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PROS Holdings, Inc. Index to consolidated financial statements
As filed with the Securities and Exchange Commission on April 4, 2007
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
PROS Holdings, Inc.
(Exact name of Registrant as Specified in its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization) |
7371
(Primary Standard Industrial Classification Code Number) |
76-0168604
(I.R.S. Employer Identification Number) |
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3100 Main Street, Suite 900 Houston, TX 77002 Telephone: (713) 335-5151 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) |
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Albert E. Winemiller Chief Executive Officer and President 3100 Main Street, Suite 900 Houston, TX 77002 Telephone: (713) 335-5151 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) |
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, check the following box. o
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. o
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. o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o
CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities to be Registered |
Proposed Maximum Aggregate
Offering Price(1) |
Amount of
Registration Fee |
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Common Stock, $0.001 par value per share | $90,000,000 | $2,763 | ||
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The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Subject to completion, dated April 4, 2007
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
Common stock
This is an initial public offering of shares of common stock by PROS Holdings, Inc. The selling stockholders included in this prospectus are selling an additional shares of common stock. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders. The estimated initial offering price is between $ and $ per share.
Prior to this offering, there has been no public market for our common stock. We have applied to list our common stock for quotation on The Nasdaq Global Market under the symbol PROZ.
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Per share | Total | |||||
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Initial public offering price | $ | $ | ||||
Underwriting discount |
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Proceeds to us before expenses |
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$ |
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Proceeds to selling stockholders before expenses |
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$ |
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$ |
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The selling stockholders identified in this prospectus have granted the underwriters an option for 30 days from the date of this prospectus to purchase up to additional shares of common stock on the same terms and conditions set forth above to cover over-allotments, if any.
Investing in our common stock involves a high degree of risk. See "Risk factors" beginning on page 6.
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.
JPMorgan | Deutsche Bank Securities | |
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Jefferies & Company |
Thomas Weisel Partners LLC |
The underwriters expect to deliver the shares of common stock to purchasers on , 2007.
, 2007
INSIDE FRONT COVER PAGE
[Description to follow]
You should rely only on the information contained in this prospectus. We and the selling stockholders have not authorized anyone to provide you with information that is different from that contained in this prospectus. We and the selling stockholders 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.
For investors outside the United States: neither we, the selling stockholders nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. You are required to inform yourselves about and to observe any restrictions relating to this offering and the distribution of this prospectus.
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This summary highlights selected information more fully described elsewhere in this prospectus. You should read the following summary together with the entire prospectus, including the more detailed information regarding us and the common stock being sold in this offering and our consolidated financial statements and the related notes appearing elsewhere in this prospectus. You should carefully consider, among other things, the matters discussed in the section entitled "Risk factors" beginning on page 6 before deciding to invest in our common stock.
Overview
We are a leading provider of pricing and revenue optimization software, an emerging category of enterprise applications designed to allow companies to improve financial performance by enabling better pricing. By using our software products, customers gain insight into their pricing strategies, identify detrimental pricing practices, optimize their pricing decision-making and improve their business processes and financial performance. Our software products incorporate advanced pricing science, which includes operations research, forecasting and statistics. Our innovative science-based software products analyze, execute and optimize pricing strategies using data from traditional enterprise applications, often augmenting it with real-time and historical data. We also provide a range of services that include analyzing a company's current pricing processes and implementing our software products to improve pricing performance. We provide our software products to enterprises across a range of industries, including manufacturing, distribution, services, hotel and cruise, and airline. As of March 31, 2007, we had 90 customers across five industries in 42 countries with over 200 implementations of our software products. We recorded revenue of $35.1 million and $46.0 million in 2005 and 2006, respectively, and have achieved eight consecutive years of profitability.
Industry background
Pricing is an important component of an enterprise's business processes and financial performance. Companies can face a variety of pricing problems such as unnecessary discounting and quoting prices below breakeven. We believe that improving pricing is one of the most strategic and powerful ways for companies to improve their business and financial performance. According to a 2006 Gartner Research report, on average, a 1% improvement in price translated to an 11% increase in profitability. In contrast, according to the same report, a 1% improvement in fixed costs or variable costs only increases profitability by 3% and 7%, respectively.
A variety of trends are accelerating the need for better pricing. They include increasingly complex markets and business models, greater sophistication of purchasers, proliferation of pricing entities and competitive alternatives, growing quantities of enterprise data and diminishing returns from traditional enterprise applications.
One element contributing to pricing problems is the limited visibility into effective prices and margins after accounting for discounts, promotions, rebates and allowances. In addition, a lack of uniform pricing and goals, an unscientific, ad-hoc approach to pricing and a lack of complete, relevant and timely data further add to the pricing problems that we believe most companies face. We believe most companies have yet to develop or systematically implement pricing technology solutions that can best meet business goals and generate optimal prices.
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We believe the market for pricing and revenue optimization software is a large and rapidly growing opportunity that spans most major industries. An August 2006 AMR Research report estimated that the price management applications market will be $348 million in 2007 and will grow to approximately $1.1 billion in 2010, a compound annual growth rate of 46%. We believe that the overall pricing and revenue optimization software market includes additional elements not considered in the AMR Research report.
Our solution
The PROS Pricing Solution Suite is our set of integrated software products that enables enterprises to apply pricing science to determine, analyze and execute optimal pricing strategies. Our software products support pricing decisions through the aggregation and analysis of extensive enterprise application data, transactional data and market information. Our PROS Pricing Solution Suite addresses three areas necessary to implement and execute an effective pricing solution: pricing analytics, pricing execution and pricing optimization. Our science-based approach to pricing increases business insight, enhances planning and decision making as well as improves business and financial performance for our customers.
Key strengths that differentiate us from our competitors include our extensive experience in pricing and revenue optimization, our thought leadership in pricing and revenue optimization science, our high-performance software architecture with proven scalability, our broad pricing and revenue optimization capabilities and our global diversified customer base. In addition, we are able to configure our PROS Pricing Solution Suite to meet the needs of our customers across industries.
Our strategy
Our objective is to be the leading global provider of pricing and revenue optimization software products. We plan to:
Company information
We were incorporated in Texas in 1985, reincorporated as a Delaware corporation in 1998 and reorganized as a Delaware holding company in 2002. Our principal executive offices are located at 3100 Main Street, Suite 900, Houston, Texas 77002. Our telephone number is (713) 335-5151. Our website address is www.prospricing.com. The information on, or that can be accessed through, our website is not part of this prospectus.
PROS Revenue Management®, PROS and PROS Pricing Solution Suite are our trademarks in the United States. All other trademarks, trade names or service marks appearing in this prospectus are the property of their respective owners.
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Common stock offered by
PROS Holdings, Inc.: |
shares | |
Common stock offered by the selling stockholders: |
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shares |
Common stock to be outstanding after this offering: |
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shares |
Over-allotment option: |
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The selling stockholders have granted the underwriters an option for a period of 30 days to purchase up to an additional shares of common stock. |
Use of proceeds: |
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Approximately $20.0 million will be used to repay outstanding indebtedness. We intend to use the remainder of the proceeds of the offering for working capital and other general corporate purposes, including capital expenditures and research and development. See "Use of proceeds." |
Proposed Nasdaq Global Market symbol: |
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PROZ |
The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of April 2, 2007. This information excludes:
Unless otherwise indicated, the information in this prospectus assumes that the underwriters will not exercise the over-allotment option.
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Summary consolidated financial data
The summary consolidated financial data set forth below should be read in conjunction with "Selected consolidated financial data," "Management's discussion and analysis of financial condition and results of operations" and our consolidated financial statements and the related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of results for any future period.
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The "Pro forma" data in the table below reflects our redemption in March 2007 of our redeemable preferred stock for an aggregate of $17.4 million, our one-time cash dividend in March 2007 of $41.3 million to our common stockholders, our borrowings in March 2007 of $20.0 million to partially finance the dividend on our common stock and our receipt in March 2007 of $660,000 from the exercise of options to purchase 930,458 shares of our common stock. The "Pro forma as adjusted" column in the table below further reflects the application of the net proceeds from the sale by us of the shares of common stock in this offering after the deduction of the underwriting discount and estimated offering expenses.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) cash and cash equivalents, working capital, total assets and total stockholders' equity after this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriter discounts and estimated offering expenses payable by us.
The above information excludes:
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This offering and an investment in our common stock involve a high degree of risk. You should consider carefully the risks described below, together with the financial and other information contained in this prospectus, before you decide to buy our common stock. If any of the following risks materializes, our business, financial condition and results of operations could suffer. In this case, the trading price of our common stock would likely decline and you might lose all or part of your investment in our common stock. The risks described below are not the only ones we face. Additional risks that we currently do not know about or that we currently believe to be immaterial may also impair our business operations.
Risks relating to our business and industry
We focus exclusively on the pricing and revenue optimization software market, and if this market develops more slowly than we expect, our business will be harmed.
We derive, and expect to continue to derive, all of our revenue from providing pricing and revenue optimization software products, implementation services and ongoing customer support. The pricing and revenue optimization software market is relatively new and still evolving, and it is uncertain whether this software will achieve and sustain high levels of demand and market acceptance. Our success will depend on the willingness of businesses to implement pricing and revenue optimization software.
Some businesses may be reluctant or unwilling to implement pricing and revenue optimization software for a number of reasons, including failure to understand the potential returns of improving their pricing processes and lack of knowledge about the potential benefits that such software may provide. Even if businesses recognize the need for improved pricing processes, they may not select our pricing and revenue optimization software products because they previously have made investments in internally developed pricing and revenue optimization solutions. Some businesses may elect to improve their pricing processes through solutions obtained from their existing enterprise software providers, whose solutions are designed principally to address one or more functional areas other than pricing. These enterprise solutions may appeal to customers that wish to limit the number of software vendors on which they rely and the number of different types of solutions used to run their businesses.
If businesses do not perceive the benefits of pricing and revenue optimization software, the pricing and revenue optimization software market may not continue to develop or may develop more slowly than we expect, either of which would significantly and adversely affect our revenue and operating results. Because the pricing and revenue optimization software market is developing and the manner of its development is difficult to predict, we may make errors in predicting and reacting to relevant business trends, which could harm our operating results.
Any downturn in our sales to airlines or any failure to increase sales to other industries would adversely affect our operating results.
Historically, we have derived a significant portion of our revenue from the sale of our solutions to customers in the airline industry. Revenue from customers in the airline industry accounted for 52% and 44% of our total revenue in 2005 and 2006, respectively, although in 2005 and 2006, airlines contributed 44% and 34%, respectively, of our total license and implementation revenue. We classify revenue from all cargo customers, including air cargo customers, as part of our services industry revenue. We do not expect the revenue from the sale of our software products and services
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to customers in the airline industry to grow as rapidly as our revenue from sales to customers in other industries. As such, our success is highly dependent upon our ability to sell our software products to customers in industries other than the airline industry. If we are unable to market and sell our software products effectively to customers in other industries, we may not be able to grow our business. In industries other than the airline industry, it is uncertain whether our software products will achieve and sustain the levels of demand and market acceptance that we anticipate. Such uncertainty is attributable to, among other factors, the following:
Although we expect the percentage of our revenue attributable to customers in the airline industry to continue to decline, a large portion of our revenue will continue to be derived from airline customers. Thus, our revenue is subject in part to the success of our customers in the airline industry. The airline industry is highly dependent on general economic conditions. Weak and uncertain economic conditions in the airline industry, airline industry consolidation and the reported weak performance of certain airline companies, including those commercial airline companies who have recently filed for bankruptcy could adversely affect our sales to the airline industry.
Deterioration of general economic conditions could adversely affect our sales and operating results.
We believe the implementation of our software products, which is often accompanied by hardware purchases and other capital commitments, involves significant capital expenditure by our customers. As a result, customers are likely to reduce or defer their spending on technology in the event of economic instability or downturn. In addition, weak and uncertain economic conditions could impair our customers' ability to pay for our products or services. Any of these factors could adversely impact our business, quarterly or annual operating results and financial condition.
Our software products require implementation projects that are subject to significant risks, the materialization of which could negatively impact the effectiveness of our solutions, resulting in harm to our reputation, business and financial performance.
The implementation of our software products can involve complex, large-scale projects that require substantial support operations, significant resources and reliance on certain factors that may not be under our control. For example, the success of our implementation projects is heavily dependent upon the quality of data used by our software products and the stability, functionality and scalability of the customer's information technology infrastructure. If weaknesses or problems in infrastructure or data exist, we may not be able to correct or compensate for such weaknesses. In addition, implementation of our software products can be highly complex and require substantial efforts and cooperation on the part of our customers and us. If we are unable to successfully manage the implementation of our software products such that those products do not meet customer needs or expectations, our business, reputation and financial performance may be significantly harmed.
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In 2006, approximately 51% of our license and implementation revenue was earned from 10 customers. If an implementation project for a large customer is substantially delayed or cancelled, our ability to recognize the associated revenue and our operating results would be adversely affected.
Our revenue recognition is primarily based upon our ability to estimate the efforts required to complete our implementation projects, which may be difficult to estimate.
We generally recognize revenue from our software licenses and implementation services over the period during which such services are performed using the percentage-of-completion method. The length of this period depends on the number of licensed software products and the scope and complexity of the customer's deployment requirements. Under the percentage-of-completion method, the revenue we recognize during a reporting period is based on the percentage of man-days incurred during the reporting period as compared to the estimated total man-days required to implement our software products. If we are unable to accurately estimate the overall total man-days required to implement our software products, such inaccuracies could have a material effect on the timing of our revenue. Any change in the timing of revenue recognition as a result of inaccurate estimates could adversely impact our quarterly or annual operating results.
If our cost estimates for fixed-fee arrangements do not accurately anticipate the cost and complexity of implementing our software products, our profitability could be reduced and we could experience losses on these arrangements.
Substantially all of our license and implementation arrangements are priced on a fixed-fee basis. If we underestimate the amount of effort required to implement our software products, our profitability could be reduced. Moreover, if the actual costs of completing the implementation exceed the agreed upon fixed price, we would incur a loss on the arrangement.
We might not generate increased business from our current customers, which could limit our revenue in the future.
We sell our software products to both new customers and existing customers. Many of our existing customers initially purchase our software products for a specific business segment within their organization and later purchase additional software products for the same or other business segments of their organization. These customers might not choose to make additional purchases of our software products or to expand their existing software products to other business segments. In addition, as we deploy new applications and features for our software products or introduce new software products, our current customers could choose not to purchase these new offerings. If we fail to generate additional business from our existing customers, our revenue could grow at a slower rate or even decrease.
If we fail to develop or acquire new pricing and revenue optimization functionality to enhance our existing software products, we will not be able to achieve our anticipated level of growth.
The pricing and revenue optimization software market is characterized by:
We must introduce new pricing and revenue optimization functionality that enhances our existing software products in order to meet our business plan, maintain or improve our competitive position,
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keep pace with technological developments, satisfy increasing customer requirements and increase awareness of pricing and revenue optimization software generally and of our software products in particular. Any new functionality we develop may not be introduced in a timely manner and may not achieve market acceptance sufficient to generate material revenue. Furthermore, we believe our competitors are heavily investing in research and development, and they may develop and market new solutions that will compete with, and may reduce the demand for, our software products. We cannot assure you that we will be successful in developing or otherwise acquiring, marketing and licensing new functionality, or delivering updates and upgrades that meet changing industry standards and customer demands. In addition, we may experience difficulties that could delay or prevent the successful development, marketing and licensing of such functionality. If we are unable to develop or acquire new functionality, enhance our existing software products or adapt to changing industry requirements to meet market demand, we may not be able to achieve our anticipated level of growth and our revenue and operating results would be adversely affected.
In addition, because our software products are intended to operate on a variety of technology platforms, we must continue to modify and enhance our software products to keep pace with changes in these platforms. Any inability of our software products to operate effectively with existing or future platforms could reduce the demand for our software products, result in customer dissatisfaction and limit our revenue.
Competition from vendors of pricing solutions and enterprise applications as well as from companies internally developing their own solutions could adversely affect our ability to sell our software products and could result in pressure to price our software products in a manner that reduces our margins and harms our operating results.
The pricing and revenue optimization software market is competitive, fragmented and rapidly evolving. Our software products compete with solutions developed internally by businesses as well as solutions offered by competitors. Our principal competition consists of:
We expect additional competition from other established and emerging companies to the extent the pricing and revenue optimization software market continues to develop and expand. We also expect competition to increase as a result of the entrance of new competitors in the market and industry consolidation, including through a merger or partnership of two or more of our competitors or the acquisition of a competitor by a larger company. Many of our current and potential competitors have larger installed bases of users, longer operating histories and greater name recognition than we have. In addition, many of these companies have significantly greater financial, technical, marketing, service and other resources than we have. As a result, these companies may be able to respond more quickly to new or emerging technologies and changes in customer demands and to devote greater resources to the development, promotion and sale of their products than we can.
Competition could seriously impede our ability to sell additional software products and related services on terms favorable to us. Businesses may continue to enhance their internally developed solutions, rather than investing in commercially-available solutions such as ours. Our current and potential competitors may develop and market new technologies that render our existing or future products obsolete, unmarketable or less competitive. In addition, if these competitors develop products with similar or superior functionality to our products, or if they offer products with similar
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functionality at a substantially lower price than our products, we may need to decrease the prices for our products in order to remain competitive. If we are unable to maintain our current product, services and maintenance pricing due to competitive pressures, our margins will be reduced and our operating results will be adversely affected. We cannot assure you that we will be able to compete successfully against current or future competitors or that competitive pressures will not materially and adversely affect our business, financial condition and operating results.
We are subject to a lengthy sales cycle and delays or failures to complete sales may harm our business and cause our revenue and operating income to decline in the future.
Our sales cycle may take several months to over a year. During this sales cycle, we may expend substantial resources with no assurance that a sale will ultimately result. The length of a customer's sales cycle depends on a number of factors, many of which we may not be able to control. These factors include the customer's product and technical requirements and the level of competition we face for that customer's business. Any lengthening of the sales cycle could delay our recognition of revenue and could cause us to expend more resources than anticipated. If we are unsuccessful in closing sales or if we experience delays, it could have an adverse effect on our operating results.
If we fail to retain our key personnel or if we fail to attract additional qualified personnel, we will not be able to achieve our anticipated level of growth and our operating results could be adversely affected.
Our future success depends upon the continued service of our executive officers and other key sales, development, science and professional services staff. The loss of the services of our executive officers and other key personnel would harm our operations. In addition, our future success will depend in large part on our ability to attract a sufficient number of highly qualified personnel, and there can be no assurance that we will be able to do so. In particular, given the highly sophisticated pricing science included in our products, the pool of scientists and software developers qualified to work on our products is limited. In addition, the implementation of our software products requires highly-qualified personnel, and hiring and retaining such personnel to support our growth may be challenging. Competition for such qualified personnel is intense, and we compete for these individuals with other companies that have greater financial, technical, marketing, service and other resources than we do. If we fail to retain our key personnel and attract new personnel, we will not be able to achieve our anticipated level of growth and our operating results could be adversely affected.
Our revenue recognition policy may cause any decreases in sales not to be reflected in our revenue immediately.
The period over which we recognize license and implementation revenue for an implementation depends on the number of licensed software products and the scope and complexity of the customer's deployment requirements and ranges from six months to several years. As a result, a substantial majority of our revenue is recognized on arrangements that were executed in previous periods. Any shortfall in new sales of our software products may not be reflected in our revenue for several quarters, and as such the adverse impact on our business may not be readily apparent.
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Our license and implementation revenue produces lower gross margins than our maintenance and support revenue, and an increase in license and implementation revenue relative to maintenance and support revenue may harm our overall gross margins.
Our license and implementation revenue was approximately 57% and 64% of our total revenue in 2005 and 2006, respectively. Our license and implementation revenue has lower gross margins than our maintenance and support revenue. Continued increases in the percentage of total revenue represented by license and implementation revenue could adversely affect our overall gross margins even though gross profit may be increasing.
Our international sales subject us to risks that may adversely affect our operating results.
Over the last several years, we derived a significant portion of our revenue from customers outside the Americas. In 2005 and 2006, approximately 52% and 54% of our total revenue, respectively, was derived from outside the Americas. We may not be able to maintain or increase international market demand for our products. We are considering adding personnel and facilities abroad to support and expand our growing global customer base. Managing overseas growth could require significant resources and management attention and may subject us to new or larger levels of regulatory, economic, tax and political risks. We cannot be sure that developing international operations will be successful. Among the risks we believe are most likely to affect us with respect to our international sales and operations are:
As we continue to expand our business globally, our success will depend, in large part, on our ability to anticipate and effectively manage these and other risks associated with our international operations. Our failure to manage any of these risks successfully could harm our international operations and reduce our international sales, adversely affecting our business, operating results and financial condition.
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Our inability to sustain our historical maintenance and support renewal rates and pricing would adversely affect our operating result.
Maintenance and support agreements are typically for a term of one to two years. Over the past three years, customers have renewed an average of 96% of the maintenance and support revenue that was up for renewal. Historically, maintenance and support revenue has represented a significant portion of our total revenue, including approximately 36% of our total revenue in 2006. In addition, our maintenance and support revenue has a higher gross margins than our license and implementation revenue. If our customers choose not to renew their maintenance and support agreements with us on favorable terms or at all, our business, operating results and financial condition could be harmed.
We might not be able to manage our future growth efficiently or profitably.
We experienced significant growth in 2006 and are planning for this growth trend to continue. In response to such growth, we will likely need to expand the size of our sales and marketing, research and development and general and administrative staffs, grow our related operations and strengthen our financial and accounting controls. There is no assurance that our infrastructure will be sufficiently scalable to manage our growth. For example, our anticipated growth may result in a significant increase in demand for our implementation personnel to implement our solutions. If we are unable to address these additional demands on our resources, our operating results and growth might suffer. Even if we are able to hire additional personnel, there is no guarantee such personnel will be as highly qualified as our existing personnel. As a result, certain implementations of our solution may not meet our customers' expectations and our reputation could be harmed and our business and operating results adversely affected. Also, if we continue to expand our operations, management might not be effective in expanding our physical facilities and our systems, procedures or controls might not be adequate to support such expansion. Further, to the extent we invest in additional resources to support further growth and growth in our revenue does not ensue, our operating results would be adversely affected. Our inability to manage our growth could harm our business.
Defects or errors in our software products could harm our reputation, impair our ability to sell our products and result in significant costs to us.
Our pricing and revenue optimization software products are complex and may contain undetected defects or errors. Several of our products have recently been developed and may therefore be more likely to contain undetected defects or errors. In addition, we frequently develop enhancements to our software products that may contain defects. We have not suffered significant harm from any defects or errors to date, but we have found defects in our software products from time to time. We may discover additional defects in the future, and such defects could be material. We may not be able to detect and correct defects or errors before the final implementation of our software products. Consequently, we or our customers may discover defects or errors after our software products have been implemented. We have in the past issued, and may in the future need to issue, corrective releases of our products to correct defects or errors. The occurrence of any defects or errors could result in:
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Our license agreements with our customers typically contain provisions designed to limit our liability for defects and errors in our software products and damages relating to such defects and errors, but these provisions may not be enforced by a court or otherwise effectively protect us from legal claims. Our liability insurance may not be adequate to cover all of the costs resulting from these legal claims. Moreover, we cannot assure you that our current liability insurance coverage will continue to be available on acceptable terms. In addition, the insurer may deny coverage on any future claim. The successful assertion against us of one or more large claims that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business and operating results. Furthermore, even if we prevail in any litigation, we are likely to incur substantial costs and our management's attention will be diverted from our operations.
New accounting standards or interpretations of existing accounting standards, including those related to revenue recognition, could adversely affect our operating results.
Generally accepted accounting principles in the United States are subject to interpretation by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, or SEC, and various bodies formed to promulgate and interpret appropriate accounting principles. A change in principles or interpretations, in particular those related to revenue recognition, could have an adverse effect on our reported financial results.
If we fail to protect our proprietary rights and intellectual property adequately, our business and prospects may be harmed.
Our success will depend in part on our ability to protect our proprietary methodologies and intellectual property. We rely upon a combination of trade secrets, confidentiality policies, nondisclosure and other contractual arrangements, and patent, copyright and trademark laws to protect our intellectual property rights. We cannot, however, be sure that steps we take to protect our proprietary rights will prevent misappropriation of our intellectual property, or the development and marketing of similar and competing products and services by third parties.
We rely, in some circumstances, on trade secrets to protect our technology. Trade secrets, however, are difficult to protect. In addition, our trade secrets may otherwise become known or be independently discovered by competitors, and in such cases, we could not assert such trade secret rights against such parties. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, customers, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. To the extent that our employees, consultants or contractors use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
As of the date of this filing, we have four pending U.S. patent applications. We have not pursued patent protection in any foreign countries. Our pending patent applications may not result in issued patents. The patent position of technology-oriented companies, including ours, is generally uncertain and involves complex legal and factual considerations. The standards that the United States Patent and Trademark Office uses to grant patents are not always applied predictably or
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uniformly and can change. Accordingly, we do not know the degree of future protection for our proprietary rights or the breadth of claims allowed in any patents that may be issued to us or to others. If any of our patent applications issue, they may not contain claims sufficiently broad to protect us against third parties with similar technologies or products, or provide us with any competitive advantage. Moreover, once they have been issued, our patents and any patent for which we have licensed or may license rights may be challenged, narrowed, invalidated or circumvented. If our patents are invalidated or otherwise limited, other companies will be better able to develop products that compete with ours, which could adversely affect our competitive business position, business prospects and financial condition.
Patent applications in the U.S. are typically not published until 18 months after filing, or in some cases not at all, and publications of discoveries in industry-related literature lag behind actual discoveries. We cannot be certain that we were the first to make the inventions claimed in our pending patent applications or that we were the first to file for patent protection. Additionally, the process of obtaining patent protection is expensive and time-consuming, and we may not be able to prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. As a result, we may not be able to obtain adequate patent protection.
In addition, despite our efforts to protect our proprietary rights, unauthorized parties may be able to obtain and use information that we regard as proprietary. The issuance of a patent does not guarantee that it is valid or enforceable. As such, even if we obtain patents, they may not be valid or enforceable against third parties. In addition, the issuance of a patent does not guarantee that we have a right to practice the patented invention. Third parties may have blocking patents that could be used to prevent us from marketing or practicing our potentially patented products. As a result, we may be required to obtain licenses under these third-party patents. If licenses are not available to us on acceptable terms, or at all, we will not be able to make and sell our software products and competitors would be more easily able to compete with us.
Intellectual property litigation and infringement claims may cause us to incur significant expense or prevent us from selling our software products.
Our industry is characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. A third party may assert that our technology violates its intellectual property rights, or we may become the subject of a material intellectual property dispute. Pricing and revenue optimization solutions may become increasingly subject to infringement claims as the number of commercially available pricing and revenue optimization solutions increases and the functionality of these solutions overlaps. Future litigation may involve patent holding companies or other adverse patent owners who have no relevant product revenue and against whom our own potential patents may therefore provide little or no deterrence. Regardless of the merit of any particular claim that our technology violates the intellectual property rights of others, responding to such claims may require us to:
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Any license required as a result of litigation under any patent may not be made available on commercially acceptable terms, if at all. In addition, some licenses may be nonexclusive, and therefore our competitors may have access to the same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent, we may be unable to effectively develop or market our products, which could limit our ability to generate revenue or maintain profitability.
We may also be required to indemnify our customers for their use of the intellectual property associated with our current product suite or for other third-party products that are incorporated into our solutions and that infringe the intellectual property rights of others. If we are unable to resolve our legal obligations by settling or paying an infringement claim or a related indemnification claim as described above, we may be required to compensate our customers under the contractual arrangement with the customers. Some of our intellectual property indemnification obligations are contractually capped at a very high amount or not capped at all.
We use open source software in our products that may subject our software products to general release or require us to re-engineer our products, which may cause harm to our business.
We use open source software in our products and may use more open source software in the future. From time to time, there have been claims challenging the ownership of open source software against companies that incorporate open source software into their products. As a result, we could be subject to suits by parties claiming ownership of what we believe to be open source software. Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the open source software and that we license such modifications or derivative works under the terms of a particular open source license or other license granting third parties certain rights of further use. If we combine our proprietary software products with open source software in a certain manner, we could, under certain of the open source licenses, be required to release the source code of our proprietary software products. In addition to risks related to license requirements, usage of open source software can lead to greater risks than use of third party commercial software, as open source licensors generally do not provide warranties or controls on origin of the software. In addition, open source license terms may be ambiguous and many of the risks associated with usage of open source cannot be eliminated, and could, if not properly addressed, negatively affect our business. If we were found to have inappropriately used open source software, we may be required to re-engineer our products, to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis or take other remedial action that may divert resources away from our development efforts, any of which could adversely affect our business, operating results and financial condition.
We utilize third-party software that we incorporate into our software products, and impaired relations with these third parties, defects in third-party software or a third party's inability or failure to enhance their software over time could adversely affect our operating performance and financial condition.
We incorporate and include third-party software into our software products. If our relations with any of these third parties are impaired, or if we are unable to obtain or develop a replacement for
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the software, our business could be harmed. The operation of our products could be impaired if errors occur in the third-party software that we utilize. It may be more difficult for us to correct any defects in third-party software because the software is not within our control. Accordingly, our business could be adversely affected in the event of any errors in this software. There can be no assurance that these third parties will continue to invest the appropriate levels of resources in their products and services to maintain and enhance the capabilities of their software.
The elimination or significant reduction in the general business tax credit could adversely affect our results of operations.
Our results of operations benefit from the tax credit incentives under the U.S. research and experimentation tax credit extended to taxpayers engaged in qualified research and experimental activities while carrying on a trade or business. This tax credit is designed to stimulate qualifying company research and development over time by reducing after-tax costs. By qualifying for the tax credit, we have been able to use general business tax credits and may use related general business tax credit carryforwards in future periods to reduce our federal income tax liability. Our operating activities may disqualify us in the future from the benefits of the tax credit. In addition, the tax credit may not be renewed prior to its expiration on December 31, 2007, or if renewed, it may be renewed on terms significantly less favorable than current tax incentives or on terms resulting in our disqualification from the benefits of the tax credit. The elimination or significant reduction in the tax credit would increase our effective tax rate and would adversely affect our results of operations.
If we do not develop relationships with third-party consultants and systems integrators to implement our solutions, our growth may suffer.
Our strategy is to develop relationships with third-party consultants and systems integrators to assist with implementation of our solutions. If third-party consultants and systems integrators are reluctant to assist on terms acceptable to us, if at all, or if we otherwise fail to establish and maintain these relationships, our growth may suffer and our operating results could be harmed. In addition, if we establish such relationships with third-party consultants and systems integrators, we may only have limited control over the level and quality of service provided by such parties.
We may enter into acquisitions that may be difficult to integrate, fail to achieve our strategic objectives, disrupt our business, dilute stockholder value or divert management attention.
We currently do not have any agreements with respect to any acquisitions, but in the future we may pursue acquisitions of businesses, technologies and products that we intend to complement our existing business, products and technologies. We cannot assure you that any acquisition we make in the future will provide us with the benefits we anticipated in entering into the transaction. Acquisitions are typically accompanied by a number of risks, including:
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In addition, acquisitions may result in the incurrence of debt, restructuring charges and write-offs, such as write-offs of acquired in-process research and development. Acquisitions may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges. Furthermore, if we finance acquisitions by issuing convertible debt or equity securities, our existing stockholders may be diluted and earnings per share may decrease. To the extent we finance future acquisitions with debt, such debt could include financial or operational covenants that restrict our business operations.
We may enter into negotiations for acquisitions that are not ultimately consummated. Those negotiations could result in diversion of management time and significant out-of-pocket costs. If we fail to evaluate and execute acquisitions successfully, we may not be able to achieve our anticipated level of growth and our business and operating results could be adversely affected.
Our operations might be affected by the occurrence of a natural disaster or other catastrophic event in Houston, Texas.
Our headquarters are located in Houston, Texas, from which we base our operations. Although we have contingency plans in effect for natural disasters or other catastrophic events, these events, including terrorist attacks and natural disasters such as hurricanes, could disrupt our operations. Even though we carry business interruption insurance and typically have provisions in our contracts that protect us in certain events, we might suffer losses as a result of business interruptions that exceed the coverage available under our insurance policies or for which we do not have coverage. For example, even a temporary disruption to our business operations may create a negative perception in the marketplace. Any natural disaster or catastrophic event affecting us could have a significant negative impact on our operations.
We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.
As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. SEC and Nasdaq rules and regulations impose heightened requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. We may also need to hire additional finance and administrative personnel to support our compliance requirements. Moreover, these rules and regulations will increase our legal and financial costs and will make some activities more time-consuming.
In addition, we are required to maintain effective internal controls for financial reporting and disclosure controls and procedures. In particular, we will be required to perform system and process evaluation and testing of our internal controls over financial reporting to allow management to report on, and our independent registered public accounting firm to report on, the effectiveness of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. Our testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies or material weaknesses in our internal controls over financial reporting. Our compliance with Section 404 will require that we incur substantial accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we may need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge. Moreover, if we are not able to comply with the requirements
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of Section 404 in a timely manner, or if we or our independent registered public accounting firm identifies deficiencies or material weaknesses in our internal controls over financial reporting, the market price of our stock could decline and we could be subject to sanctions or investigations by the Nasdaq, SEC or other regulatory authorities, which would require additional financial and management resources.
Our ability to raise capital in the future may be limited, and our failure to raise capital when needed could prevent us from executing our growth strategy.
We believe that our existing cash and cash equivalents and our cash flow from future operating activities, together with the net proceeds of this offering, will be sufficient to meet our anticipated cash needs for the foreseeable future. The timing and amount of our working capital and capital expenditure requirements may vary significantly depending on numerous factors, including the other risk factors described in this prospectus. In addition, we may require additional financing to fund the purchase price of future acquisitions. Additional financing may not be available on terms favorable to us, or at all. Any additional capital raised through the sale of equity or convertible debt securities may dilute your percentage ownership of our common stock. Furthermore, any new debt or equity securities we issue could have rights, preferences and privileges superior to our common stock. Capital raised through debt financings could require us to make periodic interest payments and could impose potentially restrictive covenants on the conduct of our business.
Risks relating to this offering and ownership of our common stock
Because there has not been a public market for our common stock and our stock price may be volatile, you may not be able to resell your shares at or above the initial offering price.
Prior to this offering, you could not buy or sell our common stock publicly. We cannot predict the extent to which an active trading market for our common stock will develop or whether the market price of our common stock will be volatile following this offering. The market for technology stocks has been volatile. The following factors, most of which are outside of our control, could cause the market price of our common stock to decrease significantly from the price you pay in this offering:
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In the past, securities class action litigation often has been initiated against a company following a period of volatility in the market price of the company's securities. If class action litigation is initiated against us, we will incur substantial costs and our management's attention will be diverted from our operations. All of these factors could cause the market price of our stock to decline, and you may lose some or all of your investment.
If equity research analysts do not publish research or reports about us or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock will rely in part on the research and reports that equity research analysts publish about us and our business. The price of our stock could decline if one or more equity research analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about our business.
Future sales of our common stock by existing stockholders could cause our stock price to decline.
After this offering, we will have shares of common stock outstanding. The shares sold in this offering, or shares if the underwriters' over-allotment option is exercised in full, will be freely tradable without restriction or further registration under federal securities laws unless purchased by our affiliates. The remaining shares of common stock outstanding after this offering will be available for sale in the public market as follows:
The remaining shares held by existing stockholders will become eligible for sale at various times on or before .
The above table assumes the effectiveness of the lock-up agreements under which holders of substantially all of our common stock have agreed not to sell or otherwise dispose of their shares of common stock. J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. may, at their discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements.
If our common stockholders sell substantial amounts of common stock in the public market, or if the market perceives that these sales may occur, the market price of our common stock may decline. In addition, as soon as practicable after the completion of this offering, we intend to file a registration statement under the Securities Act of 1933, as amended, or the Securities Act, covering 2,285,247 shares of common stock consisting of shares subject to options outstanding or reserved for issuance under our stock option plans and shares of our common stock issued upon exercise of options under such plans. Accordingly, shares registered under that registration statement will be available for sale in the open market, subject to the contractual lock-up agreements described above that prohibit the sale or other disposition of the shares of common stock underlying the options for a period of 180 days after the date of this prospectus.
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We have broad discretion in the use of the proceeds of this offering.
Approximately $20.0 million of the net proceeds to us from this offering will be used to repay certain indebtedness incurred in connection with the payment of a one-time cash dividend to our stockholders in March 2007. The remainder of the net proceeds will be used, as determined by management in its sole discretion, for working capital and general corporate purposes. We have not, however, determined the allocation of those remaining net proceeds among such uses. Our management will have broad discretion over the use and investment of these net proceeds, and, accordingly, you will need to rely upon the judgment of our management with respect to our use of these net proceeds, with only limited information concerning management's specific intentions. You will not have the opportunity, as part of your investment decision, to assess whether our proceeds are being used appropriately.
Our directors and executive officers will continue to have substantial control over us after this offering and could limit the ability of stockholders to influence the outcome of key transactions, including changes of control.
We anticipate that our executive officers and directors and entities affiliated with them will, in the aggregate, beneficially own % of our outstanding common stock following the completion of this offering, assuming the underwriters do not exercise their over-allotment option. Our executive officers, directors and affiliated entities, if acting together, would be able to control or influence significantly all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other significant corporate transactions. These stockholders may have interests that differ from yours, and they may vote in a way with which you disagree and that may be adverse to your interests. The concentration of ownership of our common stock may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and may affect the market price of our common stock.
Anti-takeover provisions in our Certificate of Incorporation and Bylaws, which will be effective on the closing of this offering, and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Our Certificate of Incorporation and by-laws and Section 203 of the Delaware General Corporation Law contain provisions that might enable our management to resist a takeover of our company. These provisions include the following:
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In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain higher bids by requiring potential acquirors to negotiate with our board of directors, they would apply even if an offer were considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.
Investors in this offering will experience immediate and substantial dilution in the net tangible book value of the common stock they purchase in this offering.
Investors in this offering will experience immediate dilution of $ per share, because the price that they pay will be substantially greater than the net tangible book value per share of common stock that they acquire. This dilution is due in large part to the fact that our earlier investors paid substantially less than the price of the shares being sold in this offering when they purchased their shares of our capital stock. If outstanding options to purchase our common stock are exercised, investors in this offering will experience additional dilution.
We do not intend to pay dividends on our common stock in the foreseeable future.
We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes. Any payment of future dividends will be at the discretion of our board of directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that the board of directors deems relevant. In particular, the provisions of our existing indebtedness prohibit us from paying dividends without the consent of the lenders. Investors seeking cash dividends should not purchase our common stock.
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Special note regarding forward-looking statements
We have made statements under the captions "Prospectus summary," "Risk factors," "Management's discussion and analysis of financial condition and results of operations" and "Business" and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as "may," "might," "will," "could," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential" or "continue," the negative or plural of these words and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, include, among other things, our anticipated strategies and anticipated trends in our business and the markets in which we operate. These statements are only predictions based on our current expectations and projections about future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by the forward- looking statements. You should specifically consider the numerous risks outlined under "Risk factors."
You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement on Form S-1, of which this prospectus is a part, that we have filed with the Securities and Exchange Commission, completely and with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.
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We estimate that the net proceeds we will receive from this offering will be approximately $ million, after deducting underwriting discounts and commissions and estimated offering costs. We will not receive any proceeds from the sale of shares of common stock by the selling stockholders.
Our principal purposes for this offering are to obtain working capital for general corporate purposes, repay indebtedness, establish a public market for our common stock and facilitate our future access to public capital markets. We will have broad discretion in the way we use the net proceeds to us; however, we intend to use the net proceeds to us from this offering as summarized in the following table:
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Retirement of indebtedness(1) | $ | ||
Available cash | |||
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Total uses | $ | ||
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A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by approximately $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriter discounts and estimated offering expenses payable by us.
The amount and timing of what we actually spend may vary significantly and will depend on a number of factors, including our future revenue and cash generated by operations and the other factors described in the "Risk factors" section.
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Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock may receive dividends out of assets legally available and in the amounts that our board of directors may determine from time to time.
In August 2006, we redeemed 1,294,030 shares of our redeemable preferred stock for $8.4 million, including accrued dividends of $2.7 million on such shares. In March 2007, we redeemed the remaining 2,627,282 outstanding shares of our redeemable preferred stock for $17.4 million, including accrued dividends of $5.6 million on such shares. In March 2007, we also paid a one-time cash dividend of $41.3 million to the holders of our outstanding common stock.
Upon the closing of this offering, we expect to retain all remaining available funds and any future earnings for use in the operation and development of our business. Accordingly, we do not anticipate declaring or paying cash dividends on our common stock in the foreseeable future. In addition, our credit agreement prohibits us from declaring or paying future dividends without the consent of the lender.
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The following table sets forth our capitalization as of December 31, 2006 on:
You should read the following table in conjunction with the section of this prospectus captioned "Management's discussion and analysis of financial condition and results of operations" and our consolidated financial statements and related notes.
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Our net tangible book value as of was approximately $ million, or $ per share of our common stock. Our net tangible book value per share represents our total tangible assets less total liabilities, divided by the number of shares of our common stock outstanding on .
Without taking into account any changes in net tangible book value after , other than to give effect to the sale of shares of our common stock in this offering, after deducting underwriting discounts and estimated offering costs payable by us, our as adjusted net tangible book value as of , 2007 would have been approximately $ million, or $ per share of our common stock. This amount represents an immediate increase in net tangible book value of $ per share to our existing stockholders and an immediate dilution in net tangible book value of $ per share to new investors purchasing shares in this offering. The following table illustrates the dilution in net tangible book value per share to new investors.
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Assumed initial public offering price per share | $ | |||||
Net tangible book value per share as of , 2007 | $ | |||||
Increase in per share attributable to new investors | ||||||
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As adjusted net tangible book value per share after the offering | $ | |||||
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Dilution in net tangible book value per share to new investors | ||||||
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If all of the outstanding options and warrants were exercised, the net tangible book value as of would have been $ million and the as adjusted net tangible book value after this offering would have been $ per share, causing dilution to new investors of $ per share.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) our as adjusted net tangible book value as of , 2007 by approximately $ million, the as adjusted net tangible book value per share after this offering by $ per share and the dilution in as adjusted net tangible book value per share to new investors in this offering by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriter discounts and estimated offering expenses payable by us.
The following table summarizes, as of , 2007 on the as adjusted basis described above, the number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share paid to us by existing stockholders and to be paid by new investors purchasing shares of our common stock in this offering, before deducting underwriting discounts and commissions and estimated offering costs payable by us.
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Total | 100% | $ | 100% | $ | |||||||||
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The sale of shares of common stock to be sold by the selling stockholders in this offering will reduce the number of shares held by existing shareholders to shares, or % of the total shares outstanding, and will increase the number of shares held by investors participating in this offering to shares, or % of the total shares outstanding. In addition, if the underwriters exercise their over-allotment option in full, the number of shares held by existing shareholders will be further reduced to shares, or % of the total shares outstanding, and the number of shares held by investors participating in this offering will be further increased to shares, or % of the total shares outstanding.
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Selected consolidated financial data
The selected consolidated financial data set forth below should be read in conjunction with the consolidated financial statements and related notes and "Management's discussion and analysis of financial condition and results of operations" and other financial information appearing elsewhere in this prospectus. The consolidated statements of income data for the years ended December 31, 2004, 2005 and 2006 and the consolidated balance sheet data as of December 31, 2005 and 2006 are derived from our audited consolidated financial statements included elsewhere in this prospectus. The consolidated statements of income data for the years ended December 31, 2002 and 2003 and the consolidated balance sheet data as of December 31, 2002, 2003 and 2004 are derived from our audited consolidated financial statements not included in this prospectus. Historical results are not necessarily indicative of results in the future.
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Management's discussion and analysis of
financial condition and results of operations
The following discussion and analysis should be read in conjunction with the consolidated financial statements and related notes and the other financial information appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risk, uncertainties and assumptions. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including those discussed in "Risk factors" and elsewhere in this prospectus.
Overview
We are a leading provider of pricing and revenue optimization software, an emerging category of enterprise applications designed to allow companies to improve financial performance by enabling better pricing. By using our software products, customers gain insight into their pricing strategies, identify detrimental pricing practices, optimize their pricing decision-making and improve their business processes and financial performance. Our software products incorporate advanced pricing science, which includes operations research, forecasting and statistics. Our innovative science-based software products analyze, execute and optimize pricing strategies using data from traditional enterprise applications, often augmenting it with real-time and historical data. We also provide a range of services that include analyzing a company's current pricing processes and implementing our software products to improve pricing performance.
Historically, a substantial portion of our revenue has come from the global airline industry. More recently, we have seen our revenue growth driven by increases in sales to customers in the manufacturing, distribution, services, and hotel and cruise industries. We expect the percentage of our revenue from the airline industry to continue to decrease over time although revenue from the airline industry may remain flat or grow in absolute dollars.
We recognize the substantial majority of our license and implementation revenue on a percentage-of-completion basis because we consider implementation services to be essential to our customers' usability of our licensed software. Under this recognition policy, the revenue we recognize during a reporting period is based on the total man-days expended on an implementation of our software products during the reporting period as a percentage of the total man-days estimated to be necessary to complete the implementation of our software products. As a result of our revenue recognition policy, revenue from license arrangements are recognized over the implementation period, which typically ranges from six months to several years.
Our revenue recognition policy provides visibility into a significant portion of our revenue several quarters in advance. We do not recognize a material portion of our license revenue, if any, upon our signing a new license agreement with a customer. Our revenue recognition only begins when efforts are expended toward implementation, which alleviates pressure to enter into license agreements by the end of any particular quarter because we would not be able to recognize the corresponding revenue during the period in which the agreement is signed except to the extent we provide implementation services during the period.
We maintain our corporate headquarters in Houston, Texas. As of March 31, 2007, we had 311 employees.
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Background
We were founded in 1985 and initially focused our efforts on providing complex, science-based revenue management solutions to the global airline industry. In 1998, we raised $25.0 million by issuing convertible preferred stock to individual investors and to funds affiliated with TA Associates and JMI Equity. Mr. Albert E. Winemiller, our President and Chief Executive Officer, joined us in 1999, and Mr. Charles H. Murphy, our Executive Vice President and Chief Financial Officer, joined us in 1998.
In 1999, we began to consider ways to diversify our product offering to include a broader suite of pricing and revenue optimization functionality. We expanded our focus beyond the airline industry to include other industries that we believed to have a need for advanced pricing solutions. Our efforts toward diversification of products and customers intensified following September 11, 2001 as a result of the ensuing challenges faced by many airlines following those events. Despite the events of September 11, 2001 and the resulting decline in our revenue, we remained profitable as we sought additional ways to grow our business, and we have had eight consecutive years of profitability.
In 2005, we began to experience increased demand for our pricing and revenue optimization software products. In December 2005, Yankee Group published the results of a survey conducted in July 2005 of 389 respondents in the distribution industry and the high-technology, industrial and chemical manufacturing industries, 98% of which had annual revenue over $500 million. Of the respondents, 77% stated that they did not have a price management or profit optimization software solution but planned to purchase one and had developed a business case to do so.
As of March 31, 2007, we had 90 customers across five industries in 42 countries with over 200 implementations of our software products. Our total revenue was $35.1 million and $46.0 million in 2005 and 2006, respectively. Our net income was $3.4 million and $7.0 million in 2005 and 2006, respectively.
Our future revenue growth and profitability will depend on the continued acceptance of our pricing and revenue optimization software products, further penetration of our target industries and the increased adoption of pricing and revenue optimization software generally.
Discussion of consolidated financial information
Revenue
We derive our revenue from license fees, implementation services and maintenance and support services. Our arrangements with customers typically include: (a) license fees paid for the use of our products either in perpetuity or over a specified term and implementation fees for configuration, implementation and training services and (b) maintenance and support fees related to technical support and software updates. We consider our implementation services essential to the usability of our licensed software products, and therefore we recognize revenue from perpetual software license and implementation services together as the services are performed. For certain of our arrangements, we engage an independent contractor to assist in the implementation. We recognize revenue from these engagements net of the fees owed to the independent contractor.
License and implementation. We derive the substantial majority of our license and implementation revenue from the sale of perpetual licenses for our software products and related implementation services. Revenue from our perpetual licenses and implementation services are generally recognized as implementation services are performed on a percentage-of-completion basis.
We also recognize revenue from the sale of a limited number of fixed-term licenses, which have terms ranging from three months to five years, and related implementation services. In 2006, license
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and implementation revenue from fixed-term licenses represented 11.2% of our total license and implementation revenue. Revenue from fixed-term licenses, which generally includes maintenance and support during the license period, are recognized ratably over the license term.
Prior to 2002, we sold the substantial majority of our solutions on a time-and-materials basis. Beginning in 2002, we began selling our solutions on a fixed-fee basis to induce customers in different industries to purchase our solutions. Beginning in 2006, we began marketing our solutions on a time-and-materials basis again as we believe we have established a track record of successful implementations across multiple industries. We do not expect that our transition back to time-and-materials arrangements from fixed-fee arrangements will affect our revenue recognition.
Maintenance and support revenue. We generate maintenance and support revenue from the sale of maintenance and support services for our software products. Our maintenance and support arrangements are sold with terms generally ranging from one to two years. Maintenance and support fees are invoiced to our customers either monthly, quarterly or on an annual basis. Maintenance and support revenue includes post-contract customer support and the right to unspecified software updates and enhancements on a when and if available basis. Over the past three years, customers have renewed an average of 96% of the maintenance and support revenue that was up for renewal.
Geographic revenue distribution
Our revenue is geographically dispersed because we sell our solutions to a global customer base. We do not believe there are significant trends or uncertainties among our customers based on geography, and the percentages of revenue among geographic areas fluctuate from year to year. The substantial majority of our customer arrangements are denominated in U.S. dollars.
Cost of revenue
Cost of revenue consists of (a) compensation and benefits related to professional services and customer support personnel; (b) billable and non-billable travel, lodging and other out-of-pocket expenses and (c) facilities and other overhead and costs related to revenue. Cost of revenue for license and implementation revenue consists of those costs related to the implementation of our solutions. The cost of revenue for our maintenance and support revenue consists of those costs related to post-contract customer support on our deployed solutions. As a percentage of related revenue, cost of license and implementation revenue is higher than cost of maintenance and support revenue.
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Operating expenses
Selling, general and administrative. Selling, general and administrative expense consists of (a) compensation and benefits related to selling, general and administrative activities; (b) travel, lodging and other out-of-pocket expenses; (c) marketing programs such as our conferences and participating in industry trade shows; (d) accounting, legal and other professional fees and (e) facilities and other related overhead. We expect absolute dollar increases in selling, general and administrative expenses as we incur additional expenses related to being a publicly-traded company, increase our general marketing activities, increase the number of our sales and marketing professionals and invest in infrastructure to support continued growth.
Research and development. Research and development expense consists of (a) compensation and benefits of software developers, scientists and product managers working on the development of our new products, enhancements of existing products, scientific research, quality assurance and testing and (b) facilities and other related overhead. We expense all of our research and development costs as incurred, and we expect to continue to do so in the foreseeable future. We expect research and development expense to increase in absolute dollars for the foreseeable future as we continue to invest in the development of our software products.
Income taxes
We are subject to income taxes in the United States and abroad, and we use estimates in determining our provision for income taxes. We estimate separately our deferred tax assets, related valuation allowances, current tax liabilities and deferred tax liabilities. At December 31, 2006, our deferred tax assets consisted primarily of federal general business tax credit carryforwards of $675,000 remaining from historical research and development activities and temporary differences in the timing of deductions for federal income tax and financial reporting purposes. We assess the likelihood that deferred tax assets will be realized and we recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets will not be realized. This assessment requires judgment as to the likelihood and amounts of future taxable income. Although we believe that our tax estimates are reasonable, the ultimate tax determination involves significant judgment that is subject to audit by tax authorities in the ordinary course of business. As a result of this assessment, we have recorded a full valuation allowance for the $675,000 general business tax credit carryforward at December 31, 2006.
Our effective tax rates in 2004, 2005 and 2006 were 13%, 22% and 20%, respectively. Our effective tax rate has been lower than the statutory rate of 34% largely due to the application of general business tax credits, including credits carried forward from prior years. Our general business tax credits may be carried forward for a period of 20 years and are available as an offset against future tax liabilities. Our general business tax credit carryforwards begin to expire in 2022. If our taxable income continues to increase, future general business tax credits may not be available at levels that will allow us to maintain effective tax rates lower than the statutory rate. As such, increases in our taxable income may be partially offset by increases in our effective tax rate.
Deferred revenue and unbilled receivables
For our license fees and implementation services, we invoice and are paid based upon negotiated milestones in each customer arrangement with an initial payment due upon execution and remaining payments due throughout the implementation period. We record as deferred revenue any invoices that have been issued before implementation services have been performed and before the corresponding license and implementation revenue is recognized. We record as unbilled receivables any recognized license and implementation revenue in excess of the amount invoiced to the customer. We generally invoice for our maintenance and support services on a monthly or quarterly basis through the maintenance and support period. Deferred revenue does not reflect the
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total contract value of our customer arrangements at any point in time because we only record deferred revenue as amounts are invoiced ahead of the performance of implementation services. As a result, there is little correlation between the timing of our revenue recognition, the timing of our invoicing and the amount of deferred revenue.
Conversion and redemption of preferred stock
In June 1998, we raised $25.0 million by issuing convertible preferred stock. In August 2005, the holders of our convertible preferred stock elected to convert the convertible preferred stock into 9,750,000 shares of common stock and 3,921,312 shares of redeemable preferred stock. In August 2006, we redeemed 1,294,030 shares of our redeemable preferred stock for $8.4 million. In March 2007, we redeemed the remaining 2,627,282 shares of redeemable preferred stock for $17.4 million.
Application of critical accounting policies and use of estimates
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, or GAAP. We make estimates and assumptions in the preparation of our consolidated financial statements, and our estimates and assumptions may affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The complexity and judgment of our estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the percentage-of-completion method of accounting affect the amounts of revenue, expenses, unbilled receivables and deferred revenue. Estimates are also used for, but not limited to, receivables, allowance for doubtful accounts, useful lives of assets, depreciation, income taxes and deferred tax asset valuation, valuation of stock options and accrued liabilities. Numerous internal and external factors can affect estimates. Our management has reviewed these critical accounting policies, our use of estimates and the related disclosures with our audit committee.
Our accounting policies are more fully described in note 1 to the consolidated financial statements. We believe that the following discussion addresses our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective and complex judgments.
Revenue recognition
License and implementation. We consider our implementation services essential to our licensed software products, and therefore, we recognize revenue from perpetual software licenses and implementation services together as the services are performed. We do so using the percentage-of-completion method in accordance with the provisions contained within SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts . The percentage-of-completion is measured as the total number of man-days expended on an implementation of our software products during a reporting period as a percentage of the total man-days estimated to be necessary to complete the implementation. The period over which we recognize license and implementation revenue depends on the number of licensed software products and the scope and complexity of the implementation requirements. Our revenue recognition period for an arrangement generally ranges from six months to several years.
Maintenance and support. Maintenance and support revenue includes post-contract customer support and the right to unspecified software updates and enhancements on a when and if available basis. Once an implementation is completed, maintenance and support revenue is recognized ratably over the term of the maintenance and support arrangement.
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Allowance for doubtful accounts
In addition to our initial credit evaluations at the inception of arrangements, we regularly assess our ability to collect outstanding customer invoices. To do so, we must make estimates of the collectibility of accounts receivable. We provide an allowance for doubtful accounts when we determine that the collection of an outstanding customer receivable is not probable. We also analyze accounts receivable and historical bad debt experience, customer creditworthiness and changes in our customer payment history on an aggregate basis when evaluating the adequacy of the allowance for doubtful accounts. If any of these factors change, our estimates may also change, which could affect the level of our future provision for doubtful accounts.
Stock-based compensation
Prior to January 1, 2006, we accounted for employee stock options using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, or APB No. 25, and Financial Accounting Standards Board, or FASB, Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation, an Interpretation of APB No. 25 . The intrinsic value represents the difference between the per share market price of the stock on the date of grant and the per share exercise price of the respective stock option. We generally grant stock options to employees for a fixed number of shares with an exercise price equal to the fair value of the shares at the date of grant. Under APB No. 25, no compensation expense is recorded for employee stock options granted at an exercise price equal to the market price of the underlying stock on the date of grant. We used the minimum value method to estimate the fair value of our share-based payment awards for disclosure purposes under SFAS 123.
On January 1, 2006, we adopted the provisions of the FASB Statement of Financial Accounting Standards No. 123(R), Share-Based Payment , or SFAS 123(R). Under this standard, the fair value of each share-based payment award is estimated on the date of grant using an option pricing model that meets certain requirements. We currently use the Black-Scholes option pricing model to estimate the fair value of our share-based payment awards. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We do not have a history of market prices of our common stock as we are not a public company, and as such we estimate volatility in accordance with Staff Accounting Bulletin No. 107, Share-Based Payment , using historical volatilities of similar public entities. The expected life of the awards is based on a simplified method which defines the life as the average of the contractual term of the options and the weighted average vesting period for all open tranches. The risk-free interest rate assumption is based on observed interest rates appropriate for the terms of our awards. The dividend yield assumption is based on our expectation of paying no dividends. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Stock-based compensation expense recorded in our financial statements under SFAS 123(R) is based on awards that are ultimately expected to vest.
We evaluate the assumptions used to value our awards as we issue options. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that we grant additional equity awards to employees.
During 2006, we did not grant any stock options. We adopted SFAS 123(R) using the prospective method, and as a result we did not have any stock-based compensation expense in 2006 related to stock-based awards granted prior to January 1, 2006.
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In March and April 2007, we granted stock options with exercise prices as follows:
The fair value of each option grant is estimated on the date of grant using the following weighted-average assumptions used for grants in 2007:
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2007
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Fair value of underlying shares | $6.00 | |
Dividend yield | 0% | |
Volatility | 54.74% | |
Risk free interest rate | 4.48% | |
Weighted average expected life (in years) | 4.9 | |
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We account for stock options granted to non-employees in accordance with Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction With Selling, Goods or Services , or EITF No. 96-18, and related interpretations. We grant stock options to certain consultants and advisory board members for a fixed number of shares with an exercise price equal to the fair value of our common stock at the date of grant. Under EITF No. 96-18, compensation expense on non-employee stock options is calculated using the Black-Scholes option-pricing model and is recorded using the straight-line method over the vesting period, which approximates the service period.
Year ended December 31, 2005 compared to year ended December 31, 2006
Revenue
License and implementation. License and implementation revenue increased $9.4 million from $20.2 million in 2005 to $29.6 million in 2006, representing a 47% increase. Beginning in 2005 and continuing in 2006, we began to experience significantly increased sales of our software products. As we began implementing those software products in late 2005 and 2006, we began recognizing the related revenue. During 2006, license and implementation revenue from the airline industry decreased as a percentage of total license and implementation revenue.
Maintenance and support. Maintenance and support revenue increased $1.5 million from $14.9 million in 2005 to $16.4 million in 2006, representing a 10% increase. The increase was the result of our completion of implementations of our software products in 2006 following which we were able to begin recognizing maintenance and support revenue for those implementations.
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Cost of revenue and gross profit
Cost of revenue. Cost of revenue increased $2.2 million from $13.4 million in 2005 to $15.6 million in 2006, representing a 17% increase. The increase is attributable to an overall increase in average headcount in 2006 in order to service the increase in our implementations and to provide increased levels of support to our larger installed customer base.
Gross profit. Gross profit increased $8.7 million from $21.7 million in 2005 to $30.4 million in 2006, representing a 40% increase. The increase in our gross margin was primarily the result of improvements in our implementation processes and the standardization of our software products. In addition, the increase in maintenance and support revenue also contributed to the increase in our overall margins, as maintenance and support revenue has a higher gross margin than license and implementation revenue.
Operating expenses
Selling, general and administrative. Selling, general and administrative expenses increased $1.3 million from $12.0 million in 2005 to $13.3 million in 2006, representing a 10% increase. The increase is attributable to a $1.2 million increase in incentives and personnel involved in sales activities.
Research and development. Research and development expenses increased $3.9 million from $6.4 million in 2005 to $10.3 million in 2006, representing a 61% increase. The increase in research and development expenses is primarily attributable to a $3.3 million increase in compensation and benefits resulting from an increase in our product development and product management activities primarily related to our pricing analytics and pricing execution software products.
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Interest income
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Year ended December 31
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2005
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2006
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Variance %
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(Dollars in thousands)
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Amount
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Amount
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Variance $
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Interest income | $1,074 | $1,921 | $847 | 79% | ||||
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Interest income increased $847,000 from $1.1 million in 2005 to $1.9 million in 2006, representing a 79% increase. The increase was the result of additional interest earned on our increased average cash and cash equivalent balances in 2006.
Income tax provision
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Year ended December 31
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(Dollars in thousands)
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2005
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2006
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Effective tax rate | 22% | 20% | ||
Income tax provision | $975 | $1,725 | ||
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Our income tax provision increased $750,000 from $975,000 in 2005 to $1.7 million in 2006, representing a 77% increase. The increase in our income tax provision primarily resulted from the $4.3 million increase in our taxable income. Our effective tax rate decreased from 22% of taxable income in 2005 to 20% of taxable income in 2006. The decrease in our effective tax rate was primarily attributable to an increase in our deductions related to developing our software products.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2005
Revenue
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Year ended December 31
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2004
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2005
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(Dollars in thousands)
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Amount
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As a
percentage of revenue |
Amount
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As a
percentage of revenue |
Variance $
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Variance %
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License and implementation | $20,015 | 62% | $20,190 | 57% | $175 | 1% | ||||||
Maintenance and support | 12,431 | 38% | 14,940 | 43% | 2,509 | 20% | ||||||
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Total | $32,446 | 100% | $35,130 | 100% | $2,684 | 8% | ||||||
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License and implementation. License and implementation revenue increased $175,000 from $20.0 million in 2004 to $20.2 million in 2006, representing less than a 1% increase. Although we sold additional software products in 2005, we did not begin recognizing significant revenue from those sales until implementation began in late 2005 and during 2006.
Maintenance and support. Maintenance and support revenue increased $2.5 million from $12.4 million in 2004 to $14.9 million in 2005, representing a 20% increase. The increase was the result of the completed implementations of software products in 2005 following which we were able to commence recognizing maintenance and support revenue related to those implementations.
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Cost of revenue and gross profit
Cost of revenue. Cost of revenue remained relatively unchanged from 2004 to 2005 due to the lack of growth in our license and implementation revenue in 2005.
Gross profit. Gross profit increased $2.7 million from $19.1 million in 2004 to $21.7 million in 2005, representing a 14% increase. The increase in gross profit and gross margin was attributable to the higher maintenance and support revenue in 2005 compared to 2004.
Operating expenses
Selling, general and administrative. Selling, general and administrative expense increased $3.0 million from $9.0 million in 2004 to $12.0 million in 2005, representing a 34% increase. The increase was primarily attributable to a $1.8 million increase in compensation and benefits related to the increased number of personnel involved in sales activities, an increase of $497,000 in additional marketing expenses and an increase of $251,000 in travel expenses. In addition, the increase was attributable to an increase in general and administrative expenses of $193,000 related to additional professional fees, including accounting and legal fees.
Research and development. Research and development expense remained relatively constant in 2005 as compared to 2004, but grew on a quarterly basis during 2005 as we began increasing our spending to enhance our software product offerings.
Interest income
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Year ended December 31
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2004
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2005
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Variance %
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(Dollars in thousands)
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Amount
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Amount
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Variance $
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Interest Income | $371 | $1,074 | $703 | 190% | ||||
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Interest income increased $703,000 from $371,000 in 2004 to $1.1 million in 2005, representing a 190% increase. The increase was attributable to an increase in overall market interest rates and in our average cash and cash equivalent balances in 2005.
Income tax provision
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Years ended December 31
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(Dollars in thousands)
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2004
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2005
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Effective tax rate | 13% | 22% | ||
Income tax provision | $536 | $975 | ||
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Our income tax provision increased from $536,000 in 2004 to $975,000 in 2005 representing a 82% increase. The $438,000 increase in 2005 was attributable to a tax benefit of $212,000 in 2004 resulting from a reduction in our valuation allowance and an increase in our taxable income of $222,000 in 2005. During 2004, we determined that it was more likely than not that future taxable income would be sufficient to realize the portion of the deferred tax asset related to our temporary differences and as a result reversed a portion of the valuation allowance and recorded an income tax benefit of approximately $212,000.
Selected quarterly data
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License and implementation revenue increased on a quarterly basis as sales increased in 2005 and 2006 over the previous year's levels. Maintenance and support revenue increased on a quarterly basis as implementations were completed and the related maintenance period began.
Gross margins increased on a quarterly basis principally due to the increasing standardization of our products and implementation efficiencies. The increase in gross margins in the quarter ended September 30, 2005 was partially attributed to a reduction in cost of revenue associated with a $304,000 settlement with a third party vendor. Selling, general and administrative expenses fluctuate from quarter to quarter based on timing of sales and marketing activities. Research and development expenses increased on a quarterly basis principally due to an overall increase in average product development and product management personnel related to our increased investment in the development of our products.
Liquidity and capital resources
In June 1998, we raised $25.0 million from certain individuals and funds associated with TA Associates and JMI Equity through the issuance of convertible preferred stock. In August 2005, those investors converted the convertible preferred stock into 9,750,000 shares of our common stock and 3,921,312 shares of redeemable preferred stock. In August 2006, we redeemed 1,294,030 shares of our redeemable preferred stock for approximately $8.4 million. In March 2007, we redeemed the remaining 2,627,282 shares of redeemable preferred stock for $17.4 million. In March 2007, we also paid a one-time cash dividend of $41.3 million to our common stockholders. In March 2007, we incurred $20.0 million in long-term debt to help finance the payment of this cash dividend.
As of December 31, 2006, we had $42.5 million of cash and cash equivalents and $27.6 million in working capital. Our cash and cash equivalents, combined with our positive cash flow from operating activities and available borrowings under the revolving credit facility we entered into in March 2007, are our principal sources of liquidity. Historically, we have financed our operations through cash flow from operations. We believe that our existing cash and cash equivalents and our cash flow from future operating activities, together with the net proceeds of this offering, will be sufficient to meet our anticipated cash needs for the next twelve months.
Cash used by operating activities in 2004 includes the purchase of marketable securities of $28.0 million and cash provided by operating activities in 2005 includes the maturities of these marketable securities. Excluding the purchase and the maturities of these marketable securities, cash provided by operations in 2004 was $6.9 million and in 2005 was $6.9 million.
The increase in cash and cash equivalents from December 31, 2005 to December 31, 2006 of $4.1 million is primarily attributable to net cash provided by operating activities of $13.5 million. Sources of cash provided by operating activities in 2006 consisted primarily of (a) a $12.3 million increase in deferred revenue due to an increase in invoiced amounts on contracts in progress; (b) $7.0 million of net income, which included $1.3 million of non-cash expenses comprised principally of depreciation and amortization and (c) a $1.9 million increase in accrued expenses and
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accounts payable. Uses of cash in operating activities in the same period consisted principally of (a) a $5.3 million increase in accounts receivable due to an increase in invoiced amounts on contracts in progress, net of cash collected; (b) a $1.4 million increase in prepaid and other assets; (c) a $1.2 million increase in deferred taxes and (d) a $1.1 million increase in unbilled accounts receivable. In 2006, net cash used in investing activities was $1.1 million as a result of the purchase of property and equipment, and net cash used in financing activities was $8.4 million primarily due to the partial redemption of our redeemable preferred stock in August 2006.
The increase in cash and cash equivalents from December 31, 2004 to December 31, 2005 of $34.2 million was primarily attributable to net cash provided by operating activities of $34.9 million. Sources of cash from operating activities in 2005 consisted primarily of (a) $28.0 million of maturities of marketable securities purchased in 2004 that were classified as trading securities; (b) $3.4 million of net income, which included $1.5 million of non-cash expenses comprised principally of depreciation and amortization and (c) a $1.4 million decrease in accounts receivable. Uses of cash in operating activities in the same period consisted primarily of (a) a $478,000 increase in unbilled receivables and (b) a $336,000 increase in prepaid and other assets. In 2005, net cash used in investing activities was $766,000 as a result of the purchase of property and equipment, and net cash provided by financing activities was $17,000 due to the exercise of the stock options.
Credit facilities
In March 2007, our indirect wholly-owned subsidiary, PROS Revenue Management, L.P., entered into a $28.0 million credit facility, consisting of an $8.0 million revolving credit facility and a $20.0 million term loan, each maturing in five years. The revolving credit facility includes borrowing capacity for up to $1.0 million letters of credit and up to $500,000 of same-day swing line loans. All obligations under the credit facility are guaranteed by us and by our other subsidiaries and are secured by substantially all of our assets and the assets of our subsidiaries. We may prepay loans under the credit facility at any time without premium or penalty. The term loan will become due and payable in full upon completion of this offering.
Borrowings under our credit facility bear interest at a rate equal to an applicable margin plus, at our option, either a base rate or a Eurodollar rate. The applicable margin for borrowings under the credit facility is 1.5% for base rate borrowings and 2.75% for Eurodollar rate borrowings. In addition to paying interest on outstanding principal under the credit facility, we are required to pay (a) a quarterly fee equal to 0.5% per annum on unused commitments under the revolving credit facility; (b) an annual administration fee of $20,000 and (c) customary letter of credit fees. We also paid a one-time closing fee to the lenders of $210,000.
The credit facility contains a number of covenants that, among other things, restrict our ability to sell assets; incur additional indebtedness; prepay other indebtedness; pay dividends and distributions; repurchase capital stock from our stockholders; create liens on our assets; make investments; make certain acquisitions; engage in mergers, acquisitions and other fundamental changes; engage in certain transactions with affiliates; change our accounting policies; amend our charter documents if the amendment affects the interests of our lenders; waive or modify the terms of any subordinated debt; change our business; or enter into agreements that restrict dividends from subsidiaries. In addition, we must maintain a maximum consolidated leverage ratio, minimum consolidated fixed charge coverage ratio, minimum consolidated earnings before interest, taxes, depreciation and amortization and maximum capital expenditure amount for so as long as the loans remain outstanding.
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Contractual obligations
The following table sets forth our contractual obligations as of December 31, 2006:
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Payments due by period
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(Dollars in thousands)
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Total
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Less than
1 year |
1 to 3 years
|
3 to 5 years
|
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Contractual Obligations | ||||||||
Operating leases | $5,227 | $1,004 | $3,519 | $704 | ||||
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Total | $5,227 | $1,004 | $3,519 | $704 | ||||
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Our only significant operating lease obligation relates to our corporate headquarters in Houston, Texas which we lease under a single non-cancelable operating lease agreement. In March 2006, we executed an amendment to the lease that extended the lease term until July 31, 2011.
Off-balance sheet arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Quantitative and qualitative disclosures about market risk
Foreign currency risk
A small percentage of our contracts are denominated in foreign currencies and therefore a portion of our revenue is subject to foreign currency risks. Our cash flows are subject to minor fluctuations due to changes in foreign currency exchange rates. The effect of an immediate 10% adverse change in exchange rates on foreign denominated receivables as of December 31, 2006 would result in a loss of approximately $29,000. To date, we have not entered into any hedging contracts although we may do so in the future. Fluctuations in currency exchange rates could harm our business in the future.
Interest rate sensitivity
We had cash and cash equivalents totaling $42.5 million at December 31, 2006. These amounts were invested primarily in A-1 and P-1 commercial paper with original maturities less than 90 days and money market funds. Unrestricted cash and cash equivalents are held for working capital purposes. We do not enter into investments for trading or speculative purposes. We believe that we do not have any material exposure to changes in the fair value as a result of changes in interest rates. Declines in interest rates, however, will reduce future investment income. If overall interest rates fell by 10% in 2006, our interest income would have declined by approximately $192,000, assuming consistent investment levels.
At December 31, 2006, we had no debt outstanding. In March 2007, we entered into a borrowing arrangement which provides for a term loan of $20.0 million and a revolving line of credit for $8.0 million. We currently have principal outstanding of $20.0 million under our term loan. We have not made any borrowings under our line of credit. The term loan will become due and payable in full upon the closing of this offering. Borrowings under our credit facility bear interest at a rate equal to an applicable margin plus, at our option, either a base rate or a Eurodollar rate. The applicable margin for borrowings under the credit facility is 1.5% for base rate borrowings and 2.75% for Eurodollar rate borrowings.
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Recent Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, or FIN 48. FIN 48 clarifies the accounting for uncertainties in income taxes recognized in an enterprise's financial statements. FIN 48 requires that we determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the "more likely than not" recognition criteria, FIN 48 requires the tax position be measured at the largest amount of benefit greater than 50% likely of being realized upon ultimate settlement. This accounting standard is effective for our fiscal year beginning January 1, 2007. We do not believe the adoption of FIN 48 will have a material effect on our consolidated financial position, results of operations or cash flows.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements , or SAB 108. SAB 108 provides guidance on the approach that companies must follow in quantifying misstatements of their financial statements. SAB 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. The adoption of SAB 108 did not have a material effect on our consolidated financial position, results of operations or cash flows.
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement, which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for our fiscal year beginning January 1, 2008. We are currently evaluating the impact of adopting SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115 . This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costs during the period the change occurred. SFAS No. 159 becomes effective as of the beginning of the first fiscal year that begins after November 15, 2007, with early adoption permitted. However, entities may not retroactively apply the provisions of SFAS No. 159 to fiscal years preceding the date of adoption. We are currently evaluating the effect that SFAS No. 159 may have on our financial position, results of operations and cash flows.
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Overview
We are a leading provider of pricing and revenue optimization software, an emerging category of enterprise applications designed to allow companies to improve financial performance by enabling better pricing. By using our software products, customers gain insight into their pricing strategies, identify detrimental pricing practices, optimize their pricing decision-making and improve their business processes and financial performance. Our software products incorporate advanced pricing science, which includes operations research, forecasting and statistics. Our innovative science-based software products analyze, execute and optimize pricing strategies using data from traditional enterprise applications, often augmenting it with real-time and historical data. We also provide a range of services that include analyzing a company's current pricing processes and implementing our software products to improve pricing performance.
We provide our software products to enterprises across a range of industries, including manufacturing, distribution, services, hotel and cruise, and airline. As of March 31, 2007, we had 90 customers across five industries in 42 countries with over 200 implementations of our software products. We recorded revenue of $35.1 million and $46.0 million in 2005 and 2006, respectively, and have achieved eight consecutive years of profitability.
Industry background
Pricing is an important component of an enterprise's business processes and financial performance. Companies can face a variety of pricing problems such as unnecessary discounting and quoting prices below breakeven. We believe that improving pricing is one of the most strategic and powerful ways for companies to improve their business and financial performance. According to a 2006 Gartner Research report, on average, a 1% improvement in price translated to an 11% increase in profitability. By contrast, according to the same report, a 1% improvement in fixed costs or in variable costs only increases profitability by 3% and 7%, respectively.
The need for better pricing
A variety of trends are accelerating the need for better pricing, including:
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management, or CRM, and supply chain management, or SCM, systems has produced a substantial amount of enterprise data, including information about individual sale transactions. Companies need ways to aggregate and use this raw data to improve pricing strategies.
The pricing problem
We believe most companies have yet to develop and implement pricing technology solutions that improve financial performance. We believe this failure creates a pricing problem, the key components of which include:
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or make available in a timely fashion. Additionally, internal systems often lack market data and the capability for real-time processing over numerous complex transactions. As a result, most companies today do not have the necessary and relevant information to make data-driven pricing decisions at the time of sale.
Market opportunity
The potential for business and financial improvement from pricing software solutions has generated increasing focus on addressing the pricing problem through pricing and revenue optimization software products. We believe companies have only begun to realize the benefits from these solutions.
We believe a comprehensive pricing software solution should provide:
A leading provider of pricing and revenue optimization solutions must also be able to implement and support these systems on a global basis across multiple industries and in complex and changing IT and business environments.
We believe the market for pricing and revenue optimization solutions is a large and rapidly growing opportunity that spans most major industries. An August 2006 AMR Research report estimated that the price management applications market will be $348 million in 2007 and will grow to approximately $1.1 billion in 2010, a compound annual growth rate of 46%. We believe that the overall pricing and revenue optimization software market includes additional elements not considered in this AMR Research report.
Our solution
The PROS Pricing Solution Suite is our set of integrated software products that enables enterprises to apply pricing science to determine, analyze and execute optimal pricing strategies. Our software products support pricing decisions through the aggregation and analysis of extensive enterprise application data, transactional data and market information. Our PROS Pricing Solution Suite addresses three areas necessary to implement and execute an effective pricing solution:
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strategically manage a large number of prices, which helps to institutionalize pricing best practices and enforce compliance with pricing policies.
Key benefits
Our software products help our customers improve their business and financial performance through several key benefits, which include:
Our strengths
We believe the following key strengths differentiate us:
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Our strategy
Our objective is to be the leading global provider of pricing and revenue optimization software. To achieve this goal, we are pursuing the following strategies:
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Products
Our PROS Pricing Solution Suite consists of our pricing analytics, pricing execution and pricing optimization software products. The design of our PROS Pricing Solution Suite allows our customers to deploy all of the products at once or to implement our products incrementally. Our pricing analytics software product is the base product that is present in all implementations. Our pricing execution products, pricing manager and deal manager, extend the usability of the base analytics product and provide real-time transaction level optimized prices by customer and product. Our pricing optimization products help companies arrive at an optimal price by analyzing the relationships among demand, price and profit margin. By deploying multiple products, our customers can analyze their pricing trends, execute consistent pricing policies, effectively negotiate prices and optimize their prices to support organizational goals.
Our PROS Pricing Solution Suite uses our PROS Database that aggregates data from a wide variety of data sources, including our customers' enterprise applications and external market data sources. Our PROS Database uses our internally-developed data loaders to import data from these data sources for access by our PROS Pricing Solution Suite.
The users of our PROS Pricing Solution Suite include executives, sales and marketing personnel, pricing managers and finance personnel.
Pricing analytics
Our pricing analytics software product helps companies gain insight into their pricing performance, allowing them to take action to correct poor performance and take advantage of time-sensitive opportunities. Our pricing analytics software product enables our customers to:
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Pricing execution
Our pricing execution software products consist of the pricing manager and deal manager products.
