The Secured Party no longer claims a security interest under the Financing Statement bearing the file number shown above. - ----------------------------------------------------------------------------------------------------------------------------------- 9A. Description (Required for Release, Assignment or Amendment) 9C. Enter collateral code(s) from back of form that best describes collateral The original financing statement is amended to: covered by this filing: 1. Change the Debtor's name from "Paragon Management Systems, Inc." to ------------ ------------ "Adexa, Inc." ------------ ------------ ------------ ------------ 2. Add "Paragon Management Systems, Inc." as Debtor's tradename. ------------ ------------ ------------ ------------ ------------ ------------ 9D. Number of additional sheets 9B. / /Products of collateral are also covered. presented: ________________ - ----------------------------------------------------------------------------------------------------------------------------------- 10. Signature(s) of Debtor(s) 11. Signature(s) of Secured Party(ies) PARAGON MANAGEMENT SYSTEMS, INC. nka SILICON VALLEY BANK ADEXA, INC. -------------------------------------------------- ----------------------------------------------------- [ILLEGIBLE], CFO -------------------------------------------------- ----------------------------------------------------- -------------------------------------------------- ----------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- 12. Return Copy To: Name and Address STATE OF GEORGIA - STATEMENTS OF CONTINUATION LEXIS DOCUMENT SERVICES INC. RELEASE, ASSIGNMENT, AMENDMENT, TERMINATION, PO BOX 2969 UCC-3 (REVISED 1/1/1995) SPRINGFIELD, IL 62708 FORM MUST BE TYPED READ INSTRUCTIONS ON BACK BEFORE FILLING OUT FORM. STANDARD FORM UCC-3 - APPROVED 1/1/1996 BY GEORGIA SUPERIOR COURT CLERK'S COOPERATIVE AUTHORITY FILING OFFICER COPY
EX-23.1 11 ex-23_1.txt EXHIBIT 23.1 EXHIBIT 23.1 To the Board of Directors and Stockholders Adexa, Inc.: We consent to the use in this Registration Statement of Adexa, Inc. on Form S-1 of our report dated August 24, 2000, appearing in the Prospectus, which is a part of this Registration Statement, and to the references to us under the headings "Selected Financial Data" and "Experts" in such Prospectus. Our audits of the financial statements referred to in our aforementioned report also included the financial statement schedule of Adexa, Inc., listed in Item 16(b). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based upon our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte and Touche, LLP Los Angeles, California August 25, 2000 EX-27.1 12 ex-27_1.txt EXHIBIT 27.1
5 6-MOS YEAR YEAR DEC-31-2000 DEC-31-1999 DEC-31-1998 JAN-01-2000 JAN-01-1999 JAN-01-1998 JUN-30-2000 DEC-31-1999 DEC-31-1998 3,604,492 6,231,569 1,285,736 0 0 3,138,292 10,385,564 4,976,375 2,807,548 863,771 528,000 480,000 0 0 0 13,546,724 10,905,306 6,918,488 3,242,434 2,172,627 1,630,676 1,401,936 1,023,172 633,456 16,061,240 12,347,010 8,182,177 18,797,603 13,078,067 4,056,139 0 0 0 0 0 0 12,409,576 12,409,576 12,409,576 308,480 154,149 78,500 (15,631,230) (13,412,188) (8,599,989) 16,061,240 12,347,010 8,182,177 0 0 0 21,709,100 23,660,732 8,112,626 0 0 0 6,950,810 6,044,924 5,243,962 16,349,761 19,446,914 11,653,190 440,819 920,000 412,843 154,471 293,630 137,438 (2,150,643) (3,071,014) (9,188,595) 927,227 2,114,467 245,494 (3,077,870) (5,185,481) (9,434,089) 0 0 0 0 0 0 0 0 0 (3,077,870) (5,185,481) (9,434,089) (0.29) (0.51) (0.94) (0.29) (0.51) (0.94)
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