Pricing manager. Our pricing manager product allows companies to streamline pricing processes and institute control of pricing policies to support corporate business goals. It allows organizations to create multiple rules-based price lists and quickly modify prices or guidelines in response to changes in business conditions or strategy. Our pricing manager product enables our customers to:
Deal manager. Our deal manager product provides pricing decision-makers with guidelines, additional context and information to negotiate better prices. Specifically, the deal manager product enables our customers to:
Pricing optimization
Our pricing optimization software products help companies arrive at an optimal price by analyzing the relationships among demand, price and profit margin taking into account operational and financial constraints. Our pricing optimization software products use advanced statistical techniques to determine optimal prices consistent with pricing strategies. These products utilize optimization
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and forecasting engines to solve many distinct pricing problems. Our pricing optimization software products enable our customers to:
Technology
Software architecture. Our software architecture is based on open standards such as Java, XML and HTTP. We have created a component-based design in a service-oriented architecture to develop a flexible, layered framework. This framework supports evolution and innovation in technologies and product features.
Optimization. We have developed robust science-based forecasting and optimization engines, leveraging the deep expertise and research of our science and research group. These engines are industry-independent and are validated using our internally-developed verification and testing processes.
Configuration vs. customization. Rather than developing custom code for each customer, our PROS Pricing Solution Suite can be configured to meet each customer's business needs. The configuration capabilities include defining user workflows, executive dashboards, analytic views, approval processes, alerts and data, including hierarchical dimensions and measures.
Performance and scalability. Our solutions operate in some of the largest and most demanding enterprise environments. The scalability of our technology has been tested at leading vendor benchmark performance centers, which validated the ability of our software products to scale to large data volumes and high request rates. For example, in one implementation of our real-time pricing execution product, our software products handled over 300 requests per second with 250 millisecond average response times. Another implementation of our pricing execution product handles 750 concurrent users. Also, an implementation of our pricing optimization product refreshes and maintains a data set with over one billion forecast entries and 150 million optimization results.
Data integration. The data needed to execute pricing and revenue optimization functionality typically resides in a company's ERP, SCM and CRM systems, industry-specific transaction systems, office productivity tools such as spreadsheets and external market data sources. Rarely can the data needed to formulate and execute optimal pricing strategies be found in a single data source within a company. Our data integration capabilities utilize web services and file-based data interfacing to bring data from these disparate sources together into a single cohesive database to support our PROS Pricing Solution Suite. Our data integration capabilities allow us to quickly deploy our solutions to our customers.
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User interface. Our technology provides a rich, browser-based interface that supports local and remote users. The user interface supports a wide variety of highly interactive charts and other data views and provides a comprehensive data security model based on user roles and scope of responsibility.
Platform support. Our software products run on most standard information technology platforms including Microsoft SQL Server and Oracle databases, 32-bit and 64-bit processors from HP, SUN, Intel, AMD and IBM, and the HP-UX, Solaris, Linux, Windows and AIX operating systems.
Science and research
We believe that our long-term investment in pricing science differentiates us from our competitors. As our customers realize value from our pricing software products, we believe that they will seek to address more complex pricing problems through the use of our products.
We employ 30 scientists, 17 of whom are PhDs, all of whom are dedicated to the advancement of pricing and revenue optimization technology and its implementation in our software products. These scientists have specialties including operations research, management science, statistics, econometrics and computational methods. PROS also has a Science Advisory Council, which is comprised of faculty from major research universities to advise on the development of pricing science in our software products. Our scientists regularly interact with our customers, and our product development, sales and marketing, and professional services staff, to keep our science efforts relevant to real-world demands.
Services
Pricing and implementation professional services. Our pricing services personnel are responsible for planning the implementations of our software products and our implementation services personnel are responsible for the configuration and the technical deployment of our software products. We have extensive experience implementing our software products in global enterprises across multiple industries, and we have developed a standardized and tested implementation process. Our pricing professional services include analyzing a customer's current pricing processes, identifying specific high-value pricing needs and relevant pricing data and configuring our software products to the customer's specific business. Our implementation professional services include implementing our software products to configuration specifications, assisting customers in loading and validating pricing data and supporting organizational activities to assist our customers' transition from awareness of their pricing challenges to adoption of pricing excellence best practices. We also provide training services to help use and maintain our software products.
Customer support. After our software products are installed and training is complete, our customer support personnel provide ongoing support and maintenance of our software products. We provide customer support on a centralized basis from our headquarters in Houston, Texas. Our customer support personnel are responsible for providing product support for our customers through our SupportWeb Portal, a web-based interface for submitting and tracking issues, distributing software releases and bug fixes and hosting our knowledge base. In addition, our customer support personnel respond to customer issues promptly using an escalation process that prioritizes reported issues based on a defined set of severity levels and assist customers in deploying our standard releases for each software product by providing release webinars and documentation.
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Customers
We provide our software products to customers in the manufacturing, distribution, services, hotel and cruise, and airline industries. Our customers are generally large global enterprises, although we have customers that are smaller. All of our customers have over $200 million in revenue, and over half of our customers have over $1.0 billion in revenue. Our top 10 customers in 2004, 2005 and 2006 represented 58%, 56% and 44% of our revenue, respectively. In 2006, we had no single customer that accounted for 10% or more of revenue.
Case studies
Manufacturing. One of our customers is a global integrated manufacturer of petroleum products and operates hundreds of distribution terminals across the U.S. Our customer experienced difficulty gaining visibility into the price-demand relationships in its business, because doing so required hundreds of different prices to be calculated and disseminated in a short span of time. While the customer had the necessary raw data, the customer did not have the ability to process this information in a timely manner and therefore could not evaluate the effectiveness of pricing decisions. Our software products automated pricing recommendations and forecasts of next days' demand at relative price points and competitor price postings for each distribution terminal. As a result of implementing our software products, our customer experienced a significant decrease in sales volume volatility and realized increased profits in the distribution terminals business.
Distribution. One of our customers is a building products distributor that employs approximately 750 sales people with full pricing autonomy quoting tens of thousands of prices everyday. With tens of thousands of products marketed and sold across multiple U.S. regions, our customer found it difficult to aggregate and analyze timely market data to implement effective pricing. Our software products were implemented to provide key market and cost information, market pricing benchmarks and customer-specific decision support during real-time negotiations. This allowed costs and profitability to be accessible at the time of quote. As a result of implementing our software products, the customer improved sales force productivity, reduced variance across regions, increased deal capture percentages and increased profits.
Services. One of our customers is a global car rental company that maintains a fleet of hundreds of thousands of cars across multiple classes and makes. Our customer faced significant pricing challenges in executing demand forecasting, analyzing the relevant opportunity costs of fleet movements and optimizing profit opportunities at the local level. Our software products provide demand forecasting, pricing optimization and insight into fleet management terms to deliver integrated recommendations on pricing, distribution and fleet acquisition. As a result of implementing our software products, our customer improved its return on assets, reduced fleet idle capacity and recaptured its investment in our software products in the first year after completion of implementation.
Airlines. One of our customers is a global passenger airline that serves diverse, segmented markets in multiple countries and across multiple currencies. Due to the complex nature of the airline industry, the customer faced a variety of extremely challenging pricing demands, including managing seating inventory and setting millions of real-time prices everyday. Our software products allowed our customer to perform real-time seat inventory optimization by market segment, monitor and analyze passenger traffic flows and optimize revenue across its entire network. As a result of implementing our software products, our customer achieved improved seat utilization rates across multiple routes, optimization of segmented pricing and generated increased profit.
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Sales and marketing
We sell and market our software products primarily through our direct sales force from our headquarters in Houston, Texas. Our sales force is organized by our target markets of manufacturing, distribution, services, hotel and cruise, and airline and is responsible for the worldwide sale of our products. Our sales force works in concert with our professional services personnel for selling and product demonstrations.
Our marketing activities consist of a variety of programs designed to generate sales leads and build awareness of PROS and our pricing and revenue optimization software products. We host a conference for pricing and revenue optimization professionals, and we participate in and sponsor other industry conferences.
Competition
The market for price and revenue optimization solutions is competitive, fragmented and rapidly evolving. We believe the following factors are the principal basis of competition in the pricing and revenue optimization software market:
We compete with several privately held pricing and revenue optimization software vendors such as Rapt, Revenue Technologies, Symphony-Metreo, Vendavo and Zilliant. We believe we are able to compete successfully with these vendors due to our long history of providing pricing and revenue optimization software products, the scope of our offerings and the flexibility and scalability of our architecture.
There are also several large enterprise application providers, such as JDA Software, Oracle and SAP that have developed offerings that include pricing and revenue optimization functionality. JDA Software and Oracle entered the market primarily through their acquisitions of Manugistics and Siebel Systems, respectively, and SAP resells Vendavo's products. We believe these vendors do not provide all of the pricing and revenue optimization functionality needed to support a pricing-focused organization. These vendors may seek to compete on price by bundling their pricing and revenue optimization applications with other enterprise applications. We distinguish ourselves from these vendors with the breadth and depth of the functionality of our products.
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In addition, there are a number of vendors that provide pricing and revenue optimization software for specific industries. In the hotel industry, we compete with IDeaS and Easy RMS, and in the airline industry, we compete with Sabre Airline Solutions and Lufthansa Systems. One industry in which we do not compete is retail, where vendors include DemandTec, JDA Software, Oracle and SAP. Oracle and SAP entered this retail market through their acquisitions of ProfitLogic and Khimetrics, respectively.
Our products also compete with solutions developed internally by businesses. These businesses rely upon a combination of manual processes, external consultants, spreadsheets or internally developed software tools to conduct pricing activities.
Some of our current and potential competitors have significantly greater financial, technical, marketing, service and other resources than we have. In addition, many of these companies also have a larger installed base of users, longer operating histories and greater brand recognition than we have. Competitors with greater financial resources may be able to offer lower prices, additional products or services or other incentives that we cannot match or offer. These competitors may be in a stronger position to respond quickly to new technologies and may be able to undertake more extensive marketing campaigns. Moreover, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively.
Intellectual Property
Our success and ability to compete is dependent in part on our ability to develop and maintain the proprietary aspects of our technology and operate without infringing upon the proprietary rights of others. We rely primarily on a combination of copyright, trade secret, confidentiality procedures, contractual provisions and other similar measures to protect our proprietary information. Due to the rapidly changing nature of applicable technologies, we believe that the improvement of existing products, reliance upon trade secrets and unpatented proprietary know-how and development of new products are generally more advantageous than patent and trademark protection.
As of the date of this filing, we have four pending U.S. patent applications. We have not pursued patent protection in any foreign countries. We do not know whether any of our pending patent applications will result in the issuance of patents or whether the examination process will require us to narrow our claims.
We also use contractual provisions to protect our intellectual property rights. We license our software products directly to customers. These license agreements, which address our technology, documentation and other proprietary information, include restrictions intended to protect and defend our intellectual property. We also require all of our employees, contractors and many of those with whom we have business relationships to sign non-disclosure and confidentiality agreements.
Our products also include third-party software that we obtain the rights to use through license agreements. While this software comprises important elements of our product offerings, these applications are commercially available, and we are aware of substitute applications we could integrate with our products that are also commercially available on reasonable terms. In certain cases we believe we could develop substitute technology to replace these products if these third-party licenses were no longer available on reasonable terms.
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Research and development expense
Our research and development program involves creating new products and modifying existing products to add new functionality and meet other market demands. Our research and development expense includes costs associated with our product management, product development and science and research groups. Our research and development expense was $6.3 million, $6.4 million and $10.3 million in 2004, 2005 and 2006, respectively.
Employees
As of March 31, 2007, we had 311 employees. None of our employees is represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages and consider our employee relations to be good.
Facilities
We lease approximately 73,200 square feet of office space for our headquarters in Houston, Texas. This lease expires in July 2011. We may add new facilities and expand our existing facility as we add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.
Legal proceedings
We are not party to any material legal proceeding at this time. From time to time, we may be subject to legal proceedings and claims in the ordinary course of our business.
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Executive officers, directors and key employees
Our executive officers, directors and key employees, and their ages and positions as of March 31, 2007 are as follows:
Albert E. Winemiller joined us in 1999 as our President and Chief Executive Officer and has served as Chairman of our board of directors since October 2000. Mr. Winemiller holds BS and MS degrees from the University of Missouri and an MBA from Harvard Business School.
Charles H. Murphy joined us in 1998 and has served as our Executive Vice President and Chief Financial Officer since March 2001. Prior to joining us, Mr. Murphy spent 13 years in chief financial officer positions with Expert Software, a publicly traded software company, Merchant International, a software company, and Packaging Machinery Company, a publicly traded manufacturer of packaging machinery. He was Vice President-Treasurer with Coleco Industries, a publicly traded toy and video game company, and began his career with Coopers & Lybrand as a certified public accountant. He Holds a BS degree from Bentley College.
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Ronald F. Woestemeyer co-founded the Company in 1985 with his wife, Mariette Woestemeyer, and has been a director since our founding and our Executive Vice President since 1997. From 1985 to 1997, Mr. Woestemeyer served as our Chief Executive Officer. Prior to founding PROS, Mr. Woestemeyer spent 14 years at Continental Airlines and its predecessor, Texas International Airlines, in various management and executive positions with responsibility over sales and marketing. Mr. Woestemeyer holds a BBA degree from the University of Houston.
Surain R. Adyanthaya joined us in 1993 and has served as our Senior Vice President, Airline Solutions since January 2004. Mr. Adyanthaya was a software developer from 1993 to 1997 and our Vice President, Software Development from 1997 to 1999. He served as our Senior Vice President, Software Development from 1999 to 2004. Prior to joining us, Mr. Adyanthaya was a consulting engineer at Texaco Oil Company. Mr. Adyanthaya holds an MS degree in operations research from Stanford University and a BS degree in mechanical engineering from the University of Houston.
E. Andrew Boyd joined us in 1997 and has served as our Senior Vice President, Science & Research and Chief Scientist since 1999. Prior to joining us, Dr. Boyd was a university professor, most recently as a tenured faculty member in the Department of Industrial Engineering at Texas A&M University. Dr. Boyd has authored and contributed to numerous publications, including articles in Operations Research , Management Science and Mathematical Programming , and has received research grants from various agencies such as the National Science Foundation and the Federal Aviation Administration. Dr. Boyd holds a Ph.D. degree in operations research from the Massachusetts Institute of Technology and a AB degree from Oberlin College.
Peter P. Kiernan joined us in 1996 and has served as our Senior Vice President, Professional Services since 2000. From 1997 to 2000, Mr. Kiernan was our Vice President, Client Services and from 1996 to 1997, he served as our Staff Vice President, Airline. Prior to joining us, Mr. Kiernan held several positions at Pan American World Airways, Inc., including Staff Vice President, Revenue Management, Director, Pricing Automation and Director, Revenue Accounting. Mr. Kiernan holds a BS degree in business administration from California Coast University.
Andres Reiner joined us in 1999 and has served as our Senior Vice President, Software Development since March 2007. From 2003 to 2007, Mr. Reiner was our Vice President, Software Development, from 2000 to 2003, he served as our Director, Software Development, and from 1999 to 2000, he served as our Development Manager. Mr. Reiner held various software engineer roles at Platinum Technology, a database management software company, ADAC Laboratories, a high-technology healthcare product company, and Kinesix, an interface software for complex data company, before joining us. Mr. Reiner holds a BS degree in computer science from the University of Houston.
John M. Riddell joined us in 1998 as a Senior Scientist and has served as our Senior Vice President, Pricing Solutions since 2004. From 2001 to 2004, Mr. Riddell was our Vice President, Pricing and from 2000 to 2001, he served as our Director, New Market Development. Prior to 1998, Mr. Riddell was Director of Research and Development at OPUS 2 Revenue Technologies, a yield management software company. Mr. Riddell holds an MS degree in operations research from the US Naval Postgraduate School and a BS degree in civil engineering from the University of Mississippi.
Jeffrey E. Robinson joined us in 2000 and has served as our Senior Vice President, Pricing Solutions since 2006. From 2004 to 2006, Mr. Robinson was our Vice President, Pricing Solutions and from 2000 to 2003, he served as our Director, Business Development. Prior to joining us, Mr. Robinson held several positions with ADAC Healthcare Information Systems, a subsidiary of ADAC Laboratories. Mr. Robinson holds a BA degree from Brigham Young University and an MBA from Rice University.
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Jeffrey L. Wannamaker joined us in 1998 and has served as our Vice President, Technical Services since 2001. Mr. Wannamaker was our Director, Tech Services from 2000 to 2001 and from 1998 to 2000, he served as our Director, Software Development. Mr. Wannamaker was the Engineering Manager at Dynasty Technologies, a software company. Prior to joining us, Mr. Wannamaker holds a BSEE degree from the University of Houston.
Benson B. Yuen joined us in 1988 and has served as our Senior Vice President, Business Development since 1999. From 1995 to 1999, Mr. Yuen was our Senior Vice President, Sales, Marketing and Consulting Services, and from 1988 to 1994, he served as our Vice President, Customer Services and Professional Services. Prior to joining us, Mr. Yuen held several positions with Florida Express, an air transportation company, including DirectorPricing, Inventory and Director, Market Planning. Mr. Yuen holds a BSBA from the University of Central Florida.
Harry S. Gruner has served as a director of the Company since 1998. Since 1992, Mr. Gruner has been a founding general partner of JMI Equity, a private equity investment partnership. Prior to co-founding JMI Equity, Mr. Gruner specialized in advising software companies as a principal in the corporate finance department of Alex. Brown & Sons Incorporated, an investment bank. Mr. Gruner is also a director of several privately-held companies. Mr. Gruner holds an MBA from Harvard Business School and a BA degree from Yale University.
Kurt R. Jaggers has served as a director of the Company since 1998. Mr. Jaggers has been a Managing Director of TA Associates, Inc. since 1997, was a Principal of TA Associates from January 1993 to December 1996 and Vice President of TA Associates from 1990 to 1992. He is currently a director of WebSideStory, a provider of Internet behavior information and analysis, as well as several privately-held companies. Mr. Jaggers holds BS and MS degrees in electrical engineering and an MBA from Stanford University.
Mariette M. Woestemeyer co-founded the Company in 1985 with her husband, Mr. Woestemeyer, and has served as a director since our founding. Mrs. Woestemeyer was the Chief Financial Officer of Metro Networks, a broadcasting company, from 1983 to 1985 and held various financial roles with Continental Airlines and its predecessor, Texas International Airlines, prior to 1983. Mrs. Woestemeyer holds a BBA degree and an MBA from the University of Houston.
Board of directors
Effective upon the closing of this offering, our certificate of incorporation and bylaws will authorize a board of directors of six members consisting of Mrs. Woestemeyer, Messrs. Gruner, Jaggers, Woestemeyer and Winemiller and one vacancy. All of our directors are elected pursuant to agreements we have entered into with Mr. and Mrs. Woestemeyer, TA Associates and JMI Equity and agreements between Mr. Winemiller, Mr. Murphy and Mr. and Mrs. Woestemeyer, all of which terminate upon the closing of this offering.
Committees of the board of directors
Our board of directors has established an audit committee, a compensation committee and a nominating and governance committee.
Audit committee
The members of our audit committee are Mrs. Woestemeyer and Messrs. Gruner and Jaggers. Our board of directors has determined that Mr. Gruner is independent under the Nasdaq Marketplace
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Rules and pursuant to Rule 10A-3(b) of the Securities and Exchange Act of 1934, as amended, or the Exchange Act, and that Mr. Gruner qualifies as an audit committee financial expert within the meaning of SEC regulations and the Nasdaq listing standards. In arriving at this determination, the board examined Mr. Gruner's scope of experience and the nature of his employment in the corporate finance sector. Mr. Jaggers serves as chairperson of the audit committee.
The audit committee oversees our accounting and financial reporting processes and the audits of our financial statements. Specific responsibilities of our audit committee include:
Compensation committee
The members of our compensation committee are Mrs. Woestemeyer and Messrs. Gruner and Jaggers. Each member of our compensation committee is a non-employee director, as defined in Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Our board of directors has determined that Mr. Gruner is independent under the Nasdaq Marketplace Rules. Mr. Jaggers serves as chairperson of the compensation committee.
The compensation committee discharges the responsibilities of our board of directors relating to the compensation and benefits for our executive officers and directors. Specific responsibilities of our compensation committee include:
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Nominating and governance committee
The members of the nominating and governance committee are Mrs. Woestemeyer and Messrs. Gruner and Jaggers. The board has determined that Mr. Gruner is independent under the Nasdaq Marketplace Rules. Mr. Gruner serves as chairperson of the nominating and governance committee. Specific responsibilities of our nominating and governance committee include:
Compensation committee interlocks and insider participation
No member of our compensation committee and none of our executive officers has any relationships that would constitute an interlocking relationship with executive officers and directors of any another entity.
Director compensation
We currently do not pay our directors any cash or equity compensation for their services as members of our board of directors or any committee of our board of directors. We have a policy of reimbursing our directors for travel, lodging and other expenses incurred in connection with their attendance at our board or committee meetings.
We have adopted a policy for director compensation beginning on , 2007. Under this policy each non-employee member of our board of directors will be entitled to receive an annual grant of options to purchase shares of our common stock, an annual retainer of $ and an additional retainer of $ if such director also serves on our audit committee, compensation committee or nominating and governance committee. The chair of each such committee will be entitled to an additional annual retainer of $ . The retainer fees will be paid on an annual basis as earned.
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Compensation discussion and analysis for named executive officers
Our mission is to help our customers improve business and financial performance by providing them with our pricing and revenue optimization software products. Implementing our mission relies on delivering these software products successfully and competitively, as well as our ability to help our customers address their pricing and revenue optimization needs. As a result, it is critical that we are able to attract, motivate and retain highly talented individuals who are committed to us and our mission and are willing to identify and exploit opportunities to grow our business. Consequently, the goals of our executive compensation program are to align our executive officers' compensation with our mission and the interests of our stockholders, to provide incentives and rewards to our executive officers for our success and to reflect the teamwork philosophy of our executive management team.
As a private company, we generally relied upon the experience of management and the members of our board of directors to set the compensation of our executive officers. We have recently adopted an executive compensation program that combines short-term and long-term components, cash and equity, and fixed and contingent payments, in the proportions that we believe are the most appropriate to motivate, retain and reward our executive officers for achieving our objectives.
The objectives of our executive compensation policy
Our executive compensation programs are designed to achieve the following objectives:
Role of the compensation committee in setting executive compensation
The responsibility for establishing, administering and interpreting our policies governing the compensation and benefits for our executive officers lies with our compensation committee, which consists entirely of non-employee directors. See "ManagementCommittees of the board of directorsCompensation committee."
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Our compensation committee has taken the following steps to ensure that our executive compensation and benefit policies are consistent with both our compensation philosophy and our corporate governance guidelines:
Components of executive compensation
Based on our goals and the experience of our board and management, we established the following elements of executive compensation: base salary, cash incentive bonuses and long-term incentive awards, each as further described below. The compensation committee does not have any formal policies for allocating compensation among salary, cash incentive bonus and long-term incentive awards, and we have not retained a compensation consultant to review our policies and procedures with respect to executive compensation.
Base salaries
Base salaries for our executive officers are reviewed on a yearly basis. For 2006, our executive officers' base salaries were set by reviewing their then current salaries in light of 2005 company performance and individual performance, scope of their responsibilities, the experience of the members of our compensation committee with similar stage companies and general economic factors.
Cash incentive bonus
We have an annual cash incentive bonus plan for our executive officers under which bonuses may be paid shortly after the end of each year based on our performance in meeting our corporate objectives for the year and each individual's performance and contribution in meeting our corporate objectives. Bonuses are intended to compensate our executive officers for achieving financial and operational goals and for achieving individual and company performance objectives. The bonuses are paid in cash and will generally be paid in the first quarter following completion of a given year.
Bonuses are determined based on the achievement of certain financial and operational benchmarks. Each component of this bonus is independent of the other components and has minimum and maximum target levels. The target bonus amounts are payable under this cash bonus plan if we hit our target levels for each component. If we hit the minimum goals, our executive officers would be entitled to half of the target bonus amount, and if we achieve the maximum target level, they would be entitled to receive twice their target bonus amount for such component. Actual results between the minimum, target and the maximum goal levels would be pro-rated.
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Long-term incentive award programs
Our base salary and cash incentive bonus plans are intended to compensate and motivate for the short-term. We believe that providing our executive officers with an ownership stake through participation in our long-term incentive plans will encourage long-term performance and help align their interests with those of our stockholders.
1997 stock option plan and 1999 equity incentive plan. Our 1997 stock option plan and 1999 equity incentive plan authorized us to grant options to purchase shares of common stock to our employees, directors and consultants. Our compensation committee was the administrator of these plans. Stock option grants under these plans were usually made at the commencement of employment and, occasionally, following a significant change in job responsibilities or to meet other special retention or performance objectives. The compensation committee reviewed and approved stock option awards to executive officers based upon a review of competitive compensation data, its assessment of individual performance, a review of each executive's existing long-term incentives and retention considerations. Periodic stock option grants were made at the discretion of the compensation committee to eligible employees and, in appropriate circumstances, the compensation committee considered the recommendations of our CEO and other members of management. No options were awarded in 2006 since the compensation committee had determined there was sufficient retention value in the outstanding options and common stock subject to restrictions held by our executive officers. Stock options granted by us have an exercise price equal to the fair market value of our common stock on the day of grant, typically vest 25% on the first anniversary and monthly thereafter, based upon continued employment over a four-year period, and generally expire ten years after the date of grant. Incentive stock options also include certain other terms necessary to assure compliance with the Internal Revenue Code. Our 1997 stock option plan was terminated in April, 1999 and our 1999 equity incentive plan was terminated on March 26, 2007 for purposes of granting any future equity awards under those plans. There were issued and outstanding stock options to purchase 415,247 shares of our common stock under these plans on March 31, 2007.
2007 equity incentive plan. Our 2007 equity incentive plan, or 2007 plan, was adopted by our board of directors on March 26, 2007 and approved by our stockholders on April , 2007. The purpose of the 2007 plan is to promote our long-term growth and profitability. The 2007 plan is intended to make available incentives that will help us to attract, retain and reward employees whose contributions are essential to our success. We may provide these incentives through the grant of:
A total of 1,870,000 shares have been reserved for issuance under the 2007 plan with an evergreen provision that allows for an annual increase equal to the lesser of (a) 3.5% of our outstanding shares (b) 900,000 shares or (c) any lesser amount determined by our board of directors. As of April 2, 2007, 710,000 shares remain available for grant or award under the 2007 plan. The
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compensation committee of our board has been designated to administer the 2007 plan. Under the 2007 plan, our employees, officers, directors and other individuals providing services to us or any of our affiliates are eligible to receive awards. The committee has the authority, consistent with the provisions of the 2007 plan, to determine which eligible participants will receive awards, the form of the awards and the number of shares of our common stock covered by each award. The committee may impose terms, limits, restrictions and conditions upon awards, and may modify, amend, extend or renew awards, accelerate or change the timing of exercise of awards or waive any restrictions or conditions of an award. As of April 2, 2007, we had awarded equity awards to acquire 1,160,000 shares of our common stock under this plan to our employees and consultants under the 2007 plan.
Stock options. Our 2007 plan permits the granting of options to purchase shares of our common stock intended to qualify as incentive stock options, under Section 422 of the Internal Revenue Code, and nonqualified stock options. The option exercise price and the term of each option are determined by the compensation committee. The compensation committee also determines at what time or times each option may be exercised and the period of time, if any, after retirement, death, disability or termination of employment during which options may be exercised. In general, options granted under this plan vest at the rate of 25% on the one year anniversary of the vesting commencement date and in equal monthly installments thereafter over the next three years.
Stock appreciation rights. The compensation committee may grant a right to receive a number of shares or, in the discretion of the compensation committee, an amount in cash or a combination of shares and cash, based on the increase in the fair market value of the shares underlying the right during a stated period specified by the compensation committee.
Restricted stock awards and units. The compensation committee may award shares of our common stock to participants at no cost or for a purchase price or restricted stock units that are settled in shares of our common stock. These restricted stock and restricted stock unit awards may be subject to restrictions or may be free from any restrictions under our 2007 plan. The purchase price of the shares, if any, and any applicable restrictions, are determined by the compensation committee.
Phantom stock. The compensation committee may grant stock equivalent rights, or phantom stock, which entitles the recipient to receive credits which are ultimately payable in the form of cash, shares of our common stock or a combination of both. Phantom stock does not entitle the holder to any rights as a stockholder.
Performance awards. The compensation committee may grant performance awards to participants entitling the participants to receive cash, shares of our common stock or a combination of both, upon the achievement of performance goals and other conditions determined by the compensation committee. The performance goals may be based on our operating income or on one or more other business criteria selected by the compensation committee.
In the event of any stock split, stock dividend or similar transaction, the shares subject to the 2007 plan and any outstanding awards will automatically be adjusted. The 2007 plan will continue in effect until the tenth anniversary of its approval by our board, unless earlier terminated earlier. The compensation committee may amend, terminate or modify the plan at any time.
In the event of certain significant corporate transactions, including a change in control of the Company, any then-outstanding equity award or option under the 2007 plan may be assumed, continued or substituted for by any surviving or acquiring entity (or its parent company). If the surviving or acquiring entity (or its parent company) elects to assume, continue or substitute for such awards or options and the holder of such award or option is terminated without cause or
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resigns for good reason within 18 months of a change of control of the Company, such awards or options shall vest in full. If the surviving or acquiring entity (or its parent company) elects not to assume, continue or substitute for the equity awards or options under the 2007 plan, all outstanding equity awards and options under the 2007 plan will vest in full and become fully exercisable.
The compensation committee believes that the use of stock options and equity awards offers the best approach to achieve our compensation goals with respect to long-term compensation and currently provides tax and other advantages to our employees relative to other forms of equity compensation. We believe that our equity incentive program is an important retention tool for our employees.
In April 2007, our Chief Executive Officer and Chief Financial Officer were granted immediately exercisable stock options under our 2007 plan to purchase 150,000 shares of our common stock each at $6.00 per share. These stock options provide for the full acceleration of the vesting upon our change in control, the officer's termination without cause or resignation for good reason and otherwise vest as to 25% of the shares in April 2008 and monthly thereafter based on continued employment over the following three years. In the absence of a public trading market for our common stock, the compensation committee determined the fair market value of our common stock in good faith based upon consideration of a number of relevant factors including the status of our development and commercialization efforts, results of operations, market conditions and a valuation that we obtained of our common stock as of February 28, 2007. In April 2007, after considering these factors, our board determined that the fair market value of our common stock was $6.00 per share. These grants were made because our board believes it is an appropriate incentive mechanism to encourage retention in the long-term. In determining the number of shares subject to stock options granted to the executive officers, the compensation committee took into account each executive officer's position, scope of responsibility, ability to affect stockholder value and historic and recent performance.
Benefits. We provide our executive officers the following benefits, generally on the same terms as we provide our other employees.
We believe these benefits are consistent with companies with which we compete for employees.
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401(k) Plan. In May 1996, we adopted a tax-qualified employee savings and retirement plan, or 401(k) plan, which generally covers our full-time employees. The plan is intended to qualify under Section 401(a) of the Internal Revenue Code. Contributions, and income earned thereon, are not taxable to employees until withdrawn from this plan. Under this plan, employees may elect to reduce their current compensation up to the statutorily prescribed annual limit and have the amount of the reduction contributed to the plan. This plan also permits us to make matching contributions to the plan on behalf of participants. Since January 2000, we have matched up to 50% of an employee's contribution up to 6% of the employee's eligible income contributed to our 401(k) plan.
Severance and termination provisions
We provide our executive officers severance packages if they are terminated without "cause" (as defined in their employment or severance agreements) in order to attract and retain them. The amount of severance benefits is described below. The Compensation committee reviews the potential payouts to ensure their market-competitiveness in order to incentivize our executive officers to maintain focus on both daily and long-term efforts.
We entered into employment agreements with Mr. Winemiller, our Chief Executive Officer, and Mr. Murphy, our Chief Financial Officer, on September 30, 2005. Both of these agreements were originally for a two year term and automatically renew for one year terms unless the Company decides not to renew them. The base salaries payable to each of Mr. Winemiller and Mr. Murphy are subject to periodic review by our compensation committee. Both Mr. Winemiller and Mr. Murphy are entitled to 12 months of severance, up to 12 months of health benefits and 12 months of acceleration of the vesting on their stock options granted prior to April 2, 2007 if their employment with the Company is terminated without "cause" or they resign with "good reason" as defined in those agreements. On April 2, 2007, our board amended these employment agreements to also provide for the full acceleration of vesting, or lapse of all repurchase rights, of any options or other equity awards granted to these executive officers on or after April 2, 2007, if any of these officers is terminated without "cause," resigns for "good reason" or if a change of control of the Company occurs. In addition, the amended employment agreements provide for 18 months of severance and 18 months of health benefits if such officer is terminated within six months of a change in control transaction of the Company. Mr. Winemiller and Mr. Murphy are subject to non-competition and non-solicitation restrictions during the term of their employment and for the 12-month period following the termination of their employment.
In January 1999, we entered into an employment agreement with Mr. Woestemeyer, our Executive Vice President. This agreement was originally for a two-year term and automatically renews for one year terms unless the Company decides not to renew. Under this agreement, Mr. Woestemeyer's salary is subject to periodic review by our compensation committee, and he is entitled to 12 months of severance if he is terminated without "cause" as defined in his agreement or we decide not to renew his agreement without giving him notice. If we decide not to renew this agreement and we provide 60-days notice of non-renewal to Mr. Woestemeyer, he is entitled to 10 months of severance. In addition, Mr. Woestemeyer is subject to non-competition and non-solicitation restrictions during the term of his employment and for the severance period following the termination of his employment.
"Cause" is defined in these employment agreements as a breach by our officer of his duties of confidentiality which causes a material harm to us, his conviction of, or a plea of guilty or no contest to, a felony or his failure to perform his duties after notice and a cure period. In addition, for Mr. Winemiller and Mr. Murphy, "cause" also includes an intentional wrongdoing by them that
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adversely affects us. Mr. Winemiller and Mr. Murphy can resign for "good reason" and be entitled to severance. "Good reason" is defined in their employment agreements as the assignment of duties to them that are substantially inconsistent with their current roles with us, the relocation of their offices to more than 50 miles from our present location, a material reduction in their base salaries and our failure to provide them with similar benefits that we provide to our other employees.
Components of executive compensation for 2006 and 2007
For 2006, the compensation of executives consisted of three primary componentsbase salary, a cash incentive bonus award and a benefits package as described above. In addition, each of our executive officers hold options or shares of our common stock. The compensation committee believes that this program balanced the Company's performance and goals for 2006 with the compensation objectives discussed above.
For 2006, the compensation committee set the following cash incentive bonus components for our executive officers:
|
||
Components
|
Percentage
of bonus |
|
---|---|---|
|
||
Revenue | 40% | |
Operating income | 20% | |
Backlog | 40% | |
|
In 2006, we achieved 76.4% over our 2006 targets for the components as group.
In 2007, our compensation committee adopted our 2007 cash incentive bonus plan and the components of this plan. Under this plan, revenue, operating income and contract sales, each of which are each equally weighted at a one-third of the target bonus. By equally weighting each component, and thus emphasizing each factor uniformly, and by replacing backlog with contract sales for this plan, the compensation committee further aligned the interests of our executive officers with our 2007 annual performance and shareholder value.
Tax considerations
After the closing of this offering, we will be subject to Internal Revenue Code Section 162(m), which limits the amount that we may deduct for compensation paid to our chief executive officer and to each of our four most highly compensated officers to $1,000,000 per person per year, unless certain exemption requirements are met. Exemptions to this deductibility limit may be made for various forms of "performance-based" compensation approved by our stockholders. In addition to salary and bonus compensation that is not "performance-based," the exercise of stock options may cause an officer's total compensation to exceed $1,000,000. However, compensation from options that meet certain requirements will be exempt from the $1,000,000 cap on deductibility. In the past, annual cash compensation to our executive officers has not exceeded $1,000,000 per person. Although we do not currently anticipate such compensation to exceed the $1,000,000 limit, our officer compensation could in the future exceed this limit, and we may not be able to deduct the compensation amount in excess of $1,000,000. While the compensation committee cannot predict how the deductibility limit may impact our compensation program in future years, the compensation committee intends to maintain an approach to executive compensation that strongly links pay to performance.
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Summary compensation table
|
||||||||||
Name and principal position
|
Year
|
Salary
($) |
Non-equity
incentive plan compensation ($)(1) |
All other
compensation ($)(2) |
Total ($)
|
|||||
---|---|---|---|---|---|---|---|---|---|---|
|
||||||||||
Albert E. Winemiller
President and Chief Executive Officer |
2006 | 275,000 | 291,060 | 8,250 | 574,310 | |||||
Charles H. Murphy
Executive Vice President and Chief Financial Officer |
2006 | 245,000 | 194,481 | 7,350 | 446,831 | |||||
Ronald F. Woestemeyer
Executive Vice President |
2006 | 233,750 | 61,850 | 7,013 | 302,613 | |||||
|
Grants of plan-based awards
Options exercised and stock vested
|
|||||
|
Option awards
|
||||
---|---|---|---|---|---|
Name
|
Number of shares
exercise (#) |
Value realized
on exercise ($) |
|||
|
|||||
Albert E. Winemiller | | | |||
Charles H. Murphy(1) | 100,000 | $ | 271,000 | ||
Ronald F. Woestemeyer | | | |||
|
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We had no outstanding equity awards held by executive officers at December 31, 2006. All of Mr. Winemiller's stock options granted prior to 2006 were fully vested and exercised prior to 2006. We have not granted Mr. Woestemeyer any stock options.
Potential payments upon termination or change in control
Under the employment agreements with Mr. Murphy, Mr. Winemiller and Mr. Woestemeyer, discussed under "Compensation discussion and analysis of executive officers" above, our executive officers are entitled to certain payments if they are terminated. Under these agreements, if Mr. Murphy or Mr. Winemiller is terminated without "cause," or if they resign for good reason, each one will be entitled to receive 12 months of severance, up to 12 months of health benefits and 12 months of acceleration of the vesting of their stock option awards and equity awards. Under Mr. Woestemeyer's employment agreement, he is entitled to up to 12 months of severance if we terminate his employment without "cause" or do not renew without notice his employment agreement. If Mr. Winemiller and Mr. Murphy had been terminated without cause, resigned for good reason, other than in connection with a change of control, or their employment agreements were not renewed, and Mr. Woestemeyer had been terminated without cause, in each case, on December 31, 2006, they would have been entitled to the following:
On April 2, 2007, our board approved stock options to Mr. Winemiller and Mr. Murphy to purchase 150,000 shares of our common stock each at $6.00 per share. These options provided that if a change in control occurs, if the officer is terminated without "cause" or if he resigns for "good reason," the vesting of these options will accelerate in full.
Furthermore, on April 2, 2007, the board amended Mr. Winemiller's and Mr. Murphy's employment agreements to provide for 18 months of severance and health benefits if they are terminated within 12 months of a change in control transaction. If Mr. Winemiller and Mr. Murphy had been terminated on December 31, 2006 in connection with a change in control transaction, they would have been entitled to the following:
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Certain relationships and related party transactions
Since March 2004, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or are a party in which the amount involved exceeded or exceeds $120,000 and in which any of our directors, executive officers, holders of more than 5% of any class of our voting securities, or any member of the immediate family of any of the foregoing persons, had or will have a direct or indirect material interest, other than compensation arrangements with directors and executive officers, which are described where required under the "Management" section of this prospectus, and the transactions described below.
Relationship with investors and founder
Albert E. Winemiller, our chief executive officer, president and director, and Ronald F. Woestemeyer, our executive vice president, director and one of our founders, each hold more than 5% of our common stock prior to this offering. Mariette Woestemeyer, who is married to Mr. Woestemeyer, serves on our board of directors along with her husband. In addition, the funds affiliated with TA Associates and JMI Equity are considered holders of more than 5% of our common stock. Both Kurt Jaggers, who is a general partner of TA Associates, and Harry Gruner, who is a general partner at JMI Equity, also serve on our board of directors.
After completion of this offering, Messrs. Winemiller and Woestemeyer, TA Associates and its affiliates, and JMI Equity and its affiliates will beneficially own approximately %, %, %, and %, respectively, of our outstanding common stock, assuming no exercise of the underwriters' over-allotment option. Set forth below is a brief description of the existing relationships and agreements between us, Messrs. Winemiller and Woestemeyer, TA Associates and JMI Equity.
Board of directors. Mr. Jaggers, a general partner of TA Associates, and Mr. Gruner, a general partner at JMI Equity, are two of our directors and each serves on our audit, compensation and nominating and governance committees.
Registration rights. TA Associates, JMI Equity and Mr. and Mrs. Woestemeyer have piggyback registration rights with respect to shares of common stock that they hold. In addition, TA Associates and JMI Equity have demand and other registration rights for their shares of our common stock under the Stock Purchase and Stockholders Agreement described further below. For a description of these registration rights, see "Description of capital stock."
Stock Purchase and Stockholders Agreement. In June 1998, we entered into a Stock Purchase and Stockholders Agreement with TA Associates, JMI Equity and other individuals to whom we issued our convertible preferred stock. This agreement provides the investors registration rights and other rights relating to their investment in us.
Redemption of preferred stock. On August 15, 2005, TA Associates and JMI Equity converted the outstanding shares of our convertible preferred stock into 9,750,000 shares of our common stock and 3,921,312 shares of our redeemable preferred stock. In 2006, TA Associates and JMI Equity as holders of approximately 75% and 24%, respectively, of our redeemable preferred stock, elected to have us redeem 1,294,030, or 33%, of the outstanding redeemable preferred stock in accordance with the rights of the redeemable preferred stock. We redeemed those shares for $8.4 million. In March 2007, we redeemed all 2,627,282 shares of our remaining redeemable preferred stock for a total redemption price of $17.4 million, including $5.6 million in accrued and unpaid dividends on our redeemable preferred stock, in accordance with a redemption agreement between us and the holders of our redeemable preferred stock. In connection with the redemption in 2006, TA
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Associates and JMI Equity received $6.4 million and $2.0 million, respectively. In connection with the redemption in 2007, TA Associates and JMI Equity received $13.0 million and $4.0 million, respectively. See "Dividend Policy."
Dividend. On March 30, 2007, we declared and paid a one-time cash dividend of $2.00 per share on our common stock. As a result of such dividend, Messrs. Winemiller, Murphy and Woestemeyer (their relatives and trusts for the benefit of their relatives) and entities associated with TA Associates and JMI Equity received a total of $3.9 million, $1.2 million, $12.3 million, $14.7 million and $4.6 million, respectively. See "Dividend policy."
Warrants. Mr. and Mrs. Woestemeyer each hold a warrant to purchase 100,000 shares of our common stock at a price of $2.05 per share. In connection with this offering, these warrants will become fully exercisable beginning on the date of the closing of this offering and will remain exercisable through January 20, 2010. See "Description of capital stock."
Indemnification agreements. We have entered into indemnification agreements with each of our current directors and executive officers. These agreements require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. We also intend to enter into indemnification agreements with our future directors and executive officers.
Stock options granted to directors and executive officers. For more information regarding the grant of stock options to our directors and executive officers, please see "ManagementDirector compensation" and "Executive compensation."
Employment arrangements. We have entered into an employment agreement with each of Mr. Winemiller, Mr. Murphy and Mr. Woestemeyer, our executive officers, which address, among other things, the terms of their employment. See "Compensation discussion and analysis for named executive."
Procedures for related party transactions
Under our code of business conduct and ethics, our employees and officers are discouraged from entering into any transaction that may cause a conflict of interest for us. In addition, they must report any conflict of interest, including related party transactions, to their managers or our compliance officer. Our audit committee must then approve any related-party transactions, including those transactions involving our directors, after reviewing each transaction for potential conflict of interest and other improprieties in accordance with our audit committee charter.
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Principal and selling stockholders
The following table sets forth information regarding the beneficial ownership of our common stock as of April 2, 2007 by:
The percentage of beneficial ownership for the following table is based on 20,664,147 shares of our common stock as of April 2, 2007. The percentage of beneficial ownership after the offering is based on shares of our common stock outstanding after this offering, assuming no exercise of the underwriters' over-allotment option.
Beneficial ownership is determined under the rules and regulations of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days of March 31, 2007 through the exercise of any option or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules and regulations of the SEC, that only the person or entity whose ownership is being reported has exercised options or warrants into shares of our common stock.
Unless otherwise indicated, the principal address of each of the stockholders below is c/o PROS Holdings, Inc., 3100 Main Street, Suite 900, Houston, Texas 77002.
*Represents beneficial ownership of less than 1%.
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General
Following the closing of this offering, our authorized capital stock will consist of 50,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of undesignated preferred stock, $0.001 par value per share. As of March 31, 2007, we had outstanding 20,664,147 shares of our common stock. As of March 31, 2007, we had 151 common stockholders of record.
Common stock
Dividend rights
Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to received dividends out of assets legally available at the times and in the amounts that our board of directors may determine from time to time.
Voting rights
Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. We have not provided for cumulative voting for the election of directors in our certificate of incorporation. This means that the holders of a majority of the shares voted can elect all of the directors then standing for election. In addition, our certificate of incorporation and bylaws provide that certain actions require the approval of two-thirds, rather than a majority, of the shares entitled to vote.
No preemptive, conversion or redemption rights
Our common stock is not entitled to preemptive rights and is not subject to conversion or redemption.
Right to receive liquidation distributions
Upon our liquidation, dissolution or winding-up, the holders of our common stock are entitled to share in all assets remaining after payment of all liabilities and the liquidation preferences of any outstanding preferred stock. Each outstanding share of common stock is, and all shares of common stock to be issued in this offering when they are paid for will be, fully paid and nonassessable.
Preferred stock
Following the closing of this offering, our board of directors will be authorized, subject to limitations imposed by Delaware law, to issue up to a total of 5,000,000 shares of preferred stock in one or more series, without stockholder approval. Our board is authorized to establish from time to time the number of shares to be included in each series of preferred stock, and to fix the rights, preferences and privileges of the shares of each wholly unissued series of preferred stock and any of its qualifications, limitations or restrictions. Our board can also increase or decrease the number of shares of any series of preferred stock, but not below the number of shares of that series of preferred stock then outstanding, without any further vote or action by the stockholders.
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Common stock warrants
We have outstanding warrants to purchase 200,000 shares of our common stock at an exercise price of $2.05 per share. These warrants may be exercised without cash pursuant to a net exercise provision which allows the holders of the warrants to exercise their respective warrant for 100,000 shares less the number of shares that have a market value, on the date of exercise, equal to the aggregate cash exercise price of such warrant. These warrants are exercisable beginning upon the closing of our initial public offering and ending on January 20, 2010, which is the date on which the warrants expire.
Registration rights
According to the terms of our Stock Purchase and Stockholders Agreement, TA Associates, JMI Equity and certain other stockholders are entitled to demand, piggyback and Form S-3 registration rights. These rights expire on the earlier of five years after the completion of this offering and the time when such holders can sell all of the shares of our common stock that they hold in compliance with securities laws without the use of a registration statement.
We have entered into registration rights agreements with Mr. and Mrs. Woestemeyer and two of our former officers which provide for piggyback registration rights for the shares held by these individuals other than in connection with our initial public offering. These piggyback registration rights expire when the holders cease to hold a minimum number of shares of our common stock or at the time when such holders can sell all of the shares of our common stock that they hold in compliance with securities laws without the use of a registration statement. Mr. and Mrs. Woestemeyer are not subject to the minimum holding requirement.
Demand registration rights
At any time following 12 months after the date of this prospectus, our stockholders with demand registration rights under our Stock Purchase and Stockholders Agreement have the right to require that we register all or a portion of their shares of common stock. The underwriters of any underwritten offering have the right to limit the number of shares to be included in a registration statement filed in response to the exercise of these demand registration rights. We must pay all expenses, except for underwriters' discounts and commissions, incurred in connection with these demand registration rights, except that we are not required to pay for expenses incurred if the holders of these rights subsequently withdraw their request for registration.
Piggyback registration rights
If we register any securities for public sale, our stockholders with piggyback registration rights under our registration rights agreements and our Stock Purchase and Stockholders Agreement have the right to include their shares in the registration, subject to specified exceptions. The underwriters of any underwritten offering have the right to limit the number of shares registered by these holders. We must pay all expenses, except for underwriters' discounts and commissions, incurred in connection with these piggyback registration rights. TA Associates and JMI Equity, which together hold 99% of those shares with such piggyback registration rights for this offering, have waived their right to exercise their piggy-back registration rights with respect to this offering.
Form S-3 registration rights
Our stockholders who are party to our Stock Purchase and Stockholders Agreement can request that we register such holders' shares of common stock on Form S-3 if we are eligible to file a registration
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statement on that form. We must pay all expenses, except for underwriters' discounts and commissions, for all registrations on Form S-3.
Anti-takeover effects of Delaware law and our certificate of incorporation and bylaws
The provisions of Delaware law, our amended and restated certificate of incorporation and our bylaws, which will be effective upon the closing of this offering, described below may have the effect of delaying, deferring or discouraging another party from acquiring control of us.
Delaware law
We will be subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. In general, those provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
Section 203 defines "business combination" to include the following:
In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons. The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
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Certificate of incorporation and bylaws
Following the completion of this offering, our amended and restated certificate of incorporation and bylaws will provide for:
Transfer agent and registrar
The transfer agent and registrar for our common stock is Computershare Shareholder Services, Inc. and its address is P.O. Box 43078, Providence, RI 02940-3078.
Listing
We have applied for trading and quotation of our common stock on The Nasdaq Global Market under the trading symbol "PROZ."
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Material U.S. federal tax consequences to non-U.S. holders
The following is a summary of material United States federal income and estate tax consequences of the ownership and disposition of our common stock by a non-United States holder. For purposes of this discussion, a non-United States holder is any beneficial owner that for United States federal income tax purposes is not a United States person; the term United States person means:
An individual may, in certain cases, be treated, for the taxable year of a disposition, as a resident of the United States, rather than as a nonresident, among other ways, by virtue of being present in the United States on at least 31 days in that taxable year and for an aggregate of at least 183 days during the three-year period ending in that taxable year (counting for such purposes all the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year). Residents are subject to United States federal income tax as if they were United States citizens. Such individuals are urged to consult their own tax advisors regarding the United States federal income tax consequences of the sale, exchange or other disposition of our common stock.
If a partnership or other pass-through entity holds common stock, the tax treatment of a partner or member in the partnership or other entity will generally depend on the status of the partner or member and upon the activities of the partnership or other entity. Accordingly, we urge partnerships or other pass-through entities which hold our common stock and partners or members in these partnerships or other entities to consult their tax advisors.
This discussion assumes that non-United States holders will acquire our common stock pursuant to this offering and will hold our common stock as a capital asset (generally, property held for investment). This discussion does not address all aspects of United States federal income taxation that may be relevant in light of a non-United States holder's special tax status or special tax situations. United States expatriates, controlled foreign corporations, passive foreign investment companies, corporations that accumulate earnings to avoid federal income tax, life insurance companies, tax-exempt organizations, dealers in securities or currencies, brokers, banks or other financial institutions, certain trusts, hybrid entities, pension funds and investors that hold common stock as part of a hedge, straddle or conversion transaction are among those categories of potential investors that are subject to special rules not covered in this discussion. This discussion does not consider the tax consequences for partnerships, entities classified as a partnership for United States federal income tax purposes, or persons who hold their interests through a partnership or other entity classified as a partnership for United States federal income tax purposes. This discussion does not address any United States federal gift tax consequences, or state or local or non-United States tax consequences. Furthermore, the following discussion is based on current provisions of the
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Internal Revenue Code of 1986, as amended, and Treasury Regulations and administrative and judicial interpretations thereof, all as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect.
Dividends
We do not plan to pay any dividends on our common stock for the foreseeable future. However, if we do pay dividends on our common stock, those payments will constitute dividends to the extent paid from our current or accumulated earnings and profits, as determined under United States federal income tax principles. To the extent those dividends exceed our current and accumulated earnings and profits, the dividends will constitute a return of capital and will first reduce a holder's basis, but not below zero, and then will be treated as gain from the sale of stock.
The gross amount of any dividend (out of earnings and profits) paid to a non-United States holder of common stock generally will be subject to United States withholding tax at a rate of 30% unless the holder is entitled to an exemption from or reduced rate of withholding under an applicable income tax treaty. In order to receive a reduced treaty rate, prior to the payment of a dividend a non-United States holder must provide us with an IRS Form W-8BEN (or successor form) certifying qualification for the reduced rate.
Dividends received by a non-United States holder that are effectively connected with a United States trade or business conducted by the non-United States holder (and dividends attributable to a non-United States holder's permanent establishment in the United States if an income tax treaty applies) are exempt from this withholding tax. To obtain this exemption, prior to the payment of a dividend, a non-United States holder must provide us with an IRS Form W-8ECI (or successor form) properly certifying this exemption. Effectively connected dividends (or dividends attributable to a permanent establishment), although not subject to withholding tax, are taxed at the same graduated rates applicable to United States persons, net of certain deductions and credits. In addition, dividends received by a corporate non-United States holder that are effectively connected with a United States trade or business of the corporate non-United States holder (or dividends attributable to a corporate non-United States holder's permanent establishment in the United States if an income tax treaty applies) may also be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified in an income tax treaty).
A non-United States holder who provides us with an IRS Form W-8BEN or an IRS Form W-8ECI will be required to periodically update such form.
A non-United States holder of common stock that is eligible for a reduced rate of withholding tax pursuant to an income tax treaty may obtain a refund of any excess amounts currently withheld if an appropriate claim for refund is timely filed with the IRS.
Gain on disposition of common stock
A non-United States holder generally will not be subject to United States federal income tax on gain realized on the sale or other disposition of our common stock unless:
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If we were to become a United States real property holding corporation, so long as our common stock is regularly traded on an established securities market and continues to be so traded, a non-United States holder would be subject to United States federal income tax on any gain from the sale, exchange or other disposition of shares of our common stock, by reason of such United States real property holding corporation status, only if such non-United States holder actually or constructively owned, more than 5% of our common stock at any time during the shorter of the five-year period preceding the disposition or the holder's holding period for our common stock. Any such non-United States holder that owns or has owned, actually or constructively, more than 5% of our common stock is urged to consult that holder's own tax advisor with respect to the particular tax consequences to such holder for the gain from the sale, exchange or other disposition of shares of our common stock if we were to be or to become a United States real property holding company.
Backup withholding and information reporting
Generally, we must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax treaties or other agreements, the IRS may make its reports available to tax authorities in the non-United States holder's country of residence.
Payments of dividends or of proceeds on the disposition of stock made to a non-United States holder may be subject to additional information reporting and backup withholding. Backup withholding will not apply if the non-United States holder establishes an exemption, for example, by properly certifying its non-United States status on an IRS Form W-8BEN (or successor form). Notwithstanding the foregoing, backup withholding may apply if either we or our paying agent has actual knowledge, or reason to know, that the holder is a United States person.
Backup withholding is not an additional tax. Rather, the United States income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a credit or refund may be obtained, provided that the required information is furnished to the IRS in a timely manner.
Federal estate tax
An individual non-United States holder who is treated as the owner, or has made certain lifetime transfers, of an interest in our common stock will be required to include the value thereof in his or her gross estate for United States federal estate tax purposes, and may be subject to United States federal estate tax unless an applicable estate tax or other treaty provides otherwise.
This discussion is for general purposes only. Prospective investors are urged to consult their own tax advisors regarding the application of the United States federal income and estate tax laws to their particular situations and the consequences under United States federal gift tax laws, as well as foreign, state, and local laws and tax treaties.
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Shares eligible for future sale
Before this offering, there has not been a public market for our common stock. As described below, only a limited number of shares currently outstanding will be available for sale immediately after this offering due to contractual and legal restrictions on resale. Nevertheless, future sales of substantial amounts of our common stock, including shares issued upon exercise of outstanding options and warrants, in the public market after the restrictions lapse, or the possibility of the sales, could cause the prevailing market price of our common stock to fall or impair our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares of our common stock, assuming that there are no exercises of outstanding options after , 2007. Of these shares, all of the shares sold in this offering will be freely tradable in the public market without restriction or further registration under the Securities Act, unless these shares are held by "affiliates," as that term is defined in Rule 144 under the Securities Act. Shares purchased by an affiliate may not be resold except pursuant to an effective registration statement or an exemption from registration, including the exemption under Rule 144 of the Securities Act described below. After this offering, and assuming no exercise of the underwriters' over allotment option, shares of our common stock held by existing stockholders will be "restricted securities," as that term is defined in Rule 144 under the Securities Act. These restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or 701 under the Securities Act. These rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rule 144 and Rule 701, these restricted securities will be available for sale in the public market as follows:
Lock-up agreements
In connection with this offering, all of our officers, directors, employees and stockholders have agreed, subject to limited exceptions, not to directly or indirectly sell or dispose of any shares of common stock or any securities convertible into or exchangeable or exercisable for shares of common stock for a period of 180 days after the date of this prospectus without the prior written consent of J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. For additional information, see "Underwriting."
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year from the later of the date those shares of common stock were acquired from us or from an affiliate of ours,
83
including the holding period of any prior owner other than an affiliate, would be entitled to sell, within any three-month period, a number of shares that is not more than the greater of:
Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us.
Rule 144(k)
In addition, under Rule 144(k), a person who is not one of our affiliates at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years from the later of the date these shares of our common stock were acquired from us or from an affiliate of ours, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted pursuant to the lock-up agreements, those shares may be sold immediately upon the completion of this offering.
Rule 701
Any employee, officer or director of, or consultant to us who purchased shares under a written compensatory plan or contract may be entitled to sell them in reliance on Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144. All holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling those shares. However, all shares issued under Rule 701 are subject to lock-up agreements and will only become eligible for sale when the 180-day lock-up agreements expire.
Stock plans
We plan on filing a registration statement on Form S-8 under the Securities Act covering 2,285,247 shares of common stock issued as of March 26, 2007 under our 1997 stock option plan and 1999 equity incentive plans and 2007 plan, and shares of our common stock issued upon exercise of options by employees. We expect to file this registration statement as soon as practicable after this offering. However, no resale of these registered shares shall occur until after the 180-day lock up period.
Registration rights
At any time after 12 months following this offering, certain holders of common stock may demand that we register their shares under the Securities Act or, if we file another registration statement under the Securities Act, may elect to include their shares in such registration. If these shares are registered, they will be freely tradable without restriction under the Securities Act. For additional information, see "Description of capital stockRegistration rights."
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We and the selling stockholders are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. are acting as joint book-running managers and as representatives of the underwriters. We and the selling stockholders have entered into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we and the selling stockholders have agreed to sell to the underwriters, and each underwriter has severally agreed to purchase, at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
|
|||
Name
|
Number of shares
|
||
---|---|---|---|
|
|||
J.P. Morgan Securities Inc. | |||
Deutsche Bank Securities Inc. | |||
Jefferies & Company, Inc. | |||
Thomas Weisel Partners LLC | |||
|
|||
Total | |||
|
The underwriters are committed to purchase all the shares of common stock offered by us and the selling stockholders if they purchase any shares. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. Any such dealers may resell shares to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters. The representatives have advised us that the underwriters do not intend to confirm discretionary sales in excess of 5% of the shares of common stock offered in this offering.
The underwriters have an option to purchase up to additional shares of common stock from the selling stockholders to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters have 30 days from the date of this prospectus to exercise this over-allotment option. If any shares are purchased with this over-allotment option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares are being offered.
The underwriting fee is equal to the initial public offering price per share of common stock less the amount paid by the underwriters to us and the selling stockholders per share of common stock. The underwriting fee is $ per share. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares.
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Underwriting discounts and commissions
We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ million.
A prospectus in electronic format may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters and selling group members that may make Internet distributions on the same basis as other allocations.
We have agreed that we will not offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the SEC a registration statement under the Securities Act relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock, or publicly disclose the intention to make any offer, sale, pledge, disposition or filing, without the prior written consent of J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. for a period of 180 days after the date of this prospectus. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to us occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period, the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
Our directors and executive officers, and substantially all of our stockholders have entered into lock-up agreements with the underwriters prior to the commencement of this offering pursuant to which each of these persons or entities, with limited exceptions, for a period of 180 days after the date of the final prospectus, may not, without the prior written consent of J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc., (1) offer, pledge, announce the intention to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock (including, without limitation, common stock that may be deemed to be beneficially owned by such persons in accordance with the rules and regulations of the SEC and securities that may be issued upon exercise of a stock option or warrant) or (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common stock or such other securities, in cash or otherwise. Notwithstanding the foregoing, if (1) during the last 17 days of the 180-day restricted period, we issue an earnings release or material news or a material event relating to our company occurs; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period beginning on the last day of the 180-day period,
86
the restrictions described above shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.
We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
We have applied to have our common stock approved for listing on The Nasdaq Global Market under the symbol "PROZ."
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' option to purchase additional shares referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the option to purchase additional shares. 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 common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representative of the underwriters purchase common stock in the open market in stabilizing transactions or to cover short sales, the representative can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on The Nasdaq Global Market, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representatives of the underwriters. In determining the initial public offering price, we and the representatives of the underwriters expect to consider a number of factors including:
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Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock, or that the shares of common stock will trade in the public market at or above the initial public offering price.
Certain of the underwriters and their affiliates may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they may receive customary fees and commissions. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans.
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DLA Piper US LLP, Austin, Texas, will pass upon the validity of the issuance of the shares of common stock offered by this prospectus. Davis Polk & Wardwell, Menlo Park, California, is representing the underwriters in this offering.
The consolidated financial statements as of December 31, 2005 and 2006 and for each of the three years in the period ended December 31, 2006 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
Where you can find additional information
We have filed with the Securities and Exchange Commission a registration statement on Form S-1, including exhibits, under the Securities Act with respect to the common stock to be sold in this offering. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement or the exhibits. Statements made in this prospectus regarding the contents of any contract, agreement or other document are only summaries. With respect to each contract, agreement or other document filed as an exhibit to the registration statement, we refer you to the exhibit for a more complete description of the matter involved.
We are not currently subject to the informational requirements of the Securities Exchange Act of 1934. As a result of the offering of the shares of our common stock, we will become subject to the informational requirements of the Exchange Act and, in accordance therewith, will file reports and other information with the SEC. You may read and copy all or any portion of the registration statement or any reports, statements or other information in the files at the public reference room of the Securities and Exchange Commission located at 100 F Street, N.E., Washington, D.C. 20549.
You can request copies of these documents upon payment of a duplicating fee by writing to the Securities and Exchange Commission. You may call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of its public reference room. Our filings, including the registration statement, will also be available to you on the web site maintained by the Securities and Exchange Commission at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing consolidated financial statements audited by our independent auditors, and to make available to our stockholders quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial statements.
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PROS Holdings, Inc.
Index to consolidated financial statements
F-1
Report of independent registered public accounting firm
To
the Board of Directors and Stockholders of
PROS Holdings, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of PROS Holdings, Inc., and its subsidiaries, at December 31, 2005 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/
PricewaterhouseCoopers LLP
Houston, Texas
January 26, 2007, except for Note 3, as to which the date is April 3, 2007
F-2
PROS Holdings, Inc.
Consolidated balance sheets
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Pro forma
stockholders' equity as of December 31, 2006 (unaudited) |
||||||
---|---|---|---|---|---|---|---|---|---|
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December 31
|
||||||||
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2005
|
2006
|
|||||||
|
|||||||||
Assets | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 38,489,803 | $ | 42,540,180 | |||||
Accounts and unbilled receivables, net of allowance of $1,020,000 and $1,190,000, respectively | 7,429,022 | 13,788,989 | |||||||
Prepaid expenses and other | 1,349,355 | 2,199,997 | |||||||
|
|||||||||
Total current assets | 47,268,180 | 58,529,166 | |||||||
Property and equipment, net | 2,553,309 | 2,372,872 | |||||||
Other assets | 468,154 | 2,144,371 | |||||||
|
|||||||||
Total assets | $ | 50,289,643 | $ | 63,046,409 | |||||
|
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Liabilities and stockholders' equity | |||||||||
Current liabilities | |||||||||
Accounts payable | $ | 1,633,321 | $ | 584,372 | |||||
Accrued liabilities | 2,833,776 | 3,965,817 | |||||||
Accrued contract labor | 746,900 | 1,405,287 | |||||||
Accrued payroll | 1,800,812 | 2,918,979 | |||||||
Deferred revenue | 13,174,190 | 22,079,937 | |||||||
|
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Total current liabilities | 20,188,999 | 30,954,392 | |||||||
Long-term deferred revenue |
|
|
787,500 |
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|
4,131,757 |
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Commitments and contingencies |
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Redeemable preferred stock, $0.001 par value, 3,921,312 shares authorized, 3,921,312 and 2,627,282 shares issued, 3,921,312 and 2,627,282 shares outstanding, respectively | 25,268,841 | 17,283,168 | |||||||
Stockholders' equity |
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|
|
|
|
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Common stock, $0.001 par value; 28,000,000 shares authorized, 23,431,174 and 23,580,729 shares issued, 19,584,134 and 19,733,689 shares outstanding, respectively, and shares pro forma | 23,431 | 23,581 | |||||||
Additional paid-in capital | 7,745,357 | 7,812,536 | |||||||
Common stock warrants | 226,000 | 226,000 | |||||||
Treasury stock, 3,847,040 common shares at cost | (8,937,500 | ) | (8,937,500 | ) | |||||
Retained earnings | 4,987,015 | 11,552,475 | |||||||
|
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Total stockholders' equity | 4,044,303 | 10,677,092 | |||||||
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Total liabilities and stockholders' equity | $ | 50,289,643 | $ | 63,046,409 | |||||
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The accompanying notes are an integral part of these consolidated financial statements.
F-3
PROS Holdings, Inc.
Consolidated statements of income
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Year ended December 31
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2004
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2005
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2006
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Revenue | |||||||||||
License and implementation | $ | 20,015,056 | $ | 20,189,874 | $ | 29,604,257 | |||||
Maintenance and support | 12,430,746 | 14,939,887 | 16,423,252 | ||||||||
|
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Total revenue | 32,445,802 | 35,129,761 | 46,027,509 | ||||||||
Cost of revenue | 13,388,512 | 13,380,916 | 15,605,404 | ||||||||
|
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Gross profit | 19,057,290 | 21,748,845 | 30,422,105 | ||||||||
Operating expenses | |||||||||||
Selling, general and administrative | 8,968,822 | 12,010,371 | 13,260,623 | ||||||||
Research and development | 6,262,014 | 6,399,159 | 10,332,301 | ||||||||
|
|||||||||||
Income from operations | 3,826,454 | 3,339,315 | 6,829,181 | ||||||||
Other income (expense) | |||||||||||
Interest income | 370,977 | 1,074,753 | 1,920,576 | ||||||||
Interest expense | (5,328 | ) | | | |||||||
|
|||||||||||
Income before income taxes | 4,192,103 | 4,414,068 | 8,749,757 | ||||||||
Income tax provision | 536,184 | 974,541 | 1,724,498 | ||||||||
|
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Net income | 3,655,919 | 3,439,527 | 7,025,259 | ||||||||
|
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Accretion of preferred stock | (1,256,011 | ) | (852,420 | ) | (459,799 | ) | |||||
|
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Net earnings attributable to common stockholders | $ | 2,399,908 | $ | 2,587,107 | $ | 6,565,460 | |||||
|
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Net earnings attributable to common stockholders per share: | |||||||||||
Basic | $ | 0.24 | $ | 0.19 | $ | 0.33 | |||||
Diluted | $ | 0.19 | $ | 0.16 | $ | 0.32 | |||||
|
|||||||||||
Weighted average number of shares | |||||||||||
Basic | 9,822,094 | 13,891,415 | 19,649,372 | ||||||||
Diluted | 19,617,672 | 20,012,010 | 20,604,202 | ||||||||
Pro forma net earnings attributable to common stockholders per share (unaudited) | |||||||||||
Basic | $ | ||||||||||
Diluted | $ | ||||||||||
|
|||||||||||
Weighted average number of shares used in computation | |||||||||||
Basic | |||||||||||
Diluted |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
PROS Holdings, Inc.
Consolidated statements of redeemable preferred stock and stockholders' equity
Years ended December 31, 2004, 2005 and 2006
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PROS Holdings, Inc.
Consolidated statements of cash flows
|
||||||||||||
|
Year ended December 31
|
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|
2004
|
2005
|
2006
|
|||||||||
|
||||||||||||
Operating activities | ||||||||||||
Net income | $ | 3,655,919 | $ | 3,439,527 | $ | 7,025,259 | ||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 1,582,982 | 1,515,303 | 1,270,441 | |||||||||
Deferred taxes, net | (211,953 | ) | (98,269 | ) | (1,161,450 | ) | ||||||
Noncash compensation | 2,129 | | | |||||||||
Maturities (purchases) of marketable securities classified as trading securities | (28,023,749 | ) | 28,023,749 | | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable, net | (5,961,301 | ) | 1,420,289 | (5,273,768 | ) | |||||||
Unbilled receivables | 812,397 | (477,585 | ) | (1,086,199 | ) | |||||||
Prepaid expenses and other | (721,392 | ) | (335,705 | ) | (1,365,409 | ) | ||||||
Accounts payable, accrued liabilities, accrued contract labor and accrued payroll | 2,043,620 | 764,354 | 1,859,646 | |||||||||
Deferred revenue | 5,734,529 | 697,021 | 12,250,004 | |||||||||
|
||||||||||||
Net cash provided by (used in) operating activities | (21,086,819 | ) | 34,948,684 | 13,518,524 | ||||||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
||
Purchases of property and equipment | (1,292,655 | ) | (766,359 | ) | (1,090,004 | ) | ||||||
|
||||||||||||
Net cash used in investing activities | (1,292,655 | ) | (766,359 | ) | (1,090,004 | ) | ||||||
Financing activities |
|
|
|
|
|
|
|
|
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|
||
Payments on obligations under capital lease | (180,966 | ) | | | ||||||||
Redemption of redeemable preferred stock | | | (8,445,472 | ) | ||||||||
Exercise of stock options | 4,500 | 17,152 | 67,329 | |||||||||
|
||||||||||||
Net cash provided by (used in) financing activities | (176,466 | ) | 17,152 | (8,378,143 | ) | |||||||
Net increase (decrease) in cash and cash
equivalents |
(22,555,940 | ) | 34,199,477 | 4,050,377 | ||||||||
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
||
Beginning of year | 26,846,266 | 4,290,326 | 38,489,803 | |||||||||
|
||||||||||||
End of year | $ | 4,290,326 | $ | 38,489,803 | $ | 42,540,180 | ||||||
|
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Supplemental disclosures of cash flow information: |
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|
|
|
|
|
|
|
|
|
||
Cash paid during period for: | ||||||||||||
Taxes | $ | 791,000 | $ | 749,203 | $ | 1,825,500 | ||||||
Interest | 5,328 | | | |||||||||
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
PROS Holdings, Inc.
Notes to consolidated financial statements
1. Organization and summary of significant accounting policies
Nature of operations
PROS Holdings, Inc., a Delaware corporation and subsidiaries (the "Company"), is a provider of pricing and revenue optimization software products, an emerging category of enterprise applications designed to allow companies to improve financial performance by enabling better pricing. Customers use the Company's software products to gain insight into their pricing strategies, identify detrimental pricing activities, optimize their pricing decision-making and improve their business processes and financial performance. The Company's software products incorporate advanced pricing science, which includes operations research, forecasting and statistics. These innovative science-based software products analyze, execute and optimize pricing strategies using data from traditional enterprise applications, often augmenting it with real-time and historical data. The Company also provides a range of services that include analyzing a company's current pricing processes and implementing the Company's software products to improve pricing performance. The Company provides its software products to enterprises across a range of industries, including manufacturing, distribution, services, hotel and cruise, and airline.
Principles of consolidation
The consolidated financial statements include the accounts of PROS Holdings, Inc., and its wholly-owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.
Earnings per share
Basic earnings per share is computed by dividing net earnings attributable to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed using the weighted average number of common shares outstanding and, when dilutive, potential common shares from options and warrants (using the treasury-stock method) and potential common shares from convertible securities (using the if-converted method).
Unaudited pro forma stockholders' equity and pro forma earnings per share
The pro forma effect of the payment of a common stock dividend of $2.00 per share totaling $41.3 million (note 12) has been reflected as an unaudited pro forma adjustment in the accompanying financial statements as of December 31, 2006. Because the dividend exceeds 2006 net income, the shares expected to be offered in the anticipated initial public offering of the Company were added to the outstanding shares to compute the unaudited pro forma basic and diluted earnings per share of common stock.
Use of estimates
The Company's management makes estimates and assumptions in the preparation of its consolidated financial statements in conformity with accounting principles generally accepted in the United States. These estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. The complexity of the estimation process and issues related to the assumptions, risks and uncertainties inherent in the application of the percentage-of-completion method of revenue recognition affect the amounts of revenue, expenses, unbilled receivables and
F-7
deferred revenue. Numerous internal and external factors can affect estimates. Estimates are also used for, but not limited to, receivables, allowance for doubtful accounts, useful lives of assets, depreciation, income taxes and deferred tax asset valuation, valuation of stock options and accrued liabilities.
Financial instruments
The carrying amount of the Company's financial instruments, which include cash equivalents, marketable securities, receivables and accounts payable approximates their fair values at December 31, 2005 and 2006.
Cash and cash equivalents
The Company considers all highly liquid investments with an original or remaining maturity of three months or less at the time of purchase to be cash equivalents. The Company has a cash management program that provides for the investment of excess cash balances, primarily in short-term money market instruments.
Marketable securities
Management determines the appropriate classification of investments in debt and equity securities at the time of purchase and re-evaluates such designation as of each subsequent balance sheet date. Securities for which the Company has the ability and intent to hold to maturity are classified as "held to maturity." Securities classified as "trading securities" are recorded at fair value. Gains and losses on trading securities, realized and unrealized, are included in earnings and are calculated using the specific identification method. Any other securities are classified as "available for sale." There were no marketable securities as of December 31, 2005 and 2006.
Prepaid expenses and other assets
Prepaid expenses and other assets consist primarily of short-term deferred tax assets, deferred project costs and prepaid third-party license fees.
Property and equipment
Property and equipment are recorded at cost, less accumulated depreciation and amortization. Maintenance, repairs and minor replacements are charged to expense as incurred. Significant renewals and betterments are capitalized. The Company computes depreciation and amortization using the straight-line method over the assets' estimated useful life. When property is retired or disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gains or losses are reflected in the consolidated statements of income.
Impairment of long-lived assets
Property and equipment are reviewed for impairment whenever an event or change in circumstances indicates that the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes comparison of future cash flows expected to be generated by the asset or group of assets with the associated assets' carrying value. If the carrying value of the asset or group of assets exceeds its expected future cash flows (undiscounted and without interest charges), an impairment loss is recognized to the extent that the carrying amount of the asset exceeds its fair value. The Company has not recorded any impairment charges in any of the years ended December 31, 2004, 2005 and 2006.
Revenue recognition
The Company's revenue is recognized in accordance with the provisions of the American Institute of Certified Public Accountants Statement of Position 97-2, Software Revenue Recognition and related
F-8
interpretations. The Company generates revenue from the licensing of the right to use its software products directly to end-users, implementation, training services, sales of post-contract support and maintenance and support.
Revenue from software licenses and implementation services is recognized as the services are performed using the percentage-of-completion method in accordance with the provisions contained within SOP 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts . Our software license arrangements typically include implementation services that are considered essential to the customers' usability of the licensed software products and therefore new software license revenue is generally recognized together with the implementation services based on the percentage-of-completion method. The percentage-of-completion computation is measured by the percentage of man-days incurred during the reporting period as compared to the estimated total man-days for each contract estimated necessary for implementation of the software products. If at the commencement of a contract, the contract fee is not fixed and determinable, revenue is deferred until the contract fee becomes fixed and determinable. If there is significant uncertainty about contract completion or receipt of payment, revenue is deferred until the uncertainty is sufficiently resolved. Under fixed-fee contracts, should a loss be anticipated on a contract, the full amount thereof is recorded when the loss is determined.
The Company also licenses software products for fixed terms. Revenue for fixed-term licenses, which generally include maintenance during the license period, is recognized ratably over the license term.
Maintenance and support revenue includes post-contract customer support and the right to unspecified software updates and enhancements on a when and if available basis. Maintenance and support revenue is generally attributed to those contracts based on specific renewal pricing contained therein and is recognized ratably over the period in which the services are provided.
Reimbursable travel and expense billings to customers are recognized as revenue as the expenses are incurred.
Software license and implementation services that have been performed, but for which the Company has not invoiced the customer, are recorded as unbilled receivables, and invoices that have been issued before the software license and implementation services have been performed are recorded as deferred revenue in the accompanying consolidated balance sheets. The Company generally invoices for maintenance and support services on a monthly or quarterly basis through the maintenance and support period.
Software development costs
Software development costs associated with new products and enhancements to existing software products are expensed as incurred until technological feasibility, in the form of a working model, has been established. To date, the time period between the establishment of technological feasibility and the completion of software development has been short, and no significant development costs have been incurred during this period. Accordingly, the Company has not capitalized any software development costs to date.
Stock options
In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Account Standard 123(R), Share-Based Payment , or SFAS 123(R). Under this standard, the fair value of each employee stock option is estimated on the date of grant using an options pricing model. The Company adopted FAS 123(R) effective January 1, 2006 using the prospective transition method.
F-9
Under this transition method, no compensation expense is recorded for employee stock options issued prior to the adoption of FAS 123(R).
The Company currently uses the Black-Scholes valuation model to estimate the fair value of its share-based payments. Share-based compensation expense recognized in the Company's financial statements starting on January 1, 2006 and thereafter is based on awards that are expected to vest. These amounts are reduced using an estimated forfeiture rate. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Prior to the adoption of SFAS 123(R), and as permitted by SFAS 123, Accounting for Stock-Based Compensation and SFAS 148, Accounting for Stock-Based Compensation Transition and Disclosure, the Company elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employee , or APB 25, in accounting for employee stock options and implemented the disclosure-only provisions of SFAS 123 and SFAS 148. Under APB 25, stock compensation expense was recorded when the exercise price of employee stock options was less than the fair value of the underlying stock on the date of grant.
The Company granted options to purchase 747,954, 442,500 and zero shares of the Company's common stock to employees during the years ended December 31, 2004, 2005 and 2006, respectively. The fair value of options granted during the years ended December 31, 2004 and 2005 was estimated using the minimum value method with the following assumptions: a risk-free interest rate of 4.35%; no expected dividend yield; and an expected life of five years. No volatility was used for the calculation of fair value of options pursuant to the minimum value method.
Upon exercise of stock options, shares of common stock will be issued from previously unissued shares but could be issued from treasury shares.
The following table presents the pro forma effect of net income and earnings per share as if we had applied the fair-value recognition to stock-based compensation prior to the adoption of SFAS No. 123(R):
F-10
The Company accounts for equity instruments issued to nonemployees in accordance with provisions of Emerging Issues Task Force No. 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services ("EITF 96-18"). Under EITF 98-18, stock option awards issued to non-employees are accounted for at the fair value using the Black-Scholes option-pricing model and are recorded using the straight-line method over the vesting period, which approximates the service period.
For further discussion of the Company's stock-based employee compensation plan, see Note 5 to the consolidated financial statements.
Product warranties
The Company generally issues warranties for 90 days from the completion of implementation, depending on the contract, for software licenses and implementation services. In the Company's experience, warranty costs have been insignificant.
Income taxes
The Company uses the asset and liability method to account for income taxes, including recognition of deferred tax assets and liabilities for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax basis. The Company reviews its deferred tax assets for recovery. A valuation allowance is established when the Company believes that it is more likely than not that some portion of its deferred tax assets will not be realized. Changes in the valuation allowance from period to period are included in the Company's tax provision in the period of change.
Reclassifications
Certain reclassifications have been made to the consolidated balance sheet as of December 31, 2005 to conform with the 2006 presentation, which had no effect on total assets, total liabilities, stockholders' equity, net income or cash flows.
Recent accounting pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 , or FIN 48. FIN 48 clarifies the accounting for uncertainties in income taxes recognized in an enterprise's financial statements. FIN 48 requires that the Company determine whether it is more likely than not that a tax position will be sustained upon examination by the appropriate taxing authority. If a tax position meets the "more likely than not" recognition criteria, FIN 48 requires the tax position be measured at the largest amount of benefit greater than 50% likely of being realized upon ultimate settlement. This accounting standard is effective for fiscal years beginning January 1, 2007. The Company does not believe the effect, if any, of adoption of FIN 48 will have a material effect on its financial position and results of operations.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Current Year Misstatements , or SAB 108. SAB 108 provides guidance on the approach that companies must follow in quantifying misstatements of their financial statements. SAB 108 requires analysis of misstatements using both an income statement (rollover) approach and a balance sheet (iron curtain) approach in assessing materiality and provides for a one-time cumulative effect transition adjustment. SAB 108 did not have a material effect on the Company's consolidated financial position, results of operations or cash flows.
F-11
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for the Company fiscal year beginning January 1, 2008. The Company is currently evaluating the impact of adopting SFAS No. 157.
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115 . This pronouncement permits entities to use the fair value method to measure certain financial assets and liabilities by electing an irrevocable option to use the fair value method at specified election dates. After election of the option, subsequent changes in fair value would result in the recognition of unrealized gains or losses as period costs during the period the change occurred. SFAS No. 159 becomes effective as of the beginning of the first fiscal year that begins after November 15, 2007, with early adoption permitted. However, entities may not retroactively apply the provisions of SFAS No. 159 to fiscal years preceding the date of adoption. The Company is currently evaluating the effect that SFAS No. 159 may have on its financial position, results of operations and cash flows.
2. Accounts receivable and contracts in progress
Accounts receivable at December 31, 2005 and 2006, consist of the following:
The bad debt expense reflected in selling, general and administrative expenses in the accompanying consolidated statements of income for the years ended December 31, 2004, 2005 and 2006, totaled approximately $182,000, $0 and $27,000, respectively.
Activity related to contracts in progress at December 31, 2005 and 2006, is summarized as follows:
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Year ended December 31
|
||||||
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2005
|
2006
|
|||||
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Costs & estimated earnings recognized to date | $ | 26,791,096 | $ | 49,072,064 | |||
Progress billings to date | (40,031,769 | ) | (73,476,542 | ) | |||
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|||||||
$ | (13,240,673 | ) | $ | (24,404,478 | ) | ||
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The foregoing table reflects the aggregate invoiced amount of all contracts in progress as of the respective dates, including amounts that have already been collected.
F-12
These amounts are included in the accompanying consolidated balance sheets at December 31, 2005 and 2006, as follows:
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|
December 31
|
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|
2005
|
2006
|
|||||
|
|||||||
Unbilled receivables | $ | 721,017 | $ | 1,807,216 | |||
Deferred revenue | (13,961,690 | ) | (26,211,694 | ) | |||
|
|||||||
$ | (13,240,673 | ) | $ | (24,404,478 | ) | ||
|
During the years ended December 31, 2005 and 2006, the Company had approximately $1,139,000 and $1,780,000, respectively, in deferred maintenance and support revenue, which is reflected within the above table.
3. Earnings per share
The following table sets forth the computation of basic and diluted earnings per share:
The Company has excluded 1,179,194, 654,400 and 108,150 potential common shares from the computation of 2004, 2005 and 2006 dilutive earnings per share, respectively, because the effect would have been antidilutive.
F-13
Property and equipment as of December 31, 2005 and 2006, consist of the following:
Depreciation and leasehold amortization expense was $1,582,982, $1,515,303 and $1,270,441 for the years ended December 31, 2004, 2005 and 2006, respectively. During the years ended December 31, 2005 and 2006, the Company disposed of approximately $1,918,000 and $411,000, respectively, of fully depreciated assets. As of December 31, 2005 and 2006, the Company had approximately $2,473,000 and $4,815,000, respectively, of fully depreciated assets in use.
5. Stockholders' equity
Preferred stock financing
On June 8, 1998 the Company entered into a stock purchase and stockholders agreement (the "Purchase Agreement") with certain investment partnerships and individuals. The Company sold 3,921,312 shares of its authorized Series A convertible redeemable preferred stock, par value $0.001 per share ("Series A Preferred Stock") for $25,000,000. The Company incurred approximately $1,500,000 in transaction fees connection with the financing. The Company also designated another 3,921,312 shares of its preferred stock to be issued as redeemable preferred stock ("Redeemable Preferred Stock") with a par value of $0.001 per share, upon the conversion of the Series A Preferred Stock.
Series A preferred stock
On August 15, 2005 ("Conversion Date"), the holders of the Series A Preferred Stock elected to convert the Series A Preferred Stock into 9,750,000 shares of common stock at a defined conversion rate of 2.486 per share plus 3,921,312 shares of Redeemable Preferred Stock. There were no shares of Series A Preferred Stock outstanding after this transaction, as all shares were cancelled upon the conversion.
Redeemable preferred stock
Holders of Redeemable Preferred Stock do not have general voting rights, except for the right to elect, as a separate class, two members to the board of directors and the right to consent or withhold consent to certain actions by the Company. The Redeemable Preferred Stock has cumulative, noncompounding dividend rights of $0.13388 per share per year. The cumulative dividends become due and payable upon liquidation or redemption of the Redeemable Preferred Stock.
F-14
As of December 31, 2006, the redemption amount for the Redeemable Preferred Stock was $17,283,168. The Redeemable Preferred Stock has a liquidation value of $4.463 per share plus accrued and unpaid dividends on the Redeemable Preferred Stock, plus accrued and unpaid dividends on the Series A Preferred Stock as of the Conversion Date. Included in the Redeemable Preferred Stock are cumulative unpaid dividends on the Series A Preferred Stock in the amount of $5,070,117, cumulative unpaid dividends on the Redeemable Preferred Stock in the amount of $484,130, and the liquidation value of remaining outstanding Redeemable Preferred Stock, in the amount of $11,728,921.
The Redeemable Preferred Stock is redeemable by the holders following a Qualified Public Offering, an Extraordinary Transaction as defined in the Certificate of Incorporation or if the holders elect to redeem by giving the Company not less than 10 days written notice according to the following schedule: up to 33% after one year from the Conversion Date, up to 66% of the then-outstanding shares after two years from the Conversion Date and up to 100% of the then outstanding shares after three years from the Conversion Date. Additionally, the Company can elect to redeem the Redeemable Preferred Stock upon a Qualified Public Offering or according to the following schedule: exactly 33% after one year from the Conversion Date, exactly 66% of the then outstanding shares after two years from the Conversion Date and exactly 100% of the then outstanding shares after three years from the Conversion Date.
In August 2006, the holders of the Redeemable Preferred Stock elected to redeem 33% of the Redeemable Preferred Stock and on August 15, 2006 a redemption payment of $8,445,472 was made, consisting of $5,775,000 representing the liquidation value of the surrendered shares, $173,250 of accreted dividends on the Redeemable Preferred Stock and $2,497,222 of accreted dividends on the Series A Preferred Stock.
The Company is accreting the Redeemable Preferred Stock to the redemption price as a deduction from retained earnings, to the extent available, and any remaining to additional paid-in-capital.
Common stock warrants
In December 1998, the Company granted warrants to purchase 100,000 shares of common stock (the "Warrants") to each of the Company's two founders. The Warrants have an 11-year term, vesting on January 21, 2009, and expiring on January 20, 2010. The Warrants fully vest upon a qualified public offering and have an exercise price of $2.05 per share. The Company has recorded the Warrants as a component of equity pursuant to Emerging Issues Task Force issue No. 00-19, Accounting for derivative financial instruments indexed to, and potentially settled in, a company's own stock, at their estimated fair value at the date of issuance, which is $226,000, in the accompanying financial statements.
Registration rights
Certain of the Company's stockholders are entitled to require registration for the sale of their shares if the Company becomes publicly traded. The Company would be required to bear all registration expenses if these rights are exercised, other than underwriting discounts and selling commissions.
Stock options
The Company maintains incentive stock option plans to provide long-term incentives to its key employees, officers, directors and consultants under which 2,387,688 shares of common stock were reserved for issuance. As of December 31, 2006, 431,742 shares remained available for grant. Options have a ten-year term and vest over terms of two, four, five or ten years.
F-15
The following is a summary of the Company's option activity for the years ended December 31, 2004, 2005 and 2006:
The following table summarizes information about stock options outstanding at December 31, 2006:
No stock options were granted to non-employees in 2005 or 2006. During 2004, compensation expense for the fair value of stock options granted to non-employees totaled $2,129.
6. Income taxes
As of December 31, 2006, the Company had approximately $675,000 of general business tax credit ("GBC") carryforwards arising from research and development activities. These GBC credits may be carried forward for a period of 20 years and are available as an offset against any future regular tax liability. The GBC carryforwards begin to expire in 2022.
As of December 31, 2006, the Company had approximately $185,000 of foreign tax credit ("FTC") carryforwards arising from foreign taxes paid. These FTC carryforwards may be carried forward for a
F-16
period of five years and are available as an offset against any future regular tax liability if there is sufficient foreign source income in the year of use. The foreign tax credits begin to expire in 2012.
The Company has recorded net deferred tax assets for the expected future consequences of temporary differences, including tax credit carryforwards. The level of future taxable income generation that would be required in order to realize the benefit of certain of the Company's tax credit carryforwards is substantially higher than its historical profitability. Therefore, a valuation allowance has been provided for certain of the Company's tax credit carryforwards that are not expected to be realized and the resulting effect on the rate at which the deferred tax items will be realized.
As of December 31, 2005 and 2006, the Company had income taxes payable of approximately $165,000 and $1,100,000, respectively, which are included in accrued liabilities in the accompanying consolidated balance sheets.
The provision for income taxes consisted of the following for the years ended December 31, 2004, 2005 and 2006:
The differences between the effective tax rate reflected in the total provision for income taxes and the U.S. federal statutory rate of 34% for the years ended December 31, 2004, 2005 and 2006, were as follows:
F-17
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2005 and 2006, are as follows:
The current net deferred tax asset and noncurrent net deferred tax asset are included in prepaids and other, and other assets, respectively, in the accompanying consolidated balance sheets.
7. Commitments and contingencies
Litigation
The Company may be subject to various legal proceedings arising in the ordinary course of business. Management does not believe the outcome of current legal actions will have a material adverse effect on the Company's financial position or results of operations.
Insurance
The Company is self-insured for a certain portion of annual healthcare costs. Management believes the Company's accrual for estimated potential claim costs to satisfy the self-insurance provisions of the insurance policies for claims occurring through December 31, 2006 is adequate. As of December 31, 2005 and 2006, the Company had recorded a self-insurance liability totaling approximately $285,000 and $391,000, respectively, which is included in accrued liabilities within the consolidated balance sheet.
Indemnification
The Company's software license agreements generally include certain provisions for indemnifying customers against liabilities if the Company's software products infringe a third party's intellectual property rights. To date, the Company has not incurred any losses as a result of such indemnifications and have not accrued any liabilities related to such obligations in the Company's consolidated financial statements.
F-18
Lease Agreements
The Company leases office space and office equipment under non-cancelable operating leases that expire at various dates through 2011. Total rent expense incurred during the years ended December 31, 2004, 2005 and 2006, was approximately $1,281,000, $1,281,000 and $1,080,000, respectively. Future minimum payments relating to non-cancelable operating lease agreements at December 31, 2006, are as follows:
|
|||
Year ending December 31
|
Operating leases
|
||
---|---|---|---|
|
|||
2007 | $ | 1,004,161 | |
2008 | 1,126,588 | ||
2009 | 1,184,925 | ||
2010 | 1,207,800 | ||
2011 | 704,550 | ||
|
|||
$ | 5,228,024 | ||
|
The Company had no capital leases at December 31, 2006. In 2006 the company renegotiated its office lease which expired in May 2006. The new lease expires on July 31, 2011.
8. Geographic information
The Company evaluates the performance of its geographic regions based on revenue only. The Company does not assess the performance of its geographic regions based upon income or expenses, such as depreciation and amortization, operating income or net income. In addition, as the Company's assets are primarily located in its corporate office in the United States and not allocated to any specific region, the Company does not produce reports for, or measure the performance of, its geographic regions based on any asset-based metrics. Therefore, geographic information is presented only for revenue. International sales for the years ended December 31, 2004, 2005 and 2006, amounted to approximately $17,017,651, $20,960,261 and $28,830,603, respectively, representing 52%, 60%, 63%, and respectively, of annual revenue.
The following geographic information is presented for the years ended December 31, 2004, 2005 and 2006:
F-19
9. Concentrations of credit risk
For the year ended December 31, 2006, no customer accounted for 10% or more of revenue. For the year ended December 31, 2005, the Company had one customer that accounted for 10.1% of revenue.
The Company's operations could be affected, either positively or negatively, due to the level of revenue derived from the airline industry. A significant portion of the Company's airline revenue is derived from maintenance and support revenue from over 40 different airlines.
The Company's short-term investments on deposit with any one party and at any point in time may exceed federally insured limits. To date, the Company has not incurred any losses in connection with short term investments.
10. Related-party transactions
The Company currently has employment agreements with its executive officers and three other members of management. The employment agreements provide for six months to one year of salary upon termination without cause or, in some cases, for good reason.
11. Employee retirement savings plan
The Company sponsors the PROS Holdings, Inc. 401(k) Plan. The 401(k) Plan is designed to provide eligible employees with an opportunity to make regular contributions to a long-term investment and savings program. All employees are eligible to participate in the 401(k) Plan following the completion of six consecutive months of service. The Company's matching contribution is defined as 50% of the first 6% of employee contributions. The Company may also make discretionary contributions. Matching and discretionary contributions by the Company in 2004, 2005 and 2005 totaled $375,537, $413,569 and $504,363, respectively.
12. Subsequent events (unaudited)
On March 29, 2007 the Company entered into a $28.0 million credit facility with a bank consisting of a $20.0 million term loan and $8.0 million line of credit. Interest is payable at a Eurodollar rate plus 2.75% or a base rate plus 1.5%, at the Company's option. The term loan requires repayment of principal of $50,000 plus interest every three months for five years, with all unpaid principal due on March 29, 2012. No amounts were drawn on the line of credit. The Company's term loan becomes due and payable upon the closing of the offering.
On March 29, 2007 the Company also redeemed its remaining outstanding redeemable preferred stock for approximately $17.4 million and paid a common stock dividend of $2.00 per share totaling $41.3 million.
F-20
Schedule II
Valuation and qualifying accounts
F-21
shares
Common Stock
Prospectus
JPMorgan | Deutsche Bank Securities | |
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Jefferies & Company |
Thomas Weisel Partners LLC |
Until , 2007 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is an 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 expenses, other than the underwriting discounts and commissions, payable by the Registrant in connection with the sale and distribution of the shares of common stock being registered hereby, including the shares being offered for sale by the selling stockholders. All amounts shown are estimates, except the Securities and Exchange Commission registration fee, the National Association of Securities Dealers, Inc. filing fee and the Nasdaq Global Market listing fee.
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, indemnity to directors and officers under certain circumstances and subject to certain limitations. The terms of Section 145 of the Delaware General Corporation Law are sufficiently broad to permit indemnification under certain circumstances for liabilities, including reimbursement of expenses incurred, arising under the Securities Act.
As permitted by the Delaware General Corporation Law, the Registrant's certificate of incorporation includes a provision that eliminates the personal liability of its directors for monetary damages for breach of fiduciary duty as a director, except for liability:
II-1
As permitted by the Delaware General Corporation Law, the Registrant's bylaws, which will become effective upon the closing of this offering, provide that:
In addition, the Registrant has entered into indemnity agreements with each of its current directors and officers. These agreements provide for the indemnification of the Registrant's officers and directors for all expenses and liabilities incurred in connection with any action or proceeding brought against them by reason of the fact that they are or were agents of the Registrant. At present, there is no pending litigation or proceeding involving a director, officer or employee of the Registrant regarding which indemnification is sought, nor is the Registrant aware of any threatened litigation that may result in claims for indemnification.
The Registrant obtained directors' and officers' insurance to cover its directors and officers for certain liabilities, including coverage for public securities matters.
The indemnification provisions in the Registrant's certificate of incorporation and bylaws and the indemnity agreements entered into between the Registrant and each of its directors and officers may be sufficiently broad to permit indemnification of the Registrant's directors and officers for liabilities arising under the Securities Act.
Reference is also made to section of the underwriting agreement (Exhibit hereto), which provides for the indemnification by the underwriters of the Registrant and its executive officers, directors and controlling persons against certain liabilities, including liabilities arising under the Securities Act, in connection with matters specifically provided for in writing by the underwriters for inclusion in this Registration Statement.
See also the undertakings set out in response to Item 17.
Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:
II-2
Item 15. Recent sales of unregistered securities
From time to time we have granted stock options to employees, directors and consultants in compliance with Rule 701. The following table sets forth information regarding these grants:
The sales and issuances of securities listed in the table above were deemed to be exempt from registration under the Securities Act by virtue of Rule 701 promulgated under Section 3(b) of the Securities Act as transactions pursuant to compensation benefits plans and contracts relating to compensation. All of the foregoing securities are deemed restricted securities for the purposes of the Securities Act.
Item 16. Exhibits and financial statement schedules
II-3
10.4.1 |
|
Amendment to Stock Purchase and Stockholders Agreement dated March 26, 2007 by and among Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and certain stockholders |
10.5 |
|
Amended and Restated Stockholders' Agreement, dated June 8, 1998, by and among Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and certain stockholders |
10.5.1 |
|
First Amendment to Amended and Restated Stockholders' Agreement, dated April 8, 1999, by and among Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and certain stockholders |
10.6 |
|
Registration Rights Agreement, dated May 25, 1999, by and between Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and David Samuel Coats |
10.7 |
|
Registration Rights Agreement, dated April 13, 2000, by and between Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and Robert Salter |
10.8* |
|
Registration Rights Agreement, dated , 2007, by and among Registrant, Mariette M. Woestemeyer and Ronald F. Woestemeyer |
10.9 |
|
Redemption Agreement, dated March 26, 2007, by and among Registrant and the holders of the Company's redeemable preferred stock. |
10.10 |
|
Office Lease, dated January 31, 2001, by and between PROS Revenue Management L.P. and Houston Community College System |
10.10.1 |
|
First Amendment to Office Lease, dated May 31, 2006, by and between PROS Revenue Management L.P. and Houston Community College System |
10.11 |
|
Employment Agreement, dated September 30, 2005, by and between PROS Revenue Management L.P. and Albert Winemiller |
10.12 |
|
Employment Agreement, dated September 30, 2005, by and between PROS Revenue Management L.P. and Charles Murphy |
10.12.1 |
|
Immediately Exercisable Incentive Stock Option Grant, dated September 30, 2005, by and between Registrant and Charles Murphy |
10.13 |
|
Employment Agreement, dated January 15, 1999, by and between PROS Revenue Management L.P. and Ronald Woestemeyer |
10.13.1 |
|
Amendment No. 1 to Employment Agreement, dated February 2, 2004, by and between PROS Revenue Management L.P. and Ronald Woestemeyer |
10.14 |
|
Revolving Credit and Term Loan Agreement, dated March 23, 2007, by and among PROS Revenue Management, L.P., Registrant, PROS Revenue I, LLC, PROS Revenue II, LLC, certain lenders, certain issuers of the letter of credit and Churchill Financial LLC, as administrative agent and collateral agent for the Lenders and the L/C Issuers |
10.15 |
|
Guaranty, Pledge and Security Agreement, dated March 23, 2007, by and among Registrant, certain grantors from time to time and Churchill Financial LLC |
10.16* |
|
Form of Indemnification Agreement entered into among Registrant, its affiliates and its directors and officers |
21.1 |
|
List of Subsidiaries |
II-4
23.1 |
|
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm |
23.2* |
|
Consent of DLA Piper US LLP (included in Exhibit 5.1) |
24.1 |
|
Power of Attorney (See page II-8 of this Registration Statement) |
|
All schedules have been omitted because the information required to be presented in them are not applicable or is shown in the financial statements or related notes.
II-5
Item 17. Undertakings
The undersigned hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements, certificates, in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the DGCL, our Certificate of Incorporation or our Bylaws, the underwriting agreement or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
We hereby undertake that:
II-6
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 Houston, Texas, on April 4, 2007.
PROS Holdings, Inc. | ||||
|
|
By: |
|
/s/ ALBERT E. WINEMILLER Albert E. Winemiller President and Chief Executive Officer |
II-7
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Albert E. Winemiller and Charles H. Murphy, 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, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, making such changes in this Registration Statement as such attorneys-in-fact and agents so acting deems appropriate, 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 with respect to the offering of securities contemplated by this Registration Statement, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or 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:
Name
|
Title
|
Date
|
||
---|---|---|---|---|
/s/ ALBERT E. WINEMILLER Albert E. Winemiller |
|
Chairman, President and Chief Executive Officer (principal executive officer) |
|
April 4, 2007 |
/s/ CHARLES H. MURPHY Charles H. Murphy |
|
Executive Vice President and Chief Financial Officer (principal financial and accounting officer) |
|
April 4, 2007 |
/s/ KURT R. JAGGERS Kurt R. Jaggers |
|
Director |
|
April 4, 2007 |
/s/ HARRY S. GRUNER Harry S. Gruner |
|
Director |
|
April 4, 2007 |
/s/ MARIETTE M. WOESTEMEYER Mariette M. Woestemeyer |
|
Director |
|
April 4, 2007 |
/s/ RONALD F. WOESTEMEYER Ronald F. Woestemeyer |
|
Director |
|
April 4, 2007 |
II-8
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||
|
Index to exhibits
|
|
---|---|---|
|
||
1.1* | Form of Underwriting Agreement by and among Registrant and the Underwriters | |
3.1 |
|
Certificate of Incorporation currently in effect |
3.1.1* |
|
Amended and Restated Certificate of Incorporation, to be effective upon the closing of this offering |
3.2 |
|
Bylaws currently in effect |
3.2.1* |
|
Amended and Restated Bylaws, to be effective upon the closing of this offering |
4.1* |
|
Specimen certificate for shares of common stock |
5.1* |
|
Opinion of DLA Piper US LLP |
10.1 |
|
1997 Stock Option Plan, as amended to date, and form of stock option agreement |
10.2 |
|
1999 Equity Incentive Plan, as amended to date, and form of stock option agreement |
10.3* |
|
2007 Equity Incentive Plan and form of stock option agreement |
10.4 |
|
Stock Purchase and Stockholders Agreement, dated June 8, 1998, by and among Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and certain stockholders |
10.4.1 |
|
Amendment to Stock Purchase and Stockholders Agreement dated March 26, 2007 by and among Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and certain stockholders |
10.5 |
|
Amended and Restated Stockholders' Agreement, dated June 8, 1998, by and among Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and certain stockholders |
10.5.1 |
|
First Amendment to Amended and Restated Stockholders' Agreement, dated April 8, 1999, by and among Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and certain stockholders |
10.6 |
|
Registration Rights Agreement, dated May 25, 1999, by and between Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and David Samuel Coats |
10.7 |
|
Registration Rights Agreement, dated April 13, 2000, by and between Registrant (as successor in interest to PROS Strategic Solutions, Inc.) and Robert Salter |
10.8* |
|
Registration Rights Agreement, dated , 2007, by and among Registrant, Mariette M. Woestemeyer and Ronald F. Woestemeyer |
10.9 |
|
Redemption Agreement, dated March 26, 2007, by and among Registrant and the holders of the Company's redeemable preferred stock. |
10.10 |
|
Office Lease, dated January 31, 2001, by and between PROS Revenue Management L.P. and Houston Community College System |
10.10.1 |
|
First Amendment to Office Lease, dated May 31, 2006, by and between PROS Revenue Management L.P. and Houston Community College System |
10.11 |
|
Employment Agreement, dated September 30, 2005, by and between PROS Revenue Management L.P. and Albert Winemiller |
10.12 |
|
Employment Agreement, dated September 30, 2005, by and between PROS Revenue Management L.P. and Charles Murphy |
10.12.1 |
|
Immediately Exercisable Incentive Stock Option Grant, dated September 30, 2005, by and between Registrant and Charles Murphy |
10.13 |
|
Employment Agreement, dated January 15, 1999, by and between PROS Revenue Management L.P. and Ronald Woestemeyer |
10.13.1 |
|
Amendment No. 1 to Employment Agreement, dated February 2, 2004, by and between PROS Revenue Management L.P. and Ronald Woestemeyer |
10.14 |
|
Revolving Credit and Term Loan Agreement, dated March 23, 2007, by and among PROS Revenue Management, L.P., Registrant, PROS Revenue I, LLC, PROS Revenue II, LLC, certain lenders, certain issuers of the letter of credit and Churchill Financial LLC, as administrative agent and collateral agent for the Lenders and the L/C Issuers |
10.15 |
|
Guaranty, Pledge and Security Agreement, dated March 23, 2007, by and among Registrant, certain grantors from time to time and Churchill Financial LLC |
10.16* |
|
Form of Indemnification Agreement entered into among Registrant, its affiliates and its directors and officers |
21.1 |
|
List of Subsidiaries |
23.1 |
|
Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm |
23.2* |
|
Consent of DLA Piper US LLP (included in Exhibit 5.1) |
24.1 |
|
Power of Attorney (See page II-8 of this Registration Statement) |
|
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
PROS HOLDINGS, INC.
I, the undersigned, for the purposes of incorporating and organizing a corporation under the General Corporate Law of the State of Delaware, do execute this Certificate of Incorporation and do hereby CERTIFY AS FOLLOWS:
The name of the Corporation is PROS Holdings, Inc. (the " Corporation ").
The address of the Corporation's registered office in the State of Delaware is 2711 Centreville Road, Suite 400, in the City of Wilmington, County of New Castle. The name of the Corporation's registered agent at such address is the Corporation Service Company.
The nature of the business and purpose to be conducted or promoted by the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
The total number of shares of capital stock of all classes which the Corporation shall have authority to issue is 35,842,624 shares of which (a) 7,842,624 shares shall be preferred stock, par value $.001 per share (" Preferred Stock "), and (b) 28,000,000 shares shall be common stock, par value $.001 per share (" Common Stock ").
Except as otherwise restricted by this Certificate of Incorporation, the Corporation is authorized to issue, from time to time, all or any portion of the capital stock of the Corporation which may have been authorized but not issued, to such person or persons and for such lawful consideration as it may deem appropriate, and generally in its absolute discretion to determine the terms and manner of any disposition of such authorized but unissued capital stock.
Any and all such shares issued for which the full consideration has been paid or delivered shall be deemed fully paid shares of capital stock, and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon.
The designations and the powers, preferences and rights, and the qualifications, limitations or restrictions of the shares of each class of stock are as follows:
Preferred Stock may be issued from time to time by the Board of Directors as shares of one or more series. Subject to the provisions hereof and the limitations prescribed by law, the Board of Directors is hereby vested with the authority and is expressly authorized, prior to issuance, by adopting resolutions providing for the issuance of, or providing for a change in the number of, shares of any particular series and, if and to the extent from time to time required by law, by filing a certificate pursuant to the General Corporation Law (or other law hereafter in effect relating to the same or substantially similar subject matter), to establish or change the number of shares to be included in each such series and to fix the designation and relative powers, preferences and rights and the qualifications and limitations or restrictions thereof relating to the shares of each such series. The vested authority of the Board of Directors with respect to each series shall include, but not be limited to, the determination of the following:
(a) the distinctive serial designation of such series and the number of shares constituting such series (provided that the aggregate number of shares constituting all series of Preferred Stock shall not exceed 7,842,624 shares);
(b) the annual dividend rate, if any, on shares of such series and the preferences, if any, over any other series (or of any other series over such series) with respect to dividends, and whether dividends shall be cumulative and, if so, from which date or dates;
(c) whether the shares of such series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon and after which such shares shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates;
(d) the obligation, if any, of the Corporation to purchase or redeem shares of such series pursuant to a sinking fund or purchase fund and, if so, the terms of such obligation;
(e) whether shares of such series shall be convertible into, or exchangeable for, shares of stock of any other class or classes or any stock of any series of the same class or any other class or classes or any evidences of indebtedness and, if so, the terms and conditions of such conversion or exchange, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any;
(f) whether the shares of such series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights, including, without limitation, whether such shares shall have the right to vote with the Common Stock on issues on an equal, greater or lesser basis;
(g) the rights of the shares of such series in the event of a voluntary or involuntary liquidation, dissolution, winding up or distribution of assets of the Corporation;
(h) whether the shares of such series shall be entitled to the benefit of conditions and restrictions upon (i) the creation of indebtedness of the Corporation or any subsidiary, (ii) the issuance of any additional stock (including additional shares of such series or of any other series) or (iii) the payment of dividends or the making of other distributions on the purchase, redemption or other acquisition by the Corporation or any subsidiary of any outstanding stock of the Corporation; and
(i) any other relative rights, powers, preferences, qualifications, limitations or restrictions thereof relating to any such series.
2
Except where otherwise set forth in the resolution or resolutions adopted by the Board of Directors providing for the issuance of any series of Preferred Stock, the number of shares comprising such series may be increased (but not above the total number of authorized shares of the class) or decreased (but not below the number of shares then outstanding) from time to time by like action of the Board of Directors. The shares of Preferred Stock of any one series shall be identical with the other shares in such series in all respects except as to the dates from and after which dividends thereon shall cumulate, if cumulative.
Shares of any series of Preferred Stock which have been redeemed (whether through the operation of a sinking fund or otherwise) or purchased by the Corporation, or which, if convertible or exchangeable, have been converted into or exchanged for shares of stock of any other class or classes shall have the status of authorized and unissued shares of Preferred Stock and may be reissued as a part of the series of which they were originally a part or may be reclassified and reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors or as part of any other series of Preferred Stock, all subject to the conditions or restrictions on issuance set forth in the resolution or resolutions adopted by the Board of Directors providing for the issuance of any series of Preferred Stock and to any filing required by law.
Subject to the rights of any outstanding shares of any series of Preferred Stock, this Certificate of Incorporation may be amended from time to time in a manner that would solely modify or change the relative powers, preferences and rights and the qualifications and limitations or restrictions of any issued shares of any series of Preferred Stock then outstanding with the only required vote or consent for approval of such amendment being the affirmative vote or consent of the holders of a majority of the outstanding shares of the series of Preferred Stock so affected provided that the powers, preferences and rights and the qualification and limitations or restrictions of such series after giving effect to such amendment are no greater than the powers, preferences and rights and the qualifications and limitations or restrictions permitted to be fixed and determined by the Board of Directors with respect to the establishment of any new series of shares of Preferred Stock pursuant to the authority vested in the Board of Directors by this Article IV. Approval of any such amendment by the holders of the Common Stock shall not be required and any such amendment shall be deemed not to have affected the holders of the Common Stock adversely.
Subject to the rights of any outstanding shares of any series of Preferred Stock, the number of authorized shares of Preferred Stock may be increased or decreased by the affirmative vote of the holders of a majority of the stock of the Corporation entitled to vote without the separate vote of holders of Preferred Stock as a class.
A.
SERIES A CONVERTIBLE REDEEMABLE PREFERRED STOCK
1. Designation . A total of three million nine hundred twenty-one thousand three hundred and twelve (3,921,312) shares of the Corporation's Preferred Stock shall be designated as Series A Convertible Redeemable Preferred Stock, $.001 par value per share (the " Convertible Preferred Stock ").
3
2. Election of Directors; Voting .
(a) Election of Directors . The holders of outstanding shares of Convertible Preferred Stock shall, voting together as a separate class, be entitled to elect two (2) Directors of the Corporation. Such Directors shall be the candidates receiving the highest number of affirmative votes (with each holder of Convertible Preferred Stock entitled to cast one vote for or against each candidate with respect to each share of Convertible Preferred Stock held by such holder) of the outstanding shares of Convertible Preferred Stock (the " Convertible Preferred Stock Director Designees "), with votes cast against such candidates and votes withheld having no legal effect. The election of the Convertible Preferred Stock Director Designees by the holders of the Convertible Preferred Stock shall occur (i) at the annual meeting of holders of capital stock, (ii) at any special meeting of holders of capital stock, (iii) at any special meeting of holders of Convertible Preferred Stock called by holders of a majority of the outstanding shares of Convertible Preferred Stock or (iv) by the unanimous written consent of holders of the outstanding shares of Convertible Preferred Stock. If at any time when any share of Convertible Preferred Stock is outstanding either of the Convertible Preferred Stock Director Designees should cease to be a Director for any reason, the vacancy or vacancies shall only be filled by the vote or written consent of the holders of the outstanding shares of Convertible Preferred Stock, voting together as a separate class, in the manner and on the basis specified above. The holders of outstanding shares of Convertible Preferred Stock shall also be entitled to vote for all other Directors of the Corporation together with holders of all other shares of the Corporation's outstanding capital stock entitled to vote thereon, voting as a single class, with each outstanding share entitled to the same number of votes specified in Section A.2(b).
(b) Voting Generally . The holder of each share of Convertible Preferred Stock shall be entitled to the number of votes equal to the largest number of full shares of Common Stock into which each share of Convertible Preferred Stock could be converted pursuant to Section A.6 hereof on the record date for the vote or for written consent of stockholders, if applicable, multiplied by the number of shares of Convertible Preferred Stock held of record by such holder on such date. The holder of each share of Convertible Preferred Stock shall be entitled to notice of any stockholders' meeting in accordance with the by-laws of the Corporation and shall vote with holders of the Common Stock, voting together as single class, upon all matters submitted to a vote of stockholders excluding those matters required to be submitted to a class or series vote pursuant to the terms hereof (including without limitation Section A.8) or by law. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares of Common Stock into which shares of Convertible Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half rounded upward to one).
3. Dividends . The holders of Convertible Preferred Stock shall be entitled to receive, out of funds legally available therefor, cumulative (non-compounding) dividends on the Convertible Preferred Stock in cash, at the rate per annum of four and two-tenths percent (4.2%) of the Convertible Base Liquidation Preference Amount (as defined in Section A.4 below), or $0.26777 per share of Convertible Preferred Stock as of June 8, 1998 (the " Convertible Cumulative Dividend "). Such dividends will accumulate commencing as of the date of issuance of the Convertible Preferred Stock and shall be cumulative, to the extent unpaid, whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Convertible Cumulative Dividends shall become due and payable with respect to any share of Convertible Preferred Stock as provided in Sections A.4, A.5, A.6, B.4 and B.5. So long as any shares
4
of Convertible Preferred Stock are outstanding and the Convertible Cumulative Dividends have not been paid in full in cash: (a) no dividend whatsoever shall be paid or declared, and no distribution; except as permitted in Section A.8(e), shall be made, on any capital stock of the Corporation ranking junior to the Convertible Preferred Stock; and, (b) except as permitted by Sections A.8(c)(ii), (iii), and (iv), no shares of capital stock of the Corporation ranking junior to the Convertible Preferred Stock shall be purchased, redeemed or acquired by the Corporation and no monies shall be paid into or set aside or made available for a sinking fund for the purchase, redemption or acquisition thereof. All numbers relating to the calculation of dividends pursuant to this Section A.3 shall be subject to equitable adjustment in the event of any stock split, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the Convertible Preferred Stock.
4. Liquidation .
(a) Liquidation Preference . Upon any liquidation, dissolution or winding up of the Corporation and its subsidiaries, whether voluntary or involuntary (a " Liquidation Event ") or Extraordinary Transaction (as defined in Section A.9(a) below), each holder of outstanding shares of Convertible Preferred Stock shall be entitled to be paid first out of the assets of the Corporation available for distribution to stockholders, whether such assets are capital, surplus or earnings, and before any amount shall be paid or distributed to the holders of Common Stock or of any other stock ranking on liquidation junior to the Convertible Preferred Stock, an amount in cash equal to (i) $6.37542 per share of Convertible Preferred Stock held by such holder (adjusted appropriately for stock splits, stock dividends, recapitalizations and the like with respect to the Convertible Preferred Stock) (the " Convertible Base Liquidation Preference Amount "), plus (ii) any accumulated but unpaid dividends to which such holder of outstanding shares of Convertible Preferred Stock is then entitled pursuant to Sections A.3 and A.5(d) hereof, plus (iii) any interest accrued pursuant to Section A.5(c) to which such holder of Convertible Preferred Stock is entitled (collectively, the " Convertible Preferred Liquidation Preference Amount "), and thereafter shall share ratably with the holders of Common Stock and any other stock ranking on liquidation junior to the Convertible Preferred Stock in the assets available for distribution, with such distributions to be made as if each share of Convertible Preferred Stock had been converted into the number of shares of Common Stock issuable upon the conversion of such holder's shares of Convertible Preferred Stock immediately prior to any such Liquidation Event or Extraordinary Transaction; provided , however , that if, upon any Liquidation Event or Extraordinary Transaction, the amounts payable with respect to the Convertible Preferred Stock are not paid in full, the holders of the Convertible Preferred Stock shall share ratably any distribution of assets in proportion to the full preferential amounts to which they are entitled. The provisions of this Section A.4 shall not in any way limit the right of the holders of Convertible Preferred Stock to elect to convert their shares of Convertible Preferred Stock into Redeemable Preferred Stock and Common Stock pursuant to Section A.6 prior to or in connection with any Liquidation Event or Extraordinary Transaction.
(b) Notice . Prior to the occurrence of any Liquidation Event or Extraordinary Transaction, the Corporation will furnish each holder of Convertible Preferred Stock notice in accordance with Section A.9 hereof, together with a certificate prepared by the chief financial officer of the Corporation describing in detail the facts of such Liquidation Event or Extraordinary Transaction, stating in detail the amount(s) per share of Convertible Preferred Stock each holder of Convertible Preferred Stock would receive pursuant to the provisions of Section A.4(a) hereof and stating in detail the facts upon which such amount was determined.
5
5. Redemption .
(a) Redemption Events .
(i) The holder or holders of not less than fifty percent (50%) in voting power of the outstanding Convertible Preferred Stock may require the Corporation to redeem the outstanding Convertible Preferred Stock in three equal installments with the first such installment for thirty-three and one-third percent (33 1 / 3 %) of the then outstanding shares of Convertible Preferred Stock being due and payable on June 8, 2004, the second such installment for fifty percent (50%) of the then outstanding shares of Convertible Preferred Stock being due and payable on June 8, 2005, and the third and final such installment for all remaining outstanding shares of Convertible Preferred Stock being due and payable on June 8, 2006.
(ii) Notice . An election pursuant to subparagraph (i) of this Section A.5(a) shall be made by such holders giving the Corporation and each other holder of Convertible Preferred Stock not less than fifteen (15) days prior written notice, which notice shall set forth the date for such redemption.
(b) Redemption Date; Redemption Price . Upon the election of the holders of not less than fifty percent (50%) of the voting power of the outstanding Convertible Preferred Stock to cause the Corporation to redeem the Convertible Preferred Stock pursuant to Section A.5(a)(i), all holders of Convertible Preferred Stock shall be deemed to have elected to cause the Convertible Preferred Stock to be so redeemed. Any date upon which a redemption shall occur in accordance with Section A.5(a) shall be referred to as a " Convertible Preferred Redemption Date ." The redemption price for each share of Convertible Preferred Stock redeemed pursuant to Section A.5 shall be an amount in cash equal to (i) the Convertible Base Liquidation Preference Amount plus (ii) any accumulated but unpaid dividends on such share of Convertible Preferred Stock pursuant to Sections A.3 and A.5(d) hereof, plus (iii) any interest accrued with respect to such share of Convertible Preferred Stock pursuant to Section A.5(c) to which such holder of Convertible Preferred Stock is entitled (collectively, the " Convertible Preferred Redemption Price "). The aggregate Convertible Preferred Redemption Price shall be payable in cash in immediately available funds to the respective holders of the Convertible Preferred Stock on the Convertible Preferred Redemption Date , subject to Section A.5(c). Until the full Convertible Preferred Redemption Price has been paid to such holders for all shares of Convertible Preferred Stock being redeemed: (A) no dividend whatsoever shall be paid or declared, and no distribution shall be made, on any capital stock of the Corporation (other than the Convertible Preferred Stock in accordance with Section A.5(d)); and (B) no shares of capital stock of the Corporation (other than the Convertible Preferred Stock in accordance with this Section A.5) shall be purchased, redeemed or acquired by the Corporation and no monies shall be paid into or made available for a sinking fund or set aside or made available for the purchase, redemption or acquisition thereof.
(c) Redemption Prohibited . If, at a Convertible Preferred Redemption Date, the Corporation is prohibited under the General Corporation Law of the State of Delaware from redeeming all shares of Convertible Preferred Stock for which redemption is required hereunder, then it shall redeem such shares on a pro-rata basis among the holders of Convertible Preferred Stock in proportion to the full respective redemption amounts to which they are entitled hereunder to the extent possible and shall redeem the remaining shares to be redeemed as soon as the Corporation is not prohibited from redeeming some or all of such shares under the General Corporation Law of the State of Delaware, subject to the last paragraph of Section A.8. The shares of Convertible Preferred Stock not redeemed shall remain outstanding and entitled to all of the rights and preferences provided in this Certificate. In the event that the Corporation fails to redeem shares for which redemption is required pursuant to this Section A.5, then during the period from the
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applicable Convertible Preferred Redemption Date through the date on which such shares are redeemed, the applicable Convertible Preferred Redemption Price of such shares shall bear interest at the per annum rate of the greater of (i) 12% or (ii) 5% over the Citibank prime rate published in the Wall Street Journal on such Convertible Preferred Redemption Date, compounded annually; provided , however , that in no event shall such interest exceed the maximum permitted rate of interest under applicable law (the " Maximum Permitted Rate "). In the event that fulfillment of any provision hereof results in such rate of interest being in excess of the Maximum Permitted Rate, the obligation to be fulfilled shall automatically be reduced to eliminate such excess; provided , however , that any subsequent increase in the Maximum Permitted Rate shall be retroactively effective to the applicable Convertible Preferred Redemption Date.
(d) Dividend After Convertible Preferred Redemption Date. From and after a Convertible Preferred Redemption Date, no shares of Convertible Preferred Stock subject to redemption shall be entitled to dividends, if any, as contemplated by Section A.3; provided , however , that in the event that shares of Convertible Preferred Stock are unable to be redeemed and continue to be outstanding in accordance with Section A.5(c), such shares shall continue to be entitled to dividends and interest thereon as provided in Sections A.3 and A.5(c) until the date on which such shares are actually redeemed by the Corporation.
(e) Surrender of Certificates . Upon receipt of the applicable Convertible Preferred Redemption Price by certified check or wire transfer, each holder of shares of Convertible Preferred Stock to be redeemed shall surrender the certificate or certificates representing such shares to the Corporation, duly assigned or endorsed for transfer (or accompanied by duly executed stock powers relating thereto), or, in the event the certificate or certificates are lost, stolen or missing, shall deliver an affidavit or agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection therewith (an " Affidavit of Loss ") with respect to such certificates at the principal executive office of the Corporation or the office of the transfer agent for the Convertible Preferred Stock or such office or offices in the continental United States of an agent for redemption as may from time to time be designated by notice to the holders of Convertible Preferred Stock, and each surrendered certificate shall be cancelled and retired; provided , however , that if the holder has exercised its redemption right pursuant to Section A.5(a)(i) or the Corporation is prohibited from redeeming all shares of Convertible Preferred Stock as provided in Section A.5(c), the holder shall not be required to surrender said certificate(s) to the Corporation until said holder has received a new stock certificate for those shares of Convertible Preferred Stock not so redeemed.
6. Conversion . The holders of the Convertible Preferred Stock shall have the following conversion rights:
(a) Voluntary Conversion . The holders of shares of Convertible Preferred Stock shall be entitled at any time, upon the written election of the holder or holders of not less than sixty-six and two-thirds percent (66 2 / 3 %) in voting power of the outstanding shares of Convertible Preferred Stock, without the payment of any additional consideration, to cause each (but not less than all) of the outstanding shares of Convertible Preferred Stock to be converted into (i) the number of fully paid and nonassessable shares of Common Stock (as hereinafter defined) which results from dividing the Conversion Price (as defined in this Section A.6(a)) per share in effect for the Convertible Preferred Stock at the time of conversion into the per share Conversion Value (as defined in this Section A.6(a)) of the Convertible Preferred Stock and (ii) one (1) fully paid and non-assessable share of Redeemable Preferred Stock per share of Convertible Preferred Stock. Upon the election to so convert in the manner and on the basis specified in the preceding sentence, all holders of the Convertible Preferred Stock shall be deemed to have elected to voluntarily convert all outstanding shares of Convertible Preferred Stock pursuant to this Section A.6. Upon the filing of this Certificate with the Delaware Secretary of State, the
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" Conversion Price " for each share of Convertible Preferred Stock shall be $2.564103, and the " Conversion Value " for each share of Convertible Preferred Stock shall be $6.37542. The Conversion Price per share of Convertible Preferred Stock shall be subject to adjustment from time to time as provided in Section A.7 hereof. The number of shares of Common Stock into which a share of Convertible Preferred Stock is convertible is hereinafter referred to as the " Common Stock Conversion Rate ." The number of shares of Redeemable Preferred Stock into which a share of Convertible Preferred Stock is convertible is hereinafter referred to as the " Redeemable Conversion Rate ." If the holders of shares of Convertible Preferred Stock elect to convert the outstanding shares of Convertible Preferred Stock at a time when there are any accumulated but unpaid dividends or other amounts due on or in respect of such shares, such dividends and other amounts shall become part of the Redeemable Liquidation Preference Amount, and shall become payable and shall be paid in full upon a Liquidation Event (as set forth in Section B.4) or redemption of the Redeemable Preferred Stock (as set forth in Section B.5).
(b) Automatic Conversion Upon QPO . Each share of Convertible Preferred Stock shall automatically be converted, without the payment of any additional consideration (except as set forth in the final paragraph of this Section A.6(b)), into shares of Common Stock and Redeemable Preferred Stock as of, and in all cases subject to, the closing of the Corporation's first QPO (as defined below in this Section A.6(b)); provided that if a closing of a QPO occurs, all outstanding shares of Convertible Preferred Stock shall be deemed to have been converted into shares of Common Stock and Redeemable Preferred Stock as provided herein immediately prior to such closing. Any such conversion shall be at the Common Stock Conversion Rate and Redeemable Conversion Rate in effect upon the closing of the QPO, as provided in Section A.6(a). " QPO " and " Qualified Public Offering " mean a firm commitment public offering pursuant to an effective registration statement under Securities Act of 1933, as amended, provided that (i) such registration statement covers the offer and sale of Common Stock of which the aggregate net proceeds after deducting underwriting discounts and commissions attributable to sales for the account of the Corporation exceed $20,000,000 at a per share price to public (as set forth in the final prospectus in connection with such public offering) (the " Price to Public ") equal to at least three (3) times the Conversion Price, and (ii) either all shares of Redeemable Preferred Stock which are outstanding or issuable upon such automatic conversion are redeemed immediately upon and as of the closing of such offering or contemporaneously with such offering for cash or, as provided in Section B.5(a), cash and Redemption Notes in an amount sufficient to redeem all such shares of Redeemable Preferred Stock are segregated and irrevocably held by the Corporation for payment to holders of Redeemable Preferred Stock or are issued and delivered to the holders of shares of Redeemable Preferred Stock, as applicable, in connection with the redemption thereof pursuant to Section B.5(a)(i).
If the holders of shares of Convertible Preferred Stock are required to convert the outstanding shares of Convertible Preferred Stock pursuant to this Section A.6(b) at a time when there are any accumulated but unpaid dividends or other amounts due on or in respect of such shares, such dividends and other amounts shall be paid in full in cash by the Corporation in connection with such conversion.
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(c) Procedure for Voluntary Conversion; Effective Date . Upon election to convert pursuant to Section A.6(a), each holder of Convertible Preferred Stock (i) shall provide written notice of conversion (the " Voluntary Conversion Notice ") to the Corporation and (ii) shall surrender the certificate or certificates representing its Convertible Preferred Stock, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), at the principal executive office of the Corporation or the offices of the transfer agent for the Convertible Preferred Stock or such office or offices in the continental United States of an agent for conversion as may from time to time be designated by notice to the holders of the Convertible Preferred Stock by the Corporation, or shall deliver an Affidavit of Loss with respect to such certificates. The Voluntary Conversion Notice shall specify (i) the number of shares of Convertible Preferred Stock held by such holder, (ii) the name or names in which such holder wishes the certificate or certificates for Common Stock and Redeemable Preferred Stock to be issued upon such conversion and (iii) the address to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion. The issuance by the Corporation of shares of Common Stock and Redeemable Preferred Stock upon a conversion of Convertible Preferred Stock pursuant to Section A.6(a) hereof shall be effective as of the surrender of the certificate or certificates for the Convertible Preferred Stock to be converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), or as of the delivery of an Affidavit of Loss and regardless of such effectiveness with respect to any particular shares of Convertible Preferred Stock, during the time that shares of Convertible Preferred Stock are being converted pursuant to the procedure set forth in this Section A.6(c), the outstanding shares of Convertible Preferred Stock shall be treated for all purposes as converted into shares of Redeemable Preferred Stock and Common Stock. Upon surrender of a certificate representing Convertible Preferred Stock for conversion, or delivery of an Affidavit of Loss, the Corporation shall issue and send by hand delivery, by courier or by first class mail (postage prepaid) to the holder thereof or to such holder's designee, at the address designated by such holder, certificates for the number of shares of Common Stock and Redeemable Preferred Stock to which such holder shall be entitled upon conversion. The issuance of certificates for Common Stock and Redeemable Preferred Stock upon conversion of Convertible Preferred Stock will be made without charge to the holders of such shares for any issuance tax in respect thereof or other costs incurred by the Corporation in connection with such conversion and the related issuance of such stock. Notwithstanding anything to the contrary set forth in this Section A.6(c), in the event that the holders of shares of Convertible Preferred Stock elect to convert such shares pursuant to Section A.6(a) in connection with any Liquidation Event, Extraordinary Transaction or initial public offering not constituting a QPO, then (i) the Voluntary Conversion Notice shall be delivered to the Corporation prior to the effective date of or record date for (as applicable) such Liquidation Event, Extraordinary Transaction or initial public offering and such Voluntary Conversion Notice shall be effective as of, and shall in all cases be subject to, the occurrence of such Liquidation Event or closing of such Extraordinary Transaction or initial public offering and (ii) if such Liquidation Event, Extraordinary Transaction or initial public offering occurs, all outstanding shares of Convertible Preferred Stock shall be deemed to have been converted into shares of Common Stock and Redeemable Preferred Stock immediately prior thereto, provided that the Corporation shall make appropriate provisions (x) for the Common Stock issued upon such conversion to be treated on the same basis as all other Common Stock in such Liquidation Event, Extraordinary Transaction or initial public offering; provided further that the foregoing shall not be construed to provide or require the registration of any shares of Common Stock for sale and (y) for the payment of the Redeemable Liquidation Preference Amount (as defined in Section B.4) in connection with any Liquidation Event or the redemption of the Redeemable Preferred Stock (issued upon such conversion) upon election of such redemption in connection with any Extraordinary Transaction or initial public offering, if applicable, as provided herein.
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(d) Procedure for Automatic Conversion . As of, and in all cases subject to, the closing of a QPO (the " Automatic Conversion Date "), all outstanding shares of Convertible Preferred Stock shall be converted automatically into shares of Common Stock and Redeemable Preferred Stock at the applicable conversion rates specified in Section A.6(a) and without any further action by the holders of such shares and whether or not the certificates representing such shares of Convertible Preferred Stock are surrendered to the Corporation or its transfer agent; provided , however , that all holders of Convertible Preferred Stock shall be given prior written notice of the occurrence of a QPO in accordance with Section A.9 hereof. The Corporation shall not be obligated to issue certificates evidencing the shares of Redeemable Preferred Stock or Common Stock issuable on the Automatic Conversion Date (or the payment for the shares of Redeemable Preferred Stock which are redeemed immediately after such automatic conversion as provided below and in Section B.5(a)(i)) unless certificates evidencing such shares of the Convertible Preferred Stock being converted, or an Affidavit or Affidavits of Loss with respect to such certificates, are delivered to the Corporation or its transfer agent. On the Automatic Conversion Date, all rights with respect to the Convertible Preferred Stock so converted shall terminate, except any of the rights of the holders thereof upon surrender of their certificate or certificates therefor or delivery of an Affidavit of Loss thereof to receive certificates for the number of shares of Common Stock and Redeemable Preferred Stock into which such Convertible Preferred Stock has been converted (or the payment to which such holder is entitled as provided below and in Sections A.6(b) and B.5(a)(i)). All accrued and unpaid Convertible Cumulative Dividends shall be paid in full prior to or upon the closing of such QPO. Certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his or its attorney duly authorized in writing. Upon surrender of such certificates or Affidavit of Loss the Corporation shall issue and deliver to such holder, promptly (and in any event in such time as is sufficient to enable such holder to participate in such QPO) at such office and in its name as shown on such surrendered certificate or certificates, a certificate or certificates for the number of shares of Common Stock and number of shares of Redeemable Preferred Stock into which the shares of the Convertible Preferred Stock surrendered were convertible on the Automatic Conversion Date. Notwithstanding anything to the contrary set forth in this Section A.6(d), the Corporation may deliver, in lieu of certificates for Redeemable Preferred Stock, a payment in an amount and form determined pursuant to Section B.5(b) hereof on account of the redemption of such Redeemable Preferred Stock, and upon such payment the Redeemable Preferred Stock into which such Convertible Preferred Stock would have been converted shall be deemed to have been issued and redeemed by the Corporation.
(e) Reservation of Stock Issuable Upon Conversion . The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock and Redeemable Preferred Stock solely for the purpose of effecting the conversion of the shares of Convertible Preferred Stock such number of its shares of Common Stock and Redeemable Preferred Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Convertible Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock and Redeemable Preferred Stock shall not be sufficient to effect the conversion of all then outstanding shares of Convertible Preferred Stock, the Corporation will take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock and Redeemable Preferred Stock to such number of shares as shall be sufficient for such purpose.
(f) No Closing of Transfer Books . The Corporation shall not close its books against the transfer of shares of Convertible Preferred Stock in any manner which would interfere with the timely conversion of any shares of Convertible Preferred Stock.
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7. Adjustments . The Conversion Price in effect from time to time shall be subject to adjustment from and after January 15, 1999, and regardless of whether any shares of Convertible Preferred Stock are then issued and outstanding as follows:
(a) Adjustments to Conversion Price .
(i) Stock Dividends, Subdivisions and Combinations . Upon the issuance of additional shares of Common Stock as a dividend or other distribution on outstanding Common Stock, the subdivision of outstanding shares of Common Stock into a greater number of shares of Common Stock, or the combination of outstanding shares of Common Stock into a smaller number of shares of the Common Stock, the Conversion Price shall, simultaneously with the happening of such dividend, subdivision or split be adjusted by multiplying the then effective Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event. An adjustment made pursuant to this Section A.7(a)(i) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of stockholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof.
(ii) Sale of Common Stock . In the event the Corporation shall at any time, or from time to time, issue, sell or exchange any shares of Common Stock (including shares held in the Corporation's treasury, but excluding (i) up to an aggregate of 4,349,076 shares of Common Stock (as appropriately adjusted for stock splits, stock dividends and the like) issued to officers, Directors, employees of, or consultants, advisors, independent contractors to the Corporation (collectively, " Eligible Employees ") pursuant to the Corporation's 1997 Stock Option Plan, as amended, 1999 Stock Option Plan, as amended, and any other plan(s) approved by vote or written consent of the holder or holders of not less than sixty-six and two-thirds percent (66 2 / 3 %) in voting power of the outstanding shares of Convertible Preferred Stock (collectively, the " Plan ") upon the exercise of options or other rights issued to such Eligible Employees pursuant to the Plan, and (ii) shares issued under the Plan in an amount equal to the number of shares subject to any currently outstanding options that are cancelled or terminated or that expire (collectively, the " Excluded Shares "), for a consideration per share less than the Conversion Price in effect immediately prior to the issuance, sale or exchange of such shares, then, and thereafter successively upon each such issuance, sale or exchange, the Conversion Price in effect immediately prior to the issuance, sale or exchange of such shares shall forthwith be reduced to an amount determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such additional shares of Common Stock (excluding treasury shares), plus (Y) the number of shares of Common Stock which the net aggregate consideration received by the Corporation for the total number of such additional shares of Common Stock so issued would purchase at the Conversion Price (prior to adjustment), and
(B) the denominator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such additional shares of Common Stock (excluding treasury shares), plus (Y) the number of such additional shares of Common Stock so issued.
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(iii) Sale of Options, Rights or Convertible Securities. In the event the Corporation shall at any time or from time to time, issue options, warrants or rights to subscribe for shares of Common Stock, or issue any securities convertible into or exchangeable for shares of Common Stock (other than any options or warrants for Excluded Shares), for a consideration per share (determined by dividing the Net Aggregate Consideration (as determined below) by the aggregate number of shares of Common Stock that would be issued if all such options, warrants, rights or convertible securities were exercised or converted to the fullest extent permitted by their terms) less than the Conversion Price in effect immediately prior to the issuance of such options or rights or convertible or exchangeable securities, the Conversion Price in effect immediately prior to the issuance of such options, warrants or rights or securities shall be reduced to an amount determined by multiplying such Conversion Price by a fraction:
(A) the numerator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such options, rights or convertible securities (excluding treasury shares), plus (Y) the number of shares of Common Stock which the total amount of consideration received by the Corporation for the issuance of such options, warrants, rights or convertible securities plus the minimum amount set forth in the terms of such security as payable to the Corporation upon the exercise or conversion thereof (the " Net Aggregate Consideration ") would purchase at the Conversion Price prior to adjustment, and
(B) the denominator of which shall be (X) the number of shares of Common Stock of all classes outstanding immediately prior to the issuance of such options, warrants, rights or convertible securities (excluding treasury shares), plus (Y) the aggregate number of shares of Common Stock that would be issued if all such options, warrants, rights or convertible securities were exercised or converted.
(iv) Expiration or Change in Price . If the consideration per share provided for in any options or rights to subscribe for shares of Common Stock or any securities exchangeable for or convertible into shares of Common Stock changes at any time, the Conversion Price in effect at the time of such change shall be readjusted to the Conversion Price which would have been in effect at such time had such options or convertible securities provided for such changed consideration per share (determined as provided in Section A.7(a)(iii) hereof), at the time initially granted, issued or sold; provided , that such adjustment of the Conversion Price will be made only as and to the extent that the Conversion Price effective upon such adjustment remains less than or equal to the Conversion Price that would be in effect if such options, rights or securities had not been issued. No adjustment of the Conversion Price shall be made under this Section A.7(a) upon the issuance of any additional shares of Common Stock which are issued pursuant to the exercise of any warrants, options or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any convertible securities if an adjustment shall previously have been made upon the issuance of such warrants, options or other rights. Any adjustment of the Conversion Price shall be disregarded if, as, and when the rights to acquire shares of Common Stock upon exercise or conversion of the warrants, options, rights or convertible securities which gave rise to such adjustment expire or are canceled without having been exercised, so that the Conversion Price effective immediately upon such cancellation or expiration shall be equal to the Conversion Price in effect at the time of the issuance of the expired or canceled warrants, options, rights or convertible securities, with such additional adjustments as would have been made to that Conversion Price had the expired or canceled warrants, options, rights or convertible securities not been issued.
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(b) Other Adjustments . In the event the Corporation shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event lawful and adequate provision shall be made so that the holders of Convertible Preferred Stock shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the number of securities of the Corporation which they would have received had their Convertible Preferred Stock been converted into Common Stock and Redeemable Preferred Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities receivable by them as aforesaid during such period, giving application to all adjustments called for during such period under this Section A.7 as applied to such distributed securities.
If the Common Stock issuable upon the conversion of the Convertible Preferred Stock shall be changed into the same or different number of shares of any class or classes of stock, whether by reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for above, or a reorganization, merger, consolidation or sale of assets provided for elsewhere in this Section A.7), then and in each such event the holder of each share of Convertible Preferred Stock shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification or other change, by holders of the number of shares of Common Stock into which such shares of Convertible Preferred Stock might have been converted immediately prior to such reorganization, reclassification or change, all subject to further adjustment as provided herein.
(c) Mergers and Other Reorganizations . If at any time or from time to time there shall be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares provided for elsewhere in this Section A.7) or a merger or consolidation of the Corporation with or into another Corporation or the sale of all or substantially all of the Corporation's properties and assets to any other person, then, as a part of and as a condition to the effectiveness of such reorganization, merger, consolidation or sale, lawful and adequate provision shall be made so that the holders of the Convertible Preferred Stock shall thereafter be entitled to receive upon conversion of the Convertible Preferred Stock the number of shares of stock or other securities or property of the Corporation or of the successor Corporation resulting from such merger or consolidation or sale, to which a holder of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate provisions shall be made with respect to the rights of the holders of the Convertible Preferred Stock after the reorganization, merger, consolidation or sale to the end that the provisions of this Section A.7 (including without limitation provisions for adjustment of the Conversion Price and the number of shares purchasable upon conversion of the Convertible Preferred Stock) shall thereafter be applicable, as nearly as may be, with respect to any shares of stock, securities or assets to be deliverable thereafter upon the conversion of the Convertible Preferred Stock.
(d) Calculations . All calculations under this Section A.7 shall be made to the nearest cent or to the nearest one one-hundredth (1/100) of a share, as the case may be.
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(e) Certificate of Adjustment Upon the occurrence of each adjustment or readjustment pursuant to this Section A.7, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Convertible Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon written request at any time of any holder of Convertible Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Prices before and after such adjustment or readjustment, and (iii) the number of shares of Common Stock and Redeemable Preferred Stock and the amount, if any, of other property which at the time would be received upon the conversion of such holder's shares of Convertible Preferred Stock.
8. Covenants . So long as any shares of Convertible Preferred Stock (or Redeemable Preferred Stock, as applicable) shall be outstanding, the Corporation shall not, without first having provided the written notice of such proposed action to each holder of outstanding shares of Convertible Preferred Stock (or Redeemable Preferred Stock, as applicable) and having obtained the affirmative vote or written consent of the holders of more than fifty percent (50%) in voting power of the outstanding shares of Convertible Preferred Stock (or Redeemable Preferred Stock, as applicable), voting as a single class, with each share of Convertible Preferred Stock (or Redeemable Preferred Stock, as applicable) entitling the holder thereof to one vote per share of Convertible Preferred Stock held by such holder:
(a) effect (i) any Extraordinary Transaction or other sale or transfer of all or substantially all of the properties and assets of any direct or indirect subsidiary of the Corporation, (ii) any recapitalization of the Corporation or any direct or indirect subsidiary of the Corporation or (iii) any other transaction or series of related transactions in which more than 50% of the voting power of the Corporation or any direct or indirect subsidiary of the Corporation is transferred;
(b) dissolve, liquidate or wind up its operations or dissolve, liquidate or wind up the operations of any direct or indirect subsidiary of the Corporation;
(c) directly or indirectly redeem, purchase, or otherwise acquire for consideration any shares of its Common Stock or any other class of its capital stock except for (i) redemption of Convertible Preferred Stock or Redeemable Preferred Stock pursuant to and as provided in this Certificate, (ii) redemption or repurchase of Common Stock issued pursuant to the Plan from Eligible Employees (as defined in Section A.7(a)(ii)) pursuant to an agreement containing vesting and/or repurchase provisions approved by the Board of Directors of the Corporation or a committee thereof, or (iii) repurchase of Common Stock pursuant to and only to the extent required by the Amended and Restated Stockholders' Agreement dated effective June 8, 1998, by and among PROS Revenue Management, Inc., the Investors, the Founding Stockholders and the Stockholders (as defined therein), without regard to any subsequent amendment thereto, and as modified by that certain Supplemental Agreement effective May 1, 1997, by and between PROS Revenue Management, Inc. and E. Andrew Boyd;
(d) propose or adopt any amendment to this Certificate, any amendment to the Corporation's Certificate of Incorporation or Bylaws or propose or adopt any certificate of designations, preferences and rights for another series of the Corporation's capital stock that eliminates, amends or restricts or otherwise adversely affects the rights and preferences of the Convertible Preferred Stock or the Redeemable Preferred Stock, or increase the authorized shares of Convertible Preferred Stock or Redeemable Preferred Stock;
(e) declare or make dividend payments or other distributions on any shares of Common Stock or any other class of the Corporation's capital stock;
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(f) create, or obligate itself to create, any class or series of shares having preference over or being on a parity with the Convertible Preferred Stock or the Redeemable Preferred Stock;
(g) increase the size of the Board of Directors to more than eight (8) members;
(h) pay any bonuses to the Corporation's executive officers unless any such bonus shall have been unanimously approved by the compensation committee of the Board of Directors;
(i) approve the issuance of any capital stock or equity interests of any direct or indirect subsidiary of the Corporation; or
(j) approve any amendment to the certificate of incorporation, bylaws, operating agreement or other governing document of any direct or indirect subsidiary of the Corporation.
Further, the Corporation and each direct or indirect subsidiary of the Corporation shall not, by amendment of this Certificate of Incorporation or any certificate of designations, preferences and rights for another series of the Corporation's capital stock or through any Extraordinary Transaction or other reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation and each direct and indirect subsidiary of the Corporation but shall at all times in good faith assist in the carrying out of all the provisions of this Certificate of Incorporation and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Convertible Preferred Stock and the Redeemable Preferred Stock set forth in this Certificate of Incorporation against impairment. Any successor to the Corporation or any direct or indirect subsidiary of the Corporation shall agree, as a condition to such succession, to carry out and observe the obligations of the Corporation hereunder with respect to the Convertible Preferred Stock and the Redeemable Preferred Stock.
9. Notice
(a) Liquidation Events, Extraordinary Transactions, Etc . In the event (i) the Corporation establishes a record date to determine the holders of any class of securities who are entitled to receive any dividend or other distribution or who are entitled to vote at a meeting (or by written consent) in connection with any of the transactions identified in clause (ii) hereof, or (ii) any Liquidation Event (as defined in Section A.4), any Extraordinary Transaction (as defined in this Section A.9(a)), QPO (as defined in Section A.6) or any other public offering becomes reasonably likely to occur, the Corporation shall mail or cause to be mailed by first class mail (postage prepaid) to each holder of Convertible Preferred Stock (or each holder of Redeemable Preferred Stock, as applicable) at least twenty (20) business days prior to such record date specified therein or the expected effective date of any such transaction, whichever is earlier, a notice specifying (A) the date of such record date for the purpose of such dividend or distribution or meeting or consent and a description of such dividend or distribution or the action to be taken at such meeting or by such consent, (B) the date on which any such Liquidation Event, Extraordinary Transaction, QPO or other public offering is expected to become effective, and (C) the date on which the books of the Corporation shall close or a record shall be taken with respect to any such event.
The following transactions shall be deemed " Extraordinary Transactions ."
(I) the sale, lease or other disposition of (whether in one transaction or a series of related transactions) all or substantially all of the assets or business of the Corporation and its direct or indirect subsidiaries;
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(II) a merger or consolidation of the Corporation with or into another entity or any other transaction or series of related transactions, in any such case in connection with or as a result of which the Corporation is not the surviving entity or the owners of the Corporation's outstanding equity securities prior to the transaction or series of related transactions do not own at least a majority of the outstanding equity securities of the surviving, resulting or consolidated entity;
(III) any purchase by any party of shares of capital stock of the Corporation or any direct or indirect subsidiary of the Corporation (either through a negotiated stock purchase or a tender for such shares), the effect of which is that such party that did not beneficially own a majority of the voting power of the outstanding shares of capital stock of the Corporation or the equity interests of such subsidiary, as applicable, immediately prior to such purchase beneficially owns at least a majority of such voting power immediately after such purchase; or
(IV) the redemption or repurchase of shares representing a majority of the voting power of the outstanding shares of capital stock of the Corporation.
(b) Waiver of Notice . The holder or holders of not less than sixty-six and two-thirds percent (66 2 / 3 %) in voting power of the outstanding shares of Convertible Preferred Stock (or Redeemable Preferred Stock, as applicable) may, at any time upon written notice to the Corporation, waive any notice provisions specified herein for the benefit of such holders, and any such waiver shall be binding upon the holders of all such securities.
(c) General . In the event that the Corporation provides any notice, report or statement to any holder of Common Stock, the Corporation shall at the same time provide a copy of any such notice, report or statement to each holder of outstanding shares of Convertible Preferred Stock (or Redeemable Preferred Stock, as applicable).
10. No Reissuance of Convertible Preferred Stock . No share or shares of Convertible Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue.
1. Designation; Ranking . A total of three million nine hundred twenty-one thousand three hundred and twelve (3,921,312) shares of the Corporation's Preferred Stock shall be designated as Redeemable Preferred Stock, $.001 par value per share (the " Redeemable Preferred Stock ").
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2. Election of Directors; Voting .
(a) Election of Directors . The holders of outstanding shares of Redeemable Preferred Stock shall, voting together as a separate class, be entitled to elect two (2) Directors. Such Directors shall be the candidates receiving the highest number of affirmative votes (with each holder of Redeemable Preferred Stock entitled to cast one vote for or against each candidate with respect to each share of Redeemable Preferred Stock held by such holder) of the outstanding shares of Redeemable Preferred Stock (the " Redeemable Preferred Stock Director Designees "), with votes cast against such candidate and votes withheld having no legal effect. The election of the Redeemable Preferred Stock Director Designees by the holders of the Redeemable Preferred Stock shall occur (i) at the annual meeting of holders of capital stock, (ii) at any special meeting of holders of capital stock, (iii) at any special meeting of holders of Redeemable Preferred Stock called by holders of a majority of the outstanding shares of Redeemable Preferred Stock or (iv) by the unanimous written consent of holders of the outstanding shares of Redeemable Preferred Stock. Upon conversion of the Convertible Preferred Stock, the Convertible Preferred Stock Director Designees then serving on the Corporation's board of directors shall continue in such capacity as the Redeemable Preferred Stock Designees. If at any time when any share of Redeemable Preferred Stock is outstanding either Redeemable Preferred Stock Director Designee should cease to be a Director for any reason, the vacancy shall only be filled by the vote or written consent of holders of the outstanding shares of Redeemable Preferred Stock, voting together as a separate class, in the manner and on the basis specified above.
(b) Voting Generally . Except with respect to (i) the provision of consent, or lack thereof, to those actions identified in Section A.8, (ii) the election of the Redeemable Preferred Stock Director Designees pursuant to Section B.2(a), and (iii) the election to redeem the Redeemable Preferred Stock pursuant to Section B.5, the holders of Redeemable Preferred Stock shall not be entitled to vote on any matters except to the extent otherwise required under the General Corporation Law of the State of Delaware.
(c) Waiver of Notice . The holder or holders of not less than sixty-six and two-thirds percent (66 2 / 3 %) in voting power of the outstanding shares of Redeemable Preferred Stock may, at any time upon written notice to the Corporation, waive any notice provisions specified herein for the benefit of such holders, and any such waiver shall be binding upon the holders of all such securities.
3. Dividends . The holders of outstanding shares of Redeemable Preferred Stock shall be entitled to receive, out of any funds legally available therefor, cumulative (non-compounding) dividends on the Redeemable Preferred Stock in cash, at the rate per annum of 3% of $4.46279 per share (adjusted appropriately for stock splits, stock dividends, recapitalizations and the like with respect to the Redeemable Preferred Stock), or $0.13388 per share of Redeemable Preferred Stock (a " Redeemable Cumulative Dividend "). Such dividends will accrue commencing as of the date of issuance of the Redeemable Preferred Stock and be cumulative, to the extent unpaid, whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. Redeemable Cumulative Dividends shall become due and payable with respect to any share of Redeemable Preferred Stock as provided in Section B.4 and Section B.5. So long as any shares of Redeemable Preferred Stock are outstanding and either the
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Redeemable Cumulative Dividends or the Convertible Cumulative Dividends, have not been paid in full in cash: (A) no dividend whatsoever shall be paid or declared, and no distribution shall be made, on any capital stock of the Corporation ranking junior to the Redeemable Preferred Stock; and (B) no shares of capital stock of the Corporation ranking junior to the Redeemable Preferred Stock shall be purchased, redeemed or acquired by the Corporation and no monies shall be paid into or set aside or made available for a sinking fund for the purchase, redemption or acquisition thereof except as permitted by Section A.8(c)(iv). All numbers relating to the calculation of dividends pursuant to this Section B.3 shall be subject to equitable adjustment in the event of any stock split, combination, reorganization, recapitalization, reclassification or other similar event involving a change in the Redeemable Preferred Stock.
4. Liquidation . Upon any Liquidation Event, each holder of outstanding shares of Redeemable Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for the distribution to stockholders, whether such assets are capital, surplus or earnings, and before any amount shall be paid or distributed to the holders of Common Stock or of any other stock ranking on liquidation junior to the Redeemable Preferred Stock, an amount in cash equal to the sum of (a) $4.46279 per share of Redeemable Preferred Stock held by such holder (adjusted appropriately for stock splits, stock dividends, recapitalizations and the like with respect to the Redeemable Preferred Stock), plus (b) any accumulated but unpaid dividends to which such holder of outstanding shares of Redeemable Preferred Stock is entitled pursuant to Sections B.3 and B.5(d) hereof (the sum of clauses (a) and (b) being referred to herein as the " Redeemable Base Liquidation Amount "), plus (c) any accumulated but unpaid dividends or other amounts due in respect of the shares Convertible Preferred Stock converted into such shares of Redeemable Preferred Stock, plus (d) any interest accrued pursuant to Section B.5(c) to which such holder of outstanding shares of Redeemable Preferred Stock is entitled, if any (the sum of clauses (a), (b) and (c) being referred to herein as the " Redeemable Liquidation Preference Amount "; provided , however , that if, upon any Liquidation Event, the amounts payable with respect to the Redeemable Liquidation Preference Amount are not paid in full, the holders of the Redeemable Preferred Stock shall share ratably in any distribution of assets in proportion to the full respective preferential amounts to which they are entitled.
5. Redemption .
(a) Redemption Events .
(i) Upon Election of Holders upon a QPO . Upon the election of the holder or holders of not less than sixty-six and two-thirds percent (66 2 / 3 %) of the outstanding Redeemable Preferred Stock, the Corporation shall redeem all (and not less than all, except as set forth in the third sentence of this Section B.5(a)) of the outstanding shares of Redeemable Preferred Stock upon the closing of the QPO. The foregoing election shall be made by such holders giving the Corporation and each other holder of the Redeemable Preferred Stock written notice not less than five (5) days prior to the closing of the QPO. In the event that the principal underwriter for the QPO shall reasonably and in good faith request in writing, or cause the Corporation to so request in writing, that the holders of Redeemable Preferred Stock waive the holders' right to elect to have such holder's shares of Redeemable Preferred Stock redeemed pursuant to this Section B.5(a)(i) and the holders of sixty-six and two-thirds percent (66 2 / 3 %) in voting power of the outstanding shares of the Redeemable Preferred Stock
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agree to so waive such redemption election, then all outstanding shares of Redeemable Preferred Stock shall be exchanged, without the payment of additional consideration, for notes of the Corporation (" Redemption Notes ") in an aggregate principal amount equal to the aggregate Redemption Price (as defined in Section B.5(b) below), which Redemption Notes shall (i) mature on the second anniversary of the effective date of such QPO and (ii) bear interest on the outstanding principal balance thereof at the rate of ten percent (10%) per annum, which interest shall accrue daily in arrears and be paid on the last day of each month, commencing on the last day of the first month following the effective date of such QPO; provided, however, that in no event shall such interest rate exceed the Maximum Permitted Rate.
(ii) Upon Election of Corporation upon a QPO . The Corporation may elect to redeem all (but not less than all, other than pursuant to Section B.5(c) below) of the outstanding shares of Redeemable Preferred Stock at any time upon the closing of a QPO. The foregoing election shall be made by the Corporation giving each holder of Redeemable Preferred Stock written notice not less than five (5) days prior to the closing of a QPO.
(iii) Lapse of Time .
(A) At any time after the later of the first anniversary of the date of the conversion of the Convertible Preferred Stock as set forth in Section A.6 (other than in connection with an Extraordinary Transaction) and June 8, 2004, on any one occasion any holder of Redeemable Preferred Stock may require the Corporation to redeem up to thirty-three percent (33%) of the outstanding shares of Redeemable Preferred Stock held by such holder at such time.
(B) At any time after the later of the second anniversary of the date of the conversion of the Convertible Preferred Stock as set forth in Section A.6 (other than in connection with an Extraordinary Transaction) and June 8, 2005, on any one occasion any holder of Redeemable Preferred Stock may require the Corporation to redeem up to sixty-six percent (66%) of the outstanding shares of Redeemable Preferred Stock held by such holder at such time.
(C) At any time after the later of the third anniversary of the date of the conversion of the Convertible Preferred Stock as set forth in Section A.6 (other than in connection with an Extraordinary Transaction) and June 8, 2006, on any one occasion any holder of Redeemable Preferred Stock may require the Corporation to redeem up to one hundred percent (100%) of the outstanding shares of Redeemable Preferred Stock held by such holder at such time.
(iv) Upon Extraordinary Transactions . Upon the election of the holder or holders of not less than sixty-six and two-thirds percent (66 2 / 3 %) in voting power of the outstanding Redeemable Preferred Stock, the Corporation shall redeem all (and not less than all, other than pursuant to Section B.5(c) below) of the outstanding shares of Redeemable Preferred Stock upon the occurrence of an Extraordinary Transaction (as defined in Section A.9(a)) or public offering not constituting a QPO. The foregoing election shall be made by such holders giving the Corporation and each other holder of Redeemable Preferred Stock (or Convertible Stock, as applicable) not less than five (5) days prior written notice, which notice shall set forth the date for such redemption.
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(v) Upon Election of Corporation .
(A) At any time after the later of the first anniversary of the date of the conversion of the Convertible Preferred Stock as set forth in Section A.6 and June 8, 2004, the Corporation may redeem thirty-three percent (33%) (but not less than thirty-three percent (33%)) of the outstanding shares of Redeemable Preferred Stock. The foregoing election shall be made by the Corporation giving each holder of Redeemable Preferred Stock written notice not less than five (5) days prior to the date for such redemption.
(B) At any time after the later of the second anniversary of the date of the conversion of the Convertible Preferred Stock as set forth in Section A.6 and June 8, 2005, the Corporation may redeem sixty-six percent (66%) (but not less than sixty-six percent (66%) of the outstanding shares of Redeemable Preferred Stock. The foregoing election shall be made by the Corporation giving each holder of the Redeemable Preferred Stock written notice not less than five (5) days prior to such redemption.
(C) At any time after the later of the third anniversary of the date of the conversion of the Convertible Preferred Stock as set forth in Section A.6 and June 8, 2006, the Corporation may redeem one hundred percent (100%) (but not less than one hundred percent (100%) of the outstanding shares of Redeemable Preferred Stock. The foregoing election shall be made by the Corporation giving each holder of the Redeemable Preferred Stock written notice not less than five (5) days prior to such redemption.
(b) Redemption Date; Redemption Price . Any holder of Redeemable Preferred Stock may exercise such holder's right of redemption pursuant to Section B.5(a)(iii) by such holder giving the Corporation not less than ten (10) days prior written notice, which notice shall set forth the date for such redemption. Upon the election of the holders of not less than sixty-six and two-thirds percent (66 2 / 3 %) in voting power of the outstanding Redeemable Preferred Stock to cause the Corporation to redeem the Redeemable Preferred Stock pursuant to Section B.5(a)(i) or (a)(iv), all holders of Redeemable Preferred Stock shall be deemed to have elected to cause the Redeemable Preferred Stock subject to such election to be so redeemed. Any date upon which a redemption shall actually occur in accordance with Section B.5(a) shall be referred to as a " Redemption Date ." The redemption price for each share of Redeemable Preferred Stock redeemed pursuant to this Section B.5 shall be the per share Redeemable Liquidation Preference Amount (the " Redemption Price "). The aggregate Redemption Price shall be payable in cash in immediately available funds on the Redemption Date. Until the aggregate Redemption Price, including any interest thereon, has been paid in cash for all shares of Redeemable Preferred Stock redeemed as of the applicable Redemption Date or Redemption Notes have been issued pursuant to Section B.5(a)(i); (A) no dividend whatsoever shall be paid or declared, and no distribution shall be made, on any capital stock of the Corporation (other than the Redeemable Preferred Stock in accordance with Section B.5(d)); and (B) no shares of capital stock of the Corporation (other than the Redeemable Preferred Stock in accordance with this Section B.5) shall be purchased, redeemed or acquired by the Corporation and no monies shall be paid into or set aside or made available for a sinking fund for the purchase, redemption or acquisition thereof.
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(c) Redemption Prohibited . If, at a Redemption Date, the Corporation is prohibited under the General Corporation Law of the State of Delaware from redeeming all shares of Redeemable Preferred Stock for which redemption is required hereunder, then it shall redeem such shares on a pro-rata basis among the holders of Redeemable Preferred Stock in proportion to the full respective redemption amounts to which they are entitled hereunder to the extent possible and shall redeem the remaining shares to be redeemed as soon as the Corporation is not prohibited from redeeming some or all of such shares under the General Corporation Law of the State of Delaware, subject to the last paragraph of Section A.8. The shares of Redeemable Preferred Stock not redeemed shall remain outstanding and entitled to all of the rights and preferences provided in this Certificate. In the event that the Corporation fails for any reason to redeem shares for which redemption is triggered pursuant to Section B.5 (other than pursuant to the third sentence of Section B.5(a)(i)), including without limitation due to a prohibition of such redemption under the General Corporation Law of the State of Delaware, then during the period from the applicable Redemption Date through the date on which such shares are redeemed, the applicable Redeemable Base Liquidation Amount of such shares shall bear interest at the rate of ten percent (10%) per annum, with such interest to accrue daily in arrears and to be compounded annually; provided, however, that in no event shall such interest rate exceed the Maximum Permitted Rate.
(d) Dividend After Redemption Date . From and after the closing of a QPO or an Extraordinary Transaction or a public offering not constituting a QPO (in the case of a redemption pursuant to Section B.5(a)(i) or (iv)) or the date specified for redemption in the election notice as set forth in Section B.5(a)(ii) or (v) or Section B.5(b), no shares of Redeemable Preferred Stock subject to redemption shall be entitled to any further dividends pursuant to Section B.3 hereof; provided , however , that in the event that shares of Redeemable Preferred Stock are unable to be redeemed and continue to be outstanding in accordance with Section B.5(c), such shares shall continue to be entitled to dividends and interest thereon as provided in Sections B.3 and B.5(c) until the date on which such shares are actually redeemed by the Corporation.
(e) Surrender of Certificates. Upon receipt of the applicable Redemption Price by certified check or wire transfer or receipt of the Redemption Notes pursuant to the third sentence of Section B.5(a)(i), each holder of shares of Redeemable Preferred stock to be redeemed shall surrender the certificate or certificates representing such shares to the Corporation, duly assigned or endorsed for transfer (or accompanied by duly executed stock powers relating thereto), or shall deliver an Affidavit of Loss with respect to such certificates at the principal executive office of the Corporation or the office of the transfer agent for the Redeemable Preferred Stock or such office or offices in the continental United States of an agent for redemption as may from time to time be designated by notice to the holders of Redeemable Preferred Stock (or the holders of Convertible Preferred Stock, as applicable), and each surrendered certificate shall be canceled and retired; provided , however , that if the holder has exercised its redemption right pursuant to Section B.5(a)(iii)(A) or the Corporation has exercised its right pursuant to Section B.5(a)(v)(A), the holder shall not be required to surrender said certificate(s) to the Corporation until said holder has received a new stock certificate for those shares of Redeemable Preferred Stock not so redeemed.
6. Notice . In the event that the Corporation provides or is required to provide notice to any holder of Convertible Preferred Stock or any holder of Common Stock in accordance with the provisions of this Certificate (including the provisions of Section A.9) and/or the Corporation's bylaws, the Corporation shall at the same time provide a copy of any such notice to each holder of outstanding shares of Redeemable Preferred Stock.
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7. No Reissuance of Redeemable Preferred Stock . No share or shares of Redeemable Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled, retired and eliminated from the shares which the Corporation shall be authorized to issue.
8. Covenants . So long as any shares of Redeemable Preferred Stock shall be outstanding, the provisions of Section A.8 shall apply to all shares of Redeemable Preferred Stock as if such shares were shares of Convertible Preferred Stock.
Subject to all of the rights of the Preferred Stock, and except as may be expressly provided with respect to the Preferred Stock herein, by law or by the Board of Directors pursuant to this Article IV:
(a) dividends may be declared and paid or set apart for payment upon Common Stock out of any assets or funds of the Corporation legally available for the payment of dividends and may be payable in cash, stock or otherwise;
(b) the holders of Common Stock shall have the exclusive right to vote for the election of directors and on all other matters requiring stockholder action, each share being entitled to one vote; and
(c) upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment or provision for payment of all debts and liabilities of the Corporation and all preferential amounts to which the holders of Preferred Stock are entitled with respect to the distribution of assets in liquidation, the net assets of the Corporation shall be distributed pro rata to the holders of Common Stock in accordance with their respective rights and interests to the exclusion of the holders of Preferred Stock.
The name and address of the sole incorporator is John J. Gilluly III, Gray Cary Ware & Freidenrich LLP, 1221 South MoPac Expressway, Suite 400, Austin, TX 78746-6875.
The Corporation is to have a perpetual existence.
Election of directors need not be by written ballot unless the bylaws of the Corporation shall so provide.
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No person shall be personally liable to the Corporation or its stockholders for monetary damages for breach of his or her fiduciary duty as a Director of the Corporation, except for liability (i) for any breach of the Director's duty of loyalty to the Corporation or its stockholders, (ii) for any acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the State of Delaware or (iv) for any transaction from which the Director derived an improper personal benefit. If the General Corporation Law of the State of Delaware hereafter is amended to authorize further elimination or limitation of the liability of directors, then the liability of a Director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended General Corporation Law of the State of Delaware. Any repeal or modification of this paragraph by the stockholders of the Corporation shall be prospective only, and shall not adversely affect any limitation on the personal liability of a Director of the Corporation existing at the time of such repeal or modification.
The Corporation shall indemnify any director or officer to the fullest extent permitted by Delaware law.
All of the powers of the Corporation, insofar as the same may be lawfully vested by this Certificate of Incorporation in the Board of Directors of the Corporation, are hereby conferred upon the Board of Directors of the Corporation.
In furtherance of and not in limitation of the foregoing provisions of this Article IX, and for the purpose of the orderly management of the business and the conduct of the affairs of the Corporation, the Board of Directors of the Corporation shall have the power to adopt, amend or repeal from time to time the bylaws of the Corporation, subject to the right of the stockholders of the Corporation entitled to vote thereon to adopt, amend or repeal the bylaws of the Corporation.
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
Dated: August 29, 2002 | ||
/s/
JOHN J. GILLULY III
John J. Gilluly III, Sole Incorporator |
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Exhibit 3.2
BYLAWS
OF
PROS HOLDINGS, INC.
Adopted as of August 29, 2002
OFFICES
SECTION 1.01. Registered Office. The registered office of the corporation in the State of Delaware shall be 2711 Centreville Road, Suite 400, in the City of Wilmington, County of New Castle, and the name of its registered agent shall be the Corporation Service Company.
SECTION 1.02. Other Offices. The corporation may also have offices at such other places both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
MEETINGS OF STOCKHOLDERS
SECTION 2.01. Place of Meeting. All meetings of stockholders for the election of directors shall be held at such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting.
SECTION 2.02. Annual Meeting. The annual meeting of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting.
SECTION 2.03. Voting List. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least 10 days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice, or if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
SECTION 2.04. Special Meeting. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, as it may be amended from time to time (the "Certificate of Incorporation"), may be called by the Chairman of the Board or by the President of the corporation or by the Board of Directors or by written order of a majority of the directors and shall be called by the President or the Secretary at the request in writing of stockholders owning not less than 20% of the entire capital stock of the corporation, on an as converted to common stock basis, issued and outstanding and entitled to vote. Notwithstanding the foregoing, special meetings of the holders of any class of the Corporation's capital stock, for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, shall be called by the President or Secretary at the request in writing of stockholders owning a majority in amount of the entire shares of such class outstanding and entitled to vote. Any written request pursuant to this Section 2.04 shall state the purposes of the proposed meeting. The Chairman of the Board or the President of the corporation or directors so calling, or the stockholders so requesting, any such meeting shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting.
SECTION 2.05. Notice of Meeting. Written notice of the annual, and each special meeting of stockholders, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote thereat, not less than 10 nor more than 60 days before the meeting.
SECTION 2.06. Quorum. The holders of a majority of the shares of the corporation's capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at any meeting of stockholders for the transaction of business, except as otherwise provided by statute or by the Certificate of Incorporation. Notwithstanding the other provisions of the Certificate of Incorporation or these bylaws, the holders of a majority of the shares of the corporation's capital stock entitled to vote thereat, present in person or represented by proxy, whether or not a quorum is present, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified.
SECTION 2.07. Proxies and Voting . At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders,
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appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by statute, the Certificate of Incorporation or these bylaws, all other matters shall be determined by a majority of the votes cast affirmatively or negatively.
SECTION 2.08. Consent of Stockholders . Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or on the written consent of the holders of shares of the corporation's capital stock having not less than the minimum percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent.
SECTION 2.09. Voting of Stock of Certain Holders . Shares of the corporation's capital stock standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the bylaws of such corporation may prescribe, or in the absence of such provision, as the Board of Directors of such corporation may determine. Shares standing in the name of a deceased person may be voted by the executor or administrator of such deceased person, either in person or by proxy. Shares standing in the name of a guardian, conservator or trustee may be voted by such fiduciary, either in person or by proxy, but no such fiduciary shall be entitled to vote shares held in such fiduciary capacity without a transfer of such shares into the name of such fiduciary. Shares standing in the name of a receiver may be voted by such receiver. A stockholder whose shares are pledged shall be entitled to vote such shares, unless in the transfer by the pledgor on the books of the corporation, he has expressly empowered the pledgee to vote thereon, in which case only the pledgee, or his proxy, may represent the stock and vote thereon.
SECTION 2.10. Treasury Stock . The corporation shall not vote, directly or indirectly, shares of its own capital stock owned by it; and such shares shall not be counted in determining the total number of outstanding shares of the corporation's capital stock.
SECTION 2.11. Fixing Record Date . The Board of Directors may fix in advance a date, which shall not be more than 60 days nor less than 10 days preceding the date of any meeting of stockholders, nor more than 60 days preceding the date for payment of any dividend or distribution, or the date for the allotment of rights, or the date when any change, or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining a consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting and any adjournment thereof, or entitled to receive payment of any such dividend or distribution, or to receive any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed, shall be entitled to such notice of, and to vote at, any such meeting and any adjournment thereof, or to receive payment of such dividend or distribution, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid.
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BOARD OF DIRECTORS
SECTION 3.01. Powers . The business and affairs of the corporation shall be managed by its Board of Directors, which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Certificate of Incorporation or by these bylaws directed or required to be exercised or done by the stockholders.
SECTION 3.02. Number, Election and Term . The number of directors that shall constitute the whole Board of Directors shall be not less than one. Such number of directors shall from time to time be fixed and determined by the directors and shall be set forth in the notice of any meeting of stockholders held for the purpose of electing directors. The directors shall be elected at the annual meeting of stockholders, except as provided in the Certificate of Incorporation or Section 3.03 of these bylaws, and each director elected shall hold office until his successor shall be elected and shall qualify. Directors need not be residents of Delaware or stockholders of the corporation.
SECTION 3.03. Vacancies, Additional Directors and Removal From Office . Except as otherwise provided in the Certificate of Incorporation, if any vacancy occurs in the Board of Directors caused by death, resignation, retirement, disqualification or removal from office of any director, or otherwise, or if any new directorship is created by an increase in the authorized number of directors, a majority of the directors then in office, though less than a quorum, or a sole remaining director, may choose a successor or fill the newly created directorship; and a director so chosen shall hold office until the next election and until his successor shall be duly elected and shall qualify, unless sooner displaced. Any director may be removed either for or without cause at any special meeting of stockholders duly called and held for such purpose.
SECTION 3.04. Regular Meeting . A regular meeting of the Board of Directors shall be held each year, without other notice than this bylaw, at the place of, and immediately following, the annual meeting of stockholders; and other regular meetings of the Board of Directors shall be held each year, at such time and place as the Board of Directors may provide, by resolution, either within or without the State of Delaware, without other notice than such resolution.
SECTION 3.05. Special Meeting . A special meeting of the Board of Directors may be called by the Chairman of the Board of Directors or by the President of the corporation and shall be called by the Secretary on the written request of any two directors. The Chairman or President so calling, or the directors so requesting, any such meeting shall fix the time and any place, either within or without the State of Delaware, as the place for holding such meeting.
SECTION 3.06. Notice of Special Meeting . Written notice of special meetings of the Board of Directors shall be given to each director at least 48 hours prior to the time of such meeting. Any director may waive notice of any meeting. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting, except that notice shall be given of any proposed amendment to the bylaws if it is to be adopted at any special meeting or with respect to any other matter where notice is required by statute.
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SECTION 3.07. Quorum . A majority of the Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Certificate of Incorporation or by these bylaws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.
SECTION 3.08. Action Without Meeting . Unless otherwise restricted by the Certificate of Incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof as provided in Article IV of these bylaws, may be taken without a meeting, if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board of Directors or such committee.
SECTION 3.09. Compensation . Directors, as such, shall not be entitled to any stated salary for their services unless voted by the stockholders or the Board of Directors; but by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, may be allowed for attendance at each regular or special meeting of the Board of Directors or any meeting of a committee of directors. No provision of these bylaws shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor.
COMMITTEE OF DIRECTORS
SECTION 4.01. Designation, Powers and Name . The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one or more committees, including, if they shall so determine, an Executive Committee, each such committee to consist of two or more of the directors of the corporation. The committee shall have and may exercise such of the powers of the Board of Directors in the management of the business and affairs of the corporation as may be provided in such resolution. The committee may authorize the seal of the corporation to be affixed to all papers that may require it. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names and such limitations of authority as may be determined from time to time by resolution adopted by the Board of Directors.
SECTION 4.02. Minutes . Each committee of directors shall keep regular minutes of its proceedings and report the same to the Board of Directors when required.
SECTION 4.03. Compensation . Members of special or standing committees may be allowed compensation for attending committee meetings, if the Board of Directors shall so determine.
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NOTICE
SECTION 5.01. Methods of Giving Notice . Whenever under the provisions of applicable statutes, the Certificate of Incorporation or these bylaws, notice is required to be given to any director, member of any committee or stockholder, such notice shall be in writing and delivered personally or mailed to such director, member or stockholder; provided that in the case of a director or a member of any committee such notice may be given orally or by telephone or telegram. If mailed, notice to a director, member of a committee or stockholder shall be deemed to be given when deposited in the United States mail first class in a sealed envelope, with postage thereon prepaid, addressed, in the case of a stockholder, to the stockholder at the stockholder's address as it appears on the records of the corporation or, in the case of a director or a member of a committee, to such person at his business address. If sent by telegraph, notice to a director or member of a committee shall be deemed to be given when the telegram, so addressed, is delivered to the telegraph company.
SECTION 5.02. Written Waiver . Whenever any notice is required to be given under the provisions of an applicable statute, the Certificate of Incorporation or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto.
OFFICERS
SECTION 6.01. Officers . The officers of the corporation shall be a Chairman of the Board, a President, one or more Vice Presidents, any one or more of which may be designated Executive Vice President or Senior Vice President, a Secretary and a Treasurer. The Board of Directors may appoint such other officers and agents, including Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers, in each case as the Board of Directors shall deem necessary, who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined by the Board. Any two or more offices may be held by the same person. The Chairman of the Board shall be elected from among the directors. With the foregoing exceptions, none of the other officers need be a director, and none of the officers need be a stockholder of the corporation.
SECTION 6.02. Election and Term of Office . The officers of the corporation shall be elected annually by the Board of Directors at its first regular meeting held after the annual meeting of stockholders or as soon thereafter as conveniently possible. Each officer shall hold office until his successor shall have been chosen and shall have qualified or until his death or the effective date of his resignation or removal, or until he shall cease to be a director in the case of the Chairman.
SECTION 6.03. Removal and Resignation . Any officer or agent elected or appointed by the Board of Directors may be removed without cause by the affirmative vote of a majority of the Board of Directors whenever, in its judgment, the best interests of the corporation shall be served thereby, but such removal shall be without prejudice to the contractual rights, if any, of the person so removed. Any officer may resign at any time by giving written notice to the corporation. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
SECTION 6.04. Vacancies . Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.
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SECTION 6.05. Salaries . The salaries of all officers and agents of the corporation shall be fixed by the Board of Directors or pursuant to its direction; and no officer shall be prevented from receiving such salary by reason of his also being a director.
SECTION 6.06. Chairman of the Board . The Chairman of the Board shall preside at all meetings of the Board of Directors and of the stockholders of the corporation. The Chairman shall formulate and submit to the Board of Directors or the Executive Committee matters of general policy for the corporation and shall perform such other duties as usually appertain to the office or as may be prescribed by the Board of Directors or the Executive Committee.
SECTION 6.07. President . The President shall be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control the business and affairs of the corporation. In the absence of the Chairman of the Board, the President shall preside at all meetings of the Board of Directors and of the stockholders. He may also preside at any such meeting attended by the Chairman if he is so designated by the Chairman. He shall have the power to appoint and remove subordinate officers, agents and employees, except those elected or appointed by the Board of Directors. The President shall keep the Board of Directors and the Executive Committee fully informed and shall consult them concerning the business of the corporation. He may sign with the Secretary or any other officer of the corporation thereunto authorized by the Board of Directors, certificates for shares of the corporation and any deeds, bonds, mortgages, contracts, checks, notes, drafts or other instruments that the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof has been expressly delegated by these bylaws or by the Board of Directors to some other officer or agent of the corporation, or shall be required by law to be otherwise executed. He shall vote, or give a proxy to any other officer of the corporation to vote, all shares of stock of any other corporation standing in the name of the corporation and in general he shall perform all other duties normally incident to the office of President and such other duties as may be prescribed by the stockholders, the Board of Directors or the Executive Committee from time to time.
SECTION 6.08. Vice Presidents . In the absence of the President, or in the event of his inability or refusal to act, the Executive Vice President (or in the event there shall be no Vice President designated Executive Vice President, any Vice President designated by the Board) shall perform the duties and exercise the powers of the President. Any Vice President may sign, with the Secretary or Assistant Secretary, certificates for shares of the corporation. The Vice Presidents shall perform such other duties as from time to time may be assigned to them by the President, the Board of Directors or the Executive Committee.
SECTION 6.09. Secretary . The Secretary shall (a) keep the minutes of the meetings of the stockholders, the Board of Directors and committees of directors; (b) see that all notices are duly given in accordance with the provisions of these bylaws and as required by law; (c) be custodian of the corporate records and of the seal of the corporation, and see that the seal of the corporation or a facsimile thereof is affixed to all certificates for shares prior to the issue thereof and to all documents, the execution of which on behalf of the corporation under its seal is duly authorized in accordance with the provisions of these bylaws; (d) keep or cause to be kept a register of the post office address of each stockholder which shall be furnished by such stockholder; (e) sign with the President, or an Executive Vice President or Vice President, certificates for shares of the corporation, the issue of which shall have been authorized by resolution of the Board of Directors; (f) have general charge of the stock transfer books of the corporation; and (g) in general, perform all duties normally incident to the office of Secretary and such other duties as from time to time may be assigned to him by the President, the Board of Directors or the Executive Committee.
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SECTION 6.10. Treasurer . If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. He shall (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of Section 7.03 of these bylaws; (c) prepare, or cause to be prepared, for submission at each regular meeting of the Board of Directors, at each annual meeting of the stockholders, and at such other times as may be required by the Board of Directors, the President or the Executive Committee, a statement of financial condition of the corporation in such detail as may be required; and (d) in general, perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the President, the Board of Directors or the Executive Committee.
SECTION 6.11. Assistant Secretary and Treasurer . The Assistant Secretaries and Assistant Treasurers shall, in general, perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President, the Board of Directors or the Executive Committee. The Assistant Secretaries and Assistant Treasurers shall, in the absence of the Secretary or Treasurer, respectively, perform all functions and duties which such absent officers may delegate, but such delegation shall not relieve the absent officer from the responsibilities and liabilities of his office. The Assistant Secretaries may sign, with the President or a Vice President, certificates for shares of the corporation, the issue of which shall have been authorized by a resolution of the Board of Directors. The Assistant Treasurers shall respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine.
CONTRACTS, CHECKS AND DEPOSITS
SECTION 7.01. Contracts . Subject to the provisions of Section 6.01, the Board of Directors may authorize any officer, officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.
SECTION 7.02. Checks . All checks, demands, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation, shall be signed by such officer or officers or such agent or agents of the corporation, and in such manner, as shall be determined by the Board of Directors.
SECTION 7.03. Deposits . All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select.
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CERTIFICATES OF STOCK
SECTION 8.01. Issuance . Each stockholder of this corporation shall be entitled to a certificate or certificates showing the number of shares of capital stock registered in his name on the books of the corporation. The certificates shall be in such form as may be determined by the Board of Directors, shall be issued in numerical order and shall be entered in the books of the corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the President or a Vice President and by the Secretary or an Assistant Secretary. If any certificate is countersigned (1) by a transfer agent other than the corporation or any employee of the corporation, or (2) by a registrar other than the corporation or any employee of the corporation, any other signature on the certificate may be a facsimile. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class of stock; provided that, except as otherwise provided by statute, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and rights. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares shall have been surrendered and canceled, except that in the case of a lost, stolen, destroyed or mutilated certificate a new one may be issued therefor upon such terms and with such indemnity, if any, to the corporation as the Board of Directors may prescribe. Certificates shall not be issued representing fractional shares of stock.
SECTION 8.02. Lost Certificates . The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require (1) the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require, (2) such owner to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate or certificates alleged to have been lost, stolen or destroyed, or (3) both.
SECTION 8.03. Transfers . Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Transfers of shares shall be made only on the books of the corporation by the registered holder thereof, or by his attorney thereunto authorized by power of attorney and filed with the Secretary of the corporation or the Transfer Agent.
SECTION 8.04. Registered Stockholders . The corporation shall be entitled to treat the holder of record of any share or shares of the corporation's capital stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.
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DIVIDENDS
SECTION 9.01. Declaration . Dividends with respect to the shares of the corporation's capital stock, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to applicable law. Dividends may be paid in cash, in property or in shares of capital stock, subject to the provisions of the Certificate of Incorporation.
SECTION 9.02. Reserve . Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interest of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
INDEMNIFICATION
SECTION 10.01. Third Party Actions . The corporation shall indemnify any director or officer of the corporation, and may indemnify any other person, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
SECTION 10.02. Actions by or in the Right of the Corporation . The corporation shall indemnify any director or officer and may indemnify any other person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the Court of Chancery or such other court shall deem proper.
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SECTION 10.03. Mandatory Indemnification . To the extent that a director, officer, employee or agent of the corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 10.01 and 10.02, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
SECTION 10.04. Determination of Conduct . The determination that a director, officer, employee or agent has met the applicable standard of conduct set forth in Sections 10.01 and 10.02 (unless indemnification is ordered by a court) shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders.
SECTION 10.05. Payment of Expenses in Advance . Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article X.
SECTION 10.06. Indemnity Not Exclusive . The indemnification and advancement of expenses provided or granted hereunder shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the Certificate of Incorporation, any other bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
SECTION 10.07. Definitions . For purposes of this Article X:
(a) "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger that, if its separate existence had continued, would have had power and authority to indemnify its directors, officers and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article X with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued;
(b) "other enterprises" shall include employee benefit plans;
(c) "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan;
(d) "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation that imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and
(e) a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Article X.
SECTION 10.08. Continuation of Indemnity . The indemnification and advancement of expenses provided or granted hereunder shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
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MISCELLANEOUS
SECTION 11.01. Seal . The corporate seal, if one is authorized by the Board of Directors, shall have inscribed thereon the name of the corporation, and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or otherwise reproduced.
SECTION 11.02. Books . The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at the offices of the corporation, or at such other place or places as may be designated from time to time by the Board of Directors.
AMENDMENT
Except as otherwise required by the Certificate of Incorporation, these bylaws may be altered, amended or repealed by a majority of the number of directors then constituting the Board of Directors at any regular meeting of the Board of Directors without prior notice, or at any special meeting of the Board of Directors if notice of such alteration, amendment or repeal be contained in the notice of such special meeting.
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SECRETARY'S CERTIFICATE OF ADOPTION OF
THE BYLAWS OF
PROS HOLDINGS, INC.
I hereby certify:
That I am the duly elected Secretary of PROS Holdings, Inc., a Delaware corporation;
That the foregoing Bylaws constitute the Bylaws of said corporation as duly adopted by the Board of Directors of the Corporation on August 29, 2002.
IN WITNESS WHEREOF, I have hereunder subscribed my name this 29th day of August, 2002.
/s/
CHARLES MURPHY
Charles Murphy, Secretary |
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Exhibit 10.1
PROS STRATEGIC SOLUTIONS, INC.
1997 STOCK OPTION PLAN
PROS STRATEGIC SOLUTIONS, INC.
1997 STOCK OPTION PLAN
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Section
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ARTICLE IPlan | |||
Purpose |
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1.1 |
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Effective Date of Plan | 1.2 | ||
ARTICLE IIDefinitions |
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Affiliate |
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2.1 |
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Board of Directors | 2.2 | ||
Code | 2.3 | ||
Committee | 2.4 | ||
Company | 2.5 | ||
Disability | 2.6 | ||
Fair Market Value | 2.7 | ||
Incentive Option | 2.8 | ||
Nonqualified Option | 2.9 | ||
Option | 2.10 | ||
Option Agreement | 2.11 | ||
Optionee | 2.12 | ||
Plan | 2.13 | ||
Retirement | 2.14 | ||
Stock | 2.15 | ||
10% Shareholder | 2.16 | ||
ARTICLE IIIEligibility |
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ARTICLE IVGeneral Provisions Relating to Options |
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Authority to Grant Options |
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4.1 |
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Dedicated Shares | 4.2 | ||
Non-Transferability | 4.3 | ||
Requirements of Law | 4.4 | ||
Changes in the Company's Capital Structure | 4.5 | ||
Market Stand-Off Agreement | 4.6 | ||
ARTICLE VOptions |
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Type of Option |
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5.1 |
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Option Price | 5.2 | ||
Duration of Options | 5.3 | ||
Amount ExercisableIncentive Options | 5.4 | ||
Exercise of Options | 5.5 | ||
Exercise on Termination of Employment | 5.6 | ||
Substitution Options | 5.7 | ||
No Rights as Shareholder | 5.8 | ||
ARTICLE VIAdministration |
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ARTICLE VIIAmendment or Termination of Plan |
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ARTICLE VIIIMiscellaneous |
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No Employment or Affiliation Obligation |
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8.1 |
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Forfeiture | 8.2 | ||
Tax Withholding | 8.3 | ||
Written Agreement | 8.4 | ||
Indemnification of the Committee and the Board of Directors | 8.5 | ||
Gender | 8.6 | ||
Headings | 8.7 | ||
Other Compensation Plans | 8.8 | ||
Other Options or Awards | 8.9 | ||
Governing Law | 8.10 |
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1.1 Purpose . This Plan is intended to advance the best interests of the Company, its Affiliates, and its shareholders by providing those persons who have substantial responsibility for the management and growth of the Company and its Affiliates with additional incentives and an opportunity to obtain or increase their proprietary interest in the Company, thereby encouraging them to continue to provide services to the Company or any of its Affiliates.
1.2 Effective Date of Plan. This Plan is effective May 1, 1997, if within one year of that date it shall have been approved by at least a majority vote of shareholders voting in person or by proxy at a duly held shareholders' meeting, or if the provisions of the Company's Articles of Incorporation or By-laws or applicable state law prescribes a greater degree of shareholder approval for this action, the approval by the holders of that percentage, at a duly held meeting of shareholders. No Incentive Option or Nonqualified Option shall be granted pursuant to this Plan after April 30, 2007.
The words and phrases defined in this Article shall have the meaning set out in these definitions throughout this Plan, unless the context in which any such word or phrase appears reasonably requires a broader, narrower, or different meaning.
2.1 "Affiliate" means any parent corporation and any subsidiary corporation. The term "parent corporation" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the action or transaction, each of the corporations other than the Company owns stock possessing more than 50% of the total combined voting power of all classes of stock in one of the other corporations in the chain. The term "subsidiary corporation" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the action or transaction, each of the corporations other than the last corporation in the unbroken chain owns stock possessing more than 50% of the total combined voting power of all classes of stock in one of the other corporations in the chain.
2.2 "Board of Directors" means the board of directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Committee" means the Board of Directors or a committee of the Board of Directors designated by the Board of Directors to administer the Plan.
2.5 "Company" means PROS Strategic Solutions, Inc., a Texas corporation.
2.6 "Disability" means the medically determinable mental or physical incapability of an employee to engage in any substantial gainful activity, which incapacity is reasonably expected to (or does in fact) continue for 12 months or more. If there is any disagreement between an employee and the Company with respect to whether such employee is disabled, then the Company and such employee shall obtain a determination from an impartial reputable physician selected for the purpose of making such determination, whose decision shall be binding upon all parties. If the Company and such employee cannot agree upon the selection of such physician, the then current president of the Harris County, Texas, Medical Society may make the selection of such physician, which selection shall be binding upon all parties and such physician's decision shall be binding upon all parties.
2.7 "Fair Market Value" of the Stock as of any date means the value of the Stock as determined by the Committee in its sole discretion.
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2.8 "Incentive Option" means an option granted under this Plan which is designated as an "Incentive Option" and satisfies the requirements of section 422 of the Code.
2.9 "Nonqualified Option" means an option granted under this Plan other than an Incentive Option.
2.10 "Option" means both an Incentive Option and a Nonqualified Option granted under this Plan to purchase shares of Stock.
2.11 "Option Agreement" means the written agreement that sets out the terms of an Option, as such written agreement may be amended from time to time.
2.12 "Optionee" means a person to whom an Option is granted.
2.13 "Plan" means the PROS Strategic Solutions, Inc. 1997 Stock Option Plan, as set out in this document and as it may be amended from time to time.
2.14 "Retirement" means retirement in good standing from the employ of the Company and all Affiliates under the rules of the Company in effect at the time of the Optionee's severance from employment with the Company and all Affiliates.
2.15 "Stock" means the common stock of the Company, or, in the event that the outstanding shares of common stock are later changed into or exchanged for a different class of stock or securities of the Company or another corporation, that other stock or security.
2.16 "10% Shareholder" means an individual who, at the time the Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any Affiliate. An individual shall be considered as owning the stock owned, directly or indirectly, by or for his brothers and sisters (whether by the whole or half blood), spouse, ancestors, and lineal descendants; and stock owned, directly or indirectly, by or for a corporation, partnership, estate, or trust, shall be considered as being owned proportionately by or for its shareholders, partners, or beneficiaries.
The individuals who shall be eligible to receive Incentive Options shall be those employees of the Company or any of its Affiliates as the Committee shall determine from time to time. The individuals who shall be eligible to receive Nonqualified Stock Options shall be such individuals as the Committee shall determine from time to time. The Board of Directors may designate one or more individuals who shall not be eligible to receive any Option under this Plan.
ARTICLE IV
General Provisions Relating to Options
4.1 Authority to Grant Options . The Committee may grant Options to persons selected by it in accordance with the terms and conditions of this Plan. Subject only to any applicable limitations set out in this Plan, the number of shares of Stock to be covered by any Option to be granted to an Optionee shall be as determined by the Committee.
4.2 Dedicated Shares. The total number of shares of Stock with respect to which Options may be granted under the Plan shall be 58,665 shares. The shares may be treasury shares or authorized but unissued shares. The number of shares stated in this Section 4.2 shall be subject to adjustment in accordance with the provisions of Section 4.5.
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In the event that any outstanding Option shall expire or terminate for any reason or any Option is surrendered, the shares of Stock allocable to the unexercised portion of that Option may again be subject to an Option under the Plan.
4.3 Non-Transferability. Options shall not be transferable by the Optionee otherwise than by will or under the laws of descent and distribution, and shall be exercisable, during the Optionee's lifetime, only by him.
4.4 Requirements of Law. The Company shall not be required to sell or issue any Stock under any Option if issuing that Stock would constitute or result in a violation by the Optionee or the Company of any provision of any law, statute, or regulation of any governmental authority. Specifically, in connection with any applicable statute or regulation relating to the registration of securities, upon exercise of any Option, the Company shall not be required to issue any Stock unless the Committee has received evidence satisfactory to it to the effect that the holder of that Option will not transfer the Stock except in accordance with applicable law, including receipt of an opinion of counsel satisfactory to the Company to the effect that any proposed transfer complies with applicable law. The determination by the Committee on this matter shall be final, binding and conclusive. The Company may, but shall in no event be obligated to, register any Stock covered by this Plan pursuant to applicable securities laws of any country or any political subdivision. In the event the Stock issuable on exercise of an Option is not registered, the Company may imprint on the certificate evidencing the Stock any legend that counsel for the Company considers necessary or advisable to comply with applicable law. The Company shall not be obligated to take any other affirmative action in order to cause the exercise of an Option and the issuance of shares thereunder, to comply with any law or regulation of any governmental authority.
4.5 Changes in the Company's Capital Structure. (a) The existence of outstanding Options shall not affect in any way the right or power of the Company or its shareholders to make or authorize any or all adjustments, recapitalizations, reorganizations or other changes in the Company's capital structure or its business, or any merger or consolidation of the Company, or any issue of bonds, debentures, preferred or prior preference stock ahead of or affecting the Stock or its rights, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(b) If the Company shall effect a subdivision or consolidation of shares or other capital adjustment of, or the payment of a dividend in capital stock or other equity securities of the Company on, Stock, or other increase or reduction of the number of shares of Stock without receiving consideration therefor in money, services, or property, or the reclassification of Stock, in whole or in part, into other equity securities of the Company, then (i) the number, class and per share price of shares of Stock subject to outstanding Options hereunder shall be appropriately adjusted (or in the case of the issuance of other equity securities as a dividend on, or in a reclassification of, Stock, the Options shall extend to such other securities) in such a manner as to entitle an Optionee to receive, upon exercise of an Option, for the same aggregate cash consideration, the same total number and class or classes of shares (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) he would have held after such adjustment if he had exercised his Option in full
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immediately prior to the event requiring the adjustment, or, if applicable, the record date for determining shareholders to be affected by such adjustment; and (ii) the number and class of shares then reserved for issuance under this Plan (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) shall be adjusted by substituting for the total number and class of shares of Stock then received, the number and class or classes of shares of Stock (or in the case of a dividend of, or reclassification into, other equity securities, such other securities) that would have been received by the owner of an equal number of outstanding shares of Stock as a result of the event requiring the adjustment. Comparable rights shall accrue to each Optionee in the event of successive subdivisions, consolidations, capital adjustments, dividends or reclassifications of the character described above.
(c) If (i) the Company shall not be the surviving entity in any merger, consolidation or other reorganization (or survives only as a subsidiary of an entity other than a previously wholly-owned subsidiary of the Company), (ii) the Company sells, leases or exchanges or agrees to sell, lease or exchange all or substantially all of its assets to any other person or entity (other than a wholly-owned subsidiary of the Company), or (iii) the Company is to be dissolved and liquidated (each such event is referred to herein as a "Corporate Change"), no later than ten (10) days after the approval by the shareholders of the Company of such merger, consolidation, reorganization, sale, lease or exchange of assets or dissolution, the Committee, acting in its sole discretion without the consent or approval of any Optionee, shall act to effect one or more of the following alternatives, which may vary among individual Optionees and which may vary among Options held by any individual Optionee: (1) accelerate the time at which Options then outstanding may be exercised so that such Options may be exercised in full for a limited period of time on or before a specified date (before or after such Corporate Change) fixed by the Committee, after which specified date all unexercised Options and all rights of Optionees thereunder shall terminate, (2) require the mandatory surrender to the Company by selected Optionees of some or all of the outstanding Options held by such Optionees (irrespective of whether such Options are then exercisable under the provisions of this Plan or the Option Agreements evidencing such Options) as of a date, before or after such Corporate Change, specified by the Committee, in which event the Committee shall thereupon cancel such Options and the Company shall pay to each Optionee an amount of cash per share equal to the excess, if any, of the per share price offered to shareholders of the Company in any such merger, consolidation, reorganization, sale of assets or dissolution transaction over the exercise price(s) under such Options for such shares, (3) make such adjustments to the number and class of shares then reserved for issuance under this Plan and/or to Options then outstanding as the Committee deems appropriate to reflect such Corporate Change, including, but not limited to, having Options then outstanding assumed by the corporation surviving as a result of such Corporate Change and/or having a new option substituted by such surviving corporation for Options then outstanding (provided, however, that the Committee may determine in its sole discretion that no such adjustment is necessary), or (4) provide that the number and class of shares of Stock covered by an Option theretofore granted shall be adjusted so that such Option shall thereafter cover the number and class of shares of stock or other securities or property (including, without limitation, cash) to which the Optionee would have been entitled pursuant to the terms of the agreement of merger, consolidation or sale of assets and dissolution if, immediately prior to such merger, consolidation or sale of assets and dissolution, the Optionee had been the holder of record of the number of shares of Stock then covered by such Option.
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(d) In the event of changes in the outstanding Stock by reason of recapitalizations, reorganizations, mergers, consolidations, combinations, exchanges or other relevant changes in capitalization occurring after the date of the grant of any Option and not otherwise provided for by this Section 4.5, any outstanding Options and any agreements evidencing such Options shall be subject to adjustment by the Committee at its discretion as to the number and price of shares of stock or other consideration subject to such Options. In the event of any such change in the outstanding Stock, the aggregate number of shares available under this Plan may be appropriately adjusted by the Committee, whose determination shall be conclusive.
(e) The issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, for cash or property, or for labor or services either upon direct sale or upon the exercise of rights or warrants to subscribe for them, or upon conversion of shares or obligations of the Company convertible into shares or other securities, shall not affect, and no adjustment by reason of such issuance shall be made with respect to, the number, class, or price of shares of Stock then subject to outstanding Options.
4.6 Market Stand-Off Agreement . In connection with any underwritten public offering after the effective date of this Plan pursuant to an effective registration statement under the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, as in effect from time to time (the "Securities Act"), covering the offering and sale of shares of Stock, or of any equity security that as a part of a unit includes Stock, for the account of the Company, an Optionee, if and to the extent requested in good faith by the Company and the managing underwriter of securities of the Company, shall agree not to sell or otherwise transfer or dispose of any shares of Stock held by him or her or acquired by him or her pursuant to the exercise of an Option (except shares of Stock included in the registration statement relating to such underwritten public offering) at any time during a period following the effective date of the registration statement relating to such underwritten public offering; provided , however , that in no event shall such period exceed 180 days. In order to enforce the foregoing covenant, subject to the foregoing exceptions, the Company may impose stop-transfer instructions with respect to such shares of Stock of an Optionee (and the securities of every other person subject to such restriction) until the end of such period. The provisions of this Section 4.6 shall apply until the earlier to occur of (i) five (5) years following the effective date of the "First Qualified Public Offering" (as hereinafter defined), or (ii) such time as an Optionee can sell all remaining shares of Stock held by him or her within a ninety (90) day period pursuant to Rule 144 or 145 under the Securities Act. For purposes of this Section 4.6, the term "First Qualified Public Offering" means a firm commitment underwriting that satisfies any requirement contained in the Company's charter document relating to the aggregate net proceeds attributable to sales for the account of the Company with respect to an underwritten public offering or, if the Company's charter document contains no such requirement, the first underwritten public offering of the Company for the sale of Stock of which the aggregate net proceeds attributable to sales for the account of the Company exceed $20,000,000.
5.1 Type of Option. The Committee shall specify whether a given Option shall constitute an Incentive Option or a Nonqualified Option.
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5.2 Option Price. The price at which Stock may be purchased under an Incentive Option shall not be less than the greater of: (a) 100% of the Fair Market Value of the shares of Stock on the date the Option is granted or (b) the aggregate par value of the shares of Stock on the date the Option is granted or, if the Shares are without par value on the date the Option is granted, such consideration, expressed in dollars, as may be fixed from time to time by the Board of Directors. The Committee in its discretion may provide that the price at which shares of Stock may be purchased under an Incentive Option shall be more than 100% of Fair Market Value. In the case of any 10% Shareholder, the price at which shares of Stock may be purchased under an Incentive Option shall not be less than 110% of the Fair Market Value of the Stock on the date the Incentive Option is granted.
The price at which shares of Stock may be purchased under a Nonqualified Option shall not be less than the greater of: (a) 80% of the Fair Market Value of the shares of Stock on the date the Option is granted or (b) the aggregate par value of the shares of Stock on the date the Option is granted or, if the Shares are without par value on the date the Option is granted, such consideration, expressed in dollars, as may be fixed from time to time by the Board of Directors. The Committee in its discretion may provide that the price at which shares of Stock may be purchased under a Nonqualified Option shall be more than 100% of Fair Market Value.
5.3 Duration of Options. No Option shall be exercisable after the expiration of ten (10) years from the date the Option is granted. In the case of a 10% Shareholder, no Incentive Option shall be exercisable after the expiration of five years from the date the Incentive Option is granted.
5.4 Amount ExercisableIncentive Options. Each Option may be exercised from time to time, in whole or in part, in the manner and subject to the conditions the Committee, in its sole discretion, may provide in the Option Agreement, as long as the Option is valid and outstanding. To the extent that the aggregate Fair Market Value (determined as of the time an Incentive Option is granted) of the Stock with respect to which Incentive Options first become exercisable by the Optionee during any calendar year (under this Plan and any other incentive stock option plan(s) of the Company or any Affiliate) exceeds $100,000, the Incentive Options shall be treated as Nonqualified Options. In making this determination, Incentive Options shall be taken into account in the order in which they were granted.
5.5 Exercise of Options. Each Option shall be exercised by the delivery of written notice to the Committee setting forth the number of shares of Stock with respect to which the Option is to be exercised, together with: (a) cash, certified check, bank draft, or postal or express money order payable to the order of the Company, (b) Stock at its Fair Market Value on the date of exercise, and/or (c) any other form of payment which is acceptable to the Committee, in each case for an amount equal to the exercise price of such shares, and specifying the address to which the certificates for such shares are to be mailed; provided , however , that any share of Stock delivered as payment, in whole or in part, of such exercise price must either (i) not have been acquired by the Optionee from the Company, or (ii) have been held by the Optionee for at least six (6) months prior to such exercise. As promptly as practicable after receipt of written notification and payment, the Company shall deliver to the Optionee certificates for such shares, issued in the Optionee's name. If shares of Stock are used in payment of the exercise price, the aggregate Fair Market Value of the shares of Stock tendered must be equal to or less than the aggregate exercise price of the shares being purchased upon exercise of the Option, and any difference must be paid by cash, certified check, bank draft or postal or express money order payable to the Company. Delivery of the shares shall be deemed effected for all purposes when a stock transfer agent of the Company shall have deposited the certificates in the United States mail, addressed to the Optionee, at the address specified by the Optionee in his notice of exercise.
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Whenever an Option is exercised by exchanging shares of Stock owned by the Optionee, the Optionee shall deliver to the Company certificates registered in the name of the Employee representing a number of shares of Stock legally and beneficially owned by the Optionee, free of all liens, claims, and encumbrances of every kind, accompanied by stock powers duly endorsed in blank by the record holder of the shares represented by the certificates, (with signature guaranteed by a commercial bank or trust company or by a brokerage firm having a membership on a registered national stock exchange). The delivery of certificates upon the exercise of Options is subject to the condition that the person exercising the Option provide the Company with the information the Company might reasonably request pertaining to exercise, sale or other disposition of an Option.
5.6 Exercise on Termination of Employment .
(a) Termination Other Than By Death or Disability . Unless it is expressly provided otherwise in the Option Agreement, each Option shall terminate on the earlier of the date of expiration of the Option or the date that is one day less than three months after the severance of the employment relationship between the Optionee and the Company and all Affiliates for any reason (including, but not limited to, Retirement), whether with or without cause, other than death or Disability (the earlier of such dates being referred to herein as the "Option Termination (Severance) Date"), and during such period the Optionee shall be entitled, at any time prior to the Option Termination (Severance) Date, to exercise the Option in respect of the number of shares that the Optionee would have been entitled to purchase had the Optionee exercised the Option immediately prior to such severance of employment. If such Optionee should die after such severance of employment and prior to the Option Termination (Severance) Date, any rights such Optionee may have to exercise the Option shall be exercisable by the Optionee's executors or administrators or the person or persons to whom the Option shall have been transferred by his will or by the laws of descent or distribution, as applicable, for the remainder of the period prior to the Option Termination (Severance) Date, unless it is expressly provided otherwise in the Option Agreement. Whether authorized leave of absence or absence on military or government service shall constitute severance of the employment of the Employee shall be determined by the Committee at that time.
In determining the employment relationship between the Company and the Employee, employment by any Affiliate shall be considered employment by the Company, as shall employment by a corporation issuing or assuming a stock option in a transaction to which Section 424(a) of the Code applies, or by a parent corporation or subsidiary corporation of the corporation issuing or assuming a stock option (and for this purpose, the phrase "corporation issuing or assuming a stock option" shall be substituted for the word "Company" in the definitions of parent corporation and subsidiary corporation in Section 2.1, and the parent-subsidiary relationship shall be determined at the time of the corporate action described in Section 424(a) of the Code).
(b) Death . If the Optionee, while in the employ of the Company and before the date of expiration of the Option, dies, the Option shall terminate on the earlier of the date of expiration of the Option or the date that is one day less than one year following the date of the Optionee's death (the earlier of such dates being referred to herein as the "Option Termination (Death) Date"), unless it is expressly provided otherwise in the Option Agreement. After the death of the Optionee while in the employ of the Company and before the Option Termination (Death) Date, the Optionee's executors or administrators or any person or persons to whom his Option shall have been transferred by his will or by the laws of descent and distribution, as applicable, shall have the right, at any time prior to the Option Termination (Death) Date, to exercise the Option in respect of the number of shares that the Optionee would have been entitled to purchase had he exercised the Option immediately prior to his death, unless it is expressly provided otherwise in the Option Agreement.
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(c) Disability . If, before the expiration of an Option, the Optionee shall be severed from the employ of the Company and all Affiliates for Disability, the Option shall terminate on the earlier of the date of expiration of the Option or the date that is one day less than one year after the date the Optionee was severed because of Disability (the earlier of such dates being referred to herein as the "Option Termination (Disability) Date"), unless it is expressly provided otherwise in the Option Agreement. Unless it is expressly provided otherwise in the Option Agreement, in the event that the Optionee shall be severed from the employ of the Company and all Affiliates for Disability, the Optionee shall have the right prior to the Option Termination (Disability) Date to exercise the Option in respect of the number of shares that the Optionee would have been entitled to purchase had the Optionee exercised the Option immediately prior to his severance of employment for Disability. If such Optionee should die after such severance of employment for Disability and prior to the Option Termination (Disability) Date, any rights such Optionee may have to exercise the Option shall be exercisable by his executors or administrators or the person or persons to whom the Option shall have been transferred by his will or by the laws of descent or distribution, as applicable, for the remainder of the period prior to the Option Termination (Disability) Date, unless it is expressly provided otherwise in the Option Agreement.
5.7 Substitution Options. Options may be granted under this Plan from time to time in substitution for stock options held by employees of other corporations who are about to become employees of or affiliated with the Company or any Affiliate as the result of a merger or consolidation of the employing corporation with the Company or any Affiliate, or the acquisition by the Company or any Affiliate of the assets of the employing corporation, or the acquisition by the Company or any Affiliate of stock of the employing corporation as the result of which it becomes an Affiliate of the Company. The terms and conditions of the substitute Options granted may vary from the terms and conditions set out in this Plan to the extent the Committee, at the time of grant, may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted.
5.8 No Rights as Shareholder. No Optionee shall have any rights as a shareholder with respect to Stock covered by his Option until the date a stock certificate is issued for the Stock.
This Plan shall be administered by the Committee. All questions of interpretation and application of this Plan and Options shall be subject to the determination of the Committee. A majority of the members of the Committee shall constitute a quorum. All determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be as effective as if it had been made by a majority vote at a meeting properly called and held. This Plan shall be administered in such a manner as to permit the Options granted under it that are designated to be Incentive Options to qualify as Incentive Options. In carrying out its authority under this Plan, the Committee shall have full and final authority and discretion, including but not limited to the following rights, powers and authorities, to:
(a) determine the individuals to whom and the time or times at which Options will be made,
(b) determine the number of shares and the purchase price of Stock covered in each Option, subject to the terms of this Plan,
(c) determine the terms, provisions and conditions of each Option, which need not be identical,
(d) accelerate the time at which any outstanding Option may be exercised,
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(e) prescribe, amend and rescind rules and regulations relating to administration of this Plan, and
(f) make all other determinations and take all other actions deemed necessary, appropriate, or advisable for the proper administration of this Plan.
The actions of the Committee in exercising all of the rights, powers, and authorities set out in this Article and all other Articles of this Plan, when performed in good faith and in its sole judgment, shall be final, conclusive and binding on all parties.
ARTICLE VII
Amendment or Termination of Plan
The Board of Directors of the Company may amend, terminate or suspend this Plan at any time, in its sole and absolute discretion; provided, however, that to the extent required to maintain the status of any Incentive Option under the Code, no amendment that would (a) change the aggregate number of shares of Stock that may be issued under Incentive Options, (b) change the class of employees eligible to receive Incentive Options, or (c) decrease the exercise price for Incentive Options below the Fair Market Value of the Stock at the time it is granted, shall be made without the approval of the holders of a majority of the outstanding shares of the Company's voting stock present in person or by proxy and entitled to vote thereon. Subject to the preceding sentence, the Board shall have the power to make any changes in this Plan and in the regulations and administrative provisions under it or in any outstanding Incentive Option as in the opinion of counsel for the Company may be necessary or appropriate from time to time to enable any Incentive Option granted under this Plan to continue to qualify as an incentive stock option or such other stock option as may be defined under the Code so as to receive preferential federal income tax treatment.
8.1 No Employment or Affiliation Obligation. The granting of any Option shall not constitute an employment or consulting contract, express or implied, nor impose upon the Company or any Affiliate any obligation to employ or to retain or to continue to retain the services of any Optionee. The right of the Company or any Affiliate to terminate the employment or retention of any person shall not be diminished or affected by reason of the fact that an Option has been granted to him.
8.2 Forfeiture . Notwithstanding any other provisions of this Plan, if during the time that an Optionee holds an Option the Committee finds by a majority vote after full consideration of the facts that the Optionee (a) committed or engaged in fraud, embezzlement, theft, commission of a felony, or proven dishonesty in the course of his employment by or affiliation with the Company or an Affiliate, which conduct damaged the Company or an Affiliate, or disclosed trade secrets of the Company or an Affiliate, or (b) participated, engaged in or had a material, financial or other interest, whether as an employee, officer, director, consultant, contractor, shareholder, owner, or otherwise, in any commercial endeavor anywhere in the world where the Company conducts business that is competitive with the business of the Company or an Affiliate without the written consent of the Company or such Affiliate, then the Optionee shall forfeit all outstanding Options, including all exercised Options pursuant to which the Company has not yet delivered a stock certificate. Clause (b) shall not be deemed to have been violated solely by reason of the Optionee's ownership of stock or securities of any publicly owned corporation, if that ownership does not result in effective control of such corporation.
The decision of the Committee as to the damage done to the Company or an Affiliate, and the extent of the Optionee's competitive activity shall be final.
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8.3 Tax Withholding. The Company or any Affiliate shall be entitled to deduct from other compensation payable to each Optionee who is an employee of the Company or an Affiliate any sums required by federal, state, or local tax law to be withheld with respect to the grant or exercise of an Option. In the alternative, the Company may require the Optionee (or other person exercising the Option) to pay the sum directly to the employer corporation. If the Optionee (or other person exercising the Option) is required to pay the sum directly, payment in cash or by check of such sums for taxes shall be delivered within 10 days after the date of exercise or lapse of restrictions. The Company shall have no obligation upon exercise of any Option until payment has been received, unless withholding (or offset against a cash payment) as of or prior to the date of exercise is sufficient to cover all sums due with respect to that exercise. The Company and its Affiliates shall not be obligated to advise an Optionee of the existence of the tax or the amount that the employer corporation will be required to withhold.
8.4 Written Agreement. Each Option shall be embodied in a written Option Agreement which shall be subject to the terms and conditions of this Plan and shall be signed by the Optionee and by a member of the Committee on behalf of the Committee and the Company. The Option Agreement may contain any other provisions that the Committee in its discretion shall deem advisable which are not inconsistent with the terms of this Plan.
8.5 Indemnification of the Committee and the Board of Directors. With respect to administration of this Plan, the Company shall indemnify each present and future member of the Committee and the Board of Directors against, and each member of the Committee and the Board of Directors shall be entitled without further act on his part to indemnity from the Company for, all expenses (including attorney's fees, the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of any action, suit, or proceeding in which he may be involved by reason of his being or having been a member of the Committee and/or the Board of Directors, whether or not he continues to be a member of the Committee and/or the Board of Directors at the time of incurring the expensesincluding, without limitation, matters as to which he shall be finally adjudged in any action, suit or proceeding to have been found to have been negligent in the performance of his duty as a member of the Committee of the Board of Directors. However, this indemnity shall not include any expenses incurred by any member of the Committee and/or the Board of Directors in respect of matters as to which he shall be finally adjudged in any action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as a member of the Committee or the Board of Directors. In addition, no right of indemnification under this Plan shall be available to or enforceable by any member of the Committee and the Board of Directors unless, within 60 days after institution of any action, suit or proceeding, he shall have offered the Company, in writing, the opportunity to handle and defend same at its own expense. This right of indemnification shall inure to the benefit of the heirs, executors or administrators of each member of the Committee and the Board of Directors and shall be in addition to all other rights to which a member of the Committee and the Board of Directors may be entitled as a matter of law, contract, or otherwise.
8.6 Gender . If the context requires, words of one gender when used in this Plan shall include the others and words used in the singular or plural shall include the other.
8.7 Headings . Headings of Articles and Sections are included for convenience of reference only and do not constitute part of this Plan and shall not be used in construing the terms of this Plan.
8.8 Other Compensation Plans . The adoption of this Plan shall not affect any other stock option, incentive or other compensation or benefit plans in effect for the Company or any Affiliate, nor shall this Plan preclude the Company from establishing any other forms of incentive or other compensation for employees of the Company or any Affiliate.
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8.9 Other Options . The grant of an Option shall not confer upon the Optionee the right to receive any future or other Options under this Plan, whether or not Options may be granted to similarly situated Optionees, or the right to receive future Options upon the same terms or conditions as previously granted.
8.10 Governing Law . The provisions of this Plan shall be construed, administered, and governed under the laws of the State of Texas.
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INCENTIVE STOCK OPTION AGREEMENT
PROS STRATEGIC SOLUTIONS, INC.
1997 STOCK OPTION PLAN
This INCENTIVE STOCK OPTION AGREEMENT (this "Agreement") is made between PROS Strategic Solutions, Inc., a Texas corporation (the "Company"), and (the "Employee"). The Company considers that its interests will be served by granting the Employee an option to purchase shares of common stock of the Company as an inducement for his continued and effective performance of services for the Company. The Board of Directors of the Company (the "Board") has adopted, and the shareholders have approved, the PROS Strategic Solutions, Inc. 1997 Stock Option Plan (the "Plan"), a copy of which is attached hereto and incorporated by reference herein. The Employee has been designated as a participant in the Plan. Terms that are not specifically defined in this Agreement shall have the meanings ascribed to them in the Plan.
IT IS AGREED:
1. (a) Subject to the terms of the Plan and this Agreement, as of , (the "Date of Grant"), the Company hereby grants to the Employee an incentive stock option (the "Option") to purchase shares of the common stock of the Company, no par value per share ("Stock"), at a price of $ per share, subject to adjustment as provided in the Plan (the "Option Price"). Subject to earlier expiration of the Option as herein provided, the Option is exercisable in accordance with the following schedule:
(1) the Option may not be exercised until the Employee has completed one year of continuous employment with the Company or any Affiliate following the Date of Grant;
(2) beginning on the day after the first anniversary of the Date of Grant, the Option may be exercised with respect to up to 1 / 5 of the shares subject to the Option;
(3) beginning on the day after the date that is one month after the first anniversary of the Date of Grant, and after the expiration of each succeeding one-month period, the Option may be exercised with respect to up to an additional 1/60th of the shares subject to the Option, so that after the expiration of the fifth anniversary of the Date of Grant, the Option shall be exercisable in full; and
(4) to the extent not exercised, installments shall be cumulative and may be exercised in whole or in part until the Option expires on the seventh anniversary of the Date of Grant.
(b) Notwithstanding the provisions of Section 1(a) hereof, the Option shall be fully exercisable upon the occurrence of any of the following on or after a "Change in Control" (as defined in Section 1(c)(1) hereof):
(1) the Employee's death;
(2) the Employee's Disability;
(3) the Employee's Retirement;
(4) the Employee's employment with the Company is terminated by the Company without "Cause" (as defined in Section 1(c)(2) hereof); or
(5) the Employee voluntarily terminates his employment with the Company for "Good Reason" (as defined in Section 1(c)(3) hereof).
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(c) As used in this Agreement, the following terms or phrases shall have the indicated meanings:
(1) "Change in Control" shall mean the occurrence of one or more of the following events:
(i) any person, entity, or "group", as such term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, (excluding, for this purpose, the Company, its subsidiaries, and the shareholders of the Company as of the date after the Date of Grant) becomes the beneficial owner, directly or indirectly, of fifty percent (50%) or more of either the then outstanding shares of Common Stock or the combined voting power of the Company's then outstanding voting securities entitled to vote;
(ii) as a result of a merger, consolidation, reorganization, recapitalization, exchange offer, acquisition of assets or stock, or other transaction (each, a "Major Corporate Event"), the persons who were the shareholders of the Company immediately prior to such Major Corporate Event do not, immediately thereafter, own more than fifty percent (50%) of the combined voting power of the outstanding voting securities of the surviving or resulting entity;
(iii) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company and its subsidiaries taken as a whole; or
(iv) the shareholders shall approve the dissolution of the Company.
(2) "Cause" shall mean the occurrence of any of the following events:
(i) the Employee is found guilty of, admits in writing facts amounting to, or is held civilly liable for fraud, embezzlement or dishonesty;
(ii) the Employee is convicted of a felony involving a crime of moral turpitude which through the lapse of time or otherwise is not subject to appeal;
(iii) the Employee knowingly discloses trade secrets or confidential Company information or matters to unauthorized persons;
(iv) the Employee willfully breaches or habitually neglects any duties the Employee is required to perform under the terms of the employment agreement or any other agreement or arrangement between the Employee and the Company then in effect and such breach or neglect is not cured within fifteen (15) days after the Company has provided the Employee with written notice of such breach or neglect; or
(v) the Employee materially breaches any of the other material terms of any employment agreement or any other agreement or arrangement between the Employee and the Company then in effect and any such breach is not cured within fifteen (15) days after the Company has provided the Employee with written notice of such breach.
(3) "Good Reason" shall mean the occurrence of any of the following events which is not cured by the Company within fifteen (15) days after the Employee has provided the Company with written notice of such event:
(i) the assignment to the Employee of any duties materially inconsistent with the Employee's position, authority, duties or responsibilities with the Company as established pursuant to the employment agreement or any other agreement or arrangement between the Employee and the Company then in effect;
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(ii) any reduction in the Employee's salary as established pursuant to the employment agreement or any other agreement or arrangement between the Employee and the Company then in effect;
(iii) the relocation of the Company's principal executive offices or the Employee's principal place of performance of his duties and responsibilities of employment with the Company to a location more than 50 miles outside of the central business district of the City of Houston, Texas; or
(iv) a material breach by the Company of any of its obligations to the Employee under the employment agreement or any other agreement or arrangement between the Employee and the Company then in effect.
2. Notwithstanding any other provision of this Agreement, this Option, to the extent not previously exercised, must be exercised in full or in an installment of not less than 500 shares of stock subject to the Option.
3. To the extent that the aggregate fair market value of Stock with respect to which incentive stock options are exercisable for the first time by the Employee during any calendar year (under the Plan or any other plan of the Company or its Affiliates) exceeds $100,000, the options will be treated as nonqualified stock options. For purposes of this rule, the fair market value of the Stock is determined at the time the option for the Stock is granted.
4. The Option granted to the Employee under this Agreement shall not be transferable or assignable by the Employee other than by will or the laws of descent and distribution, and shall be exercisable during the Employee's lifetime only by him.
5. Shares of Stock purchased pursuant to the exercise of the Option shall be subject to the terms and provisions of that certain Shareholders' Agreement dated May 1, 1997, among the Company and the shareholders of the Company that are parties thereto, as the same may be amended or restated from time to time (the "Shareholders Agreement"), including, but not limited to, any term or provision of the Shareholders Agreement that has survived the termination of the Shareholders Agreement and continues in effect at the time of such exercise. The Employee agrees that the Employee and the Employee's spouse, if any, will, on the first date of exercise of the Option, execute and deliver to the Company such documents and instruments as the Board of Directors of the Company, in its discretion, may require to evidence such persons' agreement to be bound by the terms and provisions of the Shareholders Agreement.
6. THE EMPLOYEE IS HEREBY NOTIFIED THAT IF HE DISPOSES OF STOCK TRANSFERRED TO HIM UPON HIS EXERCISE OF THIS OPTION WITHIN TWO YEARS AFTER THE DATE OF THE GRANTING OF THE OPTION OR WITHIN ONE YEAR AFTER THE TRANSFER OF THE STOCK TO HIM, ALL OR A PORTION OF HIS OPTION WILL BE TAXED AS IF IT WERE A NONQUALIFIED STOCK OPTION RATHER THAN AN INCENTIVE STOCK OPTION.
7. The Option may be exercised only while the Employee remains an employee of the Company or an Affiliate, except that:
(a) If, before the "Expiration Date" (as defined below), the employment relationship between the Employee and the Company and all Affiliates shall be severed for any reason (including, but not limited to, Retirement), whether with or without Cause, other than death or Disability, the Option shall terminate on the earlier of the Expiration Date or the date that is one day less than three months after such severance of employment (the earlier of such dates being referred to herein as the "Option Termination (Severance) Date"), and during such period the Employee shall be entitled, at any time prior to the Option Termination (Severance) Date, to exercise the Option
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in respect of the number of shares that the Employee would have been entitled to purchase had the Employee exercised the Option immediately prior to such severance of employment. If the Employee should die after such severance of employment and prior to the Option Termination (Severance) Date, any rights the Employee may have to exercise the Option shall be exercisable by his executors or administrators or the person or persons to whom the Option shall have been transferred by his will or by the laws of descent and distribution, as applicable, for the remainder of the period prior to the Option Termination (Severance) Date.
(b) If, before the Expiration Date, the Employee dies while in the employ of the Company or an Affiliate, the Option shall terminate on the earlier of the Expiration Date or the date that is one day less than one year following the date of his death (the earlier of such dates being referred to herein as the "Option Termination (Death) Date"), and during such period the Employee's executors or administrators or the person or persons to whom the Option shall have been transferred by his will or by the laws of descent and distribution, as applicable, shall have the right, at any time prior to the Option Termination (Death) Date, to exercise the Option in respect of the number of shares that the Employee would have been entitled to purchase had the Employee exercised the Option immediately prior to his death.
(c) If, before the Expiration Date, the Employee shall be severed from the employ of the Company and all Affiliates for Disability, the Option shall terminate on the earlier of the Expiration Date or the date that is one day less than one year after the date of such severance of employment because of Disability (the earlier of such dates being referred to herein as the "Option Termination (Disability) Date"), and during such period the Employee shall have the right, at any time prior to the Option Termination (Disability) Date, to exercise the Option in respect of the number of shares that the Employee would have been entitled to purchase had the Employee exercised the Option immediately prior to such severance of employment for Disability. If the Employee should die after such severance of employment for Disability and prior to the Option Termination (Disability) Date, any rights the Employee may have to exercise the Option shall be exercisable by his executors or administrators or the person or persons to whom the Option shall have been transferred by his will or by the laws of descent or distribution, as applicable, for the remainder of the period prior to the Option Termination (Disability) Date.
The Option shall terminate and shall not be exercisable in any event after , (the "Expiration Date"). In the event of the severance of the employment relationship between the Employee and the Company and all Affiliates for any reason, whether with or without Cause, and including death, Retirement or Disability, the Option shall in no event continue to vest after such severance of employment except as expressly provided otherwise in Section 1(b) hereof.
8. This Agreement may not be changed or terminated orally but only by an agreement in writing signed by the party against whom enforcement of any such change or termination is sought.
9. The Company shall not be deemed by the grant of the Option (as distinguished from a separate employment agreement, if any) to be required to employ the Employee for any period.
10. The Employee shall not have any rights as a shareholder with respect to any shares covered by the Option until the date of the issuance of the stock certificate or certificates to him for such shares following his exercise of the Option pursuant to its terms and conditions and payment for the shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the date such certificate or certificates are issued.
11. In the event of any difference of opinion concerning the meaning or effect of the Plan or this Agreement, such difference shall be resolved by the Committee referred to in the Plan.
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12. The validity, construction and performance of this agreement shall be governed by the laws of the State of Texas. Any invalidity of any provision of this Agreement shall not affect the validity of any other provision.
13. All offers, notices, demands, requests, acceptances or other communications hereunder shall be in writing and shall be deemed to have been duly made or given if mailed by registered or certified mail, return receipt requested. Any such notice mailed to the Company shall be addressed to its principal office, and any notice mailed to the Employee shall be addressed to the Employee's residence address as it appears on the books and records of the Company or to such other address as either party may hereafter designate in writing to the other.
14. This Agreement shall, except as herein stated to the contrary, inure to the benefit of and bind the legal representatives, successors and assigns of the parties hereto.
15. This Option is an incentive stock option which is intended to be governed by section 422 of the Internal Revenue Code of 1986, as amended.
16. In accepting this Option, the Employee accepts and agrees to be bound by all the terms and conditions of the Plan which pertain to incentive stock options granted under the Plan.
17. IN CONSIDERATION OF THE GRANT OF THE OPTION UNDER THIS AGREEMENT AND OTHER GOOD AND VALUABLE CONSIDERATION, THE RECEIPT AND SUFFICIENCY OF ALL OF WHICH ARE HEREBY ACKNOWLEDGED AND CONFESSED, (A) THE EMPLOYEE HEREBY ACKNOWLEDGES AND AGREES THAT THE OPTION GRANTED TO THE EMPLOYEE UNDER THIS AGREEMENT CONSTITUTE FULL AND COMPLETE SATISFACTION OF ANY AND ALL OBLIGATIONS OF THE COMPANY AND/OR ANY OF THE "WOESTEMEYER BUSINESSES" (AS HEREINAFTER DEFINED) TO PROVIDE THE EMPLOYEE WITH OPTIONS TO ACQUIRE SHARES OF STOCK OF, AND/OR OPPORTUNITIES TO PURCHASE SHARES OF STOCK OF, AND/OR TO OTHERWISE PROVIDE THE EMPLOYEE WITH EQUITY PARTICIPATION IN, THE COMPANY OR ANY OF THE WOESTEMEYER BUSINESSES, AND (B) THE EMPLOYEE HEREBY RELEASES, RELINQUISHES, ACQUITS, AND FOREVER DISCHARGES THE COMPANY AND THE WOESTEMEYER BUSINESSES AND THEIR RESPECTIVE DIRECTORS, OFFICERS, SHAREHOLDERS, MEMBERS, PARTNERS, OWNERS, MANAGERS, JOINT VENTURERS, AGENTS, EMPLOYEES, AFFILIATES, TRUSTEES, ATTORNEYS, HEIRS, SUCCESSORS, AND ASSIGNS FROM ANY AND ALL CLAIMS, DEMANDS, CAUSES OF ACTION, LOSSES, DEBTS, OBLIGATIONS AND LIABILITIES OF EVERY KIND, KNOWN AND UNKNOWN, WHETHER IN CONTRACT OR IN TORT, OR ARISING UNDER OR BY VIRTUE OF ANY STATUTE, REGULATION, OR JUDICIAL DECISION, FOR OR WITH RESPECT TO ANY ADDITIONAL OR FUTURE OPTIONS TO ACQUIRE SHARES OF STOCK OF, OPPORTUNITIES TO PURCHASE SHARES OF STOCK OF, OR OTHER RIGHTS TO EQUITY PARTICIPATION IN, THE COMPANY OR ANY OF THE WOESTEMEYER BUSINESSES, ALL OF WHICH ADDITIONAL OR FUTURE OPTIONS, OPPORTUNITIES, AND OTHER RIGHTS ARE HEREBY DECLARED TERMINATED, NULL, VOID, AND OF NO FURTHER FORCE OR EFFECT WHATSOEVER. AS USED HEREIN, THE TERM "WOESTEMEYER BUSINESSES" MEANS ANY AND ALL BUSINESS ENTITIES (INCLUDING, BUT NOT LIMITED TO, ANY CORPORATION, PARTNERSHIP, JOINT VENTURE, LIMITED LIABILITY COMPANY, ASSOCIATION, UNINCORPORATED SOLE PROPRIETORSHIP, OR OTHER BUSINESS ENTITY, OR ANY DIVISION, BRANCH OR SEGMENT OF ANY THEREOF) WHICH, DIRECTLY OR INDIRECTLY, THROUGH ONE OR MORE INTERMEDIARIES IS CONTROLLED BY RONALD F. WOESTEMEYER AND/OR MARIETTE MELCHIOR WOESTEMEYER, INCLUDING, BUT NOT LIMITED TO, PROS ENERGY TECHNOLOGIES CORPORATION (FORMERLY KNOWN AS PROS ENERGY TECHNOLOGIES, INC.), A TEXAS CORPORATION, AND PROS-AVIATION INTELLIGENCE, INC., A TEXAS CORPORATION.
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IN WITNESS WHEREOF , this Agreement has been duly executed and delivered to be effective as of the day and year first above written.
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PROS STRATEGIC SOLUTIONS, INC. |
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Exhibit 10.2
PROS Holdings, Inc.
1999 EQUITY INCENTIVE PLAN
1. Purposes.
(a) The purpose of the Plan is to provide a means by which selected Employees and Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock, and (v) Stock Appreciation Rights, all as defined below.
(b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees or Directors of or Consultants to the Company or its Affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Stock Awards issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either (i) Options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof, or (iii) Stock Appreciation Rights granted pursuant to Section 8 hereof. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option.
(a) "Affiliate" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in accordance with subsection 3(c) of the Plan.
(e) "Company" means PROS Holdings, Inc., a Delaware corporation.
(f) "Concurrent Stock Appreciation Right" or "Concurrent Right" means a right granted pursuant to subsection 8(b)(2) of the Plan.
(g) "Consultant" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors.
(h) "Continuous Status (or Continuous Service) as an Employee, Director or Consultant" means that the service of an individual to the Company or any Affiliate of the Company, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Board, or the chief executive officer of the Company, may determine, in that party's sole discretion, whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the chief executive officer of the Company, including sick leave, military leave, or any other personal leave; or (ii) transfers between the Company, Affiliates or their successors.
(i) "Covered Employee" means the chief executive officer and the other four highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
(j) "Director" means a member of the Board.
(k) "Employee" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(m) " Fair Market Value" means, as of any date, the value of the common stock of the Company determined as follows:
(1) If the common stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq Small Cap Market, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Company's common stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.
(2) In the absence of such markets for the common stock, the Fair Market Value shall be determined in good faith by the Board or the Committee.
(n) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(o) "Independent Stock Appreciation Right" or "Independent Right" means a right granted pursuant to subsection 8(b)(3) of the Plan.
(p) "Listing Date" means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange, or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system.
(q) "Non-Employee Director" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee" for purposes of Rule 16b-3.
(r) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option.
(s) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(t) "Option" means a stock option granted pursuant to the Plan.
(u) "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
(v) "Optionee" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(w) "Outside Director" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of the Treasury regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code.
(x) "Plan" means this 1999 Equity Incentive Plan.
(y) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect with respect to the Company at the time of discretion is being exercised regarding the Plan.
(z) "Securities Act" means the Securities Act of 1933, as amended.
(aa) "Stock Appreciation Right" means any of the various types of rights which may be granted under Section 8 of the Plan.
(bb) "Stock Award" means any right granted under the Plan, including any Option, any stock bonus, any right to purchase restricted stock, and any Stock Appreciation Right.
(cc) "Stock Award Agreement" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(dd) "Tandem Stock Appreciation Right" or "Tandem Right" means a right granted pursuant to subsection 8(b)(1) of the Plan.
(a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, a Stock Appreciation Right, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; whether a person shall be permitted to receive stock upon exercise of an Independent Stock Appreciation Right; and the number of shares with respect to which a Stock Award shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan or a Stock Award as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.
(c) The Board may delegate administration of the Plan to a committee of the Board composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee may be,
in the discretion of the Board, Non-Employee Directors and/or Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two (2) or more Outside Directors any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such a subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Stock Awards to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code.
4. Shares Subject to the Plan.
(a) Subject to the provisions of Section 13 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate Two Million, Two Hundred Seventy Thousand, Eight Hundred Fifty Eight Shares and no/100 (2,270,858.00) shares of the Company's common stock. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. Shares subject to Stock Appreciation Rights exercised in accordance with Section 8 of the Plan shall not be available for subsequent issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees. Stock Awards other than Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees, Directors or Consultants.
(b) No person shall be eligible for the grant of an Option or an award to purchase restricted stock if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant, or in the case of a restricted stock purchase award, the purchase price is at least one hundred percent (100%) of the Fair Market Value of such stock at the date of grant.
(c) Subject to the provisions of Section 13 relating to adjustments upon changes in stock, no person shall be eligible to be granted Options and Stock Appreciation Rights covering more than One Million Two Hundred Fifty Thousand (1,250,000) shares of the Company's common stock in any twelve (12) month period. This subsection 5(c) shall not apply prior to the Listing Date and, following the Listing Date, shall not apply until (i) the earliest of: (A) the first material modification of the Plan (including any increase to the number of shares reserved for issuance under the Plan in accordance with Section 4; (B) the issuance of all of the shares of common stock reserved for issuance under the Plan; (C) the expiration of the Plan; or (D) the first meeting of shareholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under section 12 of the Exchange Act; or (ii) such
other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.
Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted; the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
(c) Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement.
(d) Transferability. An Option shall not be transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person. The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary but in each case will provide for vesting of at least twenty percent (20%) per year of the total number of shares subject to the Option. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised.
(f) Termination of Employment or Relationship as a Director or Consultant. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period, which shall not be less than thirty (30) days, unless such termination is for cause, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.
An Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director, or Consultant (other than upon the Optionee's death or disability) would result in liability under Section 16(b) of the Exchange Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the tenth (10th) day after the last date on which such exercise would result in such liability under Section 16(b) of the Exchange Act. Finally, an Optionee's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (other than upon the Optionee's death or disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the first paragraph of this subsection 6(f), or (ii) the expiration of a period of three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant during which the exercise of the Option would not be in violation of such registration requirements.
(g) Disability of Optionee. In the event an Optionee's Continuous Status as an Employee Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.
(h) Death of Optionee. In the event of the death of an Optionee during, or within a period specified in the Option Agreement after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option as of the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan.
(i) Early Exercise. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased shall be subject to a repurchase right in favor of the Company, with the repurchase price to be equal to the original purchase price of the stock, or to any other restriction the Board determines to
be appropriate; provided, however, that (i) the right to repurchase at the original purchase price shall lapse at a minimum rate of twenty percent (20%) per year over five (5) years from the date the Option was granted, and (ii) such repurchase right shall be exercisable only within (A) the one hundred and twenty (120) day period following the termination of employment or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares. Should the right of repurchase be assigned by the Company, the assignee shall pay the Company cash equal to the difference between the original purchase price and the stock's Fair Market Value if the original purchase price is less than the stock's Fair Market Value.
(j) Right of Repurchase. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however, that (i) such repurchase right shall be exercisable only within (A) the one hundred and twenty (120) day period following the termination of employment or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee's consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the greater of (A) the stock's Fair Market Value at the time of such termination or (B) the original purchase price paid for such shares by the Optionee. Should the right of repurchase be assigned by the Company, the assignee shall pay the Company cash equal to the difference between the original purchase price and the stock's Fair Market Value if the original purchase price is less than the stock's Fair Market Value.
(k) Right of First Refusal. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionee of the intent to transfer all or any part of the shares exercised pursuant to the Option.
(l) Re-Load Options. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option which is granted to a 10% shareholder (as described in subsection 5(b)), shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years.
Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board or Committee may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 12(e) of the Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under subsection 4(a) and the limits on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options.
7. Terms of Stock Bonuses and Purchases of Restricted Stock.
Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate:
(a) Purchase Price. The purchase price under each restricted stock purchase Stock Award Agreement shall be such amount as the Board or Committee shall determine and designate in such agreement, but in no event shall the purchase price be less than eighty-five percent (85%) of the stock's Fair Market Value on the date such award is made. Notwithstanding the foregoing, the Board or the Committee may determine that eligible participants in the Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit.
(b) Transferability. Rights under a stock bonus or restricted stock purchase agreement shall be transferable by the grantee only upon such terms and conditions as are set forth in the applicable Stock Award Agreement, as the Board or the Committee shall determine in its discretion, so long as stock awarded under such Stock Award Agreement remains subject to the terms of the agreement.
(c) Consideration. The purchase price of stock acquired pursuant to a stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or the Committee, according to a deferred payment or other arrangement with the person to whom the stock is sold; or (iii) in any other form of legal consideration that may be acceptable to the Board or the Committee in its discretion. Notwithstanding the foregoing, the Board or the Committee to which administration of the Plan has been delegated may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit.
(d) Vesting. Shares of stock sold or awarded under the Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or the Committee. The applicable agreement shall provide that (i) the right to repurchase at the original purchase price shall lapse at a minimum rate of twenty percent (20%) per year over five (5) years from the date the Stock Award was granted, and (ii) such right shall be exercisable only (A) within the one hundred and twenty (120) day period following the termination of employment or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the holder of the Stock Award (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares.
(e) Termination of Employment or Relationship as a Director or Consultant. In the event a Participant's Continuous Status as an Employee, Director or Consultant terminates, the Company may repurchase or otherwise reacquire, subject to the limitations described in subsection 7(d), any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person.
(a) The Board or Committee shall have full power and authority, exercisable in its sole discretion, to grant Stock Appreciation Rights under the Plan to Employees or Directors of or Consultants to the Company or its Affiliates. To exercise any outstanding Stock Appreciation Right, the holder must
provide written notice of exercise to the Company in compliance with the provisions of the Stock Award Agreement evidencing such right. Except as provided in subsection 5(c), no limitation shall exist on the aggregate amount of cash payments the Company may make under the Plan in connection with the exercise of a Stock Appreciation Right.
(b) Three types of Stock Appreciation Rights shall be authorized for issuance under the Plan:
(1) Tandem Stock Appreciation Rights. Tandem Stock Appreciation Rights will be granted appurtenant to an Option, and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. Tandem Stock Appreciation Rights will require the holder to elect between the exercise of the underlying Option for shares of stock and the surrender, in whole or in part, of such Option for an appreciation distribution. The appreciation distribution payable on the exercised Tandem Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the Option surrender) in an amount up to the excess of (A) the Fair Market Value (on the date of the Option surrender) of the number of shares of stock covered by that portion of the surrendered Option in which the Optionee is vested over (B) the aggregate exercise price payable for such vested shares.
(2) Concurrent Stock Appreciation Rights. Concurrent Rights will be granted appurtenant to an Option and may apply to all or any portion of the shares of stock subject to the underlying Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. A Concurrent Right shall be exercised automatically at the same time the underlying Option is exercised with respect to the particular shares of stock to which the Concurrent Right pertains. The appreciation distribution payable on an exercised Concurrent Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the exercise of the Concurrent Right) in an amount equal to such portion as shall be determined by the Board or the Committee at the time of the grant of the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Concurrent Right) of the vested shares of stock purchased under the underlying Option which have Concurrent Rights appurtenant to them over (B) the aggregate exercise price paid for such shares.
(3) Independent Stock Appreciation Rights. Independent Rights will be granted independently of any Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to Nonstatutory Stock Options as set forth in Section 6. They shall be denominated in share equivalents. The appreciation distribution payable on the exercised Independent Right shall be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Independent Right) of a number of shares of Company stock equal to the number of share equivalents in which the holder is vested under such Independent Right, and with respect to which the holder is exercising the Independent Right on such date, over (B) the aggregate Fair Market Value (on the date of the grant of the Independent Right) of such number of shares of Company stock. The appreciation distribution payable on the exercised Independent Right shall be in cash or, if so provided, in an equivalent number of shares of stock based on Fair Market Value on the date of the exercise of the Independent Right.
9. Cancellation and Re-Grant of Options.
(a) The Board or the Committee shall have the authority to effect, at any time and from time to time, (i) the repricing of any outstanding Options and/or any Stock Appreciation Rights under the Plan and/or (ii) with the consent of the affected holders of Options and/or Stock Appreciation Rights, the cancellation of any outstanding Options and/or any Stock Appreciation Rights under the Plan and the grant in substitution therefor of new Options and/or Stock Appreciation Rights under the Plan covering the same or different numbers of shares of stock, but having an exercise price per share not less than eighty-five percent (85%) of the Fair Market Value (one hundred percent (100%) of the Fair Market
Value in the case of an Incentive Stock Option) or, in the case of a 10% shareholder (as described in subsection 5(b)), not less than one hundred ten percent (110%) of the Fair Market Value) per share of stock on the new grant date. Notwithstanding the foregoing, the Board or the Committee may grant an Option and/or Stock Appreciation Right with an exercise price lower than that set forth above if such Option and/or Stock Appreciation Right is granted as part of a transaction to which section 424(a) of the Code applies.
(b) Shares subject to an Option or Stock Appreciation Right canceled under this Section 9 shall continue to be counted against the maximum award of Options and Stock Appreciation Rights permitted to be granted pursuant to subsection 5(c) of the Plan. The repricing of an Option and/or Stock Appreciation Right under this Section 9, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option and/or Stock Appreciation Right and the grant of a substitute Option and/or Stock Appreciation Right; in the event of such repricing, both the original and the substituted Options and Stock Appreciation Rights shall be counted against the maximum awards of Options and Stock Appreciation Rights permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions of this subsection 9(b) shall be applicable only to the extent required by Section 162(m) of the Code.
(a) During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of stock required to satisfy such Stock Awards.
(b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Stock Award; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Stock Award or any stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Stock Awards unless and until such authority is obtained.
11. Use of Proceeds from Stock.
Proceeds from the sale of stock pursuant to Stock Awards shall constitute general funds of the Company.
(a) The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest pursuant to subsection 6(e), 7(d) or 8(b), notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.
(b) Neither an Employee, Director or Consultant nor any person to whom a Stock Award is transferred under subsection 6(d), 7(b), or 8(b) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms.
(c) Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Employee, Director, Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without cause, the right of the Company's Board of Directors and/or the Company's shareholders to remove any Director as provided in the Company's By-Laws and the
provisions of the Delaware General Corporation Law, or the right to terminate the relationship of any Consultant subject to the terms of such Consultant's agreement with the Company or Affiliate.
(d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options.
(e) The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred pursuant to subsection 6(d), 7(b) or 8(b), as a condition of exercising or acquiring stock under any Stock Award, (1) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock.
(f) To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the Stock Award; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company.
13. Adjustments upon Changes in Stock.
(a) In the event of:
(1) any merger or consolidation (regardless of whether the Company is the surviving entity) except for a merger or consolidation for the sole purpose of changing the state of incorporation of the Company and except for a merger or consolidation that does not result in the stockholders of the Company before such event retaining, directly or indirectly, less than a majority of the voting stock of the surviving or resulting corporation;
(2) a sale of all or substantially all of the assets of the Company; or
(3) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged except for a reorganization that does not result in the stockholders of the Company before such event retaining, directly or indirectly, less than a majority of the voting stock of the reorganized corporation
(each of (1), (2) and (3) being a "Change in Control") then: (i) any surviving corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar Stock Awards for those outstanding under the Plan, or (ii) such Stock Awards shall continue in full force and effect. In the event any surviving corporation refuses to assume or continue such Stock Awards, or to substitute
similar stock awards for those outstanding under the Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants for the Company, the time at which such Stock Awards may first be exercised shall be accelerated and the Stock Awards terminated if not exercised prior to such event. In addition, the Option may, but need not, include a provision whereby the Option shall in any event be accelerated in full and become fully and immediately vested and exercisable immediately before the occurrence of a Change in Control. In the event of a dissolution or liquidation of the Company, any Stock Awards outstanding under the Plan shall terminate if not exercised prior to such event.
(b) In addition, with respect to any person who was providing Continuous Service as an Employee, Director or Consultant immediately prior to the consummation of the Change in Control, any Stock Awards held by such person shall immediately become fully vested and exercisable (and any repurchase right by the Company with respect to shares acquired by such person under an Option shall lapse) if such person is Involuntarily Terminated Without Cause or Constructively Terminated within eighteen (18) months following the Change in Control. Notwithstanding the preceding sentence, in the event all of the following occurs: (i) such contemplated Change in Control would occur prior to the date two (2) years following the adoption of this Section 13(b); (ii) such potential acceleration of vesting (and exercisability) would by itself result in a contemplated Change in Control that would otherwise be eligible to be accounted for as a "pooling of interests" accounting transaction to become ineligible for such accounting treatment; and (iii) the potential acquiror of the Company desires to account for such contemplated Change in Control as a "pooling of interests" transaction, then such acceleration shall not occur unless otherwise expressly provided in an Option. Additionally, in the event that the restrictions upon acceleration provided for in the immediately preceding sentence by itself would result in a contemplated Change in Control to become ineligible to be accounted for as a "pooling of interests" accounting transaction, then such restrictions shall be deemed inoperative. Accounting issues shall be determined by the Company's independent public accountants applying generally accepted accounting principles.
For purposes of the Plan, Constructively Terminated shall mean the voluntary termination of employment by Stock Award recipient after a reduction by the Company in Stock Award recipient's base salary of fifteen percent (15%) or greater without Stock Award recipient's express written consent.
For purposes of the Plan, Involuntarily Terminated Without Cause shall mean dismissal or discharge of Stock Award recipient for any reason other than Cause, death or Disability.
For purposes of the Plan, Cause shall mean any of the following: (a) an intentional act which materially injures the Company; (b) an intentional refusal or failure to follow lawful and reasonable directions of the Board or an individual to whom participant reports (as appropriate); (c) a willful and habitual neglect of duties; or (d) a conviction of a felony involving moral turpitude which is reasonably likely to inflict or has inflicted material injury on the Company.
14. Amendment of the Plan and Stock Awards.
(a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 13 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for Stock Awards under the Plan;
(2) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires shareholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification requires shareholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3.
(b) The Board may in its sole discretion submit any other amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.
(d) Rights and obligations under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing.
15. Termination or Suspension of the Plan.
(a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate ten (10) years from the date the Plan is adopted by the Board or approved by the shareholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the written consent of the person to whom the Stock Award was granted.
The Plan shall become effective as determined by the Board, but no Stock Awards granted under the Plan shall be exercised unless and until the Plan has been approved by the shareholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.
PROS HOLDINGS, INC.
1999 EQUITY INCENTIVE PLAN
INCENTIVE STOCK OPTION GRANT
, Optionee:
PROS Holdings, Inc., a Delaware corporation (the "Company"), pursuant to its 1999 Equity Incentive Plan (the "Plan"), has granted to you, the Optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
The grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers) directors or consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). Defined terms not explicitly defined in this agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. Total Number of Shares Subject to this Option. The total number of shares of Common Stock subject to this option is .
2. Vesting. Subject to the limitations contained herein, twenty-five percent (25%) of the shares will vest (become exercisable) on , and the shares will then vest twenty-five percent (25%) each thereafter until either (i) you cease to provide services to the Company for any reason, or (ii) this option becomes fully vested.
3. Exercise Price And Method Of Payment.
(a) Exercise Price. The exercise price of this option is ($ ) per share, being not less than the fair market value of the Common Stock on the date of grant of this option.
(b) Method of Payment. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's Common Stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of already-owned shares of Common Stock, held for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interests, which Common Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
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4. Whole Shares. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.
5. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act.
6. Term. The term of this option commences on , the date of grant, and expires on (the "Expiration Date," which date shall be no more than ten (10) years from the date this option is granted), unless this option expires sooner as set forth below or in the Plan. In no event may this option be exercised on or after the Expiration Date. This option shall terminate prior to the Expiration Date as follows: three (3) months after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director, or Consultant is due to your disability (within the meaning of Section 422(c)(6) of the Code). This option will then expire on the earlier of the Expiration Date set forth above or twelve (12) months following such termination of Continuous Status as an Employee, Director or Consultant.
(b) Your termination of Continuous Status as an Employee, Director or Consultant is due to your death or your death occurs within three (3) months following your termination of Continuous Status as an Employee, Director or Consultant for any other reason. This option will then expire on the earlier of the Expiration Date set forth above or six (6) months after your death.
(c) If during any part of such three (3) months period you may not exercise your option solely because of the condition set forth in paragraph 5 above, then your option will not expire until the earlier of the Expiration Date set forth above or until this option shall have been exercisable for an aggregate period of three (3) months after your termination of the Continuous Status as an Employee, Director, or Consultant.
(d) If your exercise of the option within three (3) months after termination of your Continuous Status as an Employee, Director, or Consultant with the Company or with an Affiliate of the Company would result in liability under section 16(b) of the Securities Exchange Act of 1934, then your option will expire on the earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day after the last date upon which exercise would result in such liability or (iii) six (6) months and ten (10) days after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company.
However, this option may be exercised following termination of Continuous Status as an Employee, Director or Consultant only as to that number of shares as to which it was exercisable on the date of termination of Continuous Status as an Employee, Director or Consultant under the provisions of paragraph 2 of this option.
In order to obtain the federal income tax advantages associated with an "incentive stock option," the Code requires that at all times beginning on the date of grant of the option and ending on the day three (3) months before the date of the option's exercise, you must be an employee of the Company or an Affiliate of the Company, except in the event of your death or permanent and total disability. The Company has provided for continued vesting or extended exercisability of your option under certain circumstances for your benefit, but cannot guarantee that your option will necessarily be treated as an "incentive stock option" if you provide services to the Company or an Affiliate of the Company as a consultant or exercise your option more than three (3) months after the date your employment with the Company and all Affiliates of the Company terminates.
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7. Exercise.
(a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subsection 12(e) of the Plan.
(b) By exercising this option, you agree that:
(i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the "Effective Date") of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. You further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.
8. Right of Repurchase; Right of First Refusal.
(a) The Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however , that (i) such repurchase right shall be exercisable only within (A) the one hundred and twenty (120) day period following the termination of employment or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee's consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the greater of (A) the stock's Fair Market Value at the time of such termination or (B) the original purchase price paid for such shares by the Optionee. Such right of repurchase may be assigned by the Company.
(b) If the Company does not elect to exercise its right of repurchase under Section 8(a) above, and at any time thereafter but prior to the Listing Date the Optionee (including any permitted transferee of the Optionee's shares under Section 8(c)) receives a bona fide offer to purchase all or any of the vested shares exercised pursuant to the Option (the "Offer") from a third party other than a permitted transferee of his shares under Section 8(c) (the "Offeror")
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which the Optionee wishes to accept, the Optionee may transfer such shares pursuant to and in accordance with the following provisions:
(i) the Optionee shall cause the Offer to be reduced to writing and shall notify the Company in writing of his or her desire to accept the Offer and otherwise comply with the provisions of this Section 8(b). The Optionee's notice shall constitute an irrevocable offer to sell such shares to the Company at a price equal to the price contained in, and on the same terms and conditions of, the Offer. The notice shall be accompanied by a true copy of the Offer (which shall identify the Offeror).
(ii) the Company shall have the right to offer to purchase all, but not less than all, of the shares covered by the Offer. To exercise such right, the Company shall, within fifteen (15) days of receipt of such written notice, communicate in writing such election to the Optionee. Such written election to purchase shall constitute a valid, legally binding and enforceable agreement for the sale and purchase of all of the shares covered by the Offer.
(c) Permitted transfers by an Optionee are (i) transfers to the Optionee's spouse or children, to a trust of which the Optionee is the settlor or a trustee for the benefit of his spouse or children, and (ii) transfers upon an Optionee's death to his heirs, executors or administrators or to a trust under his or her will or to his or her guardian or conservator, provided that in any such case the transferee shall have entered into an enforceable written agreement providing that all shares so transferred shall continue to be subject to the provisions of Section 8(b) and (c) as if such shares were still held by the Optionee, and provided further that such permitted transferee shall not be permitted to make any further transfers without complying with the provisions of Section 8(b) and (c). Anything to the contrary herein notwithstanding, transferees permitted by this Section 8(c) shall take any shares so transferred subject to all obligations under Section 8(b) and (c) as if such shares were still held by the Optionee whether or not such transferees so expressly agree.
9. Transferability. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option.
10. Option Not a Service Contract. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. In addition, nothing in this option shall obligate the Company or any Affiliate of the Company, or their respective stockholders, Board of Directors, officers or employees to continue any relationship which you might have as a Director or Consultant for the Company or Affiliate of the Company.
11. Notices. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company.
12. Governing Plan Document. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 6 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control.
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Dated the day of .
Very truly yours, | |||
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By: |
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Duly authorized on behalf of the Board of Directors |
Attachments:
PROS Holdings, Inc. 1999 Equity Incentive Plan
Notice of Exercise
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned Optionee and the Company and its Affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only:
NONE
(Initial Here if No Other Agreements) |
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OTHER
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(If Other Agreements Please Identify Here) |
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Signature: |
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Printed Name: |
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Address: |
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PROS HOLDINGS, INC. | ||
3100 Main Street, Suite 900 | ||
Houston, Texas 77002-9312 | Date of Exercise: _______________________________ |
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.
Type of option (check one): | Incentive o | Nonstatutory o | ||
Stock option dated: |
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________________________ |
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Number of shares as to which option is exercised: |
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________________________ |
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Certificates to be issued in name of: |
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________________________ |
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Total exercise price: |
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$ ________________________ |
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Cash payment delivered here with: |
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$ ________________________ |
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Value of shares of PROS HOLDINGS, INC.: |
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$ ________________________ |
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By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 1999 Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and are deemed to constitute "restricted securities" under Rule 701 and "control securities" under Rule 144 promulgated under the Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least ninety days after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge and agree that under the provisions of the Option, the Company may elect, prior to the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange, or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system (the "Listing Date"), to repurchase all or any part of the Shares on the terms and conditions provided in the Option and that
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such right of repurchase may be assigned by the Company. I further acknowledge and agree that if the Company does not elect to exercise such right of repurchase, and at any time thereafter but prior to the Listing Date, I (including any permitted transferee of the Shares under the provisions of the Option) receive a bona fide offer to purchase all or any of the Shares from a third party (other than such a permitted transferee) which I wish to accept, I may only transfer such Shares pursuant to and in accordance with the provisions of the Option which provide the Company with a right of first refusal.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws, and/or applicable securities laws.
I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Act, I will not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Act (the "Effective Date") as may be requested by the Company or the representative of the underwriters. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.
Very truly yours, | |||
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Printed Name |
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Exhibit 10.4
PROS Strategic Solutions, Inc.
STOCK PURCHASE
AND STOCKHOLDERS AGREEMENT
As of June 8, 1998
EXHIBITS
A. | Investors | |
B. | Certificate of Incorporation; Certificate of Designation | |
C. | Selling Stockholders | |
D. | Repurchase Agreement | |
E. | Disclosure Exceptions | |
F. | Indemnification Agreement | |
G. | Opinion of Counsel (Company) | |
H. | Release and Settlement Agreement |
SCHEDULES
SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION | 1 | ||||
1.1 | Description of Securities | 1 | |||
1.2 | Sale and Purchase; Redemption | 1 | |||
1.3 | Closing | 2 | |||
SECTION 2. REPRESENTATIONS AND WARRANTIES |
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2 |
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2.1 | Organization and Corporate Power | 2 | |||
2.2 | Authorization and Non-Contravention | 2 | |||
2.3 | Capitalization | 3 | |||
2.4 | Subsidiaries; Investments | 4 | |||
2.5 | Financial Statements and Matters | 4 | |||
2.6 | Absence of Undisclosed Liabilities | 5 | |||
2.7 | Absence of Certain Developments | 5 | |||
2.8 | Ordinary Course | 5 | |||
2.9 | Receivables | 5 | |||
2.10 | Title to Properties | 5 | |||
2.11 | Tax Matters | 6 | |||
2.12 | Certain Contracts and Arrangements | 6 | |||
2.13 | Intellectual Property Rights; Employee Restrictions | 7 | |||
2.14 | Litigation | 8 | |||
2.15 | Employee Benefit Plans | 8 | |||
2.16 | Labor Laws | 9 | |||
2.17 | Key Employees | 9 | |||
2.18 | Hazardous Waste, Etc | 9 | |||
2.19 | Business; Compliance with Laws | 9 | |||
2.20 | Investment Banking; Brokerage | 9 | |||
2.21 | Insurance | 9 | |||
2.22 | Transactions with Affiliates | 10 | |||
2.23 | Customers and Distributors | 10 | |||
2.24 | Disclosure | 10 | |||
2.25 | Qualified Small Business Stock | 10 | |||
2.26 | Consolidation and Reincorporation Effective. | 10 | |||
SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS |
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SECTION 3. CONDITIONS OF PURCHASE |
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12 |
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3.1 | Satisfaction of Conditions | 12 | |||
3.2 | Director Election and Indemnification | 12 | |||
3.3 | Opinions of Counsel | 12 | |||
3.4 | Reincorporation | 12 | |||
3.5 | Authorization | 12 | |||
3.6 | Investors' Fees | 12 | |||
3.7 | No Violation or Injunction | 12 | |||
3.8 | Consents and Waivers | 12 | |||
3.9 | Repurchase Agreement | 13 | |||
3.10 | Repayment of Company Loans | 13 | |||
3.12 | Securities Compliance | 13 | |||
SECTION 4. COVENANTS |
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13 |
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4.1 | Financial Statements and Budget Information; Inspections | 13 | |||
4.2 | Indemnification; Insurance | 13 | |||
4.3 | Board of Directors | 14 | |||
4.4 | Restrictive Covenants | 14 | |||
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STOCK PURCHASE
AND STOCKHOLDERS AGREEMENT
STOCK PURCHASE AND STOCKHOLDERS AGREEMENT ("Agreement") made as of this 8th day of June, 1998, by and among PROS Strategic Solutions, Inc., a Delaware corporation (together with any predecessors or successors thereto and, subject to Section 2, the " Company "), Ronald F. Woestmeyer, Mariette M. Woestmeyer and Robert Salter (collectively the "Stockholders" and individually a " Stockholder "), and the investment partnerships and other investors named in Exhibit A hereto (together with their successors and assigns, collectively the " Investors ," and each individually an " Investor ").
WHEREAS, the majority of the outstanding shares of the Company's capital stock prior to the date hereof are owned by the Stockholders; and
WHEREAS, the Company has authorized the issuance and sale to the Investors of a total of 3,921,312 shares of Series A Convertible Redeemable Preferred Stock, par value $0.001 per share (" Convertible Preferred Stock "), having the rights and preferences set forth in Exhibit B for an aggregate purchase price of $25 million;
WHEREAS, the Company has agreed to repurchase and certain Stockholders named in Exhibit C hereto (the " Selling Stockholders ") have agreed to sell to the Company, an aggregate of 784,262 shares of the Company's Common Stock, par value $0.001 per share (" Common Stock "), for an aggregate purchase price of $5 million; and
WHEREAS, the parties hereto desire to set forth the terms of their ongoing relationship in connection with the Company.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF SHARES; REDEMPTION
1.1 Description of Securities . The Company's authorized capital stock consists of Common Stock, Convertible Preferred Stock and Redeemable Preferred Stock, par value $.001 per share (the " Redeemable Preferred Stock "). The Convertible Preferred Stock and the Redeemable Preferred Stock have the rights, preferences and other terms set forth in Exhibit B . For purposes of this Agreement, the shares of Convertible Preferred Stock to be acquired by the Investors from the Company hereunder are referred to as the " Convertible Preferred Shares ," the shares of Redeemable Preferred Stock and Common Stock issuable upon conversion of the Convertible Preferred Shares are referred to as the " Conversion Shares ," and the Convertible Preferred Shares and the Conversion Shares are sometimes referred to herein as the " Securities ."
1.2 Sale and Purchase; Redemption . Upon the terms and subject to the conditions herein, and in reliance on the representations and warranties set forth in Section 2, (a) at the Closing (as defined in Section 1.3) the Investors shall purchase from the Company, and the Company shall issue and sell to each of the Investors, at the Closing (as defined in Section 1.3), the number of shares of Convertible Preferred Stock set forth opposite the name of such Investor in Exhibit A for the purchase price of $6.3754 per share, and the Company shall without further action grant the Investors the rights set forth herein. Concurrently therewith, the Company shall acquire from the Selling Stockholders, and each Selling Stockholder shall sell to the Company that number of shares of Common Stock set forth opposite the name of such Selling Stockholder in Exhibit C for the purchase price of $6.3754 per share, (the " Redemption Shares ") for an aggregate repurchase price of $5 million, pursuant to the Repurchase Agreement in the form attached hereto as Exhibit D (the " Repurchase Agreement "). All purchase and redemption payments hereunder shall be made by wire transfer of next day available funds.
1.3 Closing . The closing of the purchases and sales of the Convertible Preferred Stock and the repurchase of Common Stock from the Selling Stockholders of the Company contemplated by Section 1.2 (the " Closing ") shall take place at 1:00 p.m. Central Time on June 8, 1998 or such later date as each of the conditions set forth in Section 3 hereof shall have been satisfied or waived by the Investors (the " Closing Date "); provided, however, that the Investors shall have the right, exercisable in their sole discretion, to terminate this Agreement if the conditions set forth in Section 3 hereof shall not have been satisfied by June 8, 1998, and this Agreement shall automatically terminate if the conditions set forth in Section 3 hereof shall not have been satisfied by June 8, 1998 and the Investors have not waived such conditions by June 8, 1998.
SECTION 2. REPRESENTATIONS AND WARRANTIES
In order to induce the Investors to enter into this Agreement, the Company and each Stockholder jointly and severally represents and warrants to each of the Investors the following, except as set forth in the schedule of exceptions attached hereto as Exhibit E (the " Disclosure Schedule "). For purposes of this Section 2, references to the " Company " shall mean and refer to PROS Strategic Solutions, Inc., a Delaware corporation, and its subsidiaries (including, without limitation, with respect to Section 2.12 hereof) and predecessors, as the context requires.
2.1 Organization and Corporate Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business as a foreign corporation in each jurisdiction in which the failure to be so qualified could have a material adverse effect on its assets, liabilities, condition (financial or other), business, results of operations or prospects (a " Material Adverse Effect "). The Company has all required corporate power and authority to carry on its business as presently conducted, to enter into and perform this Agreement and the agreements contemplated hereby to which it is a party and to carry out the transactions contemplated hereby and thereby, including the issuance of the Securities and the repurchase of the Redemption Shares. The copies of the Company's Certificate of Incorporation together with the Company's Certificate of Designations, Preferences and Rights of Series A Convertible Redeemable Preferred Stock and Redeemable Preferred Stock as each is set forth in Exhibit B (and as further amended to date, referred to collectively as the " Certificate of Incorporation ") and Bylaws of the Company, as amended to date (the " Bylaws "), all of which have been furnished to the Investors by the Company, are correct and complete at the date hereof. The Company has complied with all terms of its Certificate of Incorporation and Bylaws.
2.2 Authorization and Non-Contravention .
(a) The execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby (including, without limitation, the Repurchase Agreement) and the issuance and delivery of (i) the Convertible Preferred Shares, and (ii) upon the conversion of the Convertible Preferred Shares, the Conversion Shares, have been duly authorized by all necessary corporate and other action of the Company. This Agreement and all documents executed by the Company pursuant hereto (including, without limitation, the Repurchase Agreement) are valid and binding obligations of the Company, enforceable in accordance with their terms. The execution, delivery and performance by the Company of this Agreement and all other agreements, documents and instruments to be executed and delivered by the Company as contemplated hereby (including, without limitation, the Repurchase Agreement) and the issuance and delivery of (i) the Convertible Preferred Shares and (ii) upon the conversion of the Convertible Preferred Shares, the Conversion Shares, do not and will not: (A) except as disclosed in the Disclosure Schedule, violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) under any contract or obligation to which the Company is a party or by which it or its assets are bound, or
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any provision of the Certificate of Incorporation or Bylaws of the Company, or cause the creation of any encumbrance upon any of the assets of the Company except as contemplated herein or in the Certificate of Incorporation; (B) violate or result in a violation of, or constitute a default under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or governmental agency applicable to the Company; (C) except as disclosed in the Disclosure Schedule, require from the Company any notice to, declaration or filing with, or consent or approval of any governmental authority or third party; or (D) except as disclosed in the Disclosure Schedule, accelerate any obligation under, or give rise to a right of termination of, any agreement, permit, license or authorization to which the Company is a party or by which the Company is bound.
(b) Each Stockholder has all right, authority, power and (if applicable) capacity to enter into this Agreement and each agreement, document and instrument to be executed and delivered by or on behalf of such Stockholder pursuant to or as contemplated by this Agreement (including, without limitation, the Repurchase Agreement) and to carry out the transactions contemplated hereby and thereby. This Agreement and each agreement, document and instrument executed and delivered by each Stockholder pursuant to or as contemplated by this Agreement (including, without limitation, the Repurchase Agreement) constitute, or when executed and delivered will constitute, valid and binding obligations of such Stockholder enforceable in accordance with its respective terms. The execution, delivery and performance by each Stockholder of this Agreement and each such other agreement, document and instrument (including, without limitation, the Repurchase Agreement), and the performance by such Stockholder of the transactions contemplated hereby and thereby do not and will not: (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) under any contract or obligation to which such Stockholder or the Company is a party or by which he or its assets are bound, or any provision of the Certificate of Incorporation or Bylaws of the Company, or cause the creation of any encumbrance upon any of the assets of such Stockholder or the Company; (B) violate or result in a violation of, or constitute a default under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or other governmental agency applicable to the Company or such Stockholder; (C) require from such Stockholder or the Company any notice to, declaration or filing with, or consent or approval of any governmental authority or other third party; or (D) accelerate any obligation under, or give rise to a right of termination of, any agreement, permit, license or authorization to which such Stockholder or the Company is a party or by which such Stockholder or the Company is bound.
2.3 Capitalization . As of the Closing and after giving effect to the transactions contemplated hereby, the authorized capital stock of the Company will consist of 20,000,000 shares of Common Stock, of which 8,492,868 shares will be issued and outstanding, 3,921,312 shares of Convertible Preferred Stock, of which 3,921,312 shares will be issued and outstanding, and 3,921,312 shares of Redeemable Preferred Stock, of which no shares will be issued and outstanding. The Company has authorized and reserved for issuance upon conversion of the Convertible Preferred Shares up to 5,008,809 shares of Common Stock and 3,921,312 shares of Redeemable Preferred Stock (subject to adjustment for stock splits, stock dividends and the like), has authorized and reserved for issuance upon exercise of options under the Company's 1997 Stock Option Plan (the " Option Plan ") 1,231,985 shares of Common Stock (subject to adjustments for stock splits, stock dividends and the like). Except for the 549,677 shares of Common Stock issuable upon exercise of outstanding options under the Option Plan and the Conversion Shares, the Company has not issued or agreed to issue and is not obligated to issue any outstanding warrants, options or other rights to purchase or acquire any shares of its capital stock, nor any outstanding securities convertible into such shares or any warrants, options or other rights to acquire any such convertible securities. As of the Closing, and after giving effect to the transactions contemplated hereby, all of the outstanding shares of capital stock of the Company (including, without limitation, the Convertible Preferred Shares) will have been duly and validly authorized and issued and
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will be fully paid and nonassessable and, assuming the accuracy of the Investors' representations herein, will have been offered, issued, sold and delivered in compliance with applicable federal and state securities laws and not subject to any preemptive rights. The Conversion Shares issuable upon conversion of the Convertible Preferred Shares will upon issuance be duly and validly authorized and issued, fully paid and nonassessable and not subject to any preemptive rights and, assuming the accuracy of the Investors' representations herein, will be issued in compliance with federal and state securities laws. The relative rights, preferences and other provisions relating to the Convertible Preferred Shares and the Redeemable Preferred Stock are as set forth in Exhibit B attached hereto. Except as set forth in Section 2.3 of the Disclosure Schedule, there are no preemptive rights, rights of first refusal, put or call rights or obligations or anti-dilution rights with respect to the issuance, sale or redemption of the Company's capital stock, other than rights to which the Investors and Stockholders are entitled as set forth in this Agreement and the Certificate of Incorporation, and except as described in the Repurchase Agreement. Except as set forth herein, there are no rights to have the Company's capital stock registered for sale to the public under the laws of any jurisdiction, no agreements relating to the voting of the Company's voting securities, and no restrictions on the transfer of the Company's capital stock, except as set forth in Section 2.3 of the Disclosure Schedule. After giving effect to the transactions contemplated hereby, the outstanding shares of the Company's capital stock are held beneficially and of record by the persons identified in Section 2.3 of the Disclosure Schedule in the amounts indicated thereon.
2.4 Subsidiaries; Investments . The Company has no subsidiaries or interests in any corporation, joint venture, partnership or other entity. The Company is not controlled by or under common control with any third party except as disclosed in Section 2.4 of the Disclosure Schedule.
2.5 Financial Statements and Matters .
(a) The Company has previously furnished to the Investors copies of its audited financial statements for the fiscal years ended December 31, 1995, 1996 and 1997 together with copies of its unaudited financial statements for the three-month period ended March 31, 1998 (the " Financial Statements "). Such financial statements referred to in this Section 2.5(a) were prepared in conformity with generally accepted accounting principles applied on a consistent basis, are complete, correct and consistent in all material respects with the books and records of the Company and fairly and accurately present the financial position of the Company as of the dates thereof and the results of operations and cash flows of the Company for the periods shown therein (subject to the absence of footnotes and normal year-end adjustments in the case of the unaudited statements).
(b) Without limiting the generality of the foregoing, the Company's recognition of revenue in each period reflected in the Financial Statements has complied in all material respects with American Institute of Certified Public Accountants (" AICPA ") Statement of Position (" SOP ") 91-1, Software Revenue Recognition , or AICPA SOP 97-2, Software Revenue Recognition , as applicable. The Company does not believe, after investigation, that AICPA SOP 97-2 will have a significant impact on the Company's Financial Statements or operating results.
(c) The projections which have been separately disclosed in writing to the Investors in the Company's Private Placement Memorandum dated as of February 1998 as revised, updated and provided to the Investors (the " PPM "), represent reasonable objectives for the Company's performance for 1998 based upon reasonable assumptions, which the Company believes continue to be reasonable as of the date hereof.
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2.6 Absence of Undisclosed Liabilities . Except as set forth in the Disclosure Schedule and except as and to the extent reflected or reserved against in the unaudited balance sheet of the Company at March 31, 1998 contained in the financial statements referred to in Section 2.5(a) (the " Base Balance Sheet "), the Company does not have and is not subject to any material liability or obligation of any nature, whether accrued, absolute, contingent or otherwise.
2.7 Absence of Certain Developments . Except as set forth in the Disclosure Schedule, since the date of the Base Balance Sheet, there has not been any: (i) material adverse change in the financial condition of the Company or in the assets, liabilities, condition (financial or other), business, results of operations or prospects of the Company (a " Material Adverse Change "), (ii) declaration, setting aside or payment of any dividend or other distribution with respect to, or any direct or indirect redemption or acquisition of, any of the capital stock of the Company, (iii) waiver of any valuable right of the Company or cancellation of any debt or claim held by the Company, (iv) loss, destruction or damage to any property which is material to the assets, liabilities, condition (financial or other), properties, business, results of operations or prospects of the Company, whether or not insured, (v) acquisition or disposition of any assets or other transaction by the Company other than in the ordinary course of business, (vi) material transaction or agreement involving the Company and any officer, director, employee or stockholder of the Company, (vii) material increase, direct or indirect, in the compensation paid or payable to any officer, key employee or director of the Company or any establishment or creation of any employment or severance agreement or employee benefit plan with respect to such persons, (viii) material loss of personnel of the Company, material change in the terms and conditions of the employment of the Company's key personnel or any labor disputes involving the Company, (ix) arrangements relating to any royalty, dividend or similar payment based on the sales volume of the Company, whether as part of the terms of the Company's capital stock or by any separate agreement, (x) agreement with respect to the endorsement of the Company's products, (xi) loss or any development that is reasonably likely to result in a loss of any significant customer, account or employee of the Company, (xii) incurrence of indebtedness or any lien, (xiii) transaction not occurring in the ordinary course of business, or (xiv) any agreement with respect to any of the foregoing actions.
2.8 Ordinary Course . Since the date of the Base Balance Sheet, the Company has conducted its business only in the ordinary course and consistent with its prior practices.
2.9 Receivables . All of the accounts and other amounts receivable by the Company, however styled and whether shown or reflected on the Base Balance Sheet or otherwise, represent bona fide completed sales made in the ordinary course of business, are valid and enforceable claims, are subject to no known set-offs or counterclaims, and are, in the best judgment of the Company, fully collectible in the normal course of business after deducting the reserve set forth in the Base Balance Sheet and adjusted since that date, which reserve is a reasonable estimate of the Company's uncollectible accounts.
2.10 Title to Properties . Section 2.10 of the Disclosure Schedule sets forth the addresses and uses of all real property that the Company owns, leases or subleases. The Company has good, valid and marketable title to or other valid and enforceable rights to use all assets material to its business including without limitation all rights to the Company's facility located in Houston, Texas and to those assets reflected on the Base Balance Sheet or acquired by it after the date thereof (except for properties disposed of since that date in the ordinary course of business), free and clear of all liens, claims or encumbrances of any nature, other than liens for taxes not yet due and payable, minor liens and encumbrances that do not materially detract from the value of the property subject thereto or materially impair the operations of the Company, and liens that have otherwise arisen in the ordinary course of business. All equipment included in such properties which is necessary to the business of the Company is in good condition and repair (ordinary wear and tear excepted) and all leases of real or
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personal property to which the Company is a party are fully effective and afford the Company peaceful and undisturbed possession of the subject matter of the lease. The property and assets of the Company are sufficient for the conduct of its business as presently conducted. The Company is not in violation of any zoning, building or safety ordinance, regulation or requirement or other law or regulation applicable to the operation of its owned or leased properties, which violation would have a Material Adverse Effect, nor has it received any notice of any such violation. There are no defaults by the Company or to the best knowledge of the Company, by any other party, which might curtail in any material respect the present use of the Company's property. The performance by the Company of this Agreement will not result in the termination of, or in any increase of any amounts payable under, any of its leases.
2.11 Tax Matters . The Company has filed all federal, state, local and foreign income, excise and franchise tax returns, real estate and personal property tax returns, sales and use tax returns and other tax returns required to be filed by it, such returns have been prepared and filed in the manner required by applicable law, and the Company has paid all taxes owing by it, except taxes which have not yet accrued or otherwise become due and for which adequate provision has been made in the Financial Statements. The provision for taxes on the Base Balance Sheet is sufficient as of its date for the payment of all accrued and unpaid federal, state, county and local taxes of any nature of the Company, and any applicable taxes owing to any foreign jurisdiction, whether or not assessed or disputed. With regard to the federal income tax returns of the Company, the Company has never received notice of any audit or of any proposed deficiencies from the Internal Revenue Service. There are in effect no waivers of applicable statutes of limitations with respect to any taxes owed by the Company for any year. Neither the Internal Revenue Service nor any other taxing authority is now asserting or, to the best knowledge of the Company, threatening to assert against the Company any deficiency or claim for additional taxes or interest thereon or penalties in connection therewith. All taxes and other assessments which the Company is required to collect or withhold have been duly withheld or collected and have been paid to the proper domestic or foreign taxing authority, as applicable. The Company is not a party to any tax-sharing agreement or similar arrangement with any other party. Except as set forth in Sections 2.10 and 2.12 of the Disclosure Schedule with respect to leases of real and personal property, the Company is not currently under any contractual or legal obligation to pay any tax obligations of, or with respect to, any transaction relating to any other person or to indemnify any other person with respect to any tax. The Company has made a valid election under Section 1362 of the Internal Revenue Code and under any corresponding provision of applicable state law to be an S Corporation, and has been an S Corporation since July 1, 1989. Such election has been terminated effective January 1, 1998.
2.12 Certain Contracts and Arrangements . Except as set forth in Section 2.12 of the Disclosure Schedule (with true and correct copies delivered to the Investors), the Company is not a party or subject to or bound by:
(a) any plan or contract providing for collective bargaining or the like, or any contract or agreement with any labor union;
(b) any contract, lease or agreement creating any obligation of the Company to pay to any third party $100,000 or more with respect to any single such contract or agreement;
(c) any contract or agreement for the sale, license, lease or disposition of products in excess of $100,000;
(d) any contract containing covenants directly or explicitly limiting the freedom of the Company to compete in any line of business or with any person or entity;
(e) any license agreement (as licensor or licensee) material to the Company's business or projected business;
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(f) any contract or agreement for the purchase of any leasehold improvements, equipment or fixed assets for a price in excess of $100,000;
(g) any indenture, mortgage, promissory note, loan agreement, guaranty or other agreement or commitment for borrowing in excess of $100,000 or any pledge or security arrangement;
(h) any material joint venture, partnership, manufacturing, development or supply agreement;
(i) any endorsement or any other advertising, promotional or marketing agreement;
(j) any employment contracts, or agreements with officers, key employees, directors or stockholders of the Company or persons or organizations related to or affiliated with any such persons;
(k) except as contemplated by this Agreement, any stock redemption or purchase agreements or other agreements affecting or relating to the capital stock of the Company, including without limitation any agreement with any stockholder of the Company which includes without limitation, anti-dilution rights, registration rights, voting arrangements, operating covenants or similar provisions;
(l) any pension, profit sharing, retirement or stock options plans;
(m) any material royalty, dividend or similar arrangement based on the sales volume of the Company;
(n) any acquisition, merger or similar agreement;
(o) any contract with a governmental body under which the Company may have an obligation for renegotiation;
(p) any agreement with any stockholder of the Company or any affiliate of any such stockholder; or
(q) any other contract not executed in the ordinary course of business.
All of the Company's contracts and commitments are in full force and effect and neither the Company, nor, to the best knowledge of the Company, any other party is in default thereunder (nor, to the best knowledge of the Company, has any event occurred which with notice, lapse of time or both would constitute a default thereunder), and the Company has not received notice of any alleged default under any such contract, agreement, understanding or commitment.
2.13 Intellectual Property Rights; Employee Restrictions . Except as set forth in Section 2.13 of the Disclosure Schedule:
(a) The Company has exclusive ownership of, with the exclusive right to use, sell, license, dispose of, and bring actions for infringement of, all Intellectual Property Rights (as hereinafter defined) material to the conduct of its business as presently conducted, including without limitation all rights to the Company name "PROS Strategic Solutions, Inc." and to the trademarks and product names listed on Section 2.13 of the Disclosure Schedule hereof (the " Company Rights ").
(b) The business of the Company as presently conducted and the manufacturing and marketing of the products of the Company do not violate any agreements which the Company has with any third party or infringe any patent, trademark, copyright or trade secret or, to the best knowledge of the Company, any other Intellectual Property Rights of any third party.
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(c) No claim is pending or, to the best knowledge of the Company, threatened against the Company nor has the Company received any notice or claim from any person asserting that any of the Company's present or contemplated activities infringe or may infringe any Intellectual Property Rights of such person, and the Company is not aware of any infringement by any other person of any rights of the Company under any Intellectual Property Rights.
(d) The Company has taken all steps required to establish and preserve its ownership of all of the Company Rights; each current and former employee of the Company, and each of the Company's consultants and independent contractors involved in development of any of the Company Rights, has executed an agreement regarding confidentiality, proprietary information and assignment of inventions and copyrights to the Company, and, to the best knowledge of the Company, none of such employees, consultants or independent contractors is in violation of any agreement or in breach of any agreement or arrangement with former or present employers relating to proprietary information or assignment of inventions.
As used herein, the term " Intellectual Property Rights " shall mean all intellectual property rights, including, without limitation, all of the registered rights set forth on Section 2.13 of the Disclosure Schedule and all patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, copyright applications, computer programs and other computer software, inventions, designs, samples, specifications, schematics, know-how, trade secrets, proprietary processes and formulae, including production technology and processes, all source and object code, algorithms, promotional materials, customer lists, supplier and dealer lists and marketing research, and all documentation and media constituting, describing or relating to the foregoing, including without rotation, manuals, memoranda and records. Section 2.14 of the Disclosure Schedule contains a list and brief description of all Intellectual Property Rights owned by, or registered in the name of, the Company or of which the Company is the licensor or a licensee of a material right or in which the Company has any material right and, in each case, a brief description of the nature of the right
2.14 Litigation . Except as set forth in the Disclosure Schedule, there is no litigation or governmental proceeding or investigation pending or, to the best knowledge of the Company, threatened against the Company or affecting any of its properties or assets or against any officer, director or key employee of the Company in his or her capacity as an officer, director or employee of the Company, which litigation, proceeding or investigation is reasonably expected to have a Material Adverse Effect, or which may call into question the validity or hinder the enforceability of this Agreement or any other agreements or transactions contemplated hereby; nor to the best knowledge of the Company has there occurred any event nor does there exist any condition on the basis of which any such litigation, proceeding or investigation might be properly instituted or commenced.
2.15 Employee Benefit Plans . The Company does not maintain or contribute to any employee benefit plan, stock option, bonus or incentive plan, severance pay policy or agreement, deferred compensation agreement, or any similar plan or agreement (an " Employee Benefit Plan ") other than the Employee Benefit Plans identified and described in Section 2.15 of the Disclosure Schedule. The terms and operation of each Employee Benefit Plan comply in all material respects with all applicable laws and regulations relating to such Employee Benefit Plans. There are no unfunded obligations of the Company under any retirement, pension, profit-sharing, deferred compensation plan or similar program. The Company is not required to make any payments or contributions to any Employee Benefit Plan pursuant to any collective bargaining agreement or, to the knowledge of the Company, any applicable labor relations law, and all Employee Benefit Plans are terminable at the discretion of
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the Company without liability to the Company upon or following such termination. The Company has never maintained or contributed to any Employee Benefit Plan providing or promising any health or other nonpension benefits to terminated employees. With respect to any Employee Benefit Plan, there has occurred no "prohibited transaction," as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended (" ERISA ") or Section 4975 of the Code, or breach of any duty under ERISA or other applicable law which could result, directly or indirectly, in any taxes, penalties or other liability to the Company. No litigation, arbitration or governmental administrative proceeding (or investigation) or other proceeding (other than those relating to routine claims for benefits) is pending or, to the best knowledge of the Company, threatened with respect to any such Employee Benefit Plan.
2.16 Labor Laws . The Company employs approximately 155 employees and generally enjoys good employer-employee relationships. The Company is not delinquent in payments to any of its employees for any wages, salaries, commissions, bonuses or other direct compensation for any services performed for it as of the date hereof or amounts required to be reimbursed to such employees. The Company is in compliance in all material respects with all applicable laws and regulations respecting labor, employment, fair employment practices, terms and conditions of employment, and wages and hours. There are no charges of employment discrimination or unfair labor practices or strikes, slowdowns, stoppages of work or any other concerted interference with normal operations existing, pending or, to the best knowledge of the Company, threatened against or involving the Company.
2.17 Key Employees . Except as set forth in Section 2.17 of the Disclosure Schedule, to the knowledge of the Company, no key employee of the Company has any plan or intention to terminate his employment with the Company and no supplier has any plan or intention to terminate or reduce its business with the Company or to materially and adversely modify its relationship with the Company.
2.18 Hazardous Waste, Etc . No hazardous wastes, substances or materials, or oil or petroleum products have been generated, transported, used, disposed, stored or treated by the Company and no hazardous wastes, substances or materials, or oil or petroleum products have been released, discharged, disposed, transported, placed or otherwise caused to enter the soil or water in, under or upon any real property owned, leased or operated by the Company.
2.19 Business; Compliance with Laws . The Company has all necessary franchises, permits, licenses and other rights and privileges necessary to permit it to own its property and so conduct its business as it is presently or contemplated to be conducted, except for those which the failure of the Company to obtain would not have a Material Adverse Effect. The Company is currently and has heretofore been in compliance in all material respects with all federal, state, local and foreign laws and regulations, including without limitation all laws and regulations administered by or promulgated by the Federal Trade Commission and/or the Food and Drug Administration.
2.20 Investment Banking; Brokerage . Except as set forth in Section 2.20 of the Disclosure Schedule, there are no claims for investment banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees to lawyers and accountants) in connection with the transactions contemplated by this Agreement payable by the Company or based on any arrangement or agreement made by or on behalf of the Company or any of the Stockholders.
2.21 Insurance . The Company has fire, casualty and business interruption and other insurance policies, with extended coverage, sufficient in amount to allow it to replace any of its material properties which might be damaged or destroyed, and such types and amounts of other insurance with respect to its business and properties, on both a per occurrence and an aggregate basis, as are customarily carried by persons engaged in the same or similar business as the Company. There is no default or event which could give rise to a default under any such policy.
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2.22 Transactions with Affiliates . There are no loans, leases, contracts or other transactions between the Company and any officer, director or five percent (5%) stockholder of the Company or any family member or affiliate of the foregoing persons and there have been no such transactions within the past five (5) years, except as set forth in Section 2.22 of the Disclosure Schedule.
2.23 Customers and Distributors . Section 2.23 of the Disclosure Schedule sets forth each representative and distributor of the Company at the date hereof (whether pursuant to a commission, royalty or other arrangement), and each customer, distributor and/or broker of the Company who accounted for more than 5% of the sales of the Company for the twelve (12) months ended March 31, 1998 (collectively, the " Customers, Distributors and Brokers "). The relationships of the Company with its Customers, Distributors, and Brokers are good commercial working relationships. No Customer, Distributor or Broker of the Company has canceled or otherwise terminated its relationship with the Company, or has during the last twelve (12) months decreased materially its services, supplies or materials to the Company or its usage or purchases of the services or products of the Company. No Customer, Distributor or Broker has, to the best knowledge of the Company, any plan or intention to terminate, to cancel or otherwise materially and adversely modify its relationship with the Company or to decrease materially or limit its services, supplies or materials to the Company or its usage, purchase or distribution of the services or products of the Company.
2.24 Disclosure . The representations, warranties and disclosures made or contained in this Agreement, the schedules and exhibits hereto, the certificates and statements executed or delivered in connection herewith and the PPM, when taken together, do not and shall not contain any untrue statement of a material fact and do not and shall not omit to state a material fact required to be stated therein or necessary in order to make such representations, warranties or other material not misleading in light of the circumstances in which they were made or delivered. There have been no events or transactions, or information which has come to the attention of the management of the Company, having a direct impact on the Company or its assets, liabilities, financial condition, business, results of operations or prospects which, in the reasonable judgment of such management, could be expected to have a Material Adverse Effect.
2.25 Qualified Small Business Stock . As of the Closing, (i) the Company will be a domestic C Corporation, (ii) the Company will not have, during the one-year period preceding the Closing, made any purchases of its own stock (other than stock issued to employees pursuant to the Option Plan (as defined in Section 4.7 hereof) and in connection with termination of employment), (iii) the Company's (and any predecessor's) aggregate gross assets, as defined by Section 1202(d)(2) of the Internal Revenue Code of 1986, as amended (the " Code "), at no time between the date of incorporation of the Company and through the Closing have exceeded or will exceed $50,000,000, taking into account the assets of any corporations required to be aggregated with the Company in accordance with Section 1202(d)(3) of the Code, and (iv) the Company will be an eligible corporation, as defined by Section 1202(e)(4) of the Code.
2.26 Consolidation and Reincorporation Effective . As of the Closing, the Company together with its predecessors-in-interest, as applicable, will have taken all requisite corporate governance and other actions and made all requisite filings with applicable governmental authorities to authorize, ratify and make effective the merger of all subsidiaries of PROS Strategic Solutions, Inc., a Texas corporation and predecessor-in-interest to the Company ("PROS-Texas"), with and into PROS-Texas and the issuance and cancellation of the shares of the Company to PROS-Texas, and the merger of PROS-Texas with and into the Company.
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SECTION 2A. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
(i) Each Investor represents to the Company that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment contemplated by this Agreement and making an informed investment decision with respect thereto. Each Investor represents that it is an "accredited investor" as such term is defined in Rule 501 under the Securities Act of 1933, as amended (the " Securities Act "). Each Investor represents to the Company that it is purchasing the Convertible Preferred Shares for its own account, for investment only and not with a view to, or any present intention of, effecting a distribution of such securities or any part thereof except pursuant to a registration or an available exemption under applicable law. Such Investor acknowledges that its respective Convertible Preferred Shares have not been registered under the Securities Act or the securities laws of any state or other jurisdiction and cannot be disposed of unless they are subsequently registered under the Securities Act and any applicable state laws or exemption from such registration is available.
(ii) Each Investor has full right, authority and power as an individual or under a governing partnership, governing agreement, or otherwise, to enter into this Agreement and each agreement, document and instrument to be executed and delivered by or on behalf of such Investor pursuant to or as contemplated by this Agreement and to carry out the transactions contemplated hereby and thereby, and the execution, delivery and performance by such Investor of this Agreement and each such other agreement, document and instrument have been duly authorized by all necessary action under such Investor's governing partnership or other governing agreement, if any. This Agreement and each agreement, document and instrument executed and delivered by each Investor pursuant to or as contemplated by this Agreement constitute, or when executed and delivered will constitute, valid and binding obligations of each of the Investors enforceable in accordance with their respective terms. The execution, delivery and performance by each Investor of this Agreement and each such other agreement, document and instrument, and the performance of the transactions contemplated hereby and thereby do not and will not: (A) violate, conflict with or result in a default (whether after the giving of notice, lapse of time or both) under any contract or obligation to which any Investor is a party or by which it or its assets are bound, or cause the creation of any encumbrance upon any of the assets of any Investor; (B) violate or result in a violation of, or constitute a default under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by, any court or other governmental agency applicable to such Investor; (C) require from such Investor any notice to, declaration or filing with, or consent or approval of any governmental authority or other third party; or (D) accelerate any obligation under, or give rise to a right of termination of, any agreement, permit, license or authorization to which any Investor is a party or by which such Investor is bound.
Each Investor represents that there are no claims for investment banking fees, brokerage commissions, finder's fees or similar compensation (exclusive of professional fees to lawyers and accountants) in connection with the transactions contemplated by this Agreement based on any arrangement or agreement made by or on behalf of such Investor.
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SECTION 3. CONDITIONS OF PURCHASE
Each Investor's obligation to purchase and pay for the Convertible Preferred Shares to be purchased by it shall be subject to compliance by the Company and the Stockholders with their agreements herein contained and to the fulfillment to the Investors' satisfaction, or the waiver by the Investors, on or before and at the Closing Date of the following conditions:
3.1 Satisfaction of Conditions . The representations and warranties of the Company and the Stockholders contained in this Agreement shall be true and correct on and as of the Closing Date; each of the conditions specified in this Section 3 shall have been satisfied or waived in writing by the Investors; there shall have been no Material Adverse Change since March 31, 1998; and, on the Closing Date, certificates to such effect executed by the President and Chairman of the Board of the Company shall have been delivered to the Investors.
3.2 Director Election and Indemnification . Kurt R. Jaggers, as the nominee of the TA Funds, shall have been elected as a director of the Company (together with any subsequent nominee of TA Funds or JMI, the " TA Nominee ") and Harry S. Gruner, as the nominee of JMI Equity Fund, L.P., (" JMI" ) shall have been elected as a Director of the Company (together with any subsequent nominee, the " JMI Nominee " and together with the TA Nominee, the " Investors' Nominees ") and the Company shall have entered into an Indemnification Agreement with the Investors' Nominees and the Investors in the form attached hereto as Exhibit F .
3.3 Opinions of Counsel . The Investors shall have received from Fulbright & Jaworski LLP an opinion dated as of the Closing Date substantially in the form attached hereto as Exhibit G .
3.4 Reincorporation . The Company's predecessor, PROS Strategic Solutions, Inc., a Texas corporation, shall have been reincorporated under the laws of Delaware pursuant to a Certificate of Incorporation in the form included in Exhibit B and otherwise on terms and conditions satisfactory to the Investors.
3.5 Authorization . The Board of Directors of the Company shall have duly adopted resolutions in the form reasonably satisfactory to the Investors and shall have taken all action necessary for the purpose of authorizing the Company to consummate the transactions contemplated hereby in accordance with the terms hereof and to cause the Certificate of Incorporation and the rights, preferences, and designations of the Convertible Preferred Stock and the Redeemable Preferred Stock as set forth in Exhibit B to become effective; and the Investors shall have received a certificate of the Secretary of the Company setting forth a copy of the resolution and the Certificate of Incorporation and Bylaws of the Company and such other matters as may be reasonably requested by the Investors.
3.6 Investors' Fees . The Company shall have paid on behalf of the Investors all reasonable legal fees and related expenses incurred by the Investors in connection with the transactions contemplated by this Agreement.
3.7 No Violation or Injunction . The consummation of the actions contemplated by this Agreement shall not be in violation of any law or regulation, and shall not be subject to any injunction, stay or restraining order.
3.8 Consents and Waivers . The Company and the Stockholders shall have obtained all consents or waivers necessary to execute this Agreement and the other agreements and documents contemplated herein, to issue and sell the Securities to be sold to the Investors hereunder, to repurchase the shares of Common Stock as contemplated by the Repurchase Agreement and to carry out the transactions contemplated hereby and thereby and shall have delivered evidence thereof to the Investors. All corporate and other action and governmental filings necessary to effectuate the terms of this Agreement and other agreements and instruments executed and delivered by the Company in connection herewith shall have been made or taken.
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3.9 Repurchase Agreement . The Repurchase Agreement shall be executed by the Selling Stockholders who agree in the aggregate to the sale of 784,262 shares of their Common Stock to the Company on the Closing Date (adjusted appropriately for stock splits, stock dividends, recapitalizations and the like).
3.10 Repayment of Company Loans . From the proceeds of the redemptions of their Common Stock contemplated by the Repurchase Agreement, the Selling Stockholders shall repay in full any and all Promissory Notes issued by the Selling Stockholders to the Company.
3.11 Securities Compliance . The offer, sale and issuance of the Securities to the Investors shall have been qualified or registered in compliance with applicable Blue Sky and Federal Securities laws, or exemptions from such qualification or registration requirements shall have been obtained.
SECTION 4. COVENANTS
The Company agrees for the benefit of the Investors that it shall comply with the following covenants, provided that the covenants set forth in Sections 4.1, 4.3 (except to the extent provided therein), 4.4 and 4.7 shall terminate as of the closing of the Company's first Qualified Public Offering, unless earlier terminated as may be agreed to in writing by two-thirds in interest of the Investors. A " Qualified Public Offering " shall have the meaning provided in the Certificate of Incorporation attached hereto as Exhibit B .
4.1 Financial Statements and Budget Information; Inspections . So long as the Investors hold at least 390,000 Convertible Preferred Shares or shares of Common Stock (subject to adjustments for stock splits, stock dividends and the like), the Investors shall have the rights, and the Company shall have the obligations, set forth in this Section 4.1. The Company will deliver to TA Associates, Inc. as representative of the Investors, internally prepared unaudited monthly and quarterly financial statements and audited annual financial statements, as well as annual budgets and operating plans. The monthly and quarterly financial information will be provided within 45 days after the end of each month and quarter. Notwithstanding the foregoing sentence, the Company agrees that it will make commercially reasonable efforts to reduce the number of days required to generate monthly and quarterly financial information. The annual budget and operating plan will be presented at a Board of Directors meeting at least one month prior to the end of the fiscal year of the Company preceding the year covered. An annual audit by an accounting firm of national recognition selected by the Board of Directors will be provided within 90 days after each fiscal year-end of the Company.
The Company will, upon reasonable prior notice to the Company and for corporate purposes, permit authorized representatives of TA Associates, Inc. as representative of the investors to visit and inspect any of the properties of the Company, including its books of account (and to make copies thereof and take extracts therefrom), and to discuss its affairs, finances and accounts with its officers, administrative employees and independent accountants, all at such reasonable times and as often as may be reasonably requested.
4.2 Indemnification; Insurance . For so long as any of the Securities remains outstanding, the Certificate of Incorporation or Bylaws of the Company will at all times during which any nominee of any of the Investors serves as director of the Company provide for indemnification of the directors and limitations on the liability of the directors to the fullest extent permitted under applicable state law. Prior to any initial public offering, the Company will purchase a directors and officers insurance policy on terms reasonably acceptable to the Investors' Nominees (who shall be third party beneficiaries of this Agreement) covering directors and officers of the Company in the amount of at least $5 million, covering, among other things, violations of federal or state securities laws.
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4.3 Board of Directors . The Board of Directors of the Company shall consist of no more than eight (8) members including the Investors' Nominees. The Company shall cause meetings of its Board of Directors to be held at least four (4) times each year at intervals of not more than four (4) months and shall pay all reasonable out-of-pocket expenses incurred by the Investors' Nominees in connection with attending meetings or other functions of the Company's Board of Directors or any committees thereof and shall pay the Investors' Nominees fees in an amount equal to any fees that are paid to the other non-management directors of the Company; provided, however, that prior to the Company's initial public offering the Company shall not be obligated to issue options or related awards to the Investors' Nominees that it issues to the other non-management directors of the Company, but upon the closing of such offering the Investors' Nominees shall, for purposes of compensation, be considered new members of the Board of Directors and receive compensation (including options and related awards) consistent with the Company's policies for new non-management directors of the Company and thereafter shall be compensated in the same manner as each of the other non-management directors of the Company. Compensation (including option and related awards) for members of management will be determined by a Compensation Committee of the Board of Directors comprised of one member of management who is also a director, an Investors' Nominee and one independent director (the " Compensation Committee ").
4.4 Restrictive Covenants . The Company will not, without the consent of two thirds-in-interest of the Investors:
(a) sell, lease or otherwise dispose of (whether in one transaction or a series of related transactions) all or substantially all of its assets or business, except in a transaction constituting a " Extraordinary Transaction " (as such term is defined in the Certificate of Incorporation in the form attached as Exhibit B) ,
(b) merge with or into or consolidate with another entity or enter into or engage in any other transaction or series of related transactions, in any such case in connection with or as a result of which the Company is not the surviving entity or the owners of the Company's outstanding equity securities prior to the transaction or series of related transactions do not own at least a majority of the outstanding equity securities of the surviving, resulting or consolidated entity,
(c) dissolve, liquidate or wind up its operations,
(d) directly or indirectly redeem, purchase, or otherwise acquire for consideration any shares of its Common Stock or any other class of its capital stock except (i) for redemption of Convertible Preferred Shares or Redeemable Preferred Stock pursuant to and as provided in the Certificate of Incorporation, (ii) as contemplated by Sections 1.2 and 4.5, or (iii) repurchase of shares of Common Stock from stockholders pursuant to the agreements described in Schedule 4.4 hereto ,
(e) propose or adopt any amendment to Article IV of its Certificate of Incorporation, or any other amendment to its Certificate of Incorporation or Bylaws that eliminates, amends or restricts or otherwise adversely affects the rights and preferences of the Convertible Preferred Stock or the Redeemable Preferred Stock, or increase the authorized shares of Preferred Stock, Convertible Preferred Stock or Redeemable Preferred Stock,
(f) except for a one-time distribution of $2,750,000 paid within two (2) business days of the Closing (the "One-Time Distribution"), declare or make any distribution or dividend payments on any shares of its Common Stock or any other class of its capital stock,
(g) create, or obligate itself to create, any class or series of shares having preference over or being on a parity with the Convertible Preferred Stock or the Redeemable Preferred Stock,
(h) increase the size of the Board of Directors to more than eight (8) members,
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(i) enter into any agreement or arrangement or take any other action that eliminates, amends, restricts or otherwise adversely affects the rights of the Investors hereunder or as holders of securities of the relevant class or its ability to perform its obligations hereunder; without limitation of the foregoing, the Company shall take all commercially reasonable action necessary or appropriate to remove promptly any impediment to the redemption of the Securities as contemplated by the Certificate of Incorporation, or
(j) pay any bonuses to the Company's executive officers or unless any such bonus shall have been unanimously approved by the Compensation Committee.
4.5 Repurchase; Use of Proceeds . Immediately upon the sale of the Convertible Preferred Shares, the Company shall complete the repurchase of 784,262 shares of Common Stock from the Selling Stockholders of the Company for aggregate cash payments of $5 million pursuant to this Agreement, in each case on terms reasonably satisfactory to the Investors and in accordance with Exhibit D hereto. The Company shall use the remaining net proceeds from the sale of the Convertible Preferred Stock for working capital, the One-Time Distribution, acquisitions, debt repayment purposes and payments to James V. O'Donnel in accordance with the terms of that certain Release and Settlement Agreement attached as Exhibit H hereto.
4.6 Key Person Insurance . Within 120 days after the date hereof, the Company will purchase and maintain "key person" term life insurance policies of $3 million each on the lives of Ronald F. Woestmeyer and Mariette M. Woestmeyer with the Company named as beneficiary. The Company hereby agrees that such policy shall not be assigned, borrowed against or pledged.
4.7 Stock Awards . Except for the issuance of up to an aggregate 1,231,985 shares of Common Stock pursuant to option and stock awards under the Option Plan as in effect as of the date hereof, the Company will not grant or award options, stock or other equity-based or quasi-equity rights (collectively, " Equity ") to officers, employees, advisers, consultants, or directors without the consent of the Investors' Nominee, and the Company will in no event grant Equity to the Stockholders without the consent of the Investors' Nominees. The Option Plan and grant awards thereunder may not be amended, revised or waived after the date hereof without the consent of the Investors' Nominees.
4.8 Assignment . Each Investor shall have the right to assign its rights under this Section 4 in connection with any transaction or series of related transactions involving the direct or indirect offer, transfer, donation, sale assignment, pledge, hypothecation or other disposition (the " Transfer ") to one or more transferees of at least 390,000 shares of capital stock of the Company (subject to adjustments for stock splits, stock dividends and the like and aggregating all contemporaneous Transfers by two or more Investors), or to any fund managed by or associated with TA Associates, Inc. (collectively, " TA Funds ") or JMI Equity Fund (" JMI Funds "). Upon any such Transfer, such transferee or TA Fund or JMI Fund, as applicable, thereupon shall be deemed an " Investor " for purposes of this Section 4.
SECTION 5. RIGHTS TO PURCHASE
Notwithstanding anything herein to the contrary, the following provisions of this Section 5 shall terminate immediately prior to the closing of a Qualified Public Offering and shall not apply with respect to any Qualified Public Offering.
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5.1 Right to Participate in Certain Sales of Additional Securities. The Company agrees that it will not sell or issue any shares of capital stock of the Company, or other securities convertible into or exchangeable for capital stock of the Company, or options, warrants or rights carrying any rights to purchase capital stock of the Company unless the Company first submits a written offer to the Investors identifying the terms of the proposed sale (including price, number or aggregate principal amount of securities and all other material terms), and offers to each Investor the opportunity to purchase its Pro Rata Share (as hereinafter defined) of the securities (subject to increase for over-allotment if some Investors do not fully exercise their rights) on terms and conditions, including price, not less favorable to the Investors than those on which the Company proposes to sell such securities to a third party or parties. Each Investor's " Pro Rata Share " of such securities shall be based on the ratio which the shares of Common Stock held by it bears to all the issued and outstanding shares of Common Stock calculated on a fully-diluted basis giving effect to the conversion of convertible securities as of the date of such written offer. The Company's offer to the Investors shall remain open and irrevocable for a period of 30 days, and Investors who elect to purchase shall have the first right to take up and purchase any shares or other securities which other Investors do not elect to purchase, based on the relative holdings of the electing purchasers. Any securities so offered which are not purchased pursuant to such offer may be sold by the Company but only on the terms and conditions set forth in the initial offer to the Investors, at any time within 90 days following the termination of the above-referenced 30-day period but may not be sold to any other person or on terms and conditions, including price, that are more favorable to the purchaser than those set forth in such offer or after such 90-day period without renewed compliance with this Section 5.1.
Notwithstanding the foregoing, the Company may (i) issue shares of its Common Stock to its officers, employees, advisors, consultants, and directors with respect to options to purchase up to an aggregate 1,231,985 shares pursuant to the Option Plan as in effect as of the date hereof, and (ii) issue Conversion Shares upon the conversion of the Convertible Preferred Shares, and this Section 5 shall not apply with respect to such issuances.
5.2 Assignment of Rights . Each Investor may assign its rights under this Section 5 in connection with any transaction or series of related transactions involving the transfer to one or more transferees of at least 390,000 shares of capital stock of the Company (subject to adjustments for stock splits, stock dividends and the like and aggregating all contemporaneous transfers by Investors), or to any TA Fund or JMI Fund Upon any such transfer such transferee or TA Fund or JMI Fund shall be deemed an " Investor " or " Stockholder ," as the case may be, for purposes of Sections 5.1 and 5.2 with the rights set forth in such Sections.
SECTION 6. REGISTRATION RIGHTS
6.1 Optional Registrations . If at any time or times after the date hereof, the Company shall seek to register any shares of its capital stock or securities convertible into capital stock under the Securities Act (whether in connection with a public offering of securities by the Company (a " primary offering "), a public offering of securities by stockholders of the Company (a " secondary offering "), or both), the Company will promptly give written notice thereof to each Investor (including any permitted transferee thereof) (the " Holders ," subject to Section 6.7) holding Registrable Securities as hereinafter defined in Section 6.3 below. If within 20 days after their receipt of such notice one or more Holders request the inclusion of some or all of the Registrable Securities owned by them in such registration, the Company will use its best efforts to effect the registration under the Securities Act of all Registrable Securities which such Holders may request in a writing delivered to the Company within 20 days after their receipt of the notice given by the Company. In the case of the registration of shares of capital stock by the Company in connection with any underwritten public offering, if the underwriter(s) determines that marketing factors require a limitation on the number of Registrable Securities to be offered, the Company shall not be required to register Registrable Securities of the Holders in excess of the amount, if any, of shares of the capital stock which the principal underwriter of such underwritten
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offering shall reasonably and in good faith agree to include in such offering in excess of any amount to be registered for the Company; provided, however, that the number of shares of Registrable Securities of the Holders included in any such offering subsequent to the Company's first Qualified Public Offering shall in no event be less than thirty percent (30%) of the aggregate number of shares of capital stock to be registered, unless the aggregate number of shares of Registrable Securities the Holders requested in writing to be in such offering is less than thirty percent (30%) of the aggregate number of shares of capital stock to be registered; and provided further that shares of capital stock held by any Holder may not be excluded from any offering in reliance upon this Section if any shares of capital stock other than those offered by the Company are included in such offering. If any limitation of the number of shares of Registrable Securities to be registered by the Holders is required pursuant to this Section 6.1, the number of shares that may be included in the registration on behalf of the Holders shall be allocated among the Holders or the holders of any other registration rights in proportion, as nearly as practicable, to the respective holdings of Registrable Securities of all Holders requesting registration. The provisions of this Section will not apply to a registration effected solely to implement (i) an employee benefit plan, or (ii) a transaction to which Rule 145 or any other similar rule of the Securities and Exchange Commission (the " SEC " or the " Commission ") under the Securities Act is applicable.
6.2 Required Registrations .
(a) Demand Registration . On one or more occasions at any time after the earlier of December 8, 1999 or twelve (12) months following the effective date of the Company's first registration statement under the Securities Act, an Investor or Investors holding at least 40% of the Registrable Securities held by the Investors may request that the Company register under the Securities Act all or a portion of the Registrable Securities held by such requesting Investors.
(b) Form S-3 . After the first public offering of its securities registered under the Securities Act, the Company shall use its best efforts to qualify and remain qualified to register securities on Form S-3 (or any successor form) under the Securities Act. Any Investor or Investors shall have the right to request any number (not exceeding one registration annually) of registrations on Form S-3 (or any successor form) for the Registrable Securities held by such requesting Investor, including registrations for the sale of such Registrable Securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. Such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended method of disposition of such shares by such Investor or Investors.
(c) Registration Requirements . Following a request pursuant to Section 6.2(a) or (b) above, the Company will notify all of the Holders who would be entitled to notice of a proposed registration under Section 6.1 above and any other holder of piggyback registration rights of its receipt of such notification from such Investor or Investors. Upon the written request of any such Holder or other holder of the Company's securities delivered to the Company within 20 days after receipt from the Company of such notification, the Company will either (i) elect to make a primary offering, in which case the rights of such Holders shall be as set forth in Section 6.1 above (in which case the registration shall not count as one of the Investors' permitted demand registrations hereunder), or (ii) use its best efforts to cause such of the Registrable Securities as may be requested by any Holders and any other holders of piggyback registration rights to be registered under the Securities Act in accordance with the terms of this Section 6.2; provided, however, that the number of shares of Registrable Securities of the Holders included in any such offering shall in no event be less than thirty percent (30%) of the aggregate number of shares of capital stock to be registered, unless the aggregate number of shares of Registrable Securities the Holders requested in writing to be in such offering is less than thirty percent (30%) of the aggregate number of shares of capital stock to be registered.
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(d) Limitations on Registration Obligations . The Company will not be obligated pursuant to this Section 6.2 to effect more than two (2) registration statements pursuant to Section 6.2(a), but shall be obligated to file an unlimited number of registration statements on Form S-3. The Company shall not be obligated to effect any registration on Form S-3 pursuant to Section 6.2(b): (i) if Form S-3 is not available for such offering by the holders (in which case the Company shall be obligated to effect such registration on either Form S-1 or S-2 and such registration shall not be counted as a registration pursuant to Section 6.2(a) hereof for purposes of the limitations set forth in the first sentence of this Section 6.2(d)), or (ii) if the Company has, within the twelve (12) month period preceding the date of such request, already effected one (1) registration of its securities either pursuant to Section 6.2(a) or pursuant to which the Holders had rights (which they exercised) to include their shares in such registration pursuant to Section 6.1.
(e) Postponement . The Company may postpone the filing of any registration statement required hereunder for a reasonable period of time, not to exceed 90 days in the aggregate during any twelve-month period, if the Company has been advised by legal counsel that such filing would require a special audit or the disclosure of a material impending transaction or other matter or the Company's Board of Directors determines reasonably and in good faith that such disclosure would have a Material Adverse Effect. The Company shall not be required to cause a registration statement requested pursuant to this Section 6.2 to become effective prior to 90 days following the effective date of a registration statement initiated by the Company, if the request for registration has been received by the Company subsequent to the giving of written notice by the Company, made in good faith, to the Investors that the Company is commencing to prepare a Company-initiated registration statement (other than a registration effected solely to implement an employee benefit plan or a transaction to which Rule 145 or any other similar rule of the SEC under the Securities Act is applicable); provided, however, that the Company shall use its best efforts to achieve such effectiveness promptly.
(f) Suspension . In the case of a registration for the sale of Registrable Securities, upon receipt of any notice (a " Suspension Notice ") from the Company of the happening of any event which makes any statement made in the registration statement or related prospectus untrue or which requires the making of any changes in such registration statement or prospectus so that they will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading, each holder of Registrable Securities registered under such registration statement shall forthwith discontinue disposition of such Registrable Securities pursuant to such registration statement until such holder's receipt of the copies of the supplemented or amended prospectus or until it is advised in writing (the " Advice ") by the Company that the use of the prospectus may be resumed, and has received copies of any additional or supplemental filings which are incorporated by reference in the prospectus; provided , however , that the Company shall not give a Suspension Notice until after the registration statement has been declared effective and shall not give more than one Suspension Notice to the Holders in respect to all Registrable Securities and pursuant to this Section 6 during any period of twelve (12) consecutive months and in no event shall the period from the date on which any Holder receives a Suspension Notice to the date on which any Holder receives either the Advice or copies of the supplemented or amended prospectus (the " Suspension Period ") exceed 90 days. In the event that the Company shall give any Suspension Notice, the Company shall use its best efforts and take such actions as are reasonably necessary to render the Advice and end the Suspension Period as promptly as practicable.
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6.3 Registrable Securities . For the purposes of this Section 6, the term " Registrable Securities " shall mean any shares of Common Stock held by a Holder or subject to acquisition by a Holder upon conversion of Convertible Preferred Shares, as applicable, including any shares issued by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization; provided, however , that if an Investor owns Convertible Preferred Shares, the Investor may exercise its registration rights hereunder by converting the shares to be sold publicly into Common Stock as of the closing of the relevant offering and shall not be required to cause such Convertible Preferred Shares to be converted to Common Stock until and unless such Closing occurs, it being understood that the Company shall at the request of the relevant Investor effect the reconversion of Common Stock and any Redeemable Preferred Stock to Convertible Preferred Stock if such a conversion occurs notwithstanding the foregoing and a public offering does not close; and provided, further , that any Common Stock that is sold in a registered sale pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 thereunder, or that may be sold without restriction as to volume or otherwise pursuant to Rule 144 under the Securities Act (as confirmed by an unqualified opinion of counsel to the Company), shall not be deemed Registrable Securities.
6.4 Further Obligations of the Company . Whenever the Company is required hereunder to register any Registrable Securities, it agrees that it shall also do the following:
(a) Pay all expenses of such registrations and offerings (exclusive of underwriting discounts and commissions) and the reasonable fees and expenses of not more than one independent counsel for the Holders satisfactory to the Investors in connection with any registrations pursuant to Section 6. Notwithstanding the foregoing, the Company shall not be required to pay for expenses of any registration proceeding begun pursuant to Section 6.2, the request for which has been subsequently withdrawn by the initiating Holders, in which case, such expenses shall be borne by the Holders requesting such withdrawal and the registration initiated shall not be counted for purposes of the limitation set forth in Section 6.2(d). The preceding sentence shall not apply, and the Company shall bear the expenses of such registration if, at the time of such withdrawal, (i) the Holder has learned of a Material Adverse Change in the condition, business or prospects of the Company from that known to the Holder at the time of its request, and (ii) the Company knew or had reason to know of the likelihood of such Material Adverse Change at the time of its request and did not inform the Holder thereof;
(b) Use its best efforts (with due regard to management of the ongoing business of the Company and the allocation of managerial resources) diligently to prepare and file with the SEC a registration statement and such amendments and supplements to said registration statement and the prospectus used in connection therewith as may be necessary to keep said registration statement effective for at least 180 days or until the Holder or Holders have completed the distribution described in the registration statement relating thereto, whichever first occurs, and to comply with the provisions of the Securities Act with respect to the sale of securities covered by said registration statement for the period necessary to complete the proposed public offering;
(c) Furnish to each selling Holder such copies of each preliminary and final prospectus and such other documents as such Holder may reasonably request to facilitate the public offering of its Registrable Securities;
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(d) Enter into any reasonable underwriting agreement required by the proposed underwriter (which underwriter shall be selected by the selling Investors in connection with any registration requested pursuant to Section 6.2), if any, in such form and containing such terms as are customary; provided, however , that no Holder shall be required to make any representations or warranties other than with respect to its title to the Registrable Securities and any written information provided by the Holder to the Company, and if the underwriter requires that representations or warranties be made and that indemnification be provided, the Company shall make all such representations and warranties and provide all such indemnities, including, without limitation, in respect of the Company's business, operations and financial information and the disclosures relating thereto in the prospectus;
(e) Use its best efforts (with due regard to management of the ongoing business of the Company and the allocation of managerial resources) to register or qualify the securities covered by said registration statement under the securities or "blue sky" laws of such jurisdictions as any selling Holder may reasonably request, provided that the Company shall not be required to register or qualify the securities in any jurisdictions which require it to qualify to do business therein;
(f) Immediately notify each selling Holder, at any time when a prospectus relating to its Registrable Securities is required to be delivered under the Securities Act, of the happening of any event as a result of which such prospectus contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein not misleading, and, subject to Section 6.2(f) hereof, at the request of any such selling Holder, prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading;
(g) Cause all such Registrable Securities to be listed on each securities exchange or quotation system on which similar securities issued by the Company are then listed or quoted;
(h) Otherwise use its best efforts to comply with the securities laws of the United States and other applicable jurisdictions and all applicable rules and regulations of the SEC and comparable governmental agencies in other applicable jurisdictions and make generally available to its holders, in each case as soon as practicable, but not later than 45 days after the close of the period covered thereby, an earnings statement of the Company which will satisfy the provisions of Section 11 (a) of the Securities Act;
(i) Obtain and furnish to each selling Holder, immediately prior to the effectiveness of the registration statement (and, in the case of an underwritten offering, at the time of delivery of any Registrable Securities sold pursuant thereto), a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters as the Holders of a majority of the Registrable Securities being sold may reasonably request; and
(j) Otherwise cooperate with the underwriter or underwriters, the Commission and other regulatory agencies and take all actions and execute and deliver or cause to be executed and delivered all documents necessary to effect the registration of any Registrable Securities under this Section 6.
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6.5 Indemnification: Contribution .
(a) Incident to any registration statement referred to in this Section 6, the Company will indemnify and hold harmless each underwriter, each Holder who offers or sells any such Registrable Securities in connection with such registration statement (including its partners (including partners of partners and stockholders of any such partners), and directors, officers, employees and agents of any of them (a " Selling Holder "), and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934 (the " Exchange Act ") (a " Controlling Person "), from and against any and all losses, claims, damages, expenses and liabilities, joint or several (including any investigation, legal and other expenses incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted, as the same are incurred), to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, insofar as such losses, claims, damages or liabilities arise out of or are based on (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement (including any related preliminary or definitive prospectus, or any amendment or supplement to such registration statement or prospectus), (ii) any omission or alleged omission to state in such document a material fact required to be stated in it or necessary to make the statements in it not misleading, or (iii) any violation by the Company of the Securities Act, any state securities or "blue sky" laws or any rule or regulation thereunder in connection with such registration; provided, however , that the Company will not be liable to the extent that such loss, claim, damage, expense or liability arises from and is based on an untrue statement or omission or alleged untrue statement or omission made in reliance on and in conformity with information furnished in writing to the Company by such underwriter, Selling Holder or Controlling Person expressly for use in such registration statement. With respect to such untrue statement or omission or alleged untrue statement or omission in the information furnished in writing to the Company by such Selling Holder expressly for use in such registration statement, such Selling Holder will indemnify and hold harmless each underwriter, the Company (including its directors, officers, employees and agents), each other Holder (including its partners (including partners of partners and stockholders of such partners) and directors, officers, employees and agents of any of them, and each person who controls any of them within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act), from and against any and all losses, claims, damages, expenses and liabilities, joint or several, to which they, or any of them, may become subject under the Securities Act, the Exchange Act or other federal or state statutory law or regulation, at common law or otherwise, to the same extent provided in the immediately preceding sentence. The Company shall not be obligated hereunder to indemnify any Holder for any amount 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). In no event, however, shall the liability of a Selling Holder for indemnification under this Section 6.5(a) exceed the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total securities sold under such registration statement which is being sold by such Selling Holder or (ii) the proceeds received by such Selling Holder from its sale of Registrable Securities under such registration statement.
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(b) If the indemnification provided for in Section 6.5(a) above for any reason is held by a court of competent jurisdiction to be unavailable to an indemnified party in respect of any losses, claims, damages, expenses or liabilities referred to therein, then each indemnifying party under this Section 6.5, in lieu of indemnifying such indemnified party thereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, expenses or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, the other Selling Holders and the underwriters from the offering of the Registrable Securities, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, the other Selling Holders and the underwriters in connection with the statements or omissions which resulted in such losses, claims, damages, expenses or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Company, the Selling Holders and the underwriters shall be deemed to be in the same respective proportions that the net proceeds from the offering (before deducting expenses) received by the Company and the Selling Holders and the underwriting discount received by the underwriters, in each case as set forth in the table on the cover page of the applicable prospectus, bear to the aggregate public offering price of the Registrable Securities. The relative fault of the Company, the Selling Holders and the underwriters shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, the Selling Holders or the underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Holders, and the underwriters agree that it would not be just and equitable if contribution pursuant to this Section 6.5(b) were determined by pro rata or per capita allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. In no event, however, shall a Selling Holder be required to contribute any amount under this Section 6.5(b) in excess of the lesser of (i) that proportion of the total of such losses, claims, damages or liabilities indemnified against equal to the proportion of the total Registrable Securities sold under such registration statement which are being sold by such Selling Holder or (ii) the proceeds received by such Selling Holder from its sale of Registrable Securities under such registration statement. No person found guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not found guilty of such fraudulent misrepresentation.
(c) The amount paid by an indemnifying party or payable to an indemnified party as a result of the losses, claims, damages and liabilities referred to in this Section 6.5 shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim, payable as the same are incur-red. The indemnification and contribution provided for in this Section 6.5 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified parties or any officer, director, employee, agent or controlling person of the indemnified parties.
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(d) Notice: Defense of Claim . Promptly after receipt by an indemnified party of notice of any claim, liability or expense to which the indemnification obligations set forth in this Section 6.5 would apply, the indemnified party shall give notice thereof in writing to the indemnifying party, but the omission to so notify the indemnifying party promptly will not relieve the indemnifying party from any liability except to the extent that the indemnifying party shall have been prejudiced as a result of the failure or delay in giving such notice. Such notice shall state the information then available regarding the amount and nature of such claim, liability or expense and shall specify the provision or provisions of this Agreement under which the liability or obligation is asserted. If within twenty (20) days after receiving such notice the indemnifying party gives written notice to the indemnified party stating that (a) it would be liable under the provisions hereof for indemnity in the amount of such claim if such claim were successful and (b) that it disputes and intends to defend against such claim, liability or expense at its own cost and expense, then counsel for the defense shall be selected by the indemnifying party (subject to the consent of the indemnified party, which consent shall not be unreasonably withheld) and the indemnified party shall not be required to make any payment with respect to such claim, liability or expense as long as the indemnifying party is conducting a good faith and diligent defense at its own expense; provided, however , that the assumption of defense of any such matters by the indemnifying party shall relate solely to the claim, liability or expense that is subject or potentially subject to indemnification. The indemnifying party shall have the right, with the consent of the indemnified party, which consent shall not be unreasonably withheld, to settle all indemnifiable matters related to claims by third parties which are susceptible to being settled provided its obligation to indemnify the indemnifying party therefor will be fully satisfied. The indemnifying party shall keep the indemnified party apprised of the status of the claim, liability or expense and any resulting suit, proceeding or enforcement action, shall furnish the indemnified party with all documents and information that the indemnified party shall reasonably request and shall consult with the indemnified party prior to acting on major matters, including settlement discussions. Notwithstanding anything herein stated to the contrary, the indemnified party shall at all times have the right to fully participate in such defense at its own expense directly or through counsel; provided, however , if the named parties to the action or proceeding include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate under applicable standards of professional conduct, the expense of separate counsel for the indemnified party shall be paid by the indemnifying party. If no such notice of intent to dispute and defend is given by the indemnifying party, or if such diligent good faith defense is not being or ceases to be conducted, the indemnified party shall, at the expense of the indemnifying party, undertake the defense of (with counsel selected by the indemnified party), and shall have the right to compromise or settle (exercising reasonable business judgment), such claim, liability or expense. If such claim, liability or expense is one that by its nature cannot be defended solely by the indemnifying party, then the indemnified party shall make available all information and assistance that the indemnifying party may reasonably request and shall cooperate with the indemnifying party in such defense.
(e) Prospectus Delivery . The foregoing indemnity agreements of the Company and Selling Holders are subject to the condition that, insofar as they relate to any misstatement or omission in a preliminary prospectus that was eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to Rule 424(b) (the " Final Prospectus "), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act.
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6.6 Rule 144 and Rule 144A Requirements . In the event that the Company becomes subject to Section 13 or Section 15(d) of the Exchange Act, the Company shall use its best efforts to take all action as may be required as a condition to the availability of Rule 144 or Rule 144A under the Securities Act (or any successor or similar exemptive rules hereafter in effect). The Company shall furnish to any Holder, within 15 days of a written request, a written statement executed by the Company as to the steps it has taken to comply with the current public information requirement of Rule 144 or Rule 144A or such successor rules.
6.7 Transfer of Registration Rights . The registration rights and related obligations under this Section 6 of the Holders with respect to their Registrable Securities may be assigned in connection with any transaction or series of related transactions involving the Transfer to one or more transferees of at least 390,000 shares of capital stock of the Company, other than pursuant to an effective registration statement under the Securities Act or pursuant to Rule 144 thereunder (subject to adjustments for stock splits, stock dividends and the like and aggregating all contemporaneous transfers by Holders), or to any TA Funds or JMI Funds or permitted transferee, and upon any such transfer such transferee or TA Fund or JMI Fund shall be deemed to be included within the definition of a "Holder" for purposes of this Section 6 with the rights set forth herein. The relevant Holder as the case may be, shall notify the Company at the time of such transfer.
6.8 "Market Stand-off" Agreement . In connection with any underwritten public offering by the Company, the Holders, if requested in good faith by the Company and the managing underwriter of the Company's securities, shall agree not to sell or otherwise transfer or dispose of any securities of the Company held by them (except for any securities sold pursuant to such registration statement) for a period following the effective date of the applicable registration statement; provided, however that in no event shall such period exceed 180 days; and provided further that such agreement shall not be required unless all officers and directors and one percent (1%) or greater stockholders (other than institutional investors in the case of follow-on or secondary offerings) of the Company and all other persons with registration rights enter into similar agreements. In order to enforce the foregoing, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares of securities of every other person subject to the foregoing restriction) until the end of such period.
6.9 Termination of Registration Rights Provisions . The provisions of this Section 6 shall terminate and have no further force and effect upon the earlier to occur of (i) five (5) years following the effectiveness of the Company's First Qualified Public Offering; and (ii) such time as each Investor can sell all remaining Registrable Securities held by it within a ninety (90) day period pursuant to Rules 144 or 145 under the Securities Act.
SECTION 7. GENERAL
7.1 Amendments, Waivers and Consents . For the purposes of this Agreement and all agreements executed pursuant hereto, no course of dealing between or among any of the parties hereto and no delay on the part of any party hereto in exercising any rights hereunder or thereunder shall operate as a waiver of the rights hereof and thereof. No provision hereof may be waived otherwise than by a written instrument signed by the party or parties so waiving such covenant or other provision. No amendment to this Agreement may be made without the written consent of the Company and the Investors; provided that the written consent of the Stockholders shall be required for any amendment of Sections 5, 6 or 7 hereof. Any actions required to be taken or consents, approvals, votes or waivers required or contemplated to be given by the Investors or the Stockholders shall require a vote of a two-thirds in interest of the Investors or two-thirds in interest of the Stockholders, as applicable, based on the relative holdings of capital stock of the Company of the Investors as a group or of the Stockholders as a group, as applicable, at the relevant time, and any such action by such Investors or Stockholders, as applicable, shall bind all of the Investors, or Stockholders, as applicable.
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7.2 Survival of Representations, Warranties and Covenants; Assignability . All covenants, agreements, representations and warranties of the Company, the Stockholders and the Investors made herein and in the certificates, lists, exhibits, schedules or other written information delivered or furnished to any Investor in connection herewith (a) are material, shall be deemed to have been relied upon by the party or parties to whom they are made and shall survive the Closing until the applicable statutes of limitation related to the matters expire regardless of any investigation or knowledge on the part of such party or its representatives, and (b) shall bind the parties' successors and assigns (including without limitation any successor to the Company by way of acquisition, merger or otherwise), whether so expressed or not, and, except as otherwise provided in this Agreement, all such covenants, agreements, representations and warranties shall inure to the benefit of the Investors' successors and assigns and to their transferees of Securities, whether so expressed or not, subject to the provisions of Sections 4.8, 5.2 and 6.7, and any such transferee shall be deemed an "Investor" for purposes hereof. Notwithstanding the foregoing, the aggregate liability of Ronald F. Woestemeyer and Mariette M. Woestemeyer pursuant to the representations and warranties provided under Section 2 of this Agreement shall be limited to $6,900,000, and the aggregate liability of Robert Salter pursuant to the representations and warranties provided under Section 2 of this Agreement shall be limited to $1,000,000; provided , however , that nothing herein shall limit any potential remedies and liabilities of the Company and/or the Investors, as applicable, arising under state and federal laws with respect to any fraudulent act committed by any Stockholder, the Company, or director and/or officer thereof. To the extent permitted by law, the Company and/or the Investors, as applicable, shall have a right of offset against any amount to be received by the Stockholders under this Agreement.
7.3 Legend on Securities . The Company, the Investors and the Stockholders acknowledge and agree that the following legend shall be typed on each certificate evidencing any of the securities issued hereunder held at any time by an Investor (together with any other legends required by applicable federal or state laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE " ACT "), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS;
7.4 Governing Law . This Agreement shall be deemed to be a contract made under, and shall be construed in accordance with, the laws of the State of Delaware, without giving effect to conflict of laws principles thereof.
7.5 Section Headings and Gender . The descriptive headings in this Agreement have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provision thereof or hereof. The use in this Agreement of the masculine pronoun in reference to a party hereto shall be deemed to include the feminine or neuter, and vice versa, as the context may require.
7.6 Counterparts . This Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document.
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7.7 Notices and Demands . Any notice or demand which is required or provided to be given under this Agreement shall be deemed to have been sufficiently given and received for all purposes when delivered by hand, telecopy, telex or other method of facsimile, or five days after being sent by certified or registered mail, postage and charges prepaid, return receipt requested, or two days after being sent by overnight delivery providing receipt of delivery, to the following addresses: if to the Company or the Stockholders, PROS Strategic Solutions, Inc., 3223 Smith Street, Suite 100, Houston, Texas 77006, or at any other address designated by the Company or the Stockholders, respectively, to the Investors and the other parties hereto in writing; if to an Investor, one (1) copy c/o TA Associates, Inc. and (1) copy c/o JMI Equity Fund, L.P., in each case at its mailing address as shown on Exhibit A hereto, or at any other address designated by TA Associates, Inc. or JMI to the Company and the Stockholders in writing.
7.8 Dispute Resolution . Except with respect to matters as to which injunctive relief is being sought, any dispute arising out of or relating to this Agreement that has not been settled within thirty (30) days (the " Negotiation Period ") by good faith negotiation between the parties to this Agreement shall be submitted to an arbitrator mutually agreeable to the parties for final and binding arbitration pursuant to arbitration rules to be determined by the chosen arbitrator within the limits set forth below. In the event the parties are unable to agree upon an arbitrator within ten (10) days of expiration of the Negotiation Period, the Company and the Investors shall, within five (5) days of the expiration of such ten day period each select one arbitrator and such arbitrators shall select a third arbitrator within five (5) days who shall be the arbitrator designated hereunder. Any such arbitration shall be conducted in San Francisco, California. Such proceedings shall be guided by the following agreed upon procedures:
7.9 Remedies; Severability . Notwithstanding Section 7.9, it is specifically understood and agreed that any breach of the provisions of this Agreement by any person subject hereto will result in irreparable injury to the other parties hereto, that the remedy at law alone will be an inadequate remedy for such breach, and that, in addition to any other remedies which they may have, such other parties may enforce their respective rights by actions for specific performance (to the extent permitted by law). The Company may refuse to recognize any unauthorized transferee as one of its stockholders for any purpose, including, without limitation, for purposes of dividend and voting rights, until the relevant party or parties have complied with all applicable provisions of this Agreement. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement.
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7.10 Integration . This Agreement, including the exhibits, documents and instruments referred to herein or therein, constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, including, without limitation, the letter of intent between the parties hereto in respect of the transactions contemplated herein, which letter of intent shall be completely superseded by the representations, warranties and covenants of the Company contained herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
COMPANY: | |||
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PROS STRATEGIC SOLUTIONS, INC. |
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By: |
/s/ DAVID SAMUEL COATS David Samuel Coats President and Chief Executive Officer |
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STOCKHOLDERS: |
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/s/ RONALD F. WOESTEMEYER Ronald F. Woestemeyer |
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/s/ MARIETTE M. WOESTEMEYER Mariette M. Woestemeyer |
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/s/ ROBERT SALTER Robert Salter |
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INVESTORS: |
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TA/ADVENT VIII L.P. |
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By: |
TA Associates VIII LLC, its General Partner |
By: | TA Associates, Inc., its Manager | ||
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By: |
/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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ADVENT ATLANTIC AND PACIFIC III, L.P. |
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By: |
TA Associates AAP III Partners, its General Partner |
By: | TA Associates, Inc. | ||
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By: |
/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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TA VENTURE INVESTORS L.P. |
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By: |
/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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TA EXECUTIVES FUND LLC |
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By: |
TA Associates VIII LLC, its General Partner |
By: | TA Associates, Inc., its Manager | ||
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By: |
/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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JMI EQUITY FUND III, L.P. |
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By: |
JMI Associates III, LLC, its General Partner |
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By: |
/s/ CHARLES E. NOELL Charles E. Noell Managing Member |
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GLENYS A. WOLF and WILLIAM H. WOLF , as Husband and Wife |
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/s/ GLENYS A. WOLF Glenys A. Wolf |
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/s/ WILLIAM H. WOLF William H. Wolf |
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Exhibit 10.4.1
AMENDMENT TO
STOCK PURCHASE AND STOCKHOLDERS AGREEMENT
This Amendment to Stock Purchase And Stockholder Agreement (this " Amendment ") is entered into as of March 26, 2007, by and among PROS Holdings, Inc., a Delaware corporation (the " Company "), and the holders of at least a two-third-in-interest of the Investors (as defined in the Purchase Agreement described below), who have consented to this Amendment in writing (collectively the " Requisite Investors " and each individually, an " Investor "), pursuant to that certain Stock Purchase and Stockholders Agreement, dated as of June 8, 1998, by and among the Company and the Investors identified on Exhibit A thereto (the " Purchase Agreement "), and amends the Purchase Agreement as set forth herein. All capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the Purchase Agreement. Each reference to a section number below shall, unless otherwise expressly provided herein, refer to such enumerated section of the Purchase Agreement.
RECITALS
WHEREAS, the Company and the Requisite Investors desire to amend one of the restrictive covenants contained in the Purchase Agreement;
WHEREAS, Section 7.1 of the Purchase Agreement provides that the Purchase Agreement may be amended with the written consent of the Company and the holders of at least a two-thirds in interest of the Investors;
WHEREAS, any amendment effected in accordance with Section 7.1 of the Purchase Agreement shall be binding upon (i) each holder of any securities purchased under the Purchase Agreement at the time outstanding (including securities into which such securities are convertible), (ii) each future holder of all such securities and (iii) the Company;
WHEREAS, the Requisite Investors represent those Investors necessary to amend the Purchase Agreement with the consent of the Company; and
WHEREAS, the Requisite Investors and the Company now desire to amend the Purchase Agreement as set forth herein to provide for the Additional Funding and certain other changes;
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Section 4.4(a) . Section 4.4(a) of the Purchase Agreement is hereby amended and restated in its entirety to read as follows:
"(a) sell, lease or otherwise dispose of (whether in one transaction or a series of related transactions) all or substantially all of its assets or business,"
2. Miscellaneous .
(a) Except as expressly amended hereby, the Purchase Agreement (including all previous adopted amendments thereto) remains unmodified and in full force and effect and is hereby renewed, ratified and affirmed by the Company and the Investors.
(b) This Amendment shall be binding upon each of the parties to the Purchase Agreement, whether or not all of such parties have executed a counterpart of this Amendment.
(c) This Amendment may be executed in one or more counterparts, each of which shall be deemed an original. Any party may execute this Amendment by facsimile signature, which shall be deemed to constitute an original for all purposes.
Signature page follows.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date and year first above written.
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PROS HOLDINGS, INC. |
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By: |
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/s/ Albert E. Winemiller Albert E. Winemiller President and Chief Executive Officer |
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TA/ADVENT VIII L.P. |
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By: |
TA Associates VIII LLC, its General Partner |
By: | TA Associates, Inc., its Manager | ||||||
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By: |
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ADVENT ATLANTIC AND PACIFIC III L.P. |
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By: |
TA Associates AAP III Partners, its General Partner |
By: | TA Associates, Inc. | ||||||
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By: |
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/s/ Kurt R. Jaggers
Kurt R. Jaggers, Attorney-in-Fact |
TA VENTURE INVESTORS L.P. |
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* |
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TA EXECUTIVES FUND LLC |
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By: |
TA Associates, Inc., its Manager |
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By: |
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JMI EQUITY FUND III, L.P. |
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By: |
JMI Associates III LLC, its General Partner |
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By: |
/s/ HARRY S. GRUNER |
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Name: |
Harry S. Gruner |
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Title: |
Managing Member |
Signature Page to Amendment to Stock Purchase and Stockholder Agreement
Exhibit 10.5
PROS STRATEGIC SOLUTIONS, INC.
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement") dated effective June 8, 1998, is entered by and among PROS Strategic Solutions, Inc., a Delaware corporation (the "Company"), the investors in the Company identified in Exhibit A attached hereto (the "Investors"), Ronald F. Woestemeyer and Mariette Melchior Woestemeyer (individually a "Founding Stockholder," collectively, the "Founding Stockholders") and those stockholders of the Company identified in Exhibit B attached hereto (collectively, the "Stockholders").
W I T N E S S E T H:
WHEREAS, the Company, the Founding Stockholders and the Stockholders entered into that certain Shareholders' Agreement, dated as of May 1, 1997 (the "Original Agreement"), to impose certain restrictions and obligations upon the shareholders and the common stock of PROS Strategic Solutions, a Texas corporation and predecessor-in-interest to the Company ("PROS-Texas");
WHEREAS, contemporaneously with the execution and delivery of this Agreement, PROS-Texas was merged with and into the Company; and
WHEREAS, the parties to this Agreement wish to amend and restate the Original Agreement to include the Investors and to further amend certain provisions of the Original Agreement;
NOW, THEREFORE, in consideration of the premises, mutual promises and covenants contained in this Agreement, each of the undersigned agree among themselves and with the Company, and the Company agrees with each of the undersigned, as follows:
SECTION
1
DEFINITIONS
For purposes of this Agreement:
" Addendum Agreement" means an agreement in the form attached hereto as Exhibit C with blanks appropriately completed.
" Adjusted Book Value" means the book value of the Company less intangibles and the aggregate amount of the consideration received by the Company for any equity securities of the Company (other than the Common Stock) that may not be converted or exchanged into Common Stock (all as determined as of the date of the most recent audited financial statement of the Company, if the Company has audited financial statements which are dated as of a date no more than 15 months before the Computation Date, or as of the date of the most recent unaudited financial statements of the Company if the Company does not have such audited financial statements). For purposes of calculating the book value of the Company pursuant to this Agreement, such calculation shall be made in accordance with generally accepted accounting principles consistently applied by the Company.
" Adjusted Price" means, for purposes of Section 2.5 hereof, an amount stated in dollars equal to the total value per share of a bona fide written offer from a Bona Fide Offeror determined as follows: (i) cash payable upon consummation of such purchase shall be valued at its face amount, (ii) a security trading on a public market and for which published trading prices are readily available shall be valued at its closing sales price (or if a sales price is not available, at the average of its closing bid and asked prices) on the last business day preceding the date of the first Offering Notice with respect to such offer, and (iii) a security not described in clause (ii) or other property, including cash payable in one or more installments after consummation of such purchase, shall be valued at its fair market value on the last business day preceding the date of the first Offering Notice with respect to such offer as determined in good faith by the Board of Directors of the Company (excluding any member of the Board of Directors of the Company who is the Selling Stockholder (as that term is defined in Section 2.5 hereof)).
" Agreement " has the meaning set forth in the introductory paragraph hereof.
" Bank" means NationsBank of Texas, N.A., and any successor institution.
" Bona Fide Offeror" means the person from whom any of the Select Stockholders or the Stockholders has received a bona fide written offer to purchase shares of Common Stock owned by such Select Stockholder or Stockholder.
" Book Value Price" means an amount computed by dividing (i) the Adjusted Book Value of the Company by (ii) the total number of shares of Common Stock (as determined under Section 3.7 hereof).
" Business Day" means a day other than a Saturday, a Sunday or a legal holiday in the State of Texas.
" Closing Date" shall have the meaning set forth in Section 2.1(g) hereof.
" Co-Sale Notice " has the meaning set forth in Section 2.13 hereof.
" Co-Sale Notice Period" has the meaning set forth in Section 2.13 hereof.
" Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, or similar legislation that replaces such law from time to time.
" Common Stock" means the common stock, par value $.001 per share, of the Company, including shares of common stock, par value $.001 per share, of the Company equal to the largest number of full shares of common stock issued or issuable upon conversion of Preferred Stock.
" Computation Date" means the last day of the month immediately preceding the date of the first Offering Notice given pursuant to Section 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 .
" Consummation Date " has the meaning set forth in Section 2.12 hereof.
" Disabled" means the medically determinable mental or physical incapability of an Employee Stockholder to engage in any substantial gainful activity, which incapacity is reasonably expected to (or does in fact) continue for twelve (12) months or more. If there is any disagreement between an Employee Stockholder and the Company with respect to whether such Employee Stockholder is disabled, then the Company and such Employee Stockholder shall obtain a determination from an impartial reputable physician selected for the purpose of making such determination, whose decision shall be binding upon all parties. If the Company and such Employee Stockholder cannot agree upon the selection of such physician, the then president of the Harris County, Texas, Medical Society may make the selection of such physician, which selection shall be binding upon all parties and such physician's decision shall be binding upon all parties.
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" Disposition" means any sale, charge, gift, pledge, encumbrance, mortgage, transfer or any other disposition of Common Stock (or any interest therein) whatsoever, whether voluntary or involuntary. A Disposition shall be deemed to be involuntary if it involves any transaction, proceeding or action by or in which the Stockholder shall be involuntarily deprived or divested of any right, title or interest in or to any of the shares of Common Stock (including, without limitation, any seizure under levy of attachment or execution, transfer in connection with bankruptcy or other court proceeding to a trustee in bankruptcy or receiver or other officer or agency or any transfer to a state or to a public officer or agency pursuant to any statute pertaining to escheat or abandoned property).
" Employee Stockholder" means an Executive Stockholder or a Stockholder who is an officer or employee of the Company.
" Executive Stockholders" means David Samuel Coats and Robert Salter.
" Founding Stockholder " has the meaning set forth in the introductory paragraph hereof.
" Individual Stockholder " means any natural person who is now or who may hereafter become an Executive Stockholder or a Stockholder and shall include the successors, assigns, heirs, executors and administrators of such Executive Stockholder or Stockholder.
" Offer " has the meaning set forth in Section 2.13 hereof.
" Offering Notice" means (i) for purposes of Section 2.5 hereof, a notice from an offering Select Stockholder or Stockholder specifying (a) the number of shares of Common Stock the offering Select Stockholder or Stockholder desires to dispose of, (b) the identity of the Bona Fide Offeror (including the name, address and telephone number of the Bona Fide Offeror and a complete description of the relationship (personal, business and otherwise) between the offering Select Stockholder or Stockholder and the Bona Fide Offeror), if any, (c) the price per share set forth in the offer received by the offering Select Stockholder or Stockholder, if any, (d) the Adjusted Price or the Book Value Price, as the case may be, and (e) a written representation executed by the offering Select Stockholder or Stockholder and the Bona Fide Offeror stating that such offer is bona fide, if applicable, and the notice from the offering Select Stockholder or Stockholder shall further offer such shares to the Company, the Investors, or to the Select Stockholders and the Stockholders, as the case may be; attached to the notice from the offering Select Stockholder or Stockholder shall be a legible copy of the offer received by the offering Stockholder from the Bona Fide Offeror, if applicable, and (ii) for purposes of Sections 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 hereof, a notice from the party obligated under any such section of this Agreement to offer shares of Common Stock stating the price at which such party is obligated to offer such shares and specifying the manner in which such price has been computed. "Offering Notice" shall include notice pursuant to paragraph (d) of Section 2.1 hereof.
" Other Stockholders " has the meaning set forth in Section 2.12 hereof.
" Person " means an individual, a corporation, a trust, a partnership, a limited liability company, a joint stock association, a business trust or a government or an agency or subdivision thereof, and shall include the singular and the plural.
" Preferred Stock " means the preferred stock, par value $.001 per share, of the Company.
" Purchasers " has the meaning set forth in Section 2.12 hereof.
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" Qualified Public Offering " means a firm commitment underwriting that satisfies any requirement contained in the Company's certificate of incorporation or any certificate of designations, preferences and rights related to Preferred Stock, in each case as amended, relating to the aggregate net proceeds attributable to sales for the account of the Company with respect to an underwritten public offering or, if the Company's certificate of incorporation or any certificate of designations, preferences and rights related to Preferred Stock, in each case as amended, contains no such requirement, the first underwritten public offering of the Company for the sale of Common Stock of which the aggregate net proceeds after deducting underwriting discounts and commissions attributable to sales for the account of the Company exceed $20,000,000.
" Reply Notice" means a notice from any party hereto receiving an Offering Notice stating whether such party accepts or rejects the offer made by an Offering Notice.
" Retirement" means retirement in good standing from full-time employment with the Company under the rules of the Company in effect at the time of the Employee Stockholder's severance from full-time employment with the Company.
" Sale " has the meaning set forth in Section 2.12 hereof.
" Securities Act" means the Securities Act of 1933, as amended, or any successor Federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, as in effect from time to time.
" Select Stockholders" means the Founding Stockholders and the Executive Stockholders, collectively.
" Selling Group " has the meaning set forth in Section 2.12 hereof.
" Selling Stockholder" has the meaning set forth in Section 2.5 hereof, except as otherwise provided herein.
" Stockholders" has the meaning set forth in the introductory paragraph hereof, and for Sections 1, 2 and 3 hereof, all persons and their spouses (other than the Investors and the Select Stockholders) who become parties to this Agreement whether by the execution of an Addendum Agreement or otherwise, all persons (other than the Investors and their respective successors, assigns, heirs, executors and administrators, and the Founding Stockholders) to whom shares of Common Stock may hereafter be transferred in accordance with the terms of this Agreement and their respective successors, assigns, heirs, executors and administrators.
" Transferring Stockholder " has the meaning set forth in Section 2.13 hereof.
" Triggering Event" has the meaning set forth in Section 2.1(d) hereof.
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SECTION
2
RESTRICTIONS ON CERTAIN TRANSFERS OF SHARES
2.1 "Provisions of General Applicability ". For purposes of this Agreement:
(a) Pro Rata Offers to Group . Whenever any Stockholder or Select Stockholder is required to offer shares of Common Stock to the Company, and to the Select Stockholders and the other Stockholders, as a group pursuant to this Agreement, such offer shall be deemed to be made first to the Company. The Select Stockholders and the other Stockholders shall have the right to purchase offered shares if such shares are not purchased by the Company, either pro rata in accordance with their respective holdings at the time of the offer of shares of Common Stock or in such other proportions as they may agree upon among themselves. Except as may otherwise be agreed, each member of the group to whom such shares are so offered, other than the Company, shall have the right to purchase that proportion of the number of such offered shares that the number of shares of Common Stock owned by such member bears to the total number of shares of Common Stock owned by the members of the group electing to accept the offer, other than the Company.
(b) Determinations by Company . Whenever any shares of Common Stock are offered to the Company pursuant to this Agreement, the determination of the Company to accept or reject such offer and the determination of ability of the Company to lawfully purchase such shares of Common Stock offered to the Company shall be made by the Board of Directors of the Company. Any member of the Board of Directors of the Company who is the offering Stockholder shall be disqualified from voting on any such determination.
(c) Copies of Notices to Stockholders . At the time of delivery of each Offering Notice and each Reply Notice delivered pursuant to Section 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 , a copy thereof shall be delivered to each person to whom the shares of Common Stock covered thereby may thereafter be required to be offered pursuant to such section.
(d) Deemed Notice . If at any time any event occurs that requires a Stockholder or Select Stockholder to provide an Offering Notice to the Company under any provision of this Agreement (a "Triggering Event"), an Offering Notice shall be deemed to have been delivered and the Company shall be deemed to have received such Offering Notice, pursuant to the terms of this Agreement upon the first to occur of (i) actual receipt by the Company of the Offering Notice, or (ii) any action (including the delivery of a Reply Notice) taken by the Company with regard to the Triggering Event, taken at least 30 days after the occurrence of the Triggering Event, and the provisions of Section 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 , whichever shall be applicable, shall be deemed to be in effect upon the first to occur of (i) or (ii) above.
(e) All or Nothing; Deemed Rejection . A Reply Notice that accepts an offer made by an Offering Notice must accept such offer as to all shares of Common Stock offered by the Offering Notice to the recipient of the notice. If any Select Stockholder, Stockholder or the Company receives an Offering Notice and fails to deliver a Reply Notice to the offering Stockholder within 30 days from the receipt of the initial Offering Notice to such person, or within ten (10) days from the receipt of a subsequent Offering Notice to such person (as provided for in Sections 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 hereof), the party who fails to so deliver a Reply Notice shall be deemed conclusively to have delivered a Reply Notice stating that such party does not accept the offer made by such Offering Notice.
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(f) Price; Terms of Purchase . Any dispute concerning the calculation of the Adjusted Price or the Book Value Price shall be resolved by the Board of Directors of the Company (excluding any member of the Board of Directors of the Company whose shares are the subject of such dispute). In connection with any purchase and sale of shares of Common Stock pursuant to the provisions of Section 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 , the purchaser or purchasers may at its or their option elect either (i) to pay in cash the aggregate purchase price for such shares, or (ii) to pay in cash one-fourth of the aggregate purchase price for such shares and to issue one or more negotiable promissory notes in payment of the balance of the purchase price for such shares. Any promissory note given for a portion of the purchase price shall be payable as to principal in equal annual installments over a period not to exceed three years from the date of such note, shall be secured by the shares of Common Stock sold with respect to such note, and shall provide for interest, payable annually as it accrues and concurrently with installments of principal, at the rate of interest established from time to time by the Bank as its prime rate . In the event of default in the payment of principal or interest for a period of 30 days with regard to such promissory note, the balance remaining to be paid under such note shall without further notice immediately become due and payable at the election of the holder. Such promissory notes shall provide that the maker agrees to pay the reasonable expenses of collection in the event of default, including attorneys' fees. Such promissory notes also shall provide that the maker has the option of prepayment in whole or in part at any time without penalty.
(g) Closing Date . Each transaction of purchase and sale of shares of Common Stock pursuant to Section 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 shall be completed by delivery of the certificates representing such shares endorsed in blank and by actual registration of the transfer of such shares on the books of the Company upon payment of the purchase price to the Selling Stockholder. Any such transaction shall be closed at such time (within six months of the date of delivery of the first Offering Notice given in connection with such transaction) and place as shall be agreed upon by the parties thereto, or, if no such agreement is reached, at the principal office of the Company on a day (the "Closing Date") that is on the 30th day next following the date of delivery of the last Reply Notice given in connection with such transaction or, if such day shall not be a Business Day, on the first Business Day thereafter during normal business hours.
(h) Purchase Limitations on Company . Notwithstanding paragraph (e) of this Section 2.1 , whenever any shares of Common Stock are offered to the Company pursuant to this Agreement and the Company elects to purchase such shares of Common Stock, if the Board of Directors of the Company (excluding any member of the Board of Directors of the Company whose shares of Common Stock are being offered to the Company pursuant to this Agreement) shall determine in good faith that the Company shall not be able lawfully to purchase all of such shares of Common Stock on the Closing Date under the provisions of the General Corporation Law of the State of Delaware, as amended, the Company shall purchase on the Closing Date so much of such shares of Common Stock as it may lawfully purchase. In the event that the Company purchases less than all of such shares of Common Stock on the Closing Date, then the Company shall not, without the written consent of the offering Stockholder, pay dividends to any Stockholder until the remainder of such shares of Common Stock is purchased in accordance with the terms of this Agreement.
(i) Suspension of Company's Purchase Obligation . If the Company is unable on the Closing Date lawfully to purchase all of such shares of Common Stock, the obligation of the Company to buy and the obligation of the offering Stockholder to sell those shares of such Common Stock that the Company could not lawfully purchase shall continue until such time as the Company may lawfully discharge such obligation.
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(j) Effect of Failure to Exercise Option . If neither the Company, nor the Investors, nor the Select Stockholders or other Stockholders accept an offer to purchase all of the shares of Common Stock of the offering Executive Stockholder or pursuant to the provisions of Section 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 , as the case may be, the offering Executive Stockholder or Stockholder, as the case may be, shall thereafter be entitled to make a Disposition of such remaining shares that have not been sold pursuant to the provisions of Section 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 , as applicable, subject to the requirements of Section 2.5 hereof and each of the other requirements of this Agreement. In the case of an offer of the Selling Stockholder pursuant to Section 2.9 hereof, if involuntary Disposition is not effected, each of the other provisions of this Agreement, including the provisions of Section 2.9 hereof, shall apply to any future involuntary Disposition of such shares of Common Stock owned by the Selling Stockholder.
(k) Exercise of Company Stock Options . Prior to the date of this Agreement the Company has issued options to purchase Common Stock to certain persons including certain Executive Stockholders, Stockholders and certain other persons who are not currently Stockholders. Pursuant to such options and pursuant to any options that may be issued in the future, the shares of Common Stock covered by such options become subject to this Agreement upon exercise of such options. Such options may be exercised for periods of time following the events set forth in Sections 2.6, 2.7, 2.8, 2.9, 2.10, and 2.11 . Upon the exercise of any option following an event specified in any of such sections, the particular event set forth in such section shall be deemed to have occurred effective on the date of such exercise and the required offer and other procedures set forth in the particular section shall be made and apply in accordance with the provisions of the particular applicable section.
2.2 "Investment Representation ". Each of the Executive Stockholders and Stockholders hereby represents that as of the dates any shares of Common Stock were acquired or are hereafter acquired by such Executive Stockholder or Stockholder, such shares were or shall be acquired for such Executive Stockholder or Stockholder's own account, for investment and not with a view to the distribution thereof. Each of the Executive Stockholders and Stockholders understands that the shares of Common Stock that have been acquired by such Executive Stockholder or Stockholder have not been registered under the Securities Act pursuant to an exemption from the registration provisions thereof. Each of the Executive Stockholders and Stockholders hereby agrees that the shares of Common Stock that have been acquired by such Executive Stockholder or Stockholder and any other shares of Common Stock hereafter acquired by such Executive Stockholder or Stockholder pursuant to an exemption from the registration provisions of the Securities Act shall not be sold, transferred, pledged or hypothecated unless the sale of or other transaction concerning such shares is registered under the Securities Act or unless there is furnished an opinion of counsel reasonably satisfactory to the Company that registration of such shares is not required. Each Executive Stockholder and Stockholder understands that the Company is under no obligation to register the shares of Common Stock under the Securities Act, and that Rule 144 under the Securities Act may not be available in connection with any resale of shares of Common Stock. The provisions of this Section 2.2 shall remain in effect until, in the opinion of counsel for the Company, they are no longer required.
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2.3 "Legend on Stock Certificates ". Each of the Select Stockholders and the Stockholders hereby agrees that the following legends (in addition to any other legend required by applicable laws) shall be written, printed or stamped on the back of all certificates representing their shares of Common Stock:
THESE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
THESE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS OF AN AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT, DATED AS OF JUNE 8, 1998 (THE "AGREEMENT"), INCLUDING THEREIN CERTAIN RESTRICTIONS ON TRANSFER AND RIGHTS OF FIRST REFUSAL AND CO-SALE. A COMPLETE AND CORRECT COPY OF THIS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST WITHOUT CHARGE.
Such certificates shall be endorsed on the front thereof as follows:
"See restrictions on transfer hereof on reverse side."
2.4 "No Disposition of Common Stock ". Except for the repurchase of 784,262 shares of the Company's Common Stock from the Founding Stockholders and Robert Salter as contemplated in the Stock Purchase and Stockholder's Agreement, dated as of the same date as this Agreement, among the Company, the Investors', the Founding Stockholders and Robert Salter, and the accompanying Repurchase Agreements, no Executive Stockholder or Stockholder may make any Disposition of any shares of Common Stock owned or held by it except (i) with the written consent of the holders of a majority of the total number of shares of Common Stock held by the Founding Stockholders and the Stockholders, or except as provided in Section 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11, 2.12 or 3, whichever may be applicable, and (ii) in compliance with Section 2.2 hereof.
2.5 "Right of First Refusal Before Stockholder Voluntarily Disposes of Shares ". The Company, the Select Stockholders and the other Stockholders shall have a right of first refusal to purchase the shares of Common Stock owned by a Stockholder. If any Stockholder desires to make a Disposition of any shares of Common Stock owned or held by him in a transaction that is not subject to the provisions of Section 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12, such Stockholder (the "Selling Stockholder") shall offer such shares of Common Stock for sale at a price per share equal to (i) the Adjusted Price, in the case where the Selling Stockholder has received a bona fide written offer from a Bona Fide Offeror, or (ii) an amount equal to the Book Value Price if the Selling Stockholder has not received a bona fide written offer from a Bona Fide Offeror, all in accordance with the following provisions of this Section 2.5.
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(a) Offer by Selling Stockholder to the Company . The Selling Stockholder shall deliver an Offering Notice to the Company, and within 30 days from the receipt of such Offering Notice, the Company shall deliver a Reply Notice to the Selling Stockholder. If by its Reply Notice the Company rejects the offer of the Selling Stockholder, the Company shall provide to the Selling Stockholder in such Reply Notice the name, address (for purposes of Section 3.3 hereof) and number of shares of Common Stock owned by the Select Stockholders and each of the other Stockholders. If by its Reply Notice the Company accepts the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell and the Company to purchase the offered shares at a price per share equal to (i) the Adjusted Price, in the case where the Selling Stockholder has received a bona fide written offer from a Bona Fide Offeror, or (ii) the Book Value Price if the Selling Stockholder has not received a bona fide written offer from a Bona Fide Offeror, and, subject to paragraph (f) of Section 2.1 hereof, upon the terms of the Offering Notice of the Selling Stockholder to the Company. Once the Offering Notice is delivered, the offer by the Selling Stockholder may not be withdrawn during the period within which the Company may deliver a Reply Notice to the Selling Stockholder, as provided in this Section 2.5 .
(b) Offer by Selling Stockholder to the Select Stockholders and the Other Stockholders . If the Company shall not have accepted the offer of the Selling Stockholder pursuant to paragraph (a) of this Section 2.5 , the Selling Stockholder shall, upon receipt of the Reply Notice from the Company or upon the expiration of the 30-day period referred to in paragraph (a) of this Section 2.5 , as applicable, whichever shall first occur, deliver an Offering Notice to the Select Stockholders and the other Stockholders. Within 30 days from the receipt of such Offering Notice, the Select Stockholders and each of the other Stockholders shall deliver a Reply Notice to the Selling Stockholder. In the event that some but not all of the Select Stockholders and the other Stockholders accept the offer of the Selling Stockholder (those persons that accept such offer are referred to in this section as the "Purchasing Stockholders"), the Selling Stockholder shall deliver a second Offering Notice to the Purchasing Stockholders within ten days after the expiration of the 30-day period referred to in the preceding sentence. Pursuant to the second Offering Notice, the Selling Stockholder shall offer to each Purchasing Stockholder that proportion of the number of shares offered to non-Purchasing Stockholders that the number of shares of Common Stock owned by such Purchasing Stockholder bears to the total number of shares of Common Stock owned by all the Purchasing Stockholders. Additional Offering Notices, as needed, shall be delivered until each Purchasing Stockholder has been offered any remaining shares of Common Stock. Within ten days from the receipt of such Offering Notice, the Purchasing Stockholders shall deliver a second Reply Notice to the Selling Stockholder. If by a Reply Notice any of the Select Stockholders and the other Stockholders accept the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell, and each Purchasing Stockholder to purchase, the offered shares at a price per share equal to (i) the Adjusted Price, in the case where the Selling Stockholder has received a bona fide written offer from a Bona Fide Offeror, or (ii) the Book Value Price if the Selling Stockholder has not received a bona fide written offer from a Bona Fide Offeror, and, subject to paragraph (f) of Section 2.1 hereof, upon the terms of the Offering Notice of the Selling Stockholder to the Select Stockholders and the other Stockholders.
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(c) Effect of Failure to Exercise Option . If neither the Company nor the Select Stockholders and the other Stockholders accept an offer to purchase all of the shares of Common Stock of the Selling Stockholder pursuant to the foregoing provisions of this Section 2.5 , the Selling Stockholder shall thereafter be entitled to sell the remaining shares that have not been sold pursuant to the provisions of this Section 2.5 to the Bona Fide Offeror identified in the Offering Notice at a price per share equal to the Adjusted Price or to a purchaser that pays a price per share equal to the Book Value Price for the offered shares of Common Stock, and upon those terms stated in the Offering Notice given by the Selling Stockholder pursuant to this Section 2.5 , but only if (i) such sale is completed within a period of three months from the date of delivery of the Reply Notice of the Select Stockholders and the other Stockholders rejecting the offer, and (ii) the purchaser, before such sale, shall have executed an Addendum Agreement with the Company, the Select Stockholders, and the other Stockholders. If the Selling Stockholder does not complete such sale within such three-month period, all the provisions of this Agreement, including the provisions of this Section 2.5 , shall apply to any future sale or offer for sale of the shares of Common Stock owned by the Selling Stockholder.
2.6 "Sale of Shares Upon Competing With the Business of the Company ." If at any time an Executive Stockholder or a Stockholder shall for any reason begin competing with any business then conducted by the Company (in such capacity, a "Competing Stockholder"), then such Executive Stockholder or Stockholder shall offer all shares of Common Stock then owned or held by the Executive Stockholder or Stockholder for sale at a price per share equal to the Book Value Price, all in accordance with the following provisions of this Section 2.6.
(a) Offer by Competing Stockholder to the Company . On or before sixty (60) days before the date the Competing Stockholder begins competing with the Company, the Competing Stockholder shall deliver an Offering Notice to the Company. Within 30 days from the receipt of such Offering Notice, the Company shall deliver a Reply Notice to the Competing Stockholder. If by its Reply Notice the Company rejects the offer of the Competing Stockholder, the Company shall provide to the Competing Stockholder in such Reply Notice the name, address (for purposes of Section 3.3 hereof) and number of shares of Common Stock owned by each of the Investors (in the case of a Competing Stockholder who is an Executive Stockholder), Select Stockholders and the other Stockholders. If by its Reply Notice the Company accepts the offer of the Competing Stockholder, such Reply Notice shall constitute an agreement binding upon the Competing Stockholder to sell and the Company to purchase the offered shares at the price and upon the terms of the Offering Notice of the Competing Stockholder subject to the provisions of paragraph (f) of Section 2.1 hereof.
(b) Offer by Competing Stockholder to the Select Stockholders and the Other Stockholders . If the Company shall not have accepted the offer of the Competing Stockholder pursuant to paragraph (a) of this Section 2.6 , the Competing Stockholder shall, upon receipt of the Reply Notice from the Company or upon the expiration of the 30-day period referred to in paragraph (a) of this Section 2.6 , whichever shall first occur, deliver an Offering Notice to the Investors (in the case of a Competing Stockholder who is an Executive Stockholder), Select Stockholders and other Stockholders. Within 30 days from the receipt of such Offering Notice, the Investors, Select Stockholders and the other Stockholders shall deliver a Reply Notice to the Competing Stockholder. In the event that some but not all of the Investors, Select Stockholders and the other Stockholders accept the offer of the Competing Stockholder (those persons that accept such offer are referred to in this section as the "Purchasing Stockholders"), the Competing Stockholder shall deliver a second Offering Notice to the Purchasing Stockholders within ten days after the expiration of the 30-day period referred to in the preceding sentence. Pursuant to the second Offering Notice, the Competing Stockholder shall offer to each Purchasing Stockholder that proportion of the number of shares offered to non-Purchasing Stockholders that the number of
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shares of Common Stock owned by such Purchasing Stockholder bears to the total number of shares of Common Stock owned by all the Purchasing Stockholders. Additional Offering Notices, as needed, shall be delivered until each Purchasing Stockholder has been offered any remaining shares of Common Stock. Within ten days from the receipt of such Offering Notice, the Purchasing Stockholders shall deliver a second Reply Notice to the Competing Stockholder. If by a Reply Notice any of the Investors, Select Stockholders and/or the other Stockholders accept the offer of the Competing Stockholder, such Reply Notice shall constitute an agreement binding on the Competing Stockholder to sell, and each Purchasing Stockholder to purchase, the offered shares at the price and upon the terms of the Offering Notice of the Competing Stockholder to the Investors, Select Stockholders and the other Stockholders subject to the provisions of paragraph (f) of Section 2.1 hereof.
2.7 "Sale of Shares Upon Termination of Marriage of an Individual Stockholder ." If the marriage of an Individual Stockholder is terminated by the death of such Individual Stockholder's spouse or by divorce, and such Individual Stockholder does not succeed to all of such Individual Stockholder's spouse's community or other interest, if any, in the Common Stock held by such Individual Stockholder at the time of such termination, then such Individual Stockholder's former spouse or the executor, administrator or heirs of such Individual Stockholder's spouse, as the case may be, shall, within the applicable period hereinafter provided, offer or cause to be offered all of such spouse's interest in such Common Stock at a price per share for such interest which is equal to the Book Value Price (which price is for the entire interest in a share of the Common Stock) or, in connection with an offer pursuant to paragraph (a) of this Section 2.7, such other price as may be agreed to by the parties to the transaction, all in accordance with the following provisions of this Section 2.7. As used in this Section 2.7, the term "Selling Stockholder" shall mean the former spouse of any Individual Stockholder who shall have been divorced or, in the event of the death of the spouse of an Individual Stockholder, the executor, administrator or heirs of such spouse's estate, as the case may be, and the term "Individual Stockholder" shall mean the Individual Stockholder who shall have been divorced or whose spouse shall have died.
(a) Offer by Selling Stockholder to Individual Stockholder . Within ten days of the termination of the marriage by divorce, or, if the Selling Stockholder is the executor or administrator of the deceased spouse's estate, within ten days of the qualification or appointment of such executor or administrator, or if the Selling Stockholder is an heir of the deceased spouse, within 30 days of the death of such spouse, whichever shall be applicable, the Selling Stockholder shall deliver an Offering Notice to the Individual Stockholder. Within 30 days from the receipt of such Offering Notice, the Individual Stockholder shall deliver a Reply Notice to the Selling Stockholder. If by the Individual Stockholder's Reply Notice the Individual Stockholder accepts the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement of the Selling Stockholder to sell and the Individual Stockholder to purchase the offered shares at the price and upon the terms of the Offering Notice of the Selling Stockholder subject to the provisions of paragraph (f) of Section 2.1 hereof.
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(b) Offer by Selling Stockholder to the Company . If the Individual Stockholder does not accept the offer of the Selling Stockholder pursuant to the foregoing provisions of this Section 2.7 , then the Selling Stockholder shall deliver an Offering Notice to the Company, and within 30 days from the receipt of such Offering Notice, the Company shall deliver a Reply Notice to the Selling Stockholder. If by its Reply Notice the Company rejects the offer of the Selling Stockholder, the Company shall provide to the Selling Stockholder in such Reply Notice the name, address (for purposes of Section 3.3 hereof) and number of shares of Common Stock owned by each of the Investors (in the case of a Selling Stockholder whose status as such derives from an Executive Stockholder), Select Stockholders and the other Stockholders. If by its Reply Notice the Company accepts the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell and the Company to purchase the offered shares at the price and upon the terms of the Offering Notice of the Selling Stockholder subject to the provisions of paragraph (f) of Section 2.1 hereof.
(c) Offer by Selling Stockholder to the Investors, Select Stockholders and the Other Stockholders . If the Company shall not have accepted the offer of the Selling Stockholder pursuant to paragraph (b) of this Section 2.7 , the Selling Stockholder shall, upon receipt of the Reply Notice from the Company or upon the expiration of the 30-day period referred to in paragraph (b) of this Section 2.7 , whichever shall first occur, deliver an Offering Notice to the Investors (in the case of a Selling Stockholder whose status as such derives from an Executive Stockholder), the Select Stockholders and the other Stockholders. Within 30 days from the receipt of such Offering Notice, the Investors (in the case of a Selling Stockholder whose status as such derives from an Executive Stockholder), the Select Stockholders and the other Stockholders shall deliver a Reply Notice to the Selling Stockholder. In the event that some but not all of the Investors, Select Stockholders and the other Stockholders accept the offer of the Selling Stockholder (those persons that accept such offer are referred to in this section as the "Purchasing Stockholders"), the Selling Stockholder shall deliver a second Offering Notice to the Purchasing Stockholders within ten days after the expiration of the 30-day period referred to in the preceding sentence. Pursuant to the second Offering Notice, the Selling Stockholder shall offer to each Purchasing Stockholder that proportion of the number of shares offered to non-Purchasing Stockholders that the number of shares of Common Stock owned by such Purchasing Stockholder bears to the total number of shares of Common Stock owned by all the Purchasing Stockholders. Additional Offering Notices, as needed, shall be delivered until each Purchasing Stockholder has been offered any remaining shares of Common Stock. Within ten days from the receipt of such Offering Notice, the Purchasing Stockholders shall deliver a second Reply Notice to the Selling Stockholder. If by a Reply Notice any of the Investors, Select Stockholders and the other Stockholders accept the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell, and each Purchasing Stockholder to purchase, the offered shares at the price and upon the terms of the Offering Notice of the Selling Stockholder to the Investors, Select Stockholders and the other Stockholders subject to the provisions of paragraph (f) of Section 2.1 hereof.
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2.8 "Sale of Shares Upon Death of an Individual Stockholder ." Upon the death of an Individual Stockholder, such Individual Stockholder's spouse, such Individual Stockholder's legatees or heirs at law and such Individual Stockholder's executor or administrator, as the case may be, shall offer, or shall cause to be offered, within the applicable period hereinafter provided, all of such Individual Stockholder's shares of Common Stock at a price per share equal to the Book Value Price, all in accordance with the following provisions of this Section 2.8. As used in this Section 2.8, the term "Selling Stockholder" shall mean such Individual Stockholder's spouse, such Individual Stockholder's legatees or heirs at law and such Individual Stockholder's executor or administrator, as the case may be.
(a) Offer by Selling Stockholder to the Company . Within ten days of the qualification or appointment of such executor or administrator, or if the Selling Stockholder is the Stockholder's spouse, his legatee or heir, within 30 days of the death of the Individual Stockholder, whichever shall be applicable, the Selling Stockholder shall deliver an Offering Notice to the Company. Within 30 days from the receipt of such Offering Notice, the Company shall deliver a Reply Notice to the Selling Stockholder. If by its Reply Notice the Company rejects the offer of the Selling Stockholder, the Company shall provide to the Selling Stockholder in such Reply Notice the name, address (for purposes of Section 3.3 hereof) and number of shares of Common Stock owned by each of the Investors (in the case of a Selling Stockholder whose status as such derives from an Executive Stockholder), Select Stockholders and the other Stockholders. If by its Reply Notice the Company accepts the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell and the Company to purchase the offered shares at the price and upon the terms of the Offering Notice of the Selling Stockholder to the Company subject to the provisions of paragraph (f) of Section 2.1 hereof.
(b) Application of Life Insurance Proceeds; Terms of Purchase . In connection with any purchase and sale of Common Stock pursuant to paragraph (a) of this Section 2.8 , if the aggregate amount of the proceeds of any insurance policies obtained on the life of the Individual Stockholder pursuant to this Agreement that have been collected by the Company are equal to or in excess of the aggregate purchase price of such Individual Stockholder's shares of Common Stock, then on the Closing Date such aggregate purchase price shall be paid by check to the Selling Stockholder. Any excess insurance proceeds shall be retained by the Company. If the aggregate amount of the proceeds of any insurance policies obtained on the life of the Individual Stockholder pursuant to this Agreement that have been collected by the Company are not equal to or in excess of the aggregate purchase price of such Individual Stockholder's shares of Common Stock, then on the Closing Date the aggregate amount of such proceeds shall be paid by check to the Selling Stockholder and the Company shall pay the balance of the purchase price for such shares in accordance with the provisions of paragraph (f) of Section 2.1 of this Agreement.
(c) Offer by Selling Stockholder to the Investors, Select Stockholders and the Other Stockholders . If the Company shall not have accepted the offer of the Selling Stockholder pursuant to paragraph (a) of this Section 2.8 , the Selling Stockholder shall, upon receipt of the Reply Notice from the Company or upon the expiration of the 30-day period referred to in paragraph (a) of this Section 2.8 , whichever shall first occur, deliver an Offering Notice to the Investors (in the case of a Selling Stockholder whose status as such derives from an Executive Stockholder), Select Stockholders and the other Stockholders. Within 30 days from the receipt of such Offering Notice, the Investors, Select Stockholders and the other Stockholders shall deliver a Reply Notice to the Selling Stockholder. In the event that some but not all of the Investors, Select Stockholders and the other Stockholders accept the offer of the Selling Stockholder (those persons that accept such offer are referred to in this section as the "Purchasing Stockholders"), the Selling Stockholder shall deliver a second Offering Notice to the Purchasing Stockholders within ten days after the expiration of the 30-day period referred to in the preceding sentence. Pursuant to the second
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Offering Notice, the Selling Stockholder shall offer to each Purchasing Stockholder that proportion of the number of shares offered to non-Purchasing Stockholders that the number of shares of Common Stock owned by such Purchasing Stockholder bears to the total number of shares of Common Stock owned by all the Purchasing Stockholders. Additional Offering Notices, as needed, shall be delivered until each Purchasing Stockholder has been offered any remaining shares of Common Stock. Within ten days from the receipt of such Offering Notice, the Purchasing Stockholders shall deliver a second Reply Notice to the Selling Stockholder. If by a Reply Notice any of the Investors, Select Stockholders and/or the other Stockholders accept the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell, and each Purchasing Stockholder to purchase, the offered shares at the price and upon the terms of the Offering Notice of the Selling Stockholder subject to the provisions of paragraph (f) of Section 2.1 hereof.
(d) Mandatory Purchase by the Company and Sale by Selling Stockholder . In the event that, upon the death of a Stockholder, the Company, the Investors, Select Stockholders and/or the other Stockholders in the aggregate do not exercise their options hereunder to purchase all of the Stock owned by the Selling Stockholder, the Company shall be obligated to purchase, and the Selling Stockholder shall be obligated to sell to the Company, all of the shares of the Common Stock of the deceased Stockholder not purchased pursuant to the options. Within ten days after the termination of the Founding Stockholders and the other Stockholders option under this section, the Selling Stockholder shall deliver a notice to the Company stating that not all of the deceased Individual Stockholder's shares of Common Stock have been purchased. Within 10 days from the receipt of such notice, the Company shall deliver a reply notice to the Selling Stockholder and such reply notice shall constitute an agreement binding upon the Selling Stockholder to sell and the Company to purchase the remaining shares of the deceased Stockholder at the price and upon the terms of the original Offering Notice of the Selling Stockholder sent to the Company under paragraph (a) of this Section 2.8 , subject to the provisions of paragraph (f) of Section 2.1 hereof.
2.9 "Involuntary Disposition of Shares ". Prior to any involuntary Disposition of a Stockholder's or Executive Stockholder's shares of Common Stock, such Stockholder or Executive Stockholder or his representative shall send notice thereof, disclosing in full to the Company, Investors (in the case of a prospective involuntary Disposition by an Executive Stockholder), the Select Stockholders and the other Stockholders the nature and details of such involuntary Disposition and offer such shares for sale at a price per share equal to the Book Value Price, in accordance with the following provisions of this Section 2.9. As used in this Section 2.9, the term "Selling Stockholder" shall mean such Stockholder or Executive Stockholder or such Stockholder's or Executive Stockholder's representative, as the case may be.
(a) Offer by Selling Stockholder to the Company . The Selling Stockholder shall deliver an Offering Notice to the Company, and within 30 days from the receipt of such Offering Notice, the Company shall deliver a Reply Notice to the Selling Stockholder. If by its Reply Notice the Company rejects the offer of the Selling Stockholder, the Company shall provide to the Selling Stockholder in such Reply Notice the name, address (for purposes of Section 3.3 hereof) and number of shares of Common Stock owned by the Investors (in the case of a prospective involuntary Disposition by an Executive Stockholder), Select Stockholders and each of the other Stockholders. If by its Reply Notice the Company accepts the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell and the Company to purchase the offered shares at the price and upon the terms of the Offering Notice of the Selling Stockholder to the Company subject to the provisions of paragraph (f) of Section 2.1 hereof.
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(b) Offer by Selling Stockholder to the Investors, Select Stockholders and the Other Stockholders . If the Company shall not have accepted the offer of the Selling Stockholder pursuant to paragraph (a) of this Section 2.9 , the Selling Stockholder shall, upon receipt of the Reply Notice from the Company or upon the expiration of the 30-day period referred to in paragraph (a) of this Section 2.9 , whichever shall first occur, deliver an Offering Notice to the Investors (in the case of a prospective involuntary Disposition by an Executive Stockholder), Select Stockholders and the other Stockholders. Within 30 days from the receipt of such Offering Notice, the Investors, Select Stockholders and the other Stockholders shall deliver a Reply Notice to the Selling Stockholder. In the event that some but not all of the Investors, Select Stockholders and the other Stockholders accept the offer of the Selling Stockholder (those persons that accept such offer are referred to in this section as the "Purchasing Stockholders"), the Selling Stockholder shall deliver a second Offering Notice to the Purchasing Stockholders within ten days after the expiration of the 30-day period referred to in the preceding sentence. Pursuant to the second Offering Notice, the Selling Stockholder shall offer to each Purchasing Stockholder that proportion of the number of shares offered to non-Purchasing Stockholders that the number of shares of Common Stock owned by such Purchasing Stockholder bears to the total number of shares of Common Stock owned by all the Purchasing Stockholders. Additional Offering Notices, as needed, shall be delivered until each Purchasing Stockholder has been offered any remaining shares of Common Stock. Within ten days from the receipt of such Offering Notice, the Purchasing Stockholders shall deliver a second Reply Notice to the Selling Stockholder. If by a Reply Notice any of the Investors, Select Stockholders and/or the other Stockholders accept the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding on the Selling Stockholder to sell, and each Purchasing Stockholder to purchase, the offered shares at the price and upon the terms of the Offering Notice of the Selling Stockholder to the Investors, Select Stockholders and the other Stockholders subject to the provisions of paragraph (f) of Section 2.1 hereof.
2.10 "Sale of Shares Upon Termination of Employment of Employee Stockholder" . Notwithstanding the provisions of Sections 2.6 and 2.11 hereof, if at any time an Employee Stockholder shall for any reason (including, but not limited to, Retirement) cease to be an officer or employee of the Company, then such Employee Stockholder shall offer all shares of Common Stock then owned or held by the Employee Stockholder for sale at a price per share equal to the Book Value Price in accordance with the following provisions of this Section 2.10.
(a) Offer by Employee Stockholder to the Company . Within 10 days of the date of termination of the Employee Stockholder's employment, the Employee Stockholder shall deliver an Offering Notice to the Company. Within 30 days from the receipt of such Offering Notice, the Company shall deliver a Reply Notice to the Employee Stockholder. If by its Reply Notice the Company rejects the offer of the Employee Stockholder, the Company shall provide to the Employee Stockholder in such Reply Notice the name, address (for purposes of Section 3.3 hereof) and number of shares of Common Stock owned by each of the Select Stockholders and the other Stockholders (and the Investors, in the case of an Executive Stockholder). If by its Reply Notice the Company accepts the offer of the Employee Stockholder, such Reply Notice shall constitute an agreement binding upon the Employee Stockholder to sell and the Company to purchase the offered shares at a price per share equal to the price and upon the terms of the Offering Notice of the Employee Stockholder subject to the provisions of paragraph (f) of Section 2.1 hereof.
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(b) Offer by Employee Stockholder to the Investors, Select Stockholders and the Other Stockholders . If the Company shall not have accepted the offer of the Employee Stockholder pursuant to paragraph (a) of this Section 2.10 , the Employee Stockholder shall, upon receipt of the Reply Notice from the Company or upon the expiration of the 30-day period referred to in paragraph (a) of this Section 2.10 , whichever shall first occur, deliver an Offering Notice to the Select Stockholders and the other Stockholders (and the Investors, in the case of an Executive Stockholder). Within 30 days from the receipt of such Offering Notice, the Investors, the Founding Stockholders and the other Stockholders shall deliver a Reply Notice to the Employee Stockholder. In the event that some but not all of the Investors, the Select Stockholders and the other Stockholders accept the offer of the Employee Stockholder (those persons that accept such offer are referred to in this section as the "Purchasing Stockholders"), the Employee Stockholder shall deliver a second Offering Notice to the Purchasing Stockholders within ten days after the expiration of the 30-day period referred to in the preceding sentence. Pursuant to the second Offering Notice, the Employee Stockholder shall offer to each Purchasing Stockholder that proportion of the number of shares offered to non-Purchasing Stockholders that the number of shares of Common Stock owned by such Purchasing Stockholder bears to the total number of shares of Common Stock owned by all the Purchasing Stockholders. Additional Offering Notices, as needed, shall be delivered until each Purchasing Stockholder has been offered any remaining shares of Common Stock. Within ten days from the receipt of such Offering Notice, the Purchasing Stockholders shall deliver a second Reply Notice to the Employee Stockholder. If by a Reply Notice any of the Investors, Select Stockholders and/or the other Stockholders accept the offer of the Employee Stockholder, such Reply Notice shall constitute an agreement binding on the Employee Stockholder to sell, and each Purchasing Stockholder to purchase, the offered shares at the price and upon the terms of the Offering Notice of the Employee Stockholder to the Investors, Founding Stockholders and the other Stockholders subject to the provisions of paragraph (f) of Section 2.1 hereof.
2.11 "Disability of Employee" . Subject to the provisions of Section 2.10 hereof, when an Employee Stockholder becomes Disabled, such Employee Stockholder or the representative of such Employee Stockholder shall offer all shares of Common Stock then owned or held by such Employee Stockholder for sale at a price per share equal to the Book Value Price, all in accordance with the following provisions of this Section 2.11. As used in this Section 2.11, the term "Selling Stockholder" shall mean the Employee Stockholder or his representative, as the case may be.
(a) Offer by Selling Stockholder to the Company . The Selling Stockholder shall deliver an Offering Notice to the Company, and within 30 days from the receipt of such Offering Notice, the Company shall deliver a Reply Notice to the Selling Stockholder. If by its Reply Notice the Company rejects the offer of the Selling Stockholder, the Company shall provide to the Selling Stockholder in such Reply Notice the name, address (for purposes of Section 3.3 hereof) and number of shares of Common Stock owned by the Founding Stockholders and each of the other Stockholders (and the Investors, in the case of an Executive Stockholder). If by its Reply Notice the Company accepts the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell and the Company to purchase the offered shares at the price and upon the terms of the Offering Notice of the Selling Stockholder subject to the provisions of paragraph (f) of Section 2.1 hereof.
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(b) Application of Disability Insurance Proceeds; Terms of Purchase . In connection with any purchase and sale of Common Stock pursuant to paragraph (a) of this Section 2.11 , if the aggregate amount of the proceeds of any insurance policies obtained on the disability of the Employee Stockholder for the repurchase of Common Stock pursuant to this Agreement that have been collected by the Company are equal to or in excess of the purchase price of such Employee Stockholder's shares of Common Stock, then on the Closing Date such purchase price shall be paid by check to the Selling Stockholder. Any excess insurance proceeds shall be retained by the Company. If the aggregate amount of the proceeds of any insurance policies obtained on the disability of the Employee Stockholder pursuant to this Agreement that have been collected by the Company are not equal to or in excess of the aggregate purchase price of such Stockholder's shares of Common Stock, then on the Closing Date the aggregate amount of such proceeds shall be paid by check to the Selling Stockholder and the Company shall pay the balance of the purchase price for such shares in the manner authorized by paragraph (f) of Section 2.1 hereof.
(c) Offer by Selling Stockholder to the Investors, Select Stockholders and the Other Stockholders . If the Company shall not have accepted the offer of the Selling Stockholder pursuant to paragraph (a) of this Section 2.11 , the Selling Stockholder shall, upon receipt of the Reply Notice from the Company or upon the expiration of the 30-day period referred to in paragraph (a) of this Section 2.11 , whichever shall first occur, deliver an Offering Notice to the Select Stockholders and the other Stockholders (and the Investors, in the case of an Executive Stockholder). Within 30 days from the receipt of such Offering Notice, the Investors, the Select Stockholders and the other Stockholders shall deliver a Reply Notice to the Selling Stockholder. In the event that some but not all of the Investors, the Select Stockholders and the other Stockholders accept the offer of the Selling Stockholder (those persons that accept such offer are referred to in this section as the "Purchasing Stockholders"), the Selling Stockholder shall deliver a second Offering Notice to the Purchasing Stockholders within ten days after the expiration of the 30-day period referred to in the preceding sentence. Pursuant to the second Offering Notice, the Selling Stockholder shall offer to each Purchasing Stockholder that proportion of the number of shares offered to non-Purchasing Stockholders that the number of shares of Common Stock owned by such Purchasing Stockholder bears to the total number of shares of Common Stock owned by all the Purchasing Stockholders. Additional Offering Notices, as needed, shall be delivered until each Purchasing Stockholder has been offered any remaining shares of Common Stock. Within ten days from the receipt of such Offering Notice, the Purchasing Stockholders shall deliver a second Reply Notice to the Selling Stockholder. If by a Reply Notice any of the Investors, Select Stockholders and/or the other Stockholders accept the offer of the Selling Stockholder, such Reply Notice shall constitute an agreement binding upon the Selling Stockholder to sell, and each Purchasing Stockholder to purchase, the offered shares at the price and upon the terms stated in the Offering Notice of the Selling Stockholder to the Investors, Select Stockholders and the other Stockholders subject to the provisions of paragraph (f) of Section 2.1 hereof.
2.12 "Sale of 50% or More of the Outstanding Voting Common Stock" . The provisions of Sections 2.4 through 2.11 shall not apply to any contemporaneous sale of or agreement to sell (whether for cash, securities or other property) by the Founding Stockholders and/or one or more Executive Stockholders or Stockholders of the Company an aggregate of 50% or more of the then outstanding shares of Common Stock having the right to vote for directors of the Company to a single person or a group of persons pursuant to a single plan or related plans for the sale of such shares (such person or group being referred to in this Section 2.12 as the "Purchasers"). In the event of any such sale or proposed sale, the stockholders of the Company making or agreeing to make such sale, other than the Investors (the "Selling Group") shall have the option to purchase (pro rata in accordance with their respective holdings of shares of Common Stock or in such other proportions as the members of the Selling Group may agree upon), or cause the purchase of, all (but not less than all) the shares of Common Stock of the Executive Stockholders and Stockholders then owning shares of Common Stock who are not parties
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to such sale or agreement of sale (the "Other Stockholders"), and each of the Other Stockholders shall have the option to require the Selling Group to purchase (pro rata in accordance with their respective holdings of shares of Common Stock or in such other proportions as the members of the Selling Group may agree upon), or cause the purchase of, all (but not less than all) of the shares of Common Stock then owned by such Other Stockholders, all in accordance with the following provisions of this Section 2.12. As used in this Section 2.12, the term "Sale" means a sale made or agreed to by the Selling Group in the manner described in the first sentence of this Section 2.12, and the term "Consummation Date" means the date fixed for the consummation of a Sale. Notwithstanding anything herein to the contrary, no Investor, whether or not participating in any Sale, shall be deemed to be a member of any Selling Group or have any obligation under this Section 2.12 .
(a) Selling Group Option to Purchase All Shares . Not less than 30 days prior to the Consummation Date, the Selling Group shall give written notice to the Other Stockholders setting forth the names of the Purchasers, the terms and conditions of the Sale and the Consummation Date. If the Selling Group elects to exercise its option to purchase, or cause the purchase of, all of the shares of Common Stock owned by the Other Stockholders, the notice shall so state. If such option is not exercised, the notice shall set forth an address for the giving of notice by the Other Stockholders of the exercise of the option of the Other Stockholders pursuant to paragraph (b) of this Section 2.12 . In the event of the exercise of the option by the Selling Group, the Other Stockholders shall, on the Consummation Date and conditioned upon and contemporaneously with the Sale, sell the shares of Common Stock owned by them to the Selling Group, or to the Purchasers if so designated in the notice of the Selling Group, upon terms and conditions the same as those of the Sale. If the Selling Group exercises such option and elects to purchase (rather than cause the purchase of) the shares of Common Stock owned by the Other Stockholders, then the Selling Group must resell to the Purchasers the shares of Common Stock so purchased contemporaneously with the Sale and upon terms and conditions the same as those of the Sale. By execution of this Agreement, each Stockholder hereby irrevocably designates and appoints the members of any Selling Group, or any one of such members, as such Stockholder's attorney-in-fact to transfer such Stockholder's shares of Common Stock on the books of the Company in connection with any sale made or required to be made by such Stockholder pursuant to this paragraph (a), and each Stockholder hereby agrees to execute and deliver such instruments of conveyance and transfer and take such other action as the Selling Group or the Purchasers may reasonably require to carry out the terms and provisions of this paragraph (a).
(b) Other Stockholders Option to Cause Sale of All Shares . If the Selling Group does not elect to purchase, or cause the purchase of, the shares of Common Stock of the Other Stockholders by the exercise of the option granted the Selling Group under the foregoing provisions of this Section 2.12 , each Other Stockholder shall have the option to require the Selling Group to purchase, or cause the purchase of, all (but not less than all) the shares of Common Stock owned by such Other Stockholder upon the terms and conditions of the Sale as set forth in the notice furnished pursuant to paragraph (a) of this Section 2.12 . Such option may be exercised by any Other Stockholder by the giving of written notice by such Other Stockholder of the exercise of such option to the Selling Group at the address set forth in the notice referred to in paragraph (a) of this Section 2.12 not less than ten days prior to the Consummation Date. The Selling Group shall, on the Consummation Date and conditioned upon and contemporaneously
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with the Sale, purchase, or cause the purchase by the Purchasers of, the shares of Common Stock of each Other Stockholder giving such notice, such purchase to be upon terms and conditions the same as those of the Sale. If any Other Stockholder exercises such Other Stockholder's option under this paragraph (b), and if the Selling Group has elected to purchase (rather than cause the purchase of) the shares of Common Stock owned by such Other Stockholder, then the Selling Group must resell to the Purchasers the shares of Common Stock so purchased contemporaneously with the Sale and upon terms and conditions the same as those of the Sale. If the Selling Group shall fail to so purchase, or cause the purchase of, the shares of Common Stock of such Other Stockholders as provided in this paragraph (b), then the Selling Group may not consummate the Sale.
2.13 "Attempted Breach ". Any attempted Disposition in breach of this Agreement shall constitute an offer made by the Select Stockholder or the Stockholder, as the case may be, or the heirs, legal representatives, successors and assigns of such Select Stockholder or Stockholder, attempting or making any such Disposition, and the provisions of Section 2.5, 2.6, 2.7, 2.8, 2.9, 2.10, 2.11 or 2.12 , whichever shall be applicable, shall be deemed to be in effect upon such attempted Disposition, and an Offering Notice shall be deemed to have been delivered in connection therewith; provided , however, that the date of delivery of the first Offering Notice for purposes of any such Section shall be deemed to be the date as of which the party to whom such Offering Notice is deemed to be sent has actual knowledge of such attempted Disposition. The party to whom such Offering Notice is deemed to be sent shall, upon obtaining actual knowledge of such attempted Disposition, deliver a notice of such attempted Disposition to the Company and the Company shall thereupon deliver a notice of such attempted Disposition to each person to whom the shares of Common Stock covered by such attempted Disposition may thereafter be required to be offered pursuant to the Section of this Agreement governing such attempted Disposition.
SECTION
3
SELECT STOCKHOLDER TRANSFER RESTRICTIONS
The following provisions of this Section 3 (other than the provision set forth in the first sentence of Section 3.1 (a)) shall terminate immediately prior to a Qualified Public Offering and shall not apply with respect to any Qualified Public Offering.
3.1 "General Restriction".
(a) Each Select Stockholder agrees that neither he nor any of his permitted transferees as contemplated below will directly or indirectly offer, transfer, donate, sell, assign, pledge, hypothecate or otherwise dispose of (any such action a "Transfer") all or any portion of the shares of capital stock of the Company now owned or hereafter acquired by him or them, except (i) to permitted transferees as permitted by Section 3.l(b) and (ii) in bona fide sales to third parties for value following compliance with this Section 3.
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(b) Permitted Transfers by a Select Stockholder shall include Transfers (i) to the Select Stockholder's spouse or children (including adopted children), to a trust of which he is the settlor or a trustee for the benefit of his spouse or children (including adopted children) or to charitable institutions, and (ii) Transfers upon a Select Stockholder's death to his heirs, executors or administrators or to a trust under his or her will or to his or her guardian or conservator, provided that in any such case the transferee shall have entered into an enforceable written agreement providing that all shares so Transferred shall continue to be subject to all provisions of this Agreement as if such shares were still held by the Select Stockholder, and provided further that such permitted transferee shall not be permitted to make any further Transfers without complying with the provisions of this Section 3. Anything to the contrary in this Agreement notwithstanding, Transfers under this Section 3.l(b) shall not be subject to Section 3.2 or 3.3 and transferees permitted by this Section 3.1(b) shall take any shares so Transferred subject to all obligations under this Agreement as if such shares were still held by the Stockholder whether or not they so expressly agree.
3.2 "Right of First Refusal" . If at any time on or after the date hereof a Select Stockholder (including for all purposes of this Section 3.2, any permitted transferee of his shares pursuant to Section 3.1(b)) receives a bona fide offer to purchase any or all of his shares (the "Offer") from an unaffiliated third party (the "Offeror") which such Select Stockholder wishes to accept, the Select Stockholder may Transfer such shares pursuant to and in accordance with the following provisions of this Section 3.2:
(a) Such Select Stockholder shall cause the Offer to be reduced to writing and shall notify the Company, the Investors and the other Select Stockholders in writing of his desire to accept the Offer and otherwise comply with the provisions of this Section 3. The Select Stockholder's notice shall constitute an irrevocable offer to sell such shares to the Company, the Investors and the other Select Stockholders, at a purchase price equal to the price contained in, and on the same terms and conditions of, the Offer. The notice shall be accompanied by a true copy of the Offer (which shall identify the Offeror).
(b) The Company shall have the right to offer to purchase all, but not less than all of the shares covered by the Offer. To exercise such right, the Company shall, within ten (10) days of receipt of such written notice (the "Company Notice Period"), communicate in writing such election to the transferring Select Stockholder (with copies to the Investors). Such written election to purchase shall constitute a valid, legally binding and enforceable agreement for the sale and purchase of all of the shares covered by the Offer.
(c) In the event the Company does not exercise its right pursuant to Section 3.2(b), the transferring Select Stockholder shall notify the Investors and the other Select Stockholders in writing of such fact (the "Investor Notice"). At any time within 20 days after receipt by the Investors of the Investor Notice (the "Investor Notice Period"), one or more of the Investors holding at least ten percent (10%) of the Securities and the other Select Stockholders may, subject to the terms hereof, choose to accept the Offer with respect to all of the shares covered thereby by giving written notice to the Select Stockholder proposing to sell to such effect; provided that if two or more of the Investors and/or the other Select Stockholders choose, in the aggregate, to accept such Offer with respect to an aggregate number of shares which exceeds the number of shares subject to such Offer and available for purchase, the number of shares for which the Offer may be accepted by each such Investor and Select Stockholder shall, in each case, be reduced by the smallest number of shares as shall be necessary to reduce the aggregate number of shares for which the Offer may be accepted by the electing Investors and Select Stockholders as
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contemplated herein to the number of shares for which the Offer was made and which are available for purchase by them; provided further, that the number of shares for which any Investor or Select Stockholder may accept such Offer as contemplated herein shall in no event be reduced to less than the number of shares which bears the same proportion to the total number of shares which are available for purchase as the number of shares of Common Stock then held by such Investor or Select Stockholder (on an as converted basis as contemplated by the Company's Certificate of Designations, Preferences and Rights of Series A Convertible Redeemable Preferred Stock and Redeemable Preferred Stock (the "Certificate of Designation") bears to the total number of shares of Common Stock then held by all Investors and Select Stockholders (on an as converted basis as contemplated by the Certificate of Designation) accepting such Offer.
(d) If shares covered by any Offer are purchased pursuant to Sections 3.2(b) or (c), such purchase shall be (i) at the same price and on the same terms and conditions as the Offer if the Offer is for cash and/or notes or (ii) if the Offer includes any consideration other than cash and notes, then at the equivalent all cash price for such other consideration. The closing of the purchase of the shares subject to an Offer pursuant to this Section 3.2 shall take place within 15 days after the expiration of the Company Notice Period or Investor Notice Period, as applicable, or upon satisfaction of any governmental approval requirements, if later, by delivery by the respective purchasers of the purchase price for shares being purchased as provided above to the selling Select Stockholder against delivery of the certificates representing the shares so purchased, appropriately endorsed for Transfer by such Select Stockholder.
3.3 "Right of Co-Sale ".
(a) In the event any Select Stockholder (including for all purposes of this Section 3.3 any permitted transferees of a Select Stockholder as contemplated by Section 3.1) proposes to sell any shares or receives an Offer and any of such shares are not purchased pursuant to Section 3.2 above, such Select Stockholder (a "Transferring Stockholder") may transfer the shares subject thereto only following compliance with this Section 3.3 and Section 3.4 below. In such event, immediately following the last day of the Investor Notice Period, the Transferring Stockholder shall give an additional notice of the proposed sale to the Investors, once again enclosing a copy of the Offer, if applicable, which shall identify the Offeror and the number of shares proposed to be sold (the "Co-Sale Notice"). Upon the election of an Investor or Investors holding at least ten percent (10%) of the capital stock of the Company on an as-converted to Common Stock basis, each of the Investors shall have the right, exercisable upon written notice to the Transferring Stockholder and any such permitted transferee within 20 days after delivery to it of the Co-Sale Notice (the "Co-Sale Notice Period"), to participate in the sale on the terms and conditions stated in the Co-Sale Notice, except that any Investor who holds shares of the Company's Series A Convertible Redeemable Preferred Stock ("Convertible Preferred Stock") shall be permitted to sell to the relevant purchaser shares of Common Stock acquired upon conversion thereof or, at its election, either (i) an option to acquire such Common Stock when it receives the same upon such conversion at the election of such Investor or as otherwise provided in the Company's Certificate of Incorporation or the certificate of designations, preferences and rights related to such Preferred Stock, in each case as amended, with the same effect as if Common Stock were being conveyed, or (ii) shares of Convertible Preferred Stock provided the acquiror pays the full liquidation preference of the shares being sold plus the relevant price per share for the underlying Common Stock. Each of the Investors shall have the right to sell all or any portion of its or his shares on the terms and conditions in the Co-Sale Notice (subject to the foregoing), with the maximum number of shares equal to the product obtained by multiplying the number of shares proposed to be sold by the relevant Transferring Stockholder and any of its permitted transferees as described in the Co-Sale Notice by a fraction, the numerator of which is the number of shares of Common Stock owned by such Investor on the date of the Co-Sale Notice on an as converted basis, and the denominator of
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which is the sum of the number of shares of Common Stock owned by the Select Stockholders and their permitted transferees and the number of shares of Common Stock owned by all of the Investors (including all assignees of the Investors) as of the date of the Co-Sale Notice on an as converted basis. To the extent one or more Investors elect not to sell the full amount of shares which they are entitled to sell pursuant to this Section 3.1, the other participating Investors rights to sell shares shall be increased proportionately to their relative holdings of capital stock of the Company on an as converted to common stock basis, such that each Investor shall have the right to sell the full number of shares allocable to it in any transaction subject to this Section 3.1(a) even if some Investors or Select Stockholders elect not to participate. Within five days after the expiration of the Co-Sale Notice Period, the Transferring Stockholder shall notify each participating Investor of the number of shares held by such Investor that will be included in the sale and the date on which the sale will be consummated, which shall be no later than the later of (i) thirty (30) days after the delivery of the Co-Sale Notice and (ii) the satisfaction of all governmental approval requirements, if any. Each of the Investors may effect its participation in any sale hereunder by delivery to the purchaser, or to the Transferring Stockholder for transfer to the purchaser, of one or more instruments, certificates and/or option agreements, property endorsed for transfer, representing the shares it elects to sell therein, provided that no Investor shall be required to make any representations or warranties or to provide any indemnities in connection therewith other than with respect to title to the stock being conveyed. At the time of consummation of the sale, the purchaser shall remit directly to each Investor that portion of the sale proceeds to which each such Investor is entitled by reason of its participation therein. No shares may be purchased by a purchaser from the Transferring Stockholder or any of his permitted transferees unless the purchaser simultaneously purchases from the Investors all of the shares that they have elected to sell pursuant to this Section 3.1(a).
(b) Any shares held by a Transferring Stockholder or any of his permitted transferees that the Transferring Stockholder or transferee desires to sell following compliance with Section 3.2, may be sold to the purchaser only during the ninety (90)-day period after the expiration of the Co-Sale Notice Period and only on terms no more favorable to the Transferring Stockholder and such transferees than those contained in the Co-Sale Notice. Promptly after such sale, such Transferring Stockholder shall notify the Investors of the consummation thereof and shall furnish such evidence of the completion and time of completion of such sale and of the terms thereof as may reasonably be requested by the Investors. So long as the purchaser is neither a party, nor an affiliate or relative of a party, to this Agreement, such purchaser shall take the shares so transferred free and clear of any further restrictions of this Agreement. If, at the end of such 90-day period, such Transferring Stockholder and any of his transferees have not completed the sale of such shares as aforesaid, all the restrictions on Transfer contained in this Agreement shall again be in effect with respect to such shares.
3.4 "Exclusion ". The foregoing provisions of Sections 3.3 shall not be applicable to any transfer among the Select Stockholders so long as (i) the Founding Stockholders own and/or have voting control of at least 6,049,720 shares of Common Stock and of the class of Common Stock for all purposes, and (ii) such transfers do not exceed 120,000 shares of Common Stock in the aggregate, in each case subject to adjustments for stock splits, stock dividends and the like.
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3.5 "Assignment ". If all Select Stockholders (and their permitted transferees, if any) propose concurrent Disposition which are subject to Section 3.3, then the provisions of Sections 2.5 and Section 2.13 shall apply to each such proposed Disposition independently. Each Investor shall have the right to assign its rights under Section 2 in connection with any transaction or series of related transactions involving the Disposition to one or more transferees of at least 390,000 shares of capital stock of the Company (subject to adjustments for stock splits, stock dividends and the like and aggregating all contemporaneous Dispositions by two or more Investors), or to any TA Funds or JMI Funds. Upon any such Disposition such transferee or TA Fund or JMI Fund thereupon shall be deemed an " Investor " for purposes of this Section 3.
SECTION
4
MISCELLANEOUS
4.1 "Insurance ." To provide a fund with which to purchase shares of the Common Stock upon the death and/or disability of an Individual Stockholder, the Company may, at its election, apply for insurance on the life and/or disability of a Stockholder. Should the Company elect to apply for insurance on the life and/or disability of a Stockholder, the Stockholder shall cooperate fully with the Company in connection with the making of such applications. The Company shall be the owner and beneficiary of all insurance policies issued pursuant to such applications. The Company shall pay all premiums on such insurance policies. The Company may apply any dividends on such policies toward the payment of premiums. However, if the Company shall obtain insurance on the life and/or disability of a Stockholder, the Company shall not diminish the aggregate amount of proceeds payable upon the death and/or disability of the Stockholder under the policies evidencing such insurance unless and until the termination of this Agreement and the fulfillment of all obligations hereunder; except that in the event that the Stockholder's ownership of all or substantially all of such Stockholder's shares of Common Stock shall be terminated other than by reason of the death or disability of the Stockholder, the Company may diminish the aggregate amount of the proceeds payable upon the death and/or disability of the Stockholder to an amount not less than the principal amount of any note issued by the Company to the Stockholder pursuant to the terms of this Agreement. Upon the death or disability, as the case may be, of the Stockholder prior to the sale of all of the Stockholder's shares of Common Stock to the Company, the Company shall collect all proceeds of such policies, and the aggregate amount of such proceeds shall be applied by the Company to the purchase of the shares of Common Stock of the Stockholder. If however, the aggregate amount of the proceeds of such policies exceeds the price at which such shares of Common Stock are to be purchased pursuant to this Agreement, then the Company shall retain the excess amount.
4.2 "Preemptive Rights ." No Stockholder shall have preemptive rights upon the proposal of the Company to issue, or the issuance of, shares to any persons or entities.
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4.3 "Notices ." All notices (including Offering Notices and Reply Notices), requests, consents and other communications under this Agreement shall be in writing, shall be sent to the address described below, and shall be deemed to have been delivered (a) on the date mailed, if sent certified mail, postage prepaid, return receipt requested, (ii) on the date received, if personally delivered or (iii) on the date sent by telegraph, if telegraphed and confirmed:
(i) | if to Company, to: | |||
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PROS Strategic Solutions, Inc. 3223 Smith Street, Suite 100 Houston, Texas 77006 Attention: President and Chief Executive Officer |
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(ii) |
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if to the Investors, to: |
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TA Associates, Inc. 70 Willow Road, Suite 100 Menlo Park, California 94025 Attention: Kurt Jaggers |
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(iii) |
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if to the Founding Stockholders, to: |
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Ronald F. Woestemeyer and Mariette Melchior Woestemeyer 3980 Inverness Drive Houston, Texas 77019 |
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(iv) |
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if to any Stockholder, to the address of such Stockholder as it appears on Exhibit A of this Agreement. |
Any party hereto may designate a different address by notice to the other parties sent as provided under this Agreement.
4.4 "Governing Law ." This Agreement shall be subject to and governed by the laws of the State of Delaware.
4.5 "Successors and Assigns ." This Agreement shall be binding upon the Company, the Investors, the Founding Stockholders, the Stockholders and their successors and assigns.
4.6 "Amendment; Waiver ." This Agreement may be amended from time to time by an instrument in writing signed by the Company and the holders of a majority of the total number of shares of Common Stock held by the Investors, the Founding Stockholders and the Stockholders; provided , however , that no amendment shall impose any additional material obligation on the Investors, the Founding Stockholders or any Stockholder without that party's written consent to such amendment. No failure or delay on the part of any party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure by any party therefrom shall in any event be effective unless the same shall be in writing, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.
24
4.7 "Calculation of Issued and Outstanding Stock ." In connection with any calculation required to be made under this Agreement based upon the number of shares of Common Stock issued and outstanding at the time of such calculation, any shares of Common Stock (i) then owned or held by the Company or any consolidated subsidiary shall not be deemed to be issued and outstanding for purposes of such calculation, and (ii) subject to an option, or into which any security of the Company may be converted or exchanged, shall be deemed to be issued and outstanding for purposes of such calculation.
4.8 "Gender; Number ." Whenever the context requires, the gender of all words used herein shall include the masculine, feminine and neuter, and the number of all words shall include the singular and the plural.
4.9 "Termination ." This Agreement shall terminate automatically upon (i) the bankruptcy (whether by a court of competent jurisdiction or voluntarily) or dissolution of the Company, (ii) the occurrence of any event that reduces the number of stockholders of the Company to one, (iii) the merger or consolidation of the Company with another corporation (provided the Company is not the surviving corporation of such a merger or consolidation and provided further that the surviving corporation is not owned or controlled, directly or indirectly, by the stockholders of the Company), (iv) a Sale effected pursuant to Section 2.12 hereof, (v) a Qualified Public Offering or (vi) the written agreement of the Investors and of the holders of two-thirds of the Common Stock that is subject to this Agreement at the time of such termination; provided , however , that the provisions of Sections 2.2 and 3.10 shall survive the termination of this Agreement under the foregoing provisions of this sentence and shall thereafter continue in effect as provided in such Sections.
4.10 "Market Stand-Off Agreement ." In connection with any underwritten public offering after the effective date of this Agreement pursuant to an effective registration statement under the Securities Act covering the offering and sale of shares of Common Stock, or of any equity security that as a part of a unit includes Common Stock, for the account of the Company, each of the Founding Stockholders and each of the Stockholders, if and to the extent requested in good faith by the Company and the managing underwriter of securities of the Company, shall agree not to sell or otherwise transfer or dispose of any shares of Common Stock held by him or her (except shares of Common Stock included in the registration statement relating to such underwritten public offering) at any time during a period following the effective date of the registration statement relating to such underwritten public offering; provided , however , that in no event shall such period exceed 180 days. In order to enforce the foregoing covenant, subject to the foregoing exceptions, the Company may impose stop-transfer instructions with respect to the shares of Common Stock of each of the Founding Stockholders and each of the Stockholders (and the securities of every other person subject to such restriction) until the end of such period. The provisions of this Section 3.10 shall survive the termination of this Agreement until the earlier to occur of (i) five (5) years following the effective date of the first Qualified Public Offering, or (ii) such time as the Founding Stockholders and each of the Stockholders can sell all remaining shares of Common Stock held by him or her within a ninety (90) day period pursuant to Rule 144 or 145 under the Securities Act.
4.11 "Severability ." If any term or provision contained in this Agreement is or is hereafter found to be inconsistent with, contrary to or invalid or unenforceable under any law or official rule, regulation or order, this Agreement shall be deemed to be modified accordingly and the remaining terms and provisions of this Agreement shall not be affected thereby and shall continue in full force and effect.
25
4.12 "Powers of Attorney ." For the purpose of executing an Addendum Agreement attached hereto as Exhibit C (the "Addendum Agreement"), the Investors, the Founding Stockholders and the Stockholders hereby appoint the Company (this "Appointment") as agent and attorney of the Investors, the Founding Stockholders and the Stockholders solely to execute such Addendum Agreement on their behalf and expressly bind themselves to the Addendum Agreement by the Company's execution of that Addendum Agreement without further action on their part. This Appointment shall in no way limit or impair the rights or ability of the Investors, the Founding Stockholders, or the Stockholders to bring a cause of action against or otherwise seek redress from any party, including, without limitation, the Company, to the Addendum Agreement or this Agreement for such party's failure to perform its obligations under the Addendum Agreement or this Agreement.
4.13 "Execution of Instruments ." The parties to this Agreement or their duly authorized representatives shall make, execute and deliver any documents necessary to carry out the provisions of this Agreement. This Agreement shall be binding upon the Company, the Investors, the Founding Stockholders, the Stockholders, their heirs, legal representatives, successors and assigns.
4.14 "Counterparts ." For the convenience of the parties hereto, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.
4.15 "Section and Paragraph Headings ." The sections and paragraph headings in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
SECTION
5
SPOUSAL ACKNOWLEDGMENT
The spouse of each Stockholder is fully aware of, understands and fully consents and agrees to the provisions of this Agreement and its binding effect upon any community property interest such spouse may now or hereafter own. Any obligation on the part of a Founding Stockholder or a Stockholder to sell or offer to sell his or her Common Stock shall include an obligation on the part of his or her spouse, if any, to sell or offer to sell, as the case may be, the spouse's community property interest, if any, in such Common Stock at the same time, in the same manner and for no additional consideration. The spouse of each Stockholder agrees that the termination of such spouse's marital relationship with the Stockholder for any reason shall not have the effect of removing any of the shares of Common Stock otherwise subject to this Agreement from the coverage hereof and that such spouse's awareness, understanding, consent and agreement to all of the provisions hereof is evidenced by such spouse's execution and delivery of this Agreement.
26
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in multiple counterparts, each of which shall be deemed an original, as of the Effective Date.
COMPANY: | ||||
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PROS STRATEGIC SOLUTIONS, INC., a Delaware corporation |
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By |
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/s/ DAVID SAMUEL COATS David Samuel Coats President and Chief Executive Officer |
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INVESTORS: |
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TA/ADVENT VIII L.P. |
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By: |
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TA Associates VIII LLC, its General Partner |
By: | TA Associates, Inc., its Manager | |||
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By: |
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/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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ADVENT ATLANTIC AND PACIFIC III, L.P. |
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By: |
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TA Associates AAP III Partners, its General Partner |
By: | TA Associates, Inc. | |||
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By: |
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/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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GLENYS A. WOLF AND W. HOWARD WOLF as husband and wife |
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By: |
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/s/ GLENYS A. WOLF Glenys A. Wolf |
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By: |
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/s/ W. HOWARD WOLF W. Howard Wolf |
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TA VENTURE INVESTORS L.P. |
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By: |
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/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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TA EXECUTIVES FUND LLC |
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By: |
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TA Associates VIII LLC, its General Partner |
By: | TA Associates, Inc., its Manager | |||
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By: |
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/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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JMI EQUITY FUND III, L.P. |
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By: |
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JMI Associates III, LLC, its General Partner |
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By: |
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/s/ CHARLES E. NOELL Charles E. Noell Managing Member |
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FOUNDING STOCKHOLDERS: |
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/s/ RONALD F. WOESTEMEYER Ronald F. Woestemeyer |
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/s/ MARIETTE MELCHIOR WOESTEMEYER Mariette Melchior Woestemeyer |
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STOCKHOLDERS: |
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/s/ DAVID SAMUEL COATS David Samuel Coats |
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/s/ ROBERT SALTER Robert Salter |
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Benson B. Yuen |
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E. Andrew Boyd |
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Richard A. Savage |
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Peter Kiernan |
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Suranand Adyanthaya |
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Graham E. Parker |
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Mathew S. Johnson |
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Jeffrey A. Key |
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William E. Salter |
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Rudolfo Elizondo |
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James Earl Longmire III |
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Richard A. Henderson |
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Perinkulam R. Narayanan |
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William A. Hinke |
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Raghu N. Debbad |
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SPOUSES: |
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Judy Coats |
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Carolyn Salter |
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Sarah Fishman Boyd |
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Christine Savage |
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Stacy Janelle Parker |
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Kathleen Johnson |
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Renee Elizabeth Key |
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Ethel Marie Salter |
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Martha Hinke |
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Prashanthi Debbad |
INVESTORS
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SHARES
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COST
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TA/Advent VIII, L.P.
70 Willow Road, Suite 100 Menlo Park, California 94025 |
2,411,228 | $ | 15,372,579.58 | ||
Advent Atlantic and Pacific III, L.P. 70 Willow Road, Suite 100 Menlo Park, California 94025 |
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452,559 |
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$ |
2,885,251.84 |
TA Executives Fund LLC 70 Willow Road, Suite 100 Menlo Park, California 94025 |
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44,345 |
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$ |
282,720.00 |
TA Venture Investors, L.P. |
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48,224 |
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$ |
307,448.58 |
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70 Willow Road, Suite 100
Menlo Park, California 94025 |
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Subtotal (TA Funds) |
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2,956,356 |
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$ |
18,848,000.00 |
JMI Equity Fund III, L.P. 12680 High Bluff Drive, 2nd Floor San Diego, California 92130 |
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933,586 |
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$ |
5,952,000.00 |
Glenys A. Wolf and William H. Wolf, |
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31,370 |
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$ |
200,000.00 |
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as husband and wife
1404 North Boulevard Houston, Texas 77006 |
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TOTAL | 3,921,312 | $ | 25,000,000.00 | ||
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Exhibit B
List of Stockholders
STOCKHOLDER:
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ADDRESS:
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David Samuel Coats
Spouse: Judy Coats |
7 Marilane
Houston, Texas 77007 |
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Robert Salter Spouse: Carolyn Salter |
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21 Shorelake Kingwood, Texas 77338 |
Benson B. Yuen |
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4618 Natural Bridge Drive Kingwood, Texas 77345 |
E. Andrew Boyd Spouse: Sarah Fishman Boyd |
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4104 Amherst Street Houston, Texas 77005 |
Richard A. Savage Spouse: Christine Savage |
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4021 St. Christopher Lane Dallas, Texas 75287 |
Peter Kiernan |
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8787 Woodway Drive Houston, Texas 77063 |
Suranand Adyanthaya |
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13026 Wickersham Drive Houston, Texas 77077 |
Graham E. Parker Spouse: Stacy Janelle Parker |
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7979 Westheimer #01702 Houston, Texas 77063 |
Mathew S. Johnson Spouse: Kathleen Johnson |
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931 Harvard Houston, Texas 77005 |
Jeffrey A. Key Spouse: Renee Elizabeth Key |
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847 Shadwell Houston, Texas 77062 |
William E. Salter Spouse: Ethel Marie Salter |
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4202 Forest Holly Kingwood, Texas 77345 |
Rudolfo Elizondo |
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4729 1-2 Merwin Houston, Texas 77027 |
James Earl Longmire III |
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823 Helms Houston, Texas 77088 |
Richard A. Henderson |
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7315 Tara Road Richmond, Texas 77469 |
Perinkulam R. Narayanan |
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6601 Harbor Town Drive #1315 Houston, Texas 77036 |
William A. Hinke Spouse: Martha Hinke |
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17811 Vintage Wood Lane Spring, Texas 77379 |
Raghu N. Debbad Spouse: Prashanthi Debbad |
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2634 Yorktown #374 Houston, Texas 77056 |
Addendum Agreement made this day of , , by and between (the "New Stockholder"), PROS Strategic Solutions, Inc., a Delaware corporation (the "Company"), and such investors, founding stockholders, and stockholders (the "Stockholders") of the Company who are parties to that certain Stockholders' Agreement dated , 19 (the "Agreement"), between the Company and the Stockholders.
WHEREAS, the Company and the Stockholders entered into the Agreement to impose certain restrictions and obligations upon the Stockholders and the shares of common stock of the Company owned by such Stockholders (the "Common Stock");
WHEREAS, the New Stockholder is desirous of becoming a stockholder of the Company; and
WHEREAS, the Company and the Stockholders have required in the Agreement that all persons being offered shares of the Common Stock must enter into an Addendum Agreement binding the New Stockholder to the Agreement to the same extent as if it were an original party thereto, so as to promote the mutual interests of the Company, the Stockholders and the New Stockholder by imposing the same restrictions and obligations on the New Stockholder and the shares of the Common Stock to be acquired by the New Stockholder as were imposed upon the Stockholders under the Agreement.
NOW, THEREFORE, in consideration of the mutual promises of the parties, and as a condition of the purchase of the shares of the Common Stock, the New Stockholder acknowledges that the New Stockholder has read the Agreement. The New Stockholder shall be bound by, and shall have the benefit of, all the terms and conditions set out in the Agreement to the same extent as if the New Stockholder were a "Stockholder" as defined in the Agreement. This Addendum Agreement shall be attached to and become a part of the Agreement.
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Printed Name: |
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Address
for notices under
Section 3.3 of the Agreement:
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[To be completed if applicable:]
The spouse of the New Stockholder acknowledges that such spouse has read the Agreement. Such spouse is fully aware of, understands and fully consents and agrees to Section 4 of the Agreement and that such spouse's awareness, understanding, consent and agreement is evidenced by such spouse's execution and delivery of this Addendum Agreement.
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Printed Name: |
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C-1
Agreed to on behalf of the Investors, the Founding Stockholders, the Stockholders and the Company pursuant to Section 3.12 of the Agreement.
PROS STRATEGIC SOLUTIONS, INC.,
a Delaware corporation |
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ATTEST: |
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By: |
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David Samuel Coats President and Chief Executive Officer |
Secretary |
C-2
Exhibit 10.5.1
FIRST AMENDMENT
TO
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Amendment") is made and entered into effective April 8, 1999, by and among PROS Strategic Solutions, Inc., a Delaware corporation (the "Company"), and the undersigned holders of a majority of the total number of shares of Common Stock held by the Investors, the Founding Stockholders and the Stockholders. Capitalized terms used and not defined herein have the same meaning ascribed to them in the Agreement (as hereinafter defined).
WHEREAS, the Company, the Investors, the Founding Stockholders, and the Stockholders entered into that certain Amended and Restated Stockholders' Agreement dated effective June 8, 1998 (the "Agreement");
WHEREAS, Section 4.6 of the Agreement provides that the Agreement may be amended from time to time by an instrument in writing signed by the Company and the holders of a majority of the total number of shares of Common Stock held by the Investors, the Founding Stockholders, and the Stockholders, provided, however, that no amendment shall impose any additional material obligation on the Investors, the Founding Stockholders or any Stockholder without that party's written consent to such amendment;
WHEREAS, the parties to this Amendment (other than the Company) are the holders of a majority of the total number of shares of Common Stock held by the Investors, the Founding Stockholders, and the Stockholders; and
WHEREAS, the parties to this Amendment wish to amend the Agreement as hereinafter provided;
NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. The Agreement is hereby amended to add a new Section 4.16 which reads in its entirety as follows:
"4.16 " Termination of Employee Stockholder's Rights and Obligations ." Notwithstanding anything contained in this Agreement to the contrary, if an Employee Stockholder shall for any reason cease to be an officer or employee of the Company, the rights and obligations of the parties hereto under this Agreement with respect to such Employee Stockholder and the shares of Common Stock owned or acquired by such Employee Stockholder may (but shall not be required to) be terminated, in whole or in part, by an instrument in writing signed by the Company, such Employee Stockholder and the holders of a majority of the total number of shares of Common Stock held by the Investors, the Founding Stockholders and the Stockholders."
2. All references to "this Agreement" contained in the Agreement shall be deemed to be a reference to the Agreement, as amended by this Amendment.
3. This Amendment shall be subject to and governed by the laws of the State of Delaware.
4. Except as amended by this Amendment, the Agreement shall remain in full force and effect.
1
5. This Amendment may be executed in one or more counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed effective as of the date first above written.
PROS STRATEGIC SOLUTIONS, INC. | ||||
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By |
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/s/ CHARLES H. MURPHY Charles H. Murphy Chief Financial Officer |
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FOUNDING STOCKHOLDERS: |
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/s/ RONALD F. WOESTEMEYER Ronald F. Woestemeyer |
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/s/ MARIETTE MELCHIOR WOESTEMEYER Mariette Melchior Woestemeyer |
2
INVESTORS: | ||||
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TA/Advent VIII L.P. |
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By: |
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TA Associates VIII LLC, its General Partner |
By: | TA Associates, Inc., its Manager | |||
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By |
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/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
[SIGNATURES CONTINUED ON NEXT PAGE]
3
ADVENT ATLANTIC AND PACIFIC III, L.P. | ||||
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By: |
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TA Associates AAP III Partners, Its General Partner |
By: | TA Associates, Inc. | |||
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By |
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/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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TA VENTURE INVESTORS, L.P. |
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By |
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/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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TA EXECUTIVE FUND LLC |
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By: |
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TA Associates VIII LLC, its General Partner |
By: | TA Associates, Inc., its Manager | |||
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By |
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/s/ KURT R. JAGGERS Kurt R. Jaggers Attorney-in-Fact |
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JMI EQUITY FUND III, L.P. |
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By: |
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JMI Associates III, LLC, its General Partner |
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By |
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/s/ HARRY S. GRUNER Harry S. Gruner Managing Member |
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/s/ WILLIAM H. WOLF William H. Wolf |
4
We, David Samuel Coats and wife, Judy Coats, hereby affirm and attest by our signatures to this Consent that we have read that certain First Amendment to Amended and Restated Stockholders' Agreement dated as of April 8, 1999 (the "Amendment"), a copy of which is attached hereto as Exhibit A , and that we are fully aware of, understand, and fully consent and agree to the terms and provisions of the Amendment.
Date: |
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David Samuel Coats |
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Judy Coats |
Exhibit 10.6
This Registration Rights Agreement (this "Agreement") is entered into effective the 25 th day of May 1999, by and between PROS Strategic Solutions, Inc., a Delaware corporation (the "Company"), and David Samuel Coats (the "Stockholder").
W I T N E S S E T H:
WHEREAS, the Company and the Stockholder have entered into that certain Separation Agreement of even date herewith (the "Separation Agreement"); and
WHEREAS, pursuant to the Separation Agreement, the Stockholder will retain 325,000 shares (the "Retained Shares") of the common stock, $.001 par value per share ("Common Stock"), of the Company; and
WHEREAS, the Separation Agreement contemplates the execution of this Agreement to provide to the Stockholder certain registration rights in respect of the Retained Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions herein contained, the parties do hereby agree as follows:
1. Registration Rights . The parties covenant and agree as follows:
1.1 Definitions . As used in this Agreement, the terms defined in the preamble and recitals hereto and otherwise herein shall have the respective meanings set forth therein and herein, and the following terms shall have the following meanings:
"Act" means the Securities Act of 1933, as amended.
"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 applicable rules and regulations thereunder, and the declaration or ordering of effectiveness by the SEC of such registration statement or document.
"SEC" means the Securities and Exchange Commission.
1.2 Company Registration . If (but without any obligation to do so) at any time or from time to time after the date hereof and on or before the earlier of (a) the Stockholder's holding of less than 200,000 shares of Common Stock, and (b) such date when the Stockholder can transfer the balance of his shares pursuant to Rule 144 under the Act and a public market exists for such securities, the Company proposes to register for its own account any of its Common Stock (other than an initial public offering or a registration relating either solely to the sale of securities to participants in a Company stock option, stock purchase or similar plan or solely to an SEC Rule 145 or similar transaction), the Company shall, at such time, promptly give to the Stockholder written notice thereof. Upon the written request of the Stockholder given within 20 days after the receipt of such notice given by the Company, the Company shall, subject to the provisions of Section 1.6, cause to be included in such registration (and any related qualification under Blue Sky laws or other compliance thereunder), and in any underwriting involved therein, all of the Retained Shares that the Stockholder has requested to be registered. The written request made by the Stockholder as referred to in this Section 1.2 may specify that only a part of the Retained Shares be included in the Company's registration.
1
1.3 Obligations of the Company . Whenever required under this Section 1 to effect the registration of any Retained Shares, the Company shall, as expeditiously as reasonably practicable:
(a) Prepare and file with the SEC a registration statement with respect to such Retained Shares and use its reasonable efforts to cause such registration statement to become effective and keep such registration statement effective for up to 90 days.
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement.
(c) Furnish to the Stockholder a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as he may reasonably request in order to facilitate the disposition of Retained Shares owned by him.
(d) Use its 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 Stockholder, 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 underwriter of such offering, it being understood and agreed in such regard that the Stockholder also shall enter into and perform his obligations under such an agreement.
(f) At any time when a prospectus relating thereto is required to be delivered under the Act, notify the Stockholder of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
1.4 Furnish Information . The Stockholder shall furnish to the Company such information regarding himself, the Retained Shares held by him and the intended method of disposition of such Retained Shares as shall be reasonably required to effect the registration of such Retained Shares.
1.5 Expenses . The Company shall bear and pay all expenses incurred by the Company in connection with any registration, filing or qualification of Retained Shares with respect to registrations pursuant to Section 1.2 for the Stockholder, including all registration, filing and qualification fees, printers and accounting fees, and fees and disbursements of counsel to the Company, relating or apportionable thereto, but excluding underwriting discounts and commissions relating to Retained Shares and any fees and disbursements of counsel to the Stockholder.
1.6 Underwriting Requirements . In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 1.2 to include any of the Retained Shares in such underwriting unless the Stockholder accepts the terms of the underwriting as agreed upon between the Company and the underwriter selected by it. If the underwriter or the Company determines that marketing factors require a limitation on the number of shares to be offered, the underwriter or the Company may exclude from such registration and underwriting some or all of the Retained Shares which would otherwise be registered. If the number of shares to be registered is reduced, then the number of shares that may be included in the registration on behalf of any persons or entities asserting registration rights shall be allocated first among the holders of registrable securities obtained upon the conversion of a
2
security of the Company with rights, preferences or privileges senior to those of the Common Stock and then among the remaining holders of Common Stock. If the Stockholder has requested registration under Section 1.2, the Company shall advise the Stockholder as promptly as practicable of such exclusion. If the Stockholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Retained Shares excluded or withdrawn from such underwriting shall be withdrawn from such registration.
1.7 Lockup Agreement . In consideration for the Company's agreement to its obligations under this Agreement, the Stockholder agrees in connection with any registration of the Company's securities that, upon the request of the Company or the underwriters managing any underwritten offering of the Company's securities, not to sell, make any short sale of, loan, grant any option for the purchase of or otherwise dispose of any of the Retained Shares (other than those shares included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as the Company or the underwriters may specify.
1.8 Delay of Registration . The Stockholder shall not have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy or dispute that arises with respect to the interpretation or implementation of this Section 1.
1.9 Indemnification . In the event any Retained Shares are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and hold harmless the Stockholder from and against any losses, claims, damages, expenses or liabilities to which he may become subject under the Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), or other federal or state law, insofar as such losses, claims, damages, expenses 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, or any other documents prepared by the Company and incident 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 law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay as incurred to the Stockholder any legal or other expenses reasonably incurred by him in connection with investigating or defending any such loss, claim, damage, expense, liability or action; provided, however, that the indemnity agreement contained in this Section 1.9(a) shall not apply to amounts paid or fees or expenses incurred in settlement of any such loss, claim, damage, liability, expense or action if such settlement is effected without the written consent of the Company, nor shall the Company be liable to the Stockholder in any such case for any such loss, claim, damage, expense, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon information furnished for use in connection with such registration by the Stockholder, provided further that in no event shall any indemnity obligation under this Section 1.9(a) exceed the net proceeds from the offering received by the Company.
(b) To the extent permitted by law, the Stockholder will indemnify and hold harmless the Company and each other selling stockholder and their respective directors, officers, stockholders, members, partners, affiliates, successors and assigns who have signed the registration statement, each person, if any, who controls the Company within the meaning of
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the Act, any underwriter, and each of its officers, directors and partners and any controlling person of any such underwriter, from and against any losses, claims, damages, or liabilities to which any of the foregoing persons may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, expenses 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 information furnished to the Company by the Stockholder or his agents or representatives for use in connection with such registration; and the Stockholder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 1.9(b), in connection with investigating or defending any such loss, claim, damage, expense, liability or action; provided, however, that the indemnity agreement contained in this Section 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, expense, liability or action if such settlement is effected without the consent of the Stockholder, which consent will not be unreasonably withheld or delayed.
(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 shall have the right to retain its own counsel, with the reasonable fees and expenses of such counsel 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, and only if, seriously 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 obligations of the Company and/or the Stockholder under this Section 1.9 should conflict with the obligations of the parties as provided in any underwriting agreement, then the obligations of the parties as provided in such underwriting agreement shall control.
2. Notices . All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand, or mailed by first class certified or registered mail, return receipt requested, postage prepaid, to the Company and the Stockholder at their respective addresses set forth below:
If to the Company: |
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PROS Strategic Solutions, inc. 3223 Smith Street, Suite 100 Houston, Texas 77006 Attention: President |
If to the Stockholder: |
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Mr. David Samuel Coats 7 Marilane Houston, Texas 77007 |
Any party may change its address for purposes hereof by notice to the other party in the manner provided above.
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3. Amendments and Waivers . Except as otherwise provided in this Agreement, the terms and provisions of this Agreement may not be modified or amended except in a writing executed by the Company and the Stockholder. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.
4. Entire Agreement . With respect to the subject matter hereof, this Agreement embodies the entire agreement and understanding between the Stockholder and the Company.
5. Counterparts . This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
6. Headings . The headings of the sections, subsections and paragraphs of this Agreement have been added for convenience only and shall not be deemed to be a part of this Agreement.
7. Severability . Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions of this Agreement, and, to the extent permitted by law, any determination of invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
8. Assignment . Neither this Agreement nor any of the rights or obligations of the Stockholder or the Company provided herein may be assigned, sold, pledged, hypothecated or otherwise transferred by the Stockholder without the prior written consent of the Company. This Agreement shall inure to the benefit of and be binding upon the respective heirs, personal representatives, successors and permitted assigns of the parties.
9. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Texas without reference to its principles of conflicts of law.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the day and year first above written.
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" Company " |
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PROS STRATEGIC SOLUTIONS, INC. |
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By: |
/s/ Charles H. Murphy Charles H. Murphy CFO |
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" Stockholder " |
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/s/ David Samuel Coats David Samuel Coats |
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Exhibit 10.7
This Registration Rights Agreement (this " Agreement ") is entered into effective as of April 13, 2000, by and between PROS Revenue Management, Inc., a Delaware corporation (the " Company "), and Robert Salter (the " Stockholder ").
WHEREAS, the Company and the Stockholder have entered into that certain Separation Agreement of even date herewith (the " Separation Agreement" ); and
WHEREAS, pursuant to the Separation Agreement, the Stockholder will retain 356,000 shares (the " Retained Shares ") of the common stock, par value $0.001 per share, of the Company (" Common Stock "); and
WHEREAS, the Separation Agreement contemplates the execution of this Agreement to provide to the Stockholder certain registration rights in respect of the Retained Shares;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and conditions herein contained, the parties do hereby agree as follows.
1. Registration Rights . The parties covenant and agree as follows:
1.1 Definitions . As used in this Agreement, the terms defined in the preamble and recitals hereto and otherwise herein shall have the respective meanings set forth therein and herein, and the following terms shall have the following meanings:
" Act " means the Securities Act of 1933, as amended.
" 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 applicable rules and regulations thereunder, and the declaration or ordering of effectiveness by the SEC of such registration statement or document.
" SEC " means the Securities and Exchange Commission.
1.2 Company Registration . If (but without any obligation to do so) at any time or from time to time after the date hereof and on or before the earlier of (a) the Stockholder's holding of less than 220,000 shares of Common Stock, and (b) such date when the Stockholder can transfer the balance of his shares pursuant to Rule 144 under the Act and a public market exists for such securities, the Company proposes to register for its own account any of its Common Stock (other than an initial public offering or a registration relating either solely to the sale of securities to participants in a Company stock option, stock purchase or similar plan or solely to an SEC Rule 145 or similar transaction), the Company shall, at such time, promptly give to the Stockholder written notice thereof. Upon the written request of the Stockholder given within twenty (20) days after the receipt of such notice given by the Company, the Company shall, subject to the provisions of Section 1.6 , cause to be included in such registration (and any related qualification under Blue Sky laws or other compliance thereunder), and in any underwriting involved therein, all of the Retained Shares that the Stockholder has requested to be registered. The written request made by the Stockholder as referred to in this Section 1.2 may specify that only a part of the Retained Shares be included in the Company's registration.
1.3 Obligations of the Company . Whenever required under this Section 1 to effect the registration of any retained Shares, the Company shall, as expeditiously as reasonably practicable:
(a) Prepare and file with the SEC a registration statement with respect to such Retained Shares and use its reasonable efforts to cause such registration statement to become effective and keep such registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement.
(c) Furnish to the Stockholder a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as he may reasonably request in order to facilitate the disposition of Retained Shares owned by him.
(d) Use its 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 Stockholder, 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 underwriter of such offering, it being understood and agreed in such regard that the Stockholder also shall enter into and perform his obligations under such an agreement.
(f) At any time when a prospectus relating thereto is required to be delivered under the Act, notify the Stockholder of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing.
1.4 Furnish Information . The Stockholder shall furnish to the Company such information regarding himself, the Retained Shares held by him and the intended method of disposition of such Retained Shares as shall be reasonably required to effect the registration of such Retained Shares.
1.5 Expenses . The Company shall bear and pay all expenses incurred by the Company in connection with any registration, filing or qualification of Retained Shares with respect to registrations pursuant to Section 1.2 for the Stockholder, including all registration, filing and qualification fees, printers and accounting fees, and fees and disbursements of counsel to the Company, relating or apportionable thereto, but excluding underwriting discounts and commissions relating to Retained Shares and any fees and disbursements of counsel to the Stockholder.
1.6 Underwriting Requirements . In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 1.2 to include any of the Retained Shares in such underwriting unless the Stockholder accepts the terms of the underwriting as agreed upon between the Company and the underwriter selected by it. If the underwriter determines that marketing factors require a limitation on the number of shares to be offered, the underwriter may exclude from such registration and underwriting some or all of the Retained Shares which would otherwise be registered. If the number of shares to be registered is reduced, then the number of shares that may be included in the registration on behalf of any persons or entities asserting registration rights shall be allocated first among the holders of registrable securities obtained upon the conversion of a security of the Company with rights,
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preferences or privileges senior to those of the Common Stock and then among the remaining holders of Common Stock. If the Stockholder has requested registration under Section 1.2 , the Company shall advise the Stockholder as promptly as practicable of such exclusion. If the Stockholder disapproves of the terms of any such underwriting, he may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Retained Shares excluded or withdrawn from such underwriting shall be withdrawn from such registration.
1.7 Delay of Registration . The Stockholder shall not have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy or dispute that arises with respect to the interpretation or implementation of this Section 1 .
1.8 Indemnification. In the event any Retained Shares are included in a registration statement under this Section 1 :
(a) To the extent permitted by law, the Company will indemnify and hold harmless the Stockholder from and against any losses, claims, damages, expenses or liabilities to which he may become subject under the Act, the Securities Exchange Act of 1934, as amended (the " 1934 Act "), or other federal or state law, insofar as such losses, claims, damages, expenses 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, or any other documents prepared by the Company and incident 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 law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay as incurred to the Stockholder any legal or other expenses reasonably incurred by him in connection with investigating or defending any such loss, claim, damage, expense, liability or action; provided, however, that the indemnity agreement contained in this Section 1.8(a) shall not apply to amounts paid or fees or expenses incurred in settlement of any such loss, claim, damage, liability, expense or action if such settlement is effected without the written consent of the Company, nor shall the Company be liable to the Stockholder in any such case for any such loss, claim, damage, expanse, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon information furnished for use in connection with such registration by the Stockholder, provided further that in no event shall any indemnity obligation under this Section 1.8(a) exceed the net proceeds from the offering received by the Company.
(b) To the extent permitted by law, the Stockholder will indemnify and hold harmless the Company and each other selling stockholder and their respective directors, officers, stockholders, members, partners, affiliates, successors and assigns who have signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, and each of its officers, directors and partners and any controlling person of any such underwriter, from and against any losses, claims, damages, or liabilities to which any of the foregoing persons may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, expenses 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 information furnished to the Company by the Stockholder or his agents or representatives for use in connection with such registration; and the Stockholder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 1.8(b) , in connection with investigating or defending any such loss, claim, damage, expense, liability or
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action; provided, however, that the indemnity agreement contained in this Section 1.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, expense, liability or action if such settlement is effected without the consent of the Stockholder, which consent will not be unreasonably withheld or delayed.
(c) Promptly after receipt by an indemnified party under this Section 1.8 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 1.8 , 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 shall have the right to retain its own counsel, with the reasonable fees and expenses of such counsel 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, and only if, seriously prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.8 , 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 1.8 .
(d) If the obligations of the Company and/or the Stockholder under this Section 1.8 should conflict with the obligations of the parties as provided in any underwriting agreement, then the obligations of the parties as provided in such underwriting agreement shall control.
2. Notices . All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand, or mailed by first class certified or registered mail, return receipt requested, postage prepaid, to the Company and the Stockholder at their respective addresses set forth below:
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If to the Company: |
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PROS Revenue Management, Inc. 3223 Smith Street, Suite 100 Houston, Texas 77006 Attention: President |
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with a copy to (which shall not constitute notice): |
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Gray Cary Ware & Freidenrich LLP 100 Congress Avenue, Suite 1440 Austin, TX 78701-4042 Attention: John J. Gilluly III |
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If to the Stockholder: |
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Mr. Robert Salter 21 Shorelake Drive Kingwood, TX 77339 |
Any party may change its address for purposes hereof by notice to the other party in the manner provided above.
3. Amendments and Waivers . Except as otherwise provided in this Agreement, the terms and provisions of this Agreement may not be modified or amended except in a writing executed by the Company and the Stockholder. No waivers of or exceptions to any term, condition or provision of this
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Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.
4. Entire Agreement . With respect to the subject matter hereof, this Agreement embodies the entire agreement and understanding between the Stockholder and the Company.
5. Counterparts . This Agreement maybe executed in several counterparts, each of which shall be deemed in original, but all of which together shall constitute one and the same instrument.
6. Headings . The headings of the sections, subsections and paragraphs of this Agreement have been added for convenience only and shall not bc deemed to be a part of this Agreement.
7. Severability . Any provision of this Agreement which is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating or rendering unenforceable the remaining provisions of this Agreement, and, to the extent permitted by law, any determination of invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
8. Assignment . Neither this Agreement nor any of the rights or obligations of the Stockholder or the Company provided herein may be assigned, sold, pledged, hypothecated or otherwise transferred by the Stockholder without the prior written consent of the Company. This Agreement shall inure to the benefit of and be binding upon the respective heirs, personal representatives, successors and permitted assigns of the parties.
9. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without reference to its principles of conflicts of law.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the day and year first above written.
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COMPANY: |
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PROS REVENUE MANAGEMENT, INC. |
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By: |
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/s/ Charles H. Murphy |
Name: | Charles H. Murphy | |||
Title: | Senior Vice President & CFO | |||
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STOCKHOLDER: |
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/s/ Robert Salter ROBERT SALTER |
[Signature Page to Salter Registration Rights Agreement]
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Exhibit 10.9
PROS Holdings, Inc.
This Redemption Agreement (" Agreement ") is entered into as of March 26, 2007, by and among PROS Holdings, Inc., a Delaware corporation (" Corporation "), and the holders of the Corporation's shares of redeemable preferred stock, par value $0.001 per share (the " Redeemable Preferred Stock ") set forth on Exhibit A hereto (individually, a " Seller ", and together, the " Sellers "). Terms used but not defined herein have such meaning as defined in the Corporation's Certificate of Incorporation filed on August 29, 2002 (the " Certificate of Incorporation ").
WHEREAS, each of the Sellers owns the shares of Redeemable Preferred Stock of the Corporation set forth opposite such Seller's name on Exhibit A hereto (the " Shares ");
WHEREAS, each of the Sellers desires to tender, and Corporation desires to redeem, all Shares set forth opposite such Seller's name on Exhibit A (the " Redemption ") at a price of $6.6095 per Share (the " Redemption Price ");
WHEREAS, the Redemption Price includes accrued but unpaid dividends due and payable on the Shares upon the Redemption of such Shares;
WHEREAS, the Corporation desires to increase the size of its board of directors to six (6) members and the Sellers desire to consent to such increase subject to the execution of a mutually acceptable voting agreement among the Corporation, the Sellers and certain holders of the Corporation's capital stock;
WHEREAS, following the Redemption, the Corporation desires to declare and pay a one-time cash dividend on the shares of the Corporation's common stock, par value $0.001 per share (the " Common Stock ") in an aggregate amount of up to $41.6 million (the " Cash Dividend ");
WHEREAS, the Corporation is prohibited from declaring any dividends on the Common Stock without the consent of the Sellers holding a two-thirds of shares of capital stock held by all Sellers;
WHEREAS, subject to the terms of hereof, the Sellers desire to permit the Corporation, following consummation of the Redemption, to declare and pay the Cash Dividend.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter set forth, the parties hereto agree as follows:
1. Recitals . The above recitals are hereby incorporated into this Agreement in their entirety.
2. Redemption Date . The Redemption Date shall be March 27, 2007 (the " Redemption Date ").
3. Purchase of the Shares; Surrender of Certificates . On the Redemption Date, the Corporation shall pay the respective Redemption Price, by check or wire transfer, to each Seller, and each Seller shall surrender and deliver to the Corporation the stock certificates representing the Shares for cancellation. To the extent such Shares are uncertificated, each Seller hereby authorizes the Corporation to cancel such Seller's Shares on the books of the Corporation on the Redemption Date.
4. Stock Power . For value received, each of the Sellers, severally and not jointly, hereby sells, assigns and transfers unto the Corporation the Shares set forth opposite such Seller's name on
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Exhibit A standing in such Seller's name on the books of the Corporation and does hereby irrevocably constitute and appoint the Secretary of the Corporation attorney to cancel said stock on the books of the Corporation with full power of substitution in the premises and such shares of stock shall not be available for reissuance.
5. Representations and Warranties .
5.1 Seller Representations and Warranties . Each Seller, severally and not jointly, hereby represents and warrants to Corporation as follows:
5.1.1 Power and Authority . The Seller has the power and authority to execute and deliver this Agreement and to perform such Seller's obligations hereunder and to consummate the transaction contemplated hereby. This Agreement has been duly executed and delivered by the Seller and, assuming the due authorization, execution, and delivery by the Corporation, constitutes the legal, valid and binding obligation of the Seller enforceable against the Seller in accordance with its terms (subject to bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally or by principles governing the availability of equitable remedies).
5.1.2 Ownership . The Seller is the owner, beneficially and of record of, and has good and marketable title to, the Shares, free and clear of any liens, charges, options, pledges, encumbrances, conditions or claims. The Seller has not pledged, assigned or otherwise transferred the Shares.
5.1.3 Noncontravention . Neither the execution and delivery of this Agreement by the Seller nor the performance by the Seller of such Seller's or obligations contemplated by this Agreement will: (i) require on the part of the Seller any filing with, or any permit, authorization, consent or approval of, any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority or agency or (ii) result in the imposition of any encumbrance upon, or Security Interest (as defined below) on, the Shares. " Security Interest " means any mortgage, pledge, security interest, encumbrance, charge or other lien (whether arising by contract or by operation of law), other than (i) mechanic's, materialmen's, and similar liens, (ii) liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation, (iii) liens on goods in transit incurred pursuant to documentary letters of credit, and (iv) statutory liens with respect to current taxes not yet due and payable, and in each case arising in the ordinary course of business consistent with past practice, including with respect to frequency and amount.
5.1.4 Brokers . The Seller has not dealt with a broker or finder in connection with the transaction contemplated in this Agreement and no broker or other person is entitled to any commission or finder's fee in connection with this transaction.
5.1.5 Information . The Seller has received from the Corporation all information that such Seller has requested in connection with such Seller's decision to sell his interest to the Corporation.
5.2 Corporation Representations and Warranties. The Corporation represents and warrants to each Seller as follows:
5.2.1 Organization . The Corporation is duly organized, validly existing and in good standing in the State of Delaware.
5.2.2 Authority . The Corporation has the requisite legal power, authority and capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby, including the Redemption, payment of the aggregate Redemption Price. All action of the Corporation's Board of Directors and its stockholders necessary to authorize
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the transactions contemplated hereby have been duly and validly taken and all requisite consents of third parties have been obtained. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including the Redemption, payment of the aggregate Redemption Price and payment of the Cash Dividend, (i) have not and will not conflict with or result in a breach of the provisions of its Certificate of Incorporation, as amended, or its Bylaws, as amended, (ii) have not resulted, and will not (with or without the lapse of time or the giving of notice or both) result, in any default or breach or give rise to any right of termination, acceleration or cancellation under any of the terms, conditions, or provisions of any note, deed of trust, bond, mortgage, indenture, instrument, agreement, license or permit to which it is a party or by which it or any of its assets may be bound or result in the imposition of any encumbrance upon, or Security Interest on, any of the Corporation's assets, (iii) have not violated, and will not violate, any rule, regulation, judgment, decree or order by which it may be bound; or (iv) have not, and will not, require on the part of the Corporation any filing with, or any permit, authorization, consent or approval of, any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority or agency.
5.2.3 Validity . This Agreement has been duly and validly executed and delivered by the Corporation and constitutes a valid and binding obligation enforceable in accordance with its terms (subject to bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally or by principles governing the availability of equitable remedies).
5.2.4 Solvency . After giving effect to the transactions contemplated by this Agreement, including the payment of the aggregate Redemption Price and the Cash Dividend: (i) the Corporation's fair value of its property will be greater than its total amount of liabilities, including, without limitation, its contingent liabilities; (ii) the present fair salable value of the Corporation's assets will be greater than the amount that will be required for the Corporation to pay the probable liability on its debts as they become absolute and matured; (iii) the Corporation is not engaged in business or a transaction, and will not be engaged in business or a transaction, for which the Corporation's property would constitute an unreasonably small capital.
5.2.5 Capital; Surplus . The Redemption complies with the Delaware General Corporation Laws and the Corporation's payment of the Redemption Price shall not cause an impairment to the Corporation's capital. The Corporation has sufficient surplus (as determined in accordance with Delaware General Corporation Laws) or net profits for 2006 and/or 2007 to pay the Cash Dividend in full.
6. Cash Dividend . Notwithstanding the provisions of Section B.3 of Article IV of the Certificate of Incorporation, the Sellers hereby authorize and approve the one-time payment by the Corporation of the Cash Dividend and all actions of the Corporation related thereto, provided that the declaration and payment of the Cash Dividend shall not occur prior to the Redemption and in any event shall occur within 30 days of the date hereof, and, subject to the foregoing conditions, the Sellers hereby waive all rights with respect to such Cash Dividend, except for such Sellers' right to receive the Cash Dividend on the Common Stock held by the Sellers. Except as expressly provided in this Agreement, nothing contained herein shall constitute a waiver or modification of any other rights, preferences and privileges any of the Sellers may have under the Certificate of Incorporation, the Corporation's By-laws or any agreements, contracts or arrangements to which any of them may be a party.
7. Board Increase . Prior to the Redemption the Corporation desires to increase the size of its board of directors to six (6) members. The Sellers hereby to consent to such increase in the size of the
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board subject to the execution of a mutually acceptable voting agreement among the Corporation, the Sellers and certain holders of the Corporation's capital stock.
8. Entire Agreement . This Agreement constitutes the entire agreement between the parties with respect to its subject matter and may not be modified or amended, except by written agreement of the Corporation and the Sellers holding at least a majority of the Shares as of the date of this Agreement.
9. Non-waiver . No delay or failure by either party to exercise any right under this Agreement, and no partial or single exercise of that right, shall constitute a waiver of that or any other right, unless otherwise expressly provided herein.
10. Headings . Headings in this Agreement are for convenience only and shall not be used to interpret or construe its provisions.
11. Governing Law . This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware.
12. 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.
13. Binding Effect . The provisions of this Agreement shall be binding upon and inure to the benefit of each of the parties and their respective successors and assigns.
14. Facsimile Signatures . This Agreement may be executed and transmitted by facsimile, which signature shall be binding upon the parties as if they were original signatures.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above.
CORPORATION: | ||
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PROS HOLDINGS, INC. |
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/s/ Albert E. Winemiller Albert E. Winemiller, President and Chief Executive Officer |
Signature page to Redemption Agreement
SELLERS: | |||
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TA/ADVENT VIII L.P. |
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By: TA Associates VIII LLC, its General Partner By: TA Associates, Inc., its Manager |
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By: |
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ADVENT ATLANTIC AND PACIFIC III L.P. |
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By: TA Associates AAP III Partners, its General Partner By: TA Associates, Inc. |
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By: |
* |
*/s/ Kurt R. Jaggers
Kurt R. Jaggers, Attorney-in-Fact |
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TA VENTURE INVESTORS L.P. |
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By: |
* |
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TA EXECUTIVES FUND LLC |
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By: TA Associates, Inc., its Manager |
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By: |
* |
Signature page to Redemption Agreement
SELLERS: | ||||
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JMI EQUITY FUND III, L.P. |
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By: |
JMI Associates III LLC, its General Partner |
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By: |
/s/ HARRY S. GRUNER |
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Name: |
Harry S. Gruner
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Title: |
Managing Member
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Signature page to Redemption Agreement
SELLERS: | ||
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/s/ Glenys A. Wolf Glenys A. Wolf |
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/s/ William H. Wolf William H. Wolf |
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/s/ Gail W. Orr Gail W. Orr |
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/s/ William H. Wolf, Jr. William H. Wolf, Jr. |
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/s/ Ian Ross Wolf Ian Ross Wolf |
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/s/ William H. Wolf, Jr. William H. Wolf, Jr., as Custodian under the Texas Uniform Transfers to Minors Act for Austin Everett Wolf |
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/s/ William H. Wolf, Jr. William H. Wolf, Jr., as Custodian under the Texas Uniform Transfers to Minors Act for Elliot Gavin Wolf |
Signature page to Redemption Agreement
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Shares
Outstanding |
Redemption
Price |
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TA/Advent VIII, L.P. | 1,615,523 | $ | 10,677,837 | ||
Advent Atlantic and Pacific III, L.P. | 303,215 | 2,004,107 | |||
TA Executives Fund LLC | 29,711 | 196,376 | |||
TA Investors LLC | 32,310 | 213,554 | |||
JMI Equity Fund, III, L.P. | 625,503 | 4,134,277 | |||
William H. Wolf | 1,051 | 6,947 | |||
Glenys A. Wolf | 10,510 | 69,466 | |||
Gail W. Orr | 2,102 | 13,893 | |||
Williams H. Wolf, Jr. | 2,102 | 13,893 | |||
Ian Ross Wolf | 1,051 | 6,947 | |||
William H. Wolf, Jr Custodian for:Austin Everett Wolf | 2,102 | 13,893 | |||
William H. Wolf, Jr Custodian for:Elliott Gavin Wolf | 2,102 | 13,893 | |||
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Total | 2,627,282 | $ | 17,365,082 | ||
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Total redemption per share |
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$ |
6.6095 |
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Exhibit 10.10
This Office Lease (the "Lease") is entered into, and shall be effective, as of the 31st day of January 2001 (the "Effective Date"), by and between Houston Community College System, a local governmental entity organized pursuant to the Texas Education Code ("Landlord") and PROS Revenue Management, Inc. , ("Tenant").
1. Basic Lease Information. The key business terms used in this Lease are defined as follows:
A. "Building" shall mean the building located at 3100 Main Street (Exhibit A-1) and commonly known as the "ComTech Center" .
B. "Rentable Square Footage of the Building" is deemed to be 531,000 square feet.
C. "Premises" shall mean the area shown on Exhibit A-2 to this Lease, as well as any additional areas within the Building which have been leased by Tenant pursuant to the terms of this lease. As of the date of execution of this Lease, the Premises are located on floors 9 and 10. The "Rentable Square Footage of the Premises" or "RSF" is deemed to be 65,831 square feet with respect to the Initial Premises and will increase to 73,200 square feet when the Subsequent Premises is added to the Premises. RSF will increase as additional Premises are leased by Tenant. If the Premises include one or more floors in their entirety, all corridors and restroom facilities located on such full floor(s) shall be considered part of the Premises. Landlord and Tenant stipulate and agree that the Rentable Square Footage of the Building and the Rentable Square Footage of the Premises are correct and will not be remeasured. The Premises will be located in an area of the Building which will be part of a condominium regime to be created by a "Condominium Declaration" to be filed by Landlord in the Official Records of Harris County, Texas after the date of execution of this Lease. Upon filing of the Condominium Declaration, the description of the Premises area set forth in the Condominium Declaration will become the description of the Premises for the purpose of this Lease.
D. "Base Rent "will commence on the later of (i) the Commencement Date; or (ii) a date which is 120 days after the Landlord has substantially completed the Landlord Construction Obligation as set forth in paragraphs 1a through 1g of Exhibit D for the Initial Premises and Subsequent Premises, as well as premises leased pursuant to the First Expansion Option, Second Expansion Option or any Preferential Right Area. Base Rent will be:
BASE RENT
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RATE
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ANNUAL
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MONTH
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Initial Premises | $17.50 per RSF | $ | 1,152,042.50 | $ | 96,003.54 | |||
Subsequent Premises |
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$17.50 per RSF |
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$ |
128,957.50 |
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$ |
10,746.46 |
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Total: | $ | 1,281,000.00 | $ | 106,750.00 |
RENTAL ABATEMENT
Initial Premises
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E. " Tenant's Pro Rata Share" is equal to the Rentable Square Footage of the Premises divided by the Rentable Square Footage of the Building and currently equals 12.3976% with respect to the Initial Premises and will increase to 13.7853% when the Subsequent Premises is added to the Premises.
F. " Base Year" for Operating Expenses: 2001 .
G. " Term": The Term for the Initial Premises will be 60 months and the Term for the Subsequent Premises will be equal to the remaining term of the Lease on the Initial Premises. Notwithstanding the above, Tenant may at any time prior to June 1, 2002 elect to extend the Term of the Initial Premises and Subsequent Premises so that the Term for the Initial Premises and the Subsequent Premises will equal 60 months from the Commencement Date of the Subsequent Premises. All other items and conditions, including Base Rent, will remain the same.
H. " Commencement Date": The Lease Commencement Date will be June 1, 2001 subject to Force Majeure so long as the Landlord has substantially completed the Landlord Construction Obligation as set forth in paragraphs 1a through 1g of Exhibit D. The Landlord will complete the Landlord Construction Obligation with respect to the Initial Premises on or before February 1, 2001 . The Commencement Date with respect to the Subsequent Premises will be no later than June 1, 2002 , so long as the Landlord has completed the Landlord Construction Obligation at least 120 days prior to such date.
I. " Landlord Completion Date" will be the date the Landlord has substantially completed the Landlord Construction Obligation as set forth in paragraphs 1a through 1g of the attached Exhibit D, which will be December 31, 2000 with respect to the Initial Premises.
J. "Security Deposit": $96,003.54 to be increased to $106,750 on or before the Commencement date of the Subsequent Premises provided that after the expiration of 60 months following the
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Commencement Date, the Security Deposit shall be refunded to Tenant, so long as no default has occurred under this Lease during such period.
K. " Permitted Use": General office and related office uses.
L. "Notice Addresses":
On or after the Commencement Date, notices shall be sent to Tenant at the Premises. Prior to the Commencement Date, notices shall be sent to Tenant at the following address:
with a copy to: | ||
PROS Revenue Management 3223 Smith Street Houston, Texas 77006 Attention: James Brock |
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Oppel, Goldberg & Saenz, P.L.L.C. 440 Louisiana, Suite 200 Houston, Texas 77002 Attention: Charles Goldberg |
Landlord: |
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With a copy to: |
Houston Community College System 3100 Main Street, 12 th Floor Houston, Texas 77002 Attention: Facilities Manager |
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J. M. Little & Associates, P.C. Attorneys at Law 5718 Westheimer, Suite 1840 Houston, Texas 77057 |
Rent (defined in Section 4.A. ) is payable to the order of Landlord, 3100 Main Street, 12th Floor, Houston, Texas 77002.
M. "Business Day(s)" are Monday through Friday of each week, exclusive of New Year's Day, Martin Luther King Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the day after Thanksgiving Day and Christmas Day ( "Holidays") . Landlord may designate additional Holidays, provided that the additional Holidays are commonly recognized by other office buildings in the area where the Building is located.
N. "Landlord Work" means the work that the Landlord is obligated to perform in or to the Premises pursuant to Exhibit D .
O. "Law(s)" means all applicable statutes, codes, ordinances, orders, rules and regulations of any municipal or governmental entity, now or hereafter adopted, including but not limited to the Americans with Disabilities Act ( "ADA" ) and all laws pertaining to the environment, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. §960 et. seq. ( "CERCLA" ).
P. "Normal Business Hours" for the Building are 7:00 A.M . to 6:00 P.M . on Business Days and 8:00 A.M. to 12:00 P.M . on Saturdays.
Q. "Property" means the Building and the parcel(s) of land on which it is located as more fully described on Exhibit A-1 together with all other buildings and improvements located thereon; and the Parking Facilities and other improvements serving the Building, if any, and the parcel(s) of land on which they are located.
R. "Default" means a default which has not been cured.
2. Lease Grant. Landlord leases the Premises to Tenant and Tenant leases the Premises from Landlord, together with the right in common with others to use any portions of the Property that are designated by Landlord for the common use of tenants and others, such as sidewalks, common corridors, elevator foyers, restrooms, vending areas and lobby areas (the "Common Areas" ), but specifically excluding any portion of any "common areas" on any full floor leased by Landlord to third parties or any full floor utilized by Landlord.
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3. Term; Adjustment of Commencement Date; Possession.
A. Term. The Term of this Lease will commence on the Commencement Date and, unless terminated early in accordance with this Lease, continue through the last day of the Term specified in Section 1.G. (the "Expiration Date" ). If Landlord is delayed in delivering possession of the Premises or any other space due to any reason, including Landlord's failure to Substantially Complete the Landlord Construction Obligation by the Landlord Completion Date, such delay will be a default by Landlord and at Tenant's option, the Tenant may, upon 60 days prior written notice cancel this Lease, unless within such period Landlord has cured such default. If Landlord is so delayed, the Commencement Date shall be postponed until the date Landlord delivers possession of the Initial Premises to Tenant and the Expiration Date shall be postponed by an equal number of days. Promptly after the determination of the Commencement Date, Landlord and Tenant will enter into a commencement letter agreement in the form attached as Exhibit C . If Tenant fails to execute such commencement letter agreement, the Commencement Date shall be deemed to be the date certified as the Commencement Date by the Landlord. Notwithstanding any other provision of this Lease to the contrary, if the Expiration Date would occur on a date other than the last day of a calendar month, then the Expiration Date shall be automatically extended to the last day of such calendar month.
B. Substantial Completion. The Landlord Work shall be deemed to be "Substantially Complete" on the date that all Landlord Work has been performed, other than any details of construction, mechanical adjustment or other similar matter, the noncompletion of which does not materially interfere with Tenant's ability to proceed with any Tenant Improvements approved by Landlord.
C. Acceptance of Premises. Subject to Landlord's obligation to perform the Landlord Work and Landlord's repair obligations under Section 10.B, the Premises are accepted by Tenant in "AS IS WHERE IS" condition and configuration. By taking possession of the Premises, Tenant agrees that the Premises are in good order and satisfactory condition, and that no representations or warranties have been made by the Landlord regarding the condition of the Premises or the Building except as may be specifically set forth in this Lease.
D. Possession of Premises Prior to Commencement Date. If Tenant takes possession of the Premises or commences business activities at the Premises before the Commencement Date with Landlord's permission, such possession and occupancy will be subject to the terms and conditions of this Lease, however, during this period Tenant will not be required to pay Rent for any days of possession before the Commencement Date. A Certificate of Occupancy must be issued to permit possession by the Tenant for any reason other than for the purpose of constructing Tenant Improvements pursuant to Landlord approved Construction Documents, installing furniture, equipment or other personal property.
4. Rent.
A. Payments. As consideration for this Lease, commencing on the dates specified in paragraph 1D with respect to the applicable premises therein specified, Tenant will pay Landlord, without any setoff or deduction, unless a setoff is specifically permitted by an express provision of this Lease, the total amount of Base Rent and Additional Rent due and payable for the Term in the manner set forth in this Lease. "Additional Rent" means all sums (exclusive of Base Rent) that Tenant is required to pay Landlord, subject to the prepaid rental credit specified in paragraph 1d. Additional Rent and Base Rent are sometimes collectively referred to as "Rent" . Tenant will pay and be liable for all rental, sales and use taxes (but excluding income taxes), if any, imposed upon or measured by Rent under applicable Law. Base Rent and recurring monthly charges of Additional Rent shall be due and payable in advance on the first day of each calendar month without notice or demand. All other items of Rent will be due and payable by Tenant on or before 30 days after billing by Landlord. All payments of Rent will be by good and sufficient check acceptable to Landlord. If the Term commences on a day other than the first day of a calendar month, the monthly Base Rent and Tenant's Pro Rata Share of
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any Excess Operating Expenses (defined in Section 4.B. ) for the month will be prorated on a daily basis based on a 360 day calendar year. Landlord's acceptance of less than the correct amount of Rent will be considered a payment on account of the earliest Rent due. No endorsement or statement on a check or letter accompanying a check or payment shall be considered an accord and satisfaction, and either party may accept such check or payment without such acceptance being considered a waiver of any rights such party may have under this Lease or applicable Law, unless a setoff is specifically permitted by an express provision of this Lease. Tenant's covenant to pay Rent is independent of every other covenant in this Lease.
B. Excess Operating Expenses. Tenant will pay Tenant's Pro Rata Share of the amount, if any, by which Operating Expenses (defined in Section 4.D. ) for each calendar year during the Term exceed Operating Expenses for the Base Year (the "Excess Operating Expenses" ). In no event will Base Rent be reduced if Operating Expenses for any calendar year are less than Operating Expenses for the Base Year No later than January 1 of each calendar year, Landlord will provide Tenant with a good faith estimate of the Excess Operating Expenses for such calendar year during the Term. On or before the first day of each month, Tenant will pay to Landlord a monthly installment equal to one-twelfth of Tenant's Pro Rata Share of Landlord's estimate of the Excess Operating Expenses. If Landlord determines that its good faith estimate of the Excess Operating Expenses was incorrect, Landlord will within a reasonable period of time provide Tenant with a revised estimate. If Landlord does not provide Tenant with an estimate of the Excess Operating Expenses by January 1 of a calendar year, Tenant will continue to pay monthly installments based on the most recent estimate(s) until Landlord provides Tenant with the new estimate. Upon delivery of the new estimate, an adjustment will be made for any month for which Tenant paid monthly installments based on the previous year's estimate(s). Tenant will pay Landlord the amount of any underpayment within 30 days after receipt of the new estimate. Any overpayment will be refunded to Tenant within 30 days or credited against the next due future installment(s) of Additional Rent, at Tenant's option. The obligation of Tenant to pay for Excess Operating Expenses as provided herein will survive the expiration or earlier termination of this Lease.
C. Reconciliation of Operating Expenses. Within 120 days after the end of each calendar year or as soon thereafter as is practicable, Landlord shall furnish Tenant with a statement of the actual Operating Expenses and Excess Operating Expenses for such calendar year. If the estimated Excess Operating Expenses paid by Tenant for such calendar year are more than the actual Excess Operating Expenses for such calendar year, Landlord shall apply any overpayment by Tenant against Rent due or next becoming due; provided, if the Term expires before the determination of the overpayment, Landlord shall refund any overpayment to Tenant after first deducting the amount of Rent due. If the estimated Excess Operating Expenses paid by Tenant for the prior calendar year are less than the actual Excess Operating Expenses for such year, Tenant shall pay Landlord, within 30 days after its receipt of the statement of Operating Expenses, any underpayment for the prior calendar year.
D. Operating Expenses Defined. "Operating Expenses" means all costs and expenses incurred or accrued in each calendar year in connection with the ownership, operation, maintenance, management, repair and protection of the Property which are directly attributable to and reasonably allocable to the Building or Property, including Landlord's personal property used in connection with the Property and including, but not limited, to all reasonable costs and expenditures relating to the following:
5
management office(s); and wages, salaries, benefits, reimbursable expenses and taxes (or allocations thereof) for full and part time personnel involved in operation, maintenance and management.
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E. Exclusions from Operating Expenses. Operating Expenses exclude the following expenditures:
F. Proration of Operating Expenses; Adjustments. If Landlord incurs Operating Expenses for the Property together with one or more other buildings or properties, whether pursuant to a reciprocal easement agreement, common area agreement or otherwise, the shared costs and expenses shall be equitably prorated and apportioned by Landlord between the Property and the other buildings or properties. If the Building is not 100% occupied during any calendar year or if Landlord is not supplying services to 100% of the total Rental Square Footage of the Building at any time during a calendar year, Operating Expenses shall be determined as if the Building had been 100% occupied and Landlord had been supplying services to 100% of the Rentable Square Footage of the Building during that calendar year. If Tenant pays for its Pro Rata Share of Operating Expenses based on increases over a "Base Year" and Operating Expenses for a calendar year are determined as provided in the prior sentence, Operating Expenses for the Base Year shall also be determined as if the Building had been 100% occupied and Landlord had been supplying services to 100% of the Rental Square Footage of the Building. The extrapolation of Operating Expenses under this Section shall be performed by Landlord by adjusting the cost of those components of Operating Expenses that are impacted by changes in the occupancy of the Building.
G. Audit Rights. Within 60 days (the "Audit Election Period" ) after Landlord furnishes its statement of actual Operating Expenses for any calendar year (including the Base Year), Tenant may, at its expense during Landlord's normal business hours, elect to audit Landlord's Operating Expenses for such calendar year only, subject to the following conditions: (1) there is no uncured event of default under this Lease; (2) the audit shall be prepared by an independent certified public accounting firm of recognized national standing; (3) in no event shall any audit be performed by a firm retained on a "contingency fee" basis; (4) the audit shall commence within 30 days after Landlord makes Landlord's books and records available to Tenant's auditor and shall conclude 90 days after commencement; (5) the audit shall be conducted where Landlord maintains its books and records and shall not unreasonably interfere with the conduct of Landlord's business; (6) Tenant and its accounting firm shall treat any audit in a confidential manner and shall each execute Landlord's confidentiality agreement for Landlord's benefit prior to commencing the audit; and (7) the accounting firm's audit report shall, at a no charge to Landlord, be submitted in draft form for Landlord's review and comment before the final audit report is delivered to Landlord, and any reasonable comments by Landlord shall be incorporated into the final audit report. This paragraph shall not be construed to limit, suspend, or abate Tenant's obligation to pay Rent when due, including estimated Excess Operating Expenses. Landlord shall credit any overpayment determined by the approved audit against the next sums due and owing by Tenant or, if such credit shall equal an amount greater than one months' Rent, or if no further Rent is due, refund such overpayment or the amount thereof in excess of one month's Rent directly to Tenant. Likewise, Tenant shall pay Landlord any underpayment determined by the approved audit within 30 days of determination. The foregoing obligations shall survive the Expiration Date. If Tenant does not give written notice of its election to audit Landlord's Operating Expenses during the
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Audit Election Period, Landlord's Operating Expenses for the applicable calendar year shall be deemed approved for all purposes, and Tenant shall have no further right to review or contest the same. If Tenant's audit should reveal that Tenant has been overcharged for excess operating expense by a sum greater than 10% and such overcharge is confirmed by Landlord's own audit conducted by an independent certified public accounting firm, then in such case Landlord will reimburse the Tenant the reasonable cost incurred by Tenant's auditors.
H. Parking Permits/Charges. The Tenant will be entitled to parking permits for use in the Parking Facility based upon a ratio of 4 permits per 1,000 RSF NRF on the first 73,200 sq. feet leased by Tenant. Thereafter the ratio will be 3 permits per 1,000 RSF. The Tenant will be obligated to take and pay for 230 parking permits on the Lease Commencement Date. The Tenant will be obligated to take and pay for an additional 63 parking permits on the Commencement Date of the Subsequent Premises. Landlord will use reasonable efforts to make any excess unused permits available to Tenant on a month-to-month basis. The current market rate for unreserved space permitssubject to change during the term of this Leaseis $45 plus tax per month. If the rate should change, Tenant will not pay a rate in excess of the market rate for such permits.
5. Compliance with Laws; Use. The Premises will be used only for the Permitted Use and for no other use whatsoever. Tenant will not use or permit the use of the Premises for any purpose which is illegal, creates obnoxious odors (including but not limited to tobacco smoke), noises or vibrations, is dangerous to persons or property, could increase Landlord's insurance costs, or which, in Landlord's reasonable opinion, unreasonably disturbs any other tenants of the Building or interferes with the operation of the Building. Except as provided below, the following uses are expressly prohibited in the Premises; government offices or agencies; personnel agencies; collection agencies; credit unions; telemarketing or reservation centers; medical treatment and health care; restaurants and other retail; customer service offices of a public utility company; or any other purpose which would, in Landlord's reasonable opinion, impair the reputation or quality of the Building, overburden any of the Building systems, Common Areas or parking, impair Landlord's efforts to lease space or otherwise interfere with the operation of the Property. Notwithstanding the foregoing, the following ancillary uses are permitted in the Premises only so long as they do not, in the aggregate, occupy more than 10% of the Rental Square Footage of the Premises or any single full floor (whichever is less): (A) the following services provided by Tenant exclusively to its employees: schools, training and other educational services; credit unions; and similar employee services; and (B) the following services directly and exclusively supporting Tenant's business; telemarketing; reservations; storage; debt collection; and similar support services. Subject to completion of Landlord's Construction Obligation, Tenant shall comply with all Laws, including the ADA as well as any law, rule or regulation which must be complied with to obtain a Certificate of Occupancy, regarding the operation of Tenant's business and the use, condition, configuration and occupancy of the Premises. Tenant, within 10 days after receipt, shall provide Landlord with copies of any notices Tenant receives regarding a violation of alleged violation of any Laws. Tenant shall comply with the rules and regulations of the Building attached as Exhibit B and such other reasonable rules and regulations (or modifications thereto) adopted by Landlord from time to time. Tenant shall also cause its agents, contractors, subcontractors, employees, customers, and subtenants to comply with all rules and regulations. Whenever a conflict shall arise between the language of this Lease and the rules and regulations, the terms of this Lease shall prevail.
6. Security Deposit. The Security Deposit will be delivered to Landlord 30 days prior to the point in time when the Base Rent Credit specified in paragraph 1D(1) has been exhausted and shall be held by Landlord without liability for interest (unless required by Law) as security for the performance of Tenant's obligations. The Security Deposit is not an advance payment of Rent or a measure of Tenant's liability for damages. Landlord may, from time to time, without prejudice to any other remedy, use all or a portion of the Security Deposit to satisfy past due Rent or to cure any uncured default by Tenant after any applicable cure period. If Landlord uses the Security Deposit, Tenant shall on demand restore
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the Security Deposit to its original amount. Landlord shall return any unapplied portion of the Security Deposit to Tenant within 30 days after the later to occur of: (A) the determination of Tenant's Pro Rata Share of any Excess Operating Expenses for the final year of the Term; (B) the date Tenant surrenders possession of the Premises to Landlord in accordance with this Lease; or (C) the Expiration Date. If Landlord transfers its interest in the Premises, Landlord may assign the Security Deposit to the transferee and, following the assignment, Landlord shall have no further liability for the return of the Security Deposit. Landlord shall not be required to keep the Security Deposit separate from its other accounts.
7. Services to be Furnished by Landlord.
A. Standard Services. Landlord agrees to furnish Tenant with the following services during the Term:
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not be responsible for the adequacy or effectiveness of such security provided that (i) Landlord has exercised reasonable care in the selection of the security contractor and equipment; and (ii) the scope and extent of the security services contracted or implemented by Landlord are generally in keeping with the standards of other comparable office buildings in the Midtown Area of Houston Texas."
Notwithstanding the above, Landlord will have the right to provide the above security service through its own police department and/or personnel without further guaranteeing the adequacy or effectiveness of such service .
B. Service Interruptions. Landlord's failure to furnish, or any interruption or termination of, services due to the application of Laws, the failure of any equipment (not attributable to Landlord's gross negligence), the performance of repairs, improvements or alterations, or the occurrence of any other event or cause whether or not within the reasonable control of Landlord (a "Service Failure" ) shall not render Landlord liable to Tenant, constitute a constructive eviction of Tenant, give rise to an abatement of Rent, nor relieve Tenant from the obligation to fulfill any covenant or agreement . In no event shall Landlord be liable to Tenant for any loss or damage, including the theft of Tenant's Property (defined in Paragraph 15), arising out of or in connection with the failure of any security services, personnel or equipment (not attributable to Landlord's gross negligence or willful misconduct). Provided, however, if there is a cessation of HVAC service, electrical service, water service or elevator service which renders the Premises untenable for a period of 5 business days, Rental will abate until such services has been reasonably re-established. If such essential services have not been reasonably re-established within a 45-day period after their initial termination, Tenant, upon 30 days prior written notice, may cancel this Lease unless within such notice period essential services are re-established.
C. Third Party Services. If Tenant desires any service which Landlord has not specifically agreed to provide in this Lease, such as private security systems or telecommunications services serving the Premises, Tenant shall procure such service directly from a reputable third party service provider ( "Provider" ) for Tenant's own account. Tenant shall require each Provider to comply with the Building's rules and regulations, all Laws, and Landlord's reasonable policies and practices for the Building. Tenant acknowledges Landlord's current policy that requires all Providers utilizing any area of the Building outside the Premises to be approved by Landlord and to enter into a written agreement
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acceptable to Landlord prior to gaining access to, or making any installations in or through, such area. Accordingly, Tenant shall give Landlord advance written notice sufficient for such purposes.
D. Technology & Communications. Tenant shall have the right, at no cost during the initial term to (i) utilize Landlord's designated riser space in the building for Tenant's cabling between the Premises and to connect to Tenant's telecommunications service providers; (ii) Landlord designated area on the rooftop for Tenant's installation of a microwave tower, antenna, and up 3 satellite dishes (which microwave tower, antenna, and satellite dishes shall be for use only by Tenant and its permitted assigns or subtenant); and (iii) a pad (if required) in the Parking Facility, or other mutually acceptable location, for an emergency generator and diesel fuel tank (which generator and fuel tank shall be for use only by Tenant and its permitted assignees or subtenants), and the right to install and maintain cabling and wiring between the Lease Area and such generator through any trays, chases and risers in the Parking Facility and the Building. The type of equipment discussed in this section, as well as the manner of installation and location of installation of such equipment, shall be subject to Landlord's prior written approval such approval not to be unreasonably withheld, delayed, or denied. Landlord will charge Tenant is actual cost in order to supervise any engineering or construction related to this technology and communications section. Notwithstanding the above, should any modifications or improvements to any existing riser or chase space in the Building and Parking Facility be necessary to provide adequate riser or chase capacity for Tenant's purposes, any such modification or improvement shall be at Tenant's sole cost and expense.
8. Use of Electrical Services by Tenant.
A. Landlord's Electrical Service. Landlord will furnish building standard electrical service to the Premises sufficient to operate customary lighting, office machines and other equipment of similar low electrical consumption, provided, however, the foregoing will consist of a 2 watts per RSF for high voltage and at 4 watts per RSF for low voltage ("Tenant's Electrical Allowance").
B. Selection of Electrical Service Provider. Landlord reserves the right to select the provider of electrical services to the Building and/or the Property ("Electrical Provider"). To the fullest extent permitted by Law, Landlord shall have the continuing right, upon 30 days written notice, to change such utility provider and install such components as may be necessary in order to deliver electricity to the Premises. All charges and expenses incurred by Landlord due to any such changes in electrical services, including maintenance, repairs, installation and related costs, shall be included in the electrical services costs referenced in Section 4.D(10).
C. Excess Electrical Service. Tenant's use of electrical service is for normal office use and Tenant's consumption of electricity will not exceed, either in voltage, rated capacity or overall load beyond the Tenant Electrical Allowance set out in this Lease. If Tenant requests permission to consume excess electrical service, Landlord will consent to such excess service so long as Tenant complies with conditions reasonably required by Landlord (including, without limitation, the installation of utility service upgrades, meters, submeters, air handlers or cooling units). The costs of any approved additional consumption (to the extent permitted by Law), installation and maintenance and usage (via submetering) will be paid by Tenant.
D. Submetering. In the event any electrical equipment in the Premises is separately submetered for the purposes of monitoring Tenant electrical consumption in excess of the Tenant Electrical Allowance, Tenant will pay for Tenant's actual excess electrical consumption monthly in arrears at the same rate as that charged to Landlord, or separately billed to Tenant by the Electrical Provider. Tenant will remain obligated to pay Tenant's Pro Rata Share of the cost of electrical services as provided in Section 4.D (10).
9. Tenant Improvements. All improvements to the Premises installed by Landlord or Tenant (collectively, "Tenant Improvements" ) will be owned by Landlord and will remain upon the Premises
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without compensation to Tenant. However, Tenant, by written notice to Landlord, may remove, at Tenant's expense, any or all of the following on or before the Expiration Date (or earlier termination): (1) any Tenant Improvements that were installed by the Tenant that are in excess of the costs associated with standard office improvements; and (2) Tenant's personal property (collectively, "Tenant's Removable Property" ). Tenant will be required to remove any batteries, generators, fuel tanks and security systems (not including interior wiring) installed by Tenant. The Tenant will replace all Removed "Tenant Improvements" which were in "excess of standard" with leasehold improvements which would be considered STANDARD, in order to leave the Premises in a reasonably leaseable/useable condition by an office tenant. Tenant's Removable Property shall be removed by Tenant before the Expiration Date or date of termination of this Lease, if earlier than the Expiration Date, provided that upon Landlord's prior written consent, which shall not be unreasonably withheld, Tenant may remain in the Premises for up to five days after the Expiration Date for the sole purpose of removing Tenant's Removable Property. Tenant's possession of the Premises for such purpose shall be subject to all terms and conditions of this Lease, including the obligation to pay Rent on a per diem basis at the rate in effect for the last month of the Term. Tenant shall repair damage caused by the installation or removal of Tenant's Removable Property. If Tenant fails to remove any of Tenant's Removable Property, Landlord may, to the fullest extent permitted by Law: (1) treat such Tenant's Removable Property as abandoned by Tenant with full rights of ownership in Landlord; (2) remove and store any of Tenant's personal property at Tenant's expense with reimbursement by Tenant to Landlord upon demand; and/or (3) sell or dispose of such Tenant's Removable Property without delivering any proceeds to Tenant. To the fullest extent permitted by applicable Law, any unused portion of Tenant's Security Deposit may be applied to offset Landlord's costs set forth in the preceding sentence. Notwithstanding the foregoing, Tenant, at the time it requests approval for a proposed Alteration (defined in Section 10.C. ), may request in writing that Landlord advise Tenant whether the Alteration or any portion of the Alteration will be designated as Tenant's Removable Property.
10. Repairs and Alterations.
A. Tenant's Repair Obligations. Tenant will, at its sole cost and expense, promptly perform all maintenance and repairs to the Premises that are not Landlord's express responsibility under this Lease, and shall keep the Premises in good condition and repair, ordinary wear and tear excepted. Tenant's repair obligations include, without limitation, repairs to: (1) floor covering and/or raised flooring; (2) interior partitions; (3) doors; (4) the interior side of demising walls; (5) electronic, phone and data cabling and related equipment (collectively, "Cable" ) that is installed by or for the benefit of Tenant and located in the Premises or other portions of the Building; (6) supplemental air conditioning units, private showers and kitchens, including hot water heaters, plumbing, dishwashers, ice machines and similar facilities serving Tenant exclusively; (7) phone rooms used exclusively by Tenant; (8) Alterations performed by contractors retained by Tenant, including related HVAC balancing; and (9) all of Tenant's furnishings, trade fixtures, equipment and inventory. All work shall be performed in accordance with the rules and procedures described in Section 10.C. below. If Tenant fails to make any repairs to the Premises for more than 15 days after notice from Landlord (although notice shall not be required if there is an emergency and any notice of default given pursuant to Section 19.B. describing such failure shall be deemed to constitute such notice), Landlord may make the repairs, and Tenant shall pay the reasonable cost of the repairs to Landlord within 30 days after receipt of an invoice, together with an administrative charge in an amount equal to 7.5% of the cost of the repairs.
B. Landlord's Repair Obligations. Landlord will keep and maintain in good repair and working order and make repairs to and perform maintenance upon: (1) structural elements of the Building; (2) standard mechanical (including HVAC), electrical, plumbing and fire/life safety systems serving the Building generally; (3) Common Areas; (4) the roof of the Building; (5) exterior windows of the Building; and (6) elevators serving the Building. Landlord shall promptly make repairs (considering the nature and urgency of the repair) for which Landlord is responsible. If any of the foregoing
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maintenance or repair is necessitated due to the acts or omissions of any Tenant Party, Tenant shall pay the costs of such repairs or maintenance to Landlord within 30 days after receipt of an invoice, together with an administrative charge in an amount equal to 7.5% of the cost of the repairs.
C. Alterations. Tenant shall not make alterations, additions or improvements to the Premises or install any Cable in the Premises or other portions of the Building including its initial tenant buildout (collectively, "Alterations" ) without first obtaining the written consent of Landlord in each instance, which consent shall not be unreasonably withheld, conditioned, or delayed so long as (i) the buildout is in conformity with the general guidelines and operating criteria of the Building and (ii) will provide for the complete buildout of the Premises to at least a "Building Standard" level buildout. However, Landlord's consent shall not be required for any Alteration that satisfies all of the following criteria (a "Minor Alteration" ): (1) is of a cosmetic nature such as painting, wallpapering, hanging pictures and installing carpeting; (2) is not visible from outside the Premises or Building; (3) will not affect the systems or structure of the Building; and (4) does not require work to be performed inside the walls or above the ceiling of the Premises. However, even though consent is not required, the performance of Minor Alterations shall be subject to all the other provisions of this Section 10.C . Prior to the commencement of any construction, Tenant will submit to the Landlord a complete set of architectural and construction drawings and plans and specifications showing the build out, the modification to any MEP systems, as well as all other improvements to be constructed, altered or modified by the Tenant in the Premises ("Construction Documents"). Within 10 days after submission of such Construction Documents, the Landlord will (i) approve and return the Construction Documents to the Tenant; or (ii) provide the Tenant with Landlord's written changes to the Construction Documents in order to reasonably accommodate Landlord's requested modifications. In the event the Landlord fails to respond or comment on the Construction Documents within such 10 day period, same will be deemed approved. The Tenant must also deliver to Landlord the names of all contractors who must be reasonably acceptable to Landlord (provided that Landlord may designate specific contractors with respect to Building systems); copies of contracts; necessary permits and approvals; evidence of contractor's and subcontractor's insurance in amounts reasonably required by Landlord; and any security for performance that is reasonably required by Landlord. Changes to the plans and specifications must also be submitted to Landlord for its approval. All Alterations or Minor Alterations must be constructed in a good and workmanlike manner using materials of a quality that is at least equal to the quality designated by Landlord in its reasonable discretion as the minimum standard for the Building. Landlord may designate reasonable rules, regulations and procedures for the performance of work in the Building and, to the extent reasonably necessary to avoid disruption to the occupants of the Building, shall have the right to designate the time when Alterations may be performed. Tenant will reimburse Landlord within 30 days after receipt of an invoice for all reasonable sums paid by Landlord for third party examination of Tenant's plans for Alterations. The Landlord will be entitled to supervise and monitor all construction in order to verify compliance with Landlord approved Construction Documents, however, Landlord's supervision will be without cost to Tenant and will not be deemed to modify, amend, or alter in any manner the terms of this Lease or the Landlord approved Construction Documents. The Landlord will have the right to stop construction in the event it determines that construction is not substantially in accordance with the Landlord approved Construction Documents. Upon completion, Tenant shall furnish "as-built" plans (except for Minor Alterations), completion affidavits, full and final waivers of lien and receipts bills covering all labor and materials. Tenants shall assure that the Alterations comply with all insurance requirements and Laws. Landlord's approval of any Alteration shall not be a representation by Landlord that the Alteration complies with applicable Laws or will be adequate for Tenant's use. Tenant acknowledges that Landlord is not an architect or engineer, and that the Alterations will be designed and/or constructed using independent architects, engineers and contractors reasonably approved by Landlord. Accordingly, Landlord does not guarantee or warrant that the applicable construction documents will comply with Laws or be free from errors or omissions, nor that the Alterations will be free from defects, and Landlord will have no liability
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therefor. Approved Landlord Construction Documents will not be interpreted to have modified the terms and conditions of the Lease, and to the extent any Construction Document or Landlord approved Construction Document does not comply with the terms and conditions of the Lease, then same is expressly disapproved. Modification of the Lease may only occur through written lease modifications, signed by both the Landlord and the Tenant and not through any "deemed approval" process or through the process of obtaining approved Construction Documents. Construction Documents must comply with Landlord policies concerning (i) communications and fire alarm services; (ii) electrical design parameters, including harmonic distortion; (iii) floor load capacity; and (iv) HVAC requirements.
11. Entry by Landlord. Landlord, its agents, contractors and representatives may enter the Premises to inspect or show the Premises, to clean and make repairs, alterations or additions to the Premises, and to conduct or facilitate repairs, alterations or additions to any portion of the Building, including other tenants' premises. Except in emergencies or to provide janitorial and other Building services after Normal Business Hours, Landlord shall provide Tenant with reasonable prior notice of entry into the Premises, which may be given orally. If reasonably necessary for the protection and safety of Tenant and its employees, Landlord shall have the right to temporarily close all or a portion of the Premises to perform repairs, alterations and additions but will endeavor to do so at times which will not unduly inconvenience the Tenant. However, except in emergencies, Landlord will not close the Premises if the work can reasonably be completed on weekends and after Normal Business Hours; provided, however, that Landlord is not required to conduct work on weekends of after Normal Business Hours if such work can be conducted without closing the Premises. Entry by Landlord for any such purposes shall not constitute constructive eviction or entitle Tenant to an abatement or reduction of Rent.
12. Assignment and Subletting.
A. Landlord's Consent Required. Except in connection with a Permitted Transfer (defined in Section 12.D ), Tenant may not assign, transfer or encumber any interest in this Lease or sublease or allow any third party to use any portion of the Premises (collectively or individually, a "Transfer" ) without the prior written consent of Landlord, which consent shall not be unreasonably withheld if Landlord does not elect to exercise its termination rights under Section 12.B below. Without limitation, Tenant agrees that Landlord's consent shall not be considered unreasonably withheld if: (1) the proposed transferee's financial condition does not meet the criteria Landlord reasonably uses to select Building tenants having similar leasehold obligations; (2) the proposed transferee is a governmental agency; (3) the proposed transferee is a present occupant of the Building (but only if Landlord has available space within the Building which could accommodate the proposed transferee); (4) Landlord is engaged in active lease negotiations with the proposed transferee for other premises in the Building; (5) an event of default exists under this Lease; (6) any portion of the Building or Premises would likely become subject to additional or different Laws as a consequence of the proposed Transfer and as such would increase Landlord's or other tenants Operating Expenses; (7) the proposed transferee's use of the Premises conflicts with the Permitted Use or any exclusive usage rights granted to any other tenant in the Building; (8) the use, nature, business, activities or reputation in the business community of the proposed transferee (or its principals, employees or invitees) are not acceptable to Landlord;; or (9) the proposed transferee is currently involved in litigation with Landlord or any of its affiliates. Tenant shall not be entitled to receive monetary damages based upon a claim that Landlord unreasonably withheld its consent to a proposed Transfer and Tenant's sole remedy shall be an action to enforce any such provision through specific performance or declaratory judgment. Any attempted Transfer in violation of this Article is voidable at Landlord's option. Consent by Landlord to one or more Transfer(s) shall not operate as a waiver of Landlord's rights to approve any subsequent Transfers. In no event shall any Transfer or Permitted Transfer release or relieve Tenant from any obligation under this Lease.
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B. Consent Procedure; Termination. As part of its request for Landlord's consent to a Transfer or notification to Landlord of a Permitted Transfer, Tenant shall provide Landlord with financial statements for the proposed transferee, a complete copy of the proposed assignment, sublease and other contractual documents and such other information as Landlord may reasonably request. Landlord shall, by written notice to Tenant within 20 days of its receipt of the required information and documentation, either (1) consent to the Transfer or approve the Permitted Transfer by the execution of a consent agreement in a form reasonably designated by Landlord or reasonably refuse to consent to the Transfer in writing; or (2) refuse to consent to such proposed assignment or sublease if same is not a Permitted Transfer. The failure of the Landlord to respond will be deemed an approval by the Landlord of such proposed transfer.
C. Payment to Landlord. If the aggregate consideration paid to Tenant for a Transfer exceeds that payable by Tenant under this Lease (prorated according to the transferred interest), Tenant shall pay Landlord 50% of such excess (after deducting therefrom reasonable leasing commissions and all reasonable costs associated with the Transfer). Tenant shall pay Landlord for Landlord's share of any excess within 30 days after Tenant's receipt of such excess consideration. If Tenant is in Monetary Default (defined in Section 19.A. ), Landlord may require that all sublease payments be made directly to Landlord, in which case Tenant shall receive a credit against Rent in the amount of any payments received (less Landlord's share of any excess).
D. No Consent Requested. Tenant may assign its entire interest under this Lease without the consent of Landlord, provided that all of the following conditions are satisfied (a "Permitted Transfer" ): (1) no event of default shall have occurred under this Lease; (2) The Assignee shall have a net worth which is at last equal to the greater of Tenant's net worth at the date of this Lease; (3) no portion of the Building or Premises would likely become subject to additional or different Laws as a consequence of the proposed Transfer; (4) Tenant's successor's use of the Premises shall not conflict with the Permitted Use or any exclusive usage rights granted to any other tenant in the Building; and (5) Tenant shall give Landlord written notice at least 60 days prior to the effective date of the proposed assignment. Tenant's notice to Landlord shall include information and documentation showing that each of the above conditions has been satisfied. If requested by Landlord, the assignee shall sign a commercially reasonable form of assumption agreement.
13. Liens. Tenant shall not permit mechanic's or other liens to be placed upon the Property, Premises or Tenant's leasehold interest in connection with any work or service done or purportedly done by or for the benefit of Tenant. If a lien is so placed, Tenant shall, within 10 days of notice from Landlord of the filing of the lien, fully discharge the lien by settling the claim which resulted in the lien or by bonding or insuring over the lien in the manner prescribed by the applicable lien Law. If Tenant fails to discharge the lien, then, in addition to any other right or remedy of the Landlord, Landlord may bond or insure over the lien or otherwise discharge the lien. Tenant shall reimburse Landlord for any amount paid by Landlord to bond or insure over the lien or discharge the lien, including, without limitation, reasonable attorney's fees within 30 days after receipt of an invoice from Landlord.
14. Intentionally Omitted
15. Insurance.
A. Tenant's Insurance. Tenant shall carry and maintain the following insurance ( "Tenant's Insurance" ), at its sole cost and expense: (1) Commercial General Liability Insurance applicable to the Premises and its appurtenances providing, on an occurrence basis, a minimum combined single limit of $4,000,000.l00 (coverage in excess of $1,000,000.00 may be provided by way of an umbrella or excess liability policy); (2) All Risk Property insurance, subject to a replacement cost valuation policy covering all of Tenant's trade fixtures, and any improvements made to the Premises by Tenant, equipment, furniture and other personal property within the Premises ( "Tenant's Property" ); (3) Business Interruption insurance written on an actual loss sustained form or subject to sufficient limits to address
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reasonably anticipated business interruption losses; (4) Business Automobile Liability insurance to cover all owned, hired and nonowned automobiles owned or operated by Tenant providing a minimum combined single limit of $1,000,000.00 ; (5) Workers' Compensation Insurance as required by the state in which the Premises is located and in amounts as may be required by applicable statute; and (6) Employers Liability Coverage of at least $500,000.00 per occurrence. Any company writing any of Tenant's Insurance shall have an A.M. Best rating of not less than A. All Commercial General Liability and Business Automobile Liability Insurance policies shall name Tenant as a named insured and Landlord as an additional insured. If any aggregate limit is reduced because of loss paid to below 75% of the limit required by this Lease, Tenant will notify Landlord in writing within 10 days of the date of reduction. All policies of Tenant's Insurance shall contain endorsements that the insurer(s) shall give Landlord and its designees at least 10 days' advance written notice of any change, cancellation, termination or lapse of insurance. Tenant shall provide Landlord with a certificate of insurance evidencing Tenant's Insurance and Landlord's status as an Additional Insured prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises for any reason, and upon renewals at least 10 days prior to the expiration of the insurance coverage. All of Tenant's Insurance policies, endorsements and certificates will be on forms and with deductibles and self-insured retention, if any, reasonably acceptable to Landlord.
B. Landlord's Insurance. The Landlord, during the term of this Lease will carry and maintain the following insurance ("Landlord's Insurance") at its sole cost and expense (i) commercial general liability insurance applicable to the Building, the Property and Parking Facility, providing, on an occurrence basis, a minimum combined single limit of $7,000,000 (coverage in excess of $1,000,000 may be provided by way of an umbrella or excess liability policy). Any company writing any of Landlord's insurance will have an A.M. Best rating of not less than A and may be provided by a master or blanket insurance policy. The Landlord's Insurance will name the Landlord as the named insured and Tenant as an additional insured. If any aggregate limit is reduced because of a loss paid to below 75% of the limit required by this Lease, Landlord will notify Tenant in writing within 10 days of the date of reduction. All policies of Landlord's Insurance will contain endorsements that the insurer(s) will give the Tenant at least 10 days advance written notice of any change, cancellation, termination or lapse of insurance. Landlord shall provide Tenant with a certificate of insurance evidencing Landlord's Insurance and Tenant's status as an Additional Insured prior to the earlier to occur of the Commencement Date or the date Tenant is provided with possession of the Premises for any reason, and upon renewals at least 10 days prior to the expiration of the insurance coverage. All of Tenant's Insurance policies, endorsements and certificates will be on forms and with deductibles and self-insurance retention, if any, reasonably acceptable to Tenant. Landlord shall maintain All Risk property insurance on the Building and Parking Facility at replacement cost value, as reasonably estimated by Landlord.
C. Insurance Limits. Except as specifically provided to the contrary, the limits of either party's insurance will not limit such party's liability under this Lease.
16. Waiver of Subrogation. Notwithstanding anything in this Lease to the contrary, Landlord and Tenant each waive, and shall cause their respective insurance carriers to waive, any and all rights (by way of subrogation or otherwise) of recovery, claim, action or causes of action against the other and their respective trustees, principals, beneficiaries, partners, officers, directors, agents, and employees, for any loss or damage that may occur to Landlord or Tenant or any party claiming by, through or under Landlord or Tenant, as the case may be, with respect to Tenant's Property, the Building, the Premises, any additions or improvements to the Building or Premises, or any contents thereof, INCLUDING ALL RIGHTS (BY WAY OF SUBROGATION OR OTHERWISE) OF RECOVERY, CLAIMS, ACTIONS OR CAUSES OF ACTION ARISING OUT OF THE NEGLIGENCE OF ANY LANDLORD PARTIES OR THE NEGLIGENCE OF ANY TENANT PARTIES. which loss or damage is (or would have been, had the insurance required by this Lease been carried out) covered by insurance.
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17. Casualty Damage.
A. Repair or Termination by Landlord. If all or any part of the Premises is damaged by fire or other casualty, Tenant shall immediately notify Landlord in writing. During any period of time that all or a material portion of the Premises is rendered untenantable as a result of a fire or other casualty, the Rent shall abate for the portion of the Premises that is untenantable and not used by Tenant. Landlord shall have the right to terminate this Lease if: (1) the Building shall be damaged so that, in Landlord's reasonable judgment, substantial alteration or reconstruction of the Building shall be required (whether or not the Premises has been damaged); (2) Landlord is not permitted by Law to rebuilding the Building in substantially the same form as existed before the fire or casualty; (3) the Premises have been materially damaged and there is less than 2 years of the Term remaining on the date of the casualty; (4) any Mortgagee requires that the insurance proceeds be applied to the payment of the mortgage debt; or (5) an uninsured loss of the Building occurs. Landlord may exercise its right to terminate this Lease by notifying Tenant in writing within 90 days after the date of the casualty. If Landlord does not terminate this Lease, Landlord shall commence and proceed with reasonable diligence to repair and restore the Building and/or the Premises to substantially the same condition as existed immediately prior to the date of damage; provided, however, that Landlord shall only be required to reconstruct building standard leasehold improvements existing in the Premises as of the date of damage, and Tenant shall be required to pay the cost for restoring any other leasehold improvements. However, in no event shall Landlord be required to spend more than the insurance proceeds received by Landlord. Landlord shall not be liable for any loss or damage to Tenant's Property or to the business of Tenant resulting in any way from the fire or other casualty or from the repair and restoration of the damage. Landlord and Tenant hereby waive the provisions of any Law relating to the matters addressed in this Article, and agree that their respective rights for damage to or destruction of the Premises shall be those specifically provided in this Lease.
B. Timing for Repair; Termination by Either Party. If all or any portion of the Premises is untenantable as a result of fire or other casualty, Landlord shall, with reasonable promptness, cause an architect or general contractor selected by Landlord to provide Landlord and Tenant with a written estimate of the amount of time required to substantially complete the repair and restoration of the Premises and make the Premises tenantable again, using standard working methods ( "Completion Estimate" ). If the Completion Estimate indicates that the Premises cannot be made tenantable within 180 days from the date the repair and restoration is started, then regardless of anything in Section 17.A. above to the contrary, either party shall have the right to terminate this Lease by giving written notice to the other of such election within 10 days after receipt of the Completion Estimate. Tenant, however, shall not have the right to terminate this Lease if the fire or casualty was caused by the negligence or intentional misconduct of any Tenant Parties or any of Tenant's transferees, contractors or licensees.
18. Condemnation. Either party may terminate this Lease if the whole or any material part of the Premises is taken or condemned for any public or quasi-public use under Law, by eminent domain or private purchase in lieu thereof (" Taking" ). Landlord shall also have the right to terminate this Lease if there is a Taking of any portion of the Building or Property which would leave the remainder of the Building unsuitable for use as an office building in a manner comparable to the Building's use prior to the Taking. In order to exercise its right to terminate this Lease, Landlord or Tenant, as the case may be, must provide written notice of termination to the other within 45 days after the terminating party first receives notice of the Taking. Any such termination shall be effective as of the date the physical taking of the Premises or the portion of the Building or Property occurs. If this Lease is not terminated, the Rentable Square Footage of the Building, the Rentable Square Footage of the Premises and Tenant's Pro Rata Share shall, if applicable, be appropriately adjusted by Landlord. In addition, Rent for any portion of the Premises taken or condemned shall be abated during the unexpired Term effective when the physical taking of the portion of the Premises occurs. All compensation awarded for
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a Taking, or sale proceeds, shall be the property of Landlord, any right to receive compensation awarded for a Taking, or sales proceeds, shall be the property of Landlord, any right to receive compensation or proceeds being expressly waived by Tenant. However, Tenant may file a separate claim at its sole cost and expense for Tenant's Property and Tenant's reasonable relocation expenses, provided the filing of the claim does not diminish the award which would otherwise be receivable by Landlord.
19. Events of Default. Tenant shall be considered to be in default of this Lease upon the occurrence of any of the following events of default.
A. Tenant's failure to pay when due all or any portion of the Rent ( "Monetary Default" ) within 3 business days after written notice to Tenant. Provided, however, Tenant will be entitled to notice no more than 3 times in a calendar year and thereafter during such calendar year Tenant will be in default if Rental is not paid on the date same is due.
B. Tenant's failure (other than a Monetary Default) to comply with any term, provision or covenant of this Lease, if the failure is not cured within 10 days after written notice to Tenant. However, if Tenant's failure to comply cannot reasonably be cured within 10 days, Tenant shall be allowed additional time (not to exceed an additional 10 days) as is reasonably necessary to cure the failure to long as: (1) Tenant commences to cure the failure within 10 days, and (2) Tenant diligently pursues a course of action that will cure the failure and bring Tenant back into compliance with this Lease. However, if Tenant's failure to comply creates a hazardous condition, the failure must be cured immediately upon notice to Tenant. In addition, if Landlord provides Tenant with notice of Tenant's failure to comply with any particular term, provision or covenant of this Lease on more than two (2) occasions during any 12 month period, Tenant's subsequent violation of the same term, provision or covenant shall, at Landlord's option, be an incurable event of default by Tenant.
C. Tenant or any Guarantor becomes insolvent, files a petition for protection under the U.S. Bankruptcy Code (or similar law) or a petition is filed against Tenant or any Guarantor under such laws and is not dismissed within 45 days after the date of such filing, makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts when due.
D. The leasehold estate is taken by process or operation of Law, such as in a condemnation action.
20. Landlord's Remedies on Default.
A. Upon any default, Landlord shall have the right without notice or demand (except as provided in Article 19 ) to pursue any of its rights and remedies at Law or in equity, including any one or more of the following remedies:
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commissions, architectural fees, legal fees and leasehold improvements (even if amortized over a new lease term which exceeds the balance of the Term), and any allowances and/or concessions provided by Landlord.
B. Tenant Not Relieved from Liabilities. Unless expressly provided in this Lease, the repossession or re-entering of all or any part of the Premises shall not relieve Tenant of its liabilities and obligations under this Lease. No right or remedy of Landlord shall be exclusive of any other right or remedy. Each right and remedy shall be cumulative and in addition to any other right and remedy now or subsequently available to Landlord at Law or in equity. If Landlord declares Tenant to be in default, Landlord shall be entitled to receive interest on any unpaid item of Rent at a rate equal to the lesser of 18% per annum or the highest rate permitted by Law. In addition, if Tenant fails to pay any item or installment of Rent when due, Tenant shall pay Landlord an administrative fee equal to 5% of the past due Rent, provided that Tenant shall be entitled to a grace period of 5 days for the first 2 late payments of Rent in a given calendar year. For purposes hereof, the "Prime Rate" shall be the per annum interest rate publicly announced as its prime or base rate by a federally insured bank selected by Landlord in the state in which the Building is located. Forbearance by Landlord to enforce one or more remedies shall not constitute a waiver of any default.
C. Mitigation of Damages. Upon termination of Tenant's right to possess the Premises, Landlord shall, to the extent required by Law (and no further), use objectively reasonable efforts to mitigate damages by reletting the Premises. Landlord shall not be deemed to have failed to do so if Landlord refuses to lease the Premises to a prospective new tenant with respect to whom Landlord would be entitled to withhold its consent pursuant to Section 12.A. , or who (1) is an affiliate, parent or subsidiary of Tenant; (2) is not acceptable to any Mortgagee of Landlord; (3) requires improvements to the
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Premises to be made at Landlord's expense; or (4) is unwilling to accept lease terms then proposed by Landlord, including: (a) leasing for a shorter or longer term than remains under this Lease; (b) re-configuring or combining the Premises with other space; (c) taking all or only a part of the Premises; and/or (d) changing the use of the Premises. Notwithstanding Landlord's duty to mitigate its damages as provided herein, Landlord shall not be obligated to give any priority to reletting Tenant's space in connection with its leasing of space in the Building.
D. Landlord's Lien. To secure Tenant's obligations under this Lease, Tenant grants Landlord a contractual security interest on all of Tenant's owned furniture, fixtures and equipment now or hereafter situated in the Premises and all proceeds therefrom, including insurance proceeds (collective, "Collateral" ). No Collateral shall be removed from the Premises without Landlord's prior written consent until all of Tenant's obligations are fully satisfied (except in the ordinary course of business and then only if replaced with items of same value and quality). Upon any uncured event of default (as defined in this Lease), Landlord may, to the fullest extent permitted by Law and in addition to any other remedies provided herein, enter upon the Premises and take possession of any Collateral without being held liable for trespass or conversion, and sell the same at public or private sale, after giving Tenant at least 10 days written notice (or more if required by Law) of the time and place of such sale. Such notice may be sent with or without return receipt requested. Unless prohibited by Law, any Landlord Party may purchase any Collateral at such sale. The proceeds from such sale, less Landlord's expenses, including reasonable attorneys' fees and other expenses, shall be credited against Tenant's obligations. Any surplus shall be paid to Tenant (or as otherwise required by Law) and any deficiency shall be paid by Tenant to Landlord upon demand. Upon request, Tenant shall execute and deliver to Landlord a financing statement sufficient to perfect the foregoing security interest or Landlord may file a copy of this Lease as a financing statement, as permitted under Law. Landlord retains all statutory rights.
21. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS LEASE, THE LIABILITY OF LANDLORD (AND OF ANY SUCCESSOR LANDLORD) TO TENANT SHALL BE LIMITED TO THE INTEREST OF LANDLORD IN THE PROPERTY. TENANT SHALL LOOK SOLELY TO LANDLORD'S INTEREST IN THE PROPERTY FOR THE RECOVERY OF ANY JUDGMENT OR AWARD AGAINST LANDLORD. NO LANDLORD PARTY SHALL BE PERSONALLY LIABLE FOR ANY JUDGMENT OR DEFICIENCY. Before filing suit for an alleged default by Landlord, Tenant shall give Landlord and the Mortgagee (s) defined in Article 26 ) whom Tenant has been notified hold mortgages (defined in Article 26 ) on the Property, Building or Premise, notice and reasonable time to cure the alleged default. Tenant hereby waives all claims against all Landlord parties for consequential, special or punitive damages allegedly suffered by any Tenant parties, including lost profits and business interruption.
22. No Waiver. Either party's failure to declare a default immediately upon its occurrence, or delay in taking action for a default shall not constitute a waiver of he default, nor shall it constitute an estoppel. Either party's failure to enforce its rights for a default shall not constitute a waiver of its rights regarding any subsequent default. Receipt by Landlord of Tenant's keys to the Premises shall not constitute an acceptance or surrender of the Premises.
23. Tenant's Right to Possession. Tenant shall, and may peacefully have, hold and enjoy the Premises without hindrance from Landlord or any person lawfully claiming through Landlord, subject to the terms of this Lease, provided Tenant pays the Rent and fully performs all of its covenants and agreements. This covenant and all other covenants of Landlord shall be binding upon Landlord and its successors only during its or their respective periods of ownership of the Building, and shall not be a personal covenant of any Landlord Parties.
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24. Self-Help. In the event Landlord is in default of any obligation set forth in this Lease, the Tenant must give written notice to the Landlord specifying with particularity the nature of the default and the reasonable curative action required to cure such default. If the Landlord fails within 7 days of such notice to cure such default or to commence upon a cause of action which, if pursued with reasonable diligence will result in such default being cured, the Tenant may after a 2 nd notice to Landlordproviding for 3 additional days noticecommence to cure such default on Landlord's behalf, if, and only if, the alleged default (i) materially and adversely affects Tenant's ability to conduct its business within the Premises; or (ii) results in a substantial likelihood that personal injury or material damage to Tenant's personal property within the Premises and in such event, Tenant may cure such default No notice is required with respect to "emergency" and "life threatening" situations. The Landlord will reimburse the Tenant the reasonable cost incurred by the Tenant in effectuating the curative action, within 30 days of receipt, a detailed invoice reflecting the work done and the cost of such curative action. This sum, if not paid, will bear interest at the legal rate of interest.
25. Holding Over. Except for any permitted occupancy by Tenant under Article 30, if Tenant or any party claiming by or through or under Tenant fails to surrender the Premises at the expiration or earlier termination of this Lease, continued occupancy of the Premises shall be that of a tenancy at sufferance. Tenant's occupancy of the Premises during the holdover shall be subject to all the terms and provisions of this Lease and Tenant shall pay an amount (on a pre month basis without reduction for partial months during the holdover) equal to 150% of the greater of the sum of the Base Rent and Additional Rent due for the period immediately preceding the holdover. No holdover by Tenant or payment by Tenant after the expiration or early termination of this Lease shall be construed to extend the Term or prevent Landlord from immediate recovery of possession of the Premises by summary proceedings or otherwise. In addition to the payment of the amounts provided above, if Landlord is unable to deliver possession of the Premises to a new tenant, or to perform improvements for a new tenant, as a result of Tenant's holdover and Tenant fails to vacate the Premises within 15 days after Landlord notifies Tenant of Landlord's inability to deliver possession, or perform improvements, Tenant shall be liable to Landlord for all damages, including without limitation, consequential damages, that Landlord suffers from the holdover. Tenant shall indemnify Landlord against all claims made by any tenant or prospective tenant against Landlord resulting from delay by Landlord in delivering the possession of the Leased Premises to such other tenant or prospective tenant.
26A. Subordination to Mortgages; Estoppel Certificate. Tenant accepts this Lease subject and subordinate to any mortgage(s), deed(s) of trust, ground lease(s) or other lien(s) now or subsequently affecting the Premises, the Building or the Property, and to renewals, modifications, refinancings and extensions thereof (collectively, a "Mortgage" ). the party having the benefit of a Mortgage shall be referred to as a "Mortgagee" . This clause shall be self-operative, but upon request from a Mortgagee, Tenant shall execute a commercially reasonable subordination agreement in favor of the Mortgagee. In lieu of having the Mortgage be superior to this Lease, a Mortgagee shall have the right at any time to subordinate its Mortgage to this Lease. If requested by a successor-in-interest to all or a part of Landlord's interest in this Lease, Tenant shall, without charge, attorn to the successor-in-interest. Tenant shall, within 5 business days after receipt of a written request from landlord, execute and deliver an estoppel certificate to those parties as are reasonably requested by Landlord (including a Mortgagee or prospective purchaser). The estoppel certificate shall include a statement certifying that this Lease is unmodified (except as identified in the estoppel certificate) and in full force and effect, describing the dates to which Rent and other charges have been paid, representing that, to the best of Tenant's knowledge, there is no default (or stating the nature of the alleged default) and certifying other matters with respect to this Lease that may reasonably be requested.
26B. The Landlord will, upon execution of the subordination, secure a commercial reasonably nondisturbance and attornment agreement for the benefit of the Tenant from any Mortgagee.
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27. Attorneys' Fees. If either party institutes a suit against the other for violation of or to enforce any covenant or condition of this Lease, or if either party intervenes in any suit in which the other is a party to enforce or protect its interest or rights, the prevailing party shall be entitled to all of its costs and expenses, including, without limitation, reasonable attorneys' fees.
28. Notice. If a demand, request, approval, consent or notice (collectively, a "Notice" ) shall or may be given to either party by the other, the Notice shall be in writing and delivered by hand or sent by registered or certified mail with return receipt requested, or sent by overnight or same day courier service, or sent by facsimile, at the party's respective Notice Address(es) set forth in Article 1 , except that if Tenant has vacated the Premises (or if the Notice Address for Tenant is other than the Premises, and Tenant has vacated such address) without providing Landlord a new Notice Address, Landlord may serve notice in any manner described in this Article or in any other manner permitted by Law. Each Notice shall be deemed to have been received or given on the earlier to occur of actual delivery (which, in the case of delivery by facsimile, shall be deemed to occur at the time of delivery indicated on the electronic confirmation of the facsimile) or the date on which delivery is refused, or, if Tenant has vacated the Premises or the other Notice Address of Tenant without providing a new Notice Address, 3 days after Notice is deposited in the U.S. mail or with a courier service in the manner described above. Either party may, at any time, changes its Notice Address by giving the other part written notice of the new address in the manner described in this Article.
29. Reserved Rights. This Lease does not grant any rights to light or air over or about the Building. Subject to paragraph 7D, Landlord excepts and reserves exclusively to itself the use of: (A) roofs, (B) telephone, electrical and janitorial closets, (C) equipment rooms, Building risers or similar areas that are used by Landlord for the provision of Building services, (D) right to the land and improvements below the floor of the Premises, (E) the improvements and air rights above the Premises, (F) the improvements and air rights outside the demising walls of the Premises, (G) the areas within the Premises used for the installation of utility lines and other installations serving occupants of the Building, and (H) any other areas designated from time to time by Landlord as service areas of the Building. Landlord has the right to change the Building's name or address. Landlord also has the right to make such other changes to the Property and Building as Landlord deems appropriate, provided the changes do not materially affect Tenant's ability to use the Premises for the Permitted Use. Landlord shall also have the right (but not the obligation) to temporarily close the Building if Landlord reasonably determines that there is an imminent danger of significant damage to the Building or of personal injury to Landlord's employees or the occupants of the Building. The circumstances under which Landlord may temporarily close the Building shall include, without limitation, electrical interruptions, hurricanes and civil disturbances. A closure of the Building under such circumstances shall not constitute a constructive eviction or entitle Tenant to an abatement or reduction of Rent.
30. Surrender of Premises. At the expiration or earlier termination of this Lease or Tenant's right of possession, Tenant shall remove all of tenant's property from the Premises as well as any tenant improvements which it is required to remove), and quit and surrender the Premises to Landlord, broom clean, and in good order, condition and repair, ordinary wear and tear excepted. Tenant shall also be required to remove Tenant's Removal Property in accordance with Article 9 . If Tenant fails to remove any of Tenant's property within 5 days after the termination of this Lease or of Tenant's right to possession, Landlord, at Tenant's sole cost and expense, shall be entitled (but not obligated) to remove and store Tenant's Property. Landlord shall not be responsible for the value, preservation or safekeeping of Tenant's Property. Tenant shall pay Landlord, upon demand, the reasonable expenses and storage charges incurred for Tenant's Property. In addition, if Tenant fails to remove Tenant's Property from the Premises or storage, as the case may be, within 30 days after written notice, Landlord may deem all or any part of Tenant's Property to be abandoned, and title to Tenant's Property shall be deemed to be immediately vested in Landlord.
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31. Hazardous Materials.
A. No Hazardous Material (hereafter defined) (except for de minimis quantities of household cleaning products and office supplies used in the ordinary course of Tenant's business at the Premises and that are used, kept and disposed of in compliance with Laws) shall be brought upon, used, kept or disposed of in or about the Premises or the Building by any Tenant Parties or any of Tenant's transferees, contractors or licensees without Landlord's prior written consent, which consent may be withheld in Landlord's sole and absolute discretion. Tenant's request for such consent shall include a representation and warranty by Tenant that the Hazardous Material in question (A) is necessary in the ordinary course of Tenant's business, and (B) shall be used, kept and disposed of in compliance with all Laws. If Contamination (hereinafter defined) occurs as a result of an act or omission of any Tenant Party, Tenant shall, at its expense, promptly take all actions necessary to comply with Laws and to return the Premises, the Building, the Property and/or any adjoining or affected property to its condition prior to such Contamination, subject to Landlord's prior written approval of Tenant's proposed methods, times and procedures for remediation. Tenant shall provide Landlord reasonably satisfactory evidence that such actions shall not adversely affect any Landlord Party or contaminated property. Landlord may require that a representative of Landlord be present during any such actions and/or that such actions be taken after business hours. If Tenant fails to take and diligently prosecute any necessary remediation actions within 30 days after written notice from Landlord or an authorized governmental agency (or any shorter period required by any governmental agency), Landlord may take such actions and Tenant shall reimburse Landlord therefor, plus a 7.5% administrative fee, within 30 days of Landlord's invoice. For purposes of this Article 31 , a "Hazardous Material" is any substance (Y) the presence of which requires, or may hereafter require, notification, investigation or remediation under any Laws; or (Z) which is now or hereafter defined, listed or regulated by any governmental authority as a "hazardous material", "extremely hazardous waste", "solid waste", "toxic substance", "hazardous substance", "hazardous material" or "regulated substance", or otherwise regulated under any Laws. "Contamination" means any release or disposal of a Hazardous Material in, on, under, at or from the Premises, the Building or the Property which may result in any liability, fine, use, restriction, cost recovery lien, remediation requirement or other government o private party action or imposition affecting any Landlord Party. For purposes of this Lease, claims arising from Contamination shall include diminution in value, restrictions on use, adverse impact on leasing space, and all costs of site investigation, remediation, removal and restoration work, including response costs under CERCLA and similar statutes.
B. Landlord hereby represents that to its actual knowledge there are no Hazardous Materials in the land, Building, or Premises other than those normally present in similar properties (such as, for purposes of illustration only, cleaning fluids, solvents, fuels and lubricants) and except as otherwise disclosed in the "Hazardous Materials Report" on file at Landlord's office. The Landlord will permit the Tenant upon reasonable notice to review the Hazardous Materials Report during normal business hours. As used herein, "actual knowledge" is limited to the knowledge of the respective property manager of the Building. Tenant shall not be required to contribute (whether as an operating expense, or otherwise) to the cost of remediating any environmental condition which existed prior to the date of Tenant's first occupancy.
C. Landlord shall not knowingly cause or permit any Hazardous Material to be used, stored, generated or disposed of, on or in the Premises, Building, or Parking Facilities by Landlord, Landlord's agents, employees or contractors in violation of Laws. If Hazardous Materials have been or are in the future used, stored, generated, disposed of by Landlord or discovered in the Premises, Building, or Parking Facilities in violation of Laws and Landlord is made aware thereof, then Landlord will as to such Hazardous Materials that are brought into the Premises, the Building and/or the Parking Facilities by Landlord after the Effective Date and in violation of Laws, promptly and at its sole expense take
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any and all necessary actions to return the Premises, Building, and/or Parking Facilities, as applicable, to a condition which will comply with all applicable Laws.
D. The Landlord has disclosed to Tenant that certain materials previously used in the construction, completion, repair or maintenance of the Premises and Building contain or contained asbestos. Tenant acknowledges the possible presence of asbestos-containing materials in the Premises and Building, whether such materials are currently in the Premises and Building or were previously in the Premises and Building, and whether such materials are known or unknown (the "Existing Asbestos"). The Landlord will encapsulate or remove and dispose of the Existing Asbestos only if required pursuant to Laws. Landlord will at its sole cost and expense, encapsulate or remove and dispose of such Existing Asbestos found to exist in the Premises to the extentbut only to the extentit is required to do so by Law. If the Tenantafter completion of the initial build out of Tenant's improvementsdesires to thereafter construct or install any alterations, additions or improvements to the Premises ("Subsequent Alterations") and the design and construction method requires that the existing asbestos be disturbed or released then, provided there is no feasible alternative to the design or construction method other than one which would disturb or release Existing Asbestos, the Landlord will be obligated to encapsulate or remove and dispose of the Existing Asbestos from the effected area at its sole cost and expense to the extent required by Laws and to the extent needed to permit the construction of the Subsequent Alterations.
E. In the event (i) a condition occurs that results in a release of any Existing Asbestos located in the Premises, and (ii) such release requires the encapsulation or removal and disposal of such Existing Asbestos pursuant to Laws, then whether or not such condition is attributable to the acts or omissions of Tenant, its employees, agents or contractors, Landlord will encapsulate or remove and dispose of such released Existing Asbestos in accordance with Laws, but at Tenant's expense if such release was due to causes the fault of Tenant.
F. The indemnity obligations under this Article 31 shall survive the expiration or earlier termination of this Lease.
32. Miscellaneous.
A. Governing Law; Jurisdiction and Venue; Severability; Paragraph Headings. This Lease and the rights and obligations of the parties shall be interpreted, construed and enforced in accordance with the Laws of the State of Texas with venue in Harris County, Texas. If any term or provision of this Lease shall to any extent be invalid or unenforceable, the remainder of this Lease shall not be affected, and each provision of this Lease shall be valid and enforced to the fullest extent permitted by Law. The headings and title to the Articles and Sections of this Lease are for convenience only and shall have no effect on the interpretation of any part of this Lease.
B. Recording. Tenant shall not record this Lease or any memorandum without Landlord's prior written consent.
C. Force Majeure. Whenever a period of time is prescribed for the taking of an action by Landlord or Tenant, the period of time for the performance of such action shall be extended by the number of days that the performance is actually delayed due to strikes, acts of God, shortages of labor or materials, war, civil disturbances and other causes beyond the reasonable control of the performing party ( "Force Majeure" ) which such period will not exceed 30 days. However, events of Force Majeure shall not extend any period of time for the payment of Rent or other sums payable by either party or any period of time for the written exercise of an option or right by either party.
D. Transferability; Release of Landlord. Landlord shall have the right to transfer and assign, in whole or in part, all of its rights and obligations under this Lease and in the Building and/or Property referred to herein, and upon such transfer Landlord shall be released from any further obligations
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hereunder, and Tenant agrees to look solely to the successor in interest of Landlord for the performance of such obligations.
E. Brokers. Tenant represents that it has dealt directly with and only with Trione & Gordon, L.L.P. in connection with this Lease who is the Tenant's Broker. Trione & Gordon is also the Landlord's Broker. Tenant shall indemnify and hold the Landlord Parties harmless from all claims of any other brokers claiming to have represented Tenant in connection with this Lease. Landlord agrees to indemnify and hold the Tenant Parties harmless from all claims of any brokers claiming to have represented Landlord in connection with this Lease. Landlord agrees to pay a commission to Broker pursuant to the terms and provisions of that certain Commission Agreement executed by and between Landlord and Broker on or before the Effective Date, which Agreement is incorporated herein by reference for the specific purposes set forth in Section 62.022(b) of the Texas Property Code. The Landlord and Tenant acknowledge and consent that Trione & Gordon, L.L.P. is representing both the Tenant and the Landlord.
F. Authority; Joint and Several Liability. Each party hereto covenants, warrants and represents that: (1) each individual executing, attesting and/or delivering this Lease on behalf of Tenant is authorized to do so on behalf of Tenant; (2) this Lease is binding upon and enforceable against Tenant; and (3) Tenant is duly authorized and legally existing in the state of its organization and is qualified to do business in the state in which the Premises are located. If there is more than one Tenant, or if Tenant is comprised of more than one party or entity, the obligations imposed upon Tenant shall be joint and several obligations of all the parties and entities. Notices, payments and agreements given or made by, with or to any one person or entity shall be deemed to have been given or made by, with and to all of them.
G. Time is of the Essence; Relationship; Successors and Assigns. Time is of the essence with respect to Tenant's exercise of any expansion, renewal or extension rights or other options granted to Tenant. This Lease shall create only the relationship of landlord and tenant between the parties, and not a partnership, joint venture or any other relationship. This Lease and the covenants and conditions in this Lease shall inure only to the benefit of and be binding upon only Landlord and Tenant and their permitted successors and assigns.
H. Survival of Obligations. The expiration of the Term, whether by lapse of time or otherwise, shall not relieve either party of any obligations which accrued prior to or which may continue to accrue after the expiration or early termination of this Lease. Without limiting the scope of the prior sentence, it is agreed that Tenant's obligations under Sections 4.A, 4.B, 8, 14, 20, 25, 30 and 31 shall survive the expiration or early Termination of this Lease.
I. Binding Effect. Landlord has delivered a copy of this Lease to Tenant for Tenant's review only, and the delivery of it does not constitute an offer to Tenant or an option. This Lease shall not be effective against any party hereto until an original copy of this Lease has been signed by such party. The term of this Lease shall commence on the Effective Date and, unless sooner terminated in accordance with the terms hereof, shall end on the Expiration Date.
J. Full Agreement; Amendments. This Lease contains the parties' entire agreement regarding the subject matter hereof. All understandings, discussions, and agreements previously made between the parties, written or oral, are superseded by this Lease, and neither party is relying upon any warranty, statement or representation not contained in this Lease. This Lease may be modified only by a written agreement signed by Landlord and Tenant. The exhibits and riders attached hereto are incorporated herein and made a part of this Lease for all purposes.
K. Tax Waiver. TENANT WAIVES ALL RIGHTS PURSUANT TO ALL LAWS TO PROTEST APPRAISED VALUES OR RECEIVE NOTICE OF REAPPRAISAL REGARDING THE
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PROPERTY (INCLUDING LANDLORD'S PERSONALTY), IRRESPECTIVE OF WHETHER LANDLORD CONTESTS SAME.
L. Waiver of Consumer Rights. TENANT HEREBY WAIVES ALL ITS RIGHTS UNDER THE TEXAS DECEPTIVE TRADE PRACTICESCONSUMER PROTECTION ACT, SECTION 17.41 ET. SEQ. OF THE TEXAS BUSINESS AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER CONSULTATION WITH AN ATTORNEY OF TENANT'S OWN SELECTION, TENANT VOLUNTARILY CONSENTS TO THIS WAIVER.
M. Tenant's Security. Tenant shall (1) lock the doors to the Premises and take other reasonable steps to secure the Premises and the personal property of all Tenant Parties and any of Tenant's transferees, contractors or licensees in the Common Areas and parking facilities of the Building and Property, from unlawful intrusion, theft, fire and other hazards; (2) keep and maintain in good working order all security devices installed in the Premises by or for the benefit of Tenant (such as locks, smoke detectors and burglar alarms), which shall be integrated with any other Building security systems; and (3) cooperate with Landlord and other tenants in the Building on security matters. TENANT ACKNOWLEDGES THAT LANDLORD IS NOT A GUARANTOR OF THE SECURITY OR SAFETY OF THE TENANT OR ANY THIRD PARTY OR OF ANY PROPERTY OWNED BY TENANT OR OWNED BY A THIRD PARTY.
N. Additional Use. The Tenant may, without the consent of the Landlord, use the Premises for social events for its employees, invitees, customers and clients, so long as such events do not violate any applicable laws, statutes, ordinances or rules relating to such use or the consumption of alcoholic beverages.
O. Meeting Facilities. The Building will have conference meeting facilities that, subject to availability, may be reserved by the Tenant. The meeting facility is primarily for the use of Landlord but may be reserved by the Tenant at Landlord's normal and customary charge. The facility may also be leased by Landlord to the Tenant as well as to other tenants, public and community groups on a first-come first-served basis.
P. Bike Storage. Landlord will designate an area on the ground level of the garage for a bicycle rack.
Q. Title. A copy of Landlord's policy of title insurance with respect to the Property will be provided to Tenant. A copy of the Condominium Declaration to be filed by Landlord will be provided to Tenant within 30 days of the date of its execution and recordation by Landlord. This Lease will not be effective or binding on Landlord or Tenant until same has been executed by Tenant and approved by the Board of Trustees of the Houston Community College System.
Landlord and Tenant have executed this Lease as of the day and year first above written.
LANDLORD: | TENANT: | |||
Houston Community College System |
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PROS Revenue Management, Inc. |
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by: |
/s/ BRUCE LESLIE |
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by: |
/s/ CHARLES H. MURPHY |
Name: |
Bruce Leslie
|
Name: |
Charles H. Murphy
|
|
Title: |
Chancellor
|
Title: |
SVP & CFO
|
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EXHIBIT A-1
Legal Description of the Property/Building
27
METES
AND BOUNDS DESCRIPTION
1.4423 ACRE (62,825 SQ. FT.)
OBEDIENCE SMITH SURVEY, A-696
HARRIS COUNTY, TEXAS
BEING a tract or parcel containing 1.4423 acre (62,825 square feet) of land situated in the Obedience Smith Survey, Abstract Number 696, Harris County, Texas, being that same tract of record under Harris County Clerk's File Number S889980, all of Lot 1, Lot 2, Lot 3, Lot 4, Lot 6, Lot 7, Lot 12, part of Lot 5, Lot 8 and Lot 11, Block 1, of Main Street Addition a subdivision of record in Volume 55, Page 153, of the Harris County Deed Records, all of Lot 10 and part of Lot 5, Lot 8, Lot 9 and Lot 11, Block 55 of Fairgrounds Addition a subdivision of record in Volume 55, Page 222 of the Harris County Deed Records, Harris County, Texas, said 1.4423 acre tract being more particularly described as follows with all bearings referenced to the City Of Houston Survey Marker Numbers 5356-1516A and 5356-1312B:
BEGINNING at an "X" in concrete found for the intersection of the southeasterly right-of-way line of Travis Street (80 feet wide) and the southwesterly right-of-way line of Elgin Avenue (80 feet wide), at the common north corner to said Lot 10 and the herein described tract;
THENCE, South 57°08'26" East, along said southwesterly right-of-way line, 251.30 feet to a PK nail found for the intersection of said southwesterly right-of-way line and the northwesterly right-of-way line of Main Street (width varies) for the common east corner to said Lot 5 and the herein described tract;
THENCE, South 32°51'34" West, along said northwesterly right-of-way line, 250.00 feet to an "X" in concrete found for the intersection of said northwesterly right-of-way line and the northeasterly right-of-way line of Stuart Avenue (50 feet wide) for the common south corner to said Lot 1 and the herein described tract;
THENCE, North 57°08'26" West, along said northeasterly right-of-way line, 251.30 feet to an "X" cut in concrete found for the intersection of said northeasterly right-of-way line and the southeasterly right-of-way line of the aforementioned Travis Street, for the west corner of said Lot 6 and the herein described tract;
THENCE, North 32°51'34" East, along said southeasterly right-of-way line, 250.00 feet to the Point Of Beginning and containing 1.4423 acre (62,825 square feet) of land.
Note: This Metes and Bounds Description is referenced to a plat of survey prepared by Cobb, Fendley & Associates, Inc. dated June 29, 1999.
Cobb,
Fendley & Associates, Inc.
5300 Hollister, suite 400
Houston, Texas 77040
Job Number 99-02-134-01,
Dated May 29, 1999
Revised August 11, 1999
Revised August 18, 1999
DESCRIPTION
OF A TRACT OF LAND CONTAINING
50,260 SQUARE FEET (1.1538 ACRES) SITUATED
IN THE OBEDIENCE SMITH SURVEY, A-696,
HARRIS COUNTY, TEXAS
Being a tract of land containing 50,260 square feet (1.1538 acres) situated in the Obedience Smith Survey, A-696, in Harris County, Texas, and also being comprised of all of Lots 1, 2, 5, 6, 7, 8, 9 and 10, Block 54 of Fairgrounds Addition, a subdivision recorded in Volume 55, Page 222 of the Deed Records of Harris County, Texas, and also being comprised of Lots 2, 3, 4, 5 and 18 of the Mary A. Stevens Addition, a subdivision recorded in Volume 42, Page 13 of the Deed Records of Harris County, Texas. Said 50,260-square foot tract being the same property as that conveyed unto Southwestern Bell Telephone Company comprised of a 40,105-square foot tract and a 10,155-square foot tract recorded in Volume 3434, Page 263 and Volume 3941, Page 163 respectively in the Deed Records of Harris Coanty, Texas. Said 50,260-square foot tract being more particularly described by metes and bounds as follows:
COMMENCING FOR REFERENCE at a 1" brass disk (City of Houston Reference Monument No. 81) found at the center of the intersection of Main Street (width varies) and Elgin Avenue (80 feet wide) from which a 2" brass disk (City of Houston Reference Monument No. 5356-1516A) bears North 32° 51'34" East, a distance of 1651.31 feet;
THENCE North 32° 51' 34" East with the Main Street City of Houston reference line, a distance of 40.00 feet to a point;
THENCE North 57° 08' 26" West, a distance of 43.65 feet to a point for the south corner of said Southwestern Bell Telephone tact, the south corner of said tract herein described and the POINT OF BEGINNING from which a PK nail found in concrete bears North 0.1 feet and West 0.2 feet, said POINT OF BEGINNING also being located at the intersection of the northwest right-of-way line of said Main Street with the northeast right-of-way line of said Elgin Avenue;
THENCE North 57° 08' 26" West with the northeast right-of-way line of Elgin Avenue, a distance of 251.30 feet to a 1 1 / 2 -inch brass disk set in concrete for the west corner of said tract herein described located at the intersection of the northeast right-of-way line of said Elgin Avenue with the southeast right-of-way line of Travis Street (80 feet wide);
THENCE North 32° 51' 34" East with the southeast right-of-way line of said Travis Street, a distance of 200.00 feet to a "+" stamped in a brass plate found for the north corner of said tract herein described located at the intersection of the southeast right-of-way line of said Travis Street with the southwest right-of-way line of Rosalie Avenue (50 feet wide);
THENCE South 57° 08' 26" East with the southwest right-of-way line of said Rosalie Avenue, a distance of 251.30 feet to a "+" stamped in a brass plate found for the east corner of said tract herein described located at the intersection of the southwest right-of-way line of said Rosalie Avenue with the northwest right-of-way line of Main Street (width varies);
THENCE South 32° 51' 34" West with the northwest right-of-way line of said Main Street, a distance of 200.00 feet to the POINT OF BEGINNING and containing 50,260 square feet (1.1538 acres) of land, more or less.
This description has been prepared based upon the results of a field survey completed on October 19, 1993.
Compiled by:
COBB,
FENDLEY & ASSOCIATES, INC.
5300 Hollister, Suite 400
Houston, Texas 77040
Job No. 99-02-148-01
October 19, 1993
REVISED: November 1, 1993
Changed monumentation for the west corner referenced in the fifth paragraph from a hole punched in concrete to a 1- 1 / 2 -inch brass disk set in concrete.
REVISED: August 18, 1999
Changed the Volume Number/Page Number for the 40,105 sq.ft. tract in paragraph one from 55/222 to 3434/263, and the monumentation in the second paragraph from a 2" brass disk to a 1" brass disk.
EXHIBIT A-2
Outline and Description of the Premises
Initial Premises.
The Initial Premises to be leased and occupied by the Tenant consists of the floor and areas specified on this Exhibit A-2page 21a and page 21b as the Initial Premises, which will be 65,831 RSF on floors 9 through 10 located and configured on the attached floor plan.
Subsequent Premises.
The Subsequent Premises consist of approximately 7,369 RSF , which is the balance of the 9 th floor (page 21c), which will be available for tenant build out with the Landlord Construction Obligation substantially complete no later than February 1, 2001 .
The description of the Premises set forth in this Exhibit A-2 will be modified as necessary to conform to the Condominium Declaration to be filed by the Landlord, so long as such modification does not increase or decrease Tenant's right or obligations under the terms of this Lease.
EXHIBIT A-2
Outline and Description of the Premises
INITIAL PREMISES
[IMAGE]
3100 S. MAIN STREET
LEVEL
10 - 36,600 RENTABLE SQUARE FEET
(BEING THE ENTIRETY OF THE 10TH FLOOR)
EXHIBIT A-2
Outline and Description of the Premises
INITIAL PREMISES
[IMAGE]
3100 S. MAIN STREET
LEVEL
09 - 29,231 RENTABLE SQUARE FEET
(BEING THE ENTIRETY OF THE 9TH FLOOR,
SAVE AND EXCEPT THE SUBSEQUENT PREMISES
IDENTIFIED ON PAGE 21-C)
EXHIBIT A-2
Outline and Description of the Premises
SUBSEQUENT PREMISES
[IMAGE]
3100 S. MAIN STREET
LEVEL
07,369 RENTABLE SQUARE FEET
(CROSS HATCHED AREA)
EXHIBIT B
Rules and Regulations
1. Sidewalks, doorways, vestibules, halls, stairways and other similar areas shall not be obstructed by tenants or used by tenant for any purpose other than ingress and egress to and from the premises and for going from one part to another part of the Building. Corridor doors, when not in use, shall be kept closed.
2. No signs, advertisements or notices shall be painted or affixed on or to any windows or doors or other part of the Building except of such color, size and style and in such places as shall be first approved in writing by Landlord, nor shall any part of the Building be defaced by tenants. No curtains or other window treatments shall be placed between the glass and the Building standard window treatment.
3. Landlord will provide and maintain an alphabetical directory board for all tenants in the first floor (main lobby) of the Building and no other directory shall be permitted unless previously consented to by Landlord in writing. Additionally, Landlord's acceptance of any name for listing on the Building directory will not be deemed, nor will it substitute it for, Landlord's consent, as required by this lease, to any sublease, assignment or other occupancy of the demised premises,
4. With respect to work being performed by tenants in any leased premises with the approval of Landlord, all tenants will refer all contractors, contractors' representatives and installation technicians rendering any service to them to Landlord for Landlord's supervision and approval before the performance of any contractual services. This provision shall apply to all work performed in the Building including, but not limited to, installations of telephone, telegraph equipment, electrical devices and attachments, and any and all installations of every nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment and any other physical portion of the Building. Should a tenant require telegraphic, telephonic, enunciator or other communication service, Landlord will direct the electrician where and how wires are to be introduced and place and none shall be introduced or placed except as Landlord shall direct. Electric current shall not be used for power or heating without Landlord's prior written permission.
5. All deliveries of other than hand carried items must be made via the service entrances and service elevator. Any deliveries, removals or relocations of large, bulky or voluminous items, such as furniture, office machinery and equipment, etc., can only be made after obtaining approval from the Landlord and at those times specified by the Landlord which, upon prior arrangement with Landlord maybe after hours. A tenant shall notify the Building manager when safes or other heavy equipment are to be taken in or out of the Building, and the moving shall be done under the supervision of the Building manger, after written permission from Landlord. Persons employed to move such property must be acceptable to Landlord. Landlord shall have the right to prescribe the weight and position of safes and other heavy equipment or items, which shall in all cases, to distribute weight, stand on supporting devices approved by Landlord.
6. All movement referred to in Paragraph 5 above shall be under the supervision of Landlord and in the manner agreed between the tenants and Landlord by prearrangement before performance. Such prearrangement initiated by a tenant will include determination by Landlord, and subject to Landlord's decision, as to the time, method and routing of movement and as to limitations for safety or other concern which may prohibit any article, equipment or any other item from being brought into the Building. The tenants are to assume all risks as to damages to articles moved and injury to persons engaged in such movement, including without limitation equipment, property and personnel of Landlord if damaged or injured as a result of acts in connection with carrying out this service for a tenant from the time of entering the property to completion of work; and Landlord shall not be liable for any damage or loss to any of said property or persons resulting from, any act in connection with such service performed for a tenant. All damages done to the Building by the installation or removal of any property of a tenant, or done by a tenant's property while in the Building, shall be repaired at the expense of such tenant.
7. Each tenant shall cooperate with Landlord's employees in keeping its Leased Premises neat and clean. Tenants shall not employ any person for the purpose of such cleaning other than the Building's cleaning and maintenance personnel. Landlord shall be in no way responsible to the tenants, their agents, employees, or invites for any loss of property from the Leased Premises or public areas or for any damages to any property thereon form any cause whatsoever.
8. Plumbing, fixtures and appliances shall be used only for the purposes of which designed, and no sweepings, rubbish, rags or other suitable material shall be thrown or placed therein. Damage resulting to any such fixtures or appliances from misuse by a tenant of such tenant's agents, employees or invitees, shall be paid by such tenant, and Landlord shall not in any case be responsible therefor.
9. To insure orderly operation of the Building, no ice, mineral or other water, towels, newspapers, etc. shall be delivered to any leased area except by person appointed or approved by Landlord in writing.
10. Tenants shall not make or permit any improper, objectionable or unpleasant noises or odors in the Building or otherwise interfere in any way with other tenant's or persons having business with them.
11. Nothing shall be swept or thrown into the corridors, halls, elevator shafts or stairways. Except for guide dogs, no birds or animals shall be brought into or kept in, on or about the Building.
12. No machinery of any kind shall be operated by any tenant on its leased area without the prior written consent of the Landlord.
13. No portion of any Tenant's premises shall at any time be used or occupied as sleeping or lodging quarters or for any unlawful or immoral purposes.
14. Tenant shall not do anything, or permit anything to be done, in or about the Building, or bring or keep anything therein, including without limitation any inflammable or explosive fluid or substance, that will in any way increase the possibility of fire or other casualty, or do anything in conflict with valid laws, rules or regulations of any governmental authority.
15. Landlord will not be responsible for lost or stolen personal property, money or jewelry from tenant's premises or public or common areas regardless of whether such loss occurs when the area is locked against entry or not.
16. Landlord or its agents or employees shall have the right to enter the premises to examine the same or to make such repairs, alterations, or additions as Landlord shall deem necessary for the safety, preservation or improvement of the Building.
17. Landlord shall have the following rights, exercisable without notice and without liability to tenant for damage or injury to property, persons or business and without effecting an eviction or disturbance of tenants use or possession or giving rise to any claim for offset or abatement of rent:
a. To change the Building's name and street address.
b. To install, affix and maintain any and all signs on the exterior and interior of the Building.
c. To control all internal lighting that may be visible from the Building exterior and to maintain exterior building uniformity.
d. To retain at all times and to use in appropriate instances keys to all doors without and into the premises.
e. To decorate and to make repairs, alterations, additions, changes or improvements, whether structural or otherwise, in and about the Building or any part thereof, and to enter upon the premises for such purposes, to temporarily close doors, entryways, public space, corridors, interrupt or temporarily suspend Building services and facilities, change the arrangement and location of entrances, passageways, doors, elevators, shafts, stairs, toilets, etc. without abatement of
rent or affecting any of tenant's obligations hereunder so long as the premises are reasonably accessible.
f. To bear and retain a permanent title to the premises free and clear of any act of tenant purporting to burden or encumber them.
g. To grant to anyone the exclusive right to conduct any business or render any service in or to the Building, provided such exclusive right shall not operate to exclude tenant from the use expressly permitted herein.
h. Prohibit the placing of vending machines or dispensing machines of any kind in the premises without Landlord's written permission.
i. To take all such reasonable measures as Landlord may deem advisable for the security of the Building and its occupants, including, without limitation, the search of the Building and its occupants and persons entering and leaving the Building, evacuation of the Building for cause, suspected cause or drill purposes, temporary denial of access to the Building and the closing of the Building after regular working hours.
j. To deny entrance to the Building or remove any person or persons (including tenants, tenants' employees, business invitees, visitors or any other persons) from the Building in any case where the conduct of such person involves a potential hazard, nuisance, unreasonable risk, or threat of bodily injury or harm to any tenant or other party whose presence is permitted in the Building, or to the public, or in the event of any fire or other emergency, riot, civil commotion or similar disturbance involving a substantial risk of damage to the Building or bodily harm to the tenants or their employees, business invitees, visitors or the general public. An unreasonable risk of bodily harm is to be determined by the Landlord in its sole discretion and shall include possessing or carrying a club, explosive, weapon, firearm, illegal knife, switchblade knife, hoax bomb, chemical dispensing device or zip gun (as those terms are defined in Section 46.0001 of the Texas Penal Code). Landlord shall have the right at any time and from time to time to install and utilize metal detectors or similar security screening devices in the Building and to deny access to persons who create an unreasonable risk of bodily harm to tenants or other persons lawfully present in the Building.
19. Landlord reserves the right to rescind any of these rules and regulations and to make such other and further rules and regulations as in its judgment shall from time to time be needful for the safety, protection, care and cleanliness of the Building, the operation thereof, the preservation of good order therein and the protection and comfort of the tenants and their agents, employees and invitees, which rules and regulations when made and written notice thereof is given to a tenant, shall be binding upon it in like manner as if originally herein prescribed.
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Houston Community College System |
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Landlord and Tenant agree that:
________________________________________________
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All other terms and conditions of the Lease are ratified and acknowledged to be unchanged.
EXECUTED as of , 2001.
TENANT: | LANDLORD: | |||
PROS Revenue Management, Inc. |
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Houston Community College System |
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EXHIBIT D
Landlord Construction Obligation
This Exhibit D is attached to an Office Lease between Houston Community College System as Landlord and PROS Revenue Management, Inc. as Tenant. Capitalized and defined terms in this Exhibit D will have the same meaning as in the Lease unless otherwise indicated in this Exhibit D.
The Landlord will deliver the Premises to the Tenant on an "AS IS WHERE IS" basis, with the following modifications:
The Premises will be delivered to the Tenant with the above improvements substantially complete. The Tenant will be obligated at its own expense to modify any of the above to the extent modification is necessary as a result of Tenant's occupancy requirements or to secure a Certificate of Occupancy for the Premises.
This Parking Agreement (the "Agreement" ) is attached as an Exhibit to an Office Lease (the "Lease" ) between Houston Community College System, as Landlord, and PROS Revenue Management, Inc., as Tenant, for Premises, the Rentable Square Footage of which is as set forth on Exhibit A-2 of the Lease. Unless otherwise specified, all capitalized terms used in this Agreement shall have the same meanings as in the Lease. In the event of any conflict between the Lease and this Agreement, the latter shall control.
1. Unreserved Parking. On the Commencement Date the Landlord will deliver and the Tenant will accept the number of Parking Permits specified in paragraph 7H of the Lease which will allow access to unreserved spaces in parking facilities which Landlord provides for the use of tenants and occupants of the Project which such facility is located at 3220 Main Street (the "Parking Facilities" ). During the Term (and, if applicable, during any renewal or extension term of this Lease), Tenant shall pay Landlord's quoted monthly contract rate (as set from time to time) for each unreserved permit, plus any taxes thereon. The current rate is $45 plus tax per permit per month. Tenant's failure to pay for any of the above-referenced unreserved parking permits (as set forth in Section 4.I) shall be an event of default under the Lease.
2. Tenant shall at all times comply with all rules, regulations and applicable Laws respecting the use of the Parking Facilities. Landlord reserves the right to adopt, modify, and enforce reasonable rules and regulations governing the use of the Parking Facilities from time to time including key-card, sticker, or other identification or entrance systems and hours of operations. Landlord may refuse to permit any person who violates such rules and regulations to park in the Parking Facilities, and any violation of the rules and regulations shall subject the care to removal from the Parking Facilities.
3. Tenant may validate visitor parking within the Parking Facility by such method or methods as Landlord may approve, at the validation rate of $1.00 per car per day for Tenant's visitors during the Original Lease Term and thereafter at the current charge which may thereafter be applicable to visitor parking. Unless specified to the contrary above, the parking spaces for the parking permits provided hereunder shall be provided on an unreserved, "first-come, first-served" basis. Tenant acknowledges that Landlord has arranged or may arrange for the Parking Facilities to be operated by an independent contractor, not affiliated with Landlord. In such event, Tenant acknowledges that Landlord shall have no liability for claims arising through acts or omissions of such independent contractor. Except for intentional acts or gross negligence, Landlord shall have no liability whatsoever for any damage to vehicles or any other items located in or about the Parking Facilities, and in all events, Tenant agrees to seek recovery from its insurance carrier and to require Tenant's employees to seek recovery from their respective insurance carriers for payment of any losses sustained in connection with any use of the Parking Facilities. Tenant hereby waives on behalf of its insurance carriers all rights of subrogation against Landlord or Landlord's agents. Landlord reserves the right to assign specific parking spaces, and to reserve parking spaces for visitors, small cars, handicapped persons and for other tenants, guests of tenants or other parties, with assigned and/or reserved spaces. Such reserved spaces may be relocated as determined by Landlord from time to time, and Tenant and persons designated by Tenant hereunder shall not park in any such assigned or reserved parking spaces. Landlord also reserves the right to close all or any portion of the Parking Facilities, at its discretion if required by casualty, strike, condemnation, repair, alteration, acts of God, Laws, or other reason beyond Landlord's reasonable control; provided however, that except for matters beyond Landlord's reasonable control, any such closure shall be temporary in nature. If Tenant's use of any parking permit is precluded for any reason, Tenant's sole remedy for any period during which Tenant's use of any parking permit is precluded shall be abatement of parking charges for such precluded permits. Tenant shall not assign its rights under this Agreement except in connection within a Permitted Transfer.
4. Except as may be expressly set forth to the contrary in Paragraph 1 of this Agreement, if Tenant fails to pay any charges for parking permits as provided herein, or otherwise defaults in its performance of an of the terms or conditions of this Agreement, such default shall constitute an event of default
under the Lease, and in addition to any rights or remedies available to Landlord in the event of a default under the Lease, and in addition to any rights or remedies available to Landlord in the event of a default under the Lease, Landlord shall have the right to cancel this Agreement and/or remove any vehicles from the Parking Facilities. In addition, any default under the Lease shall constitute a default under this Agreement.
5. TENANT ACKNOWLEDGES AND AGREES THAT TO THE FULLEST EXTENT PERMITTED BY LAW, LANDLORD SHALL NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE TO TENANT OR TENANT'S PROPERTY (INCLUDING WITHOUT LIMITATION, ANY LOSS OR DAMAGE TO TENANT'S AUTOMOBILES OR THE CONTENTS THEREFOR DUE TO THEFT, VANDALISM, OR ACCIDENT) ARISING FROM OR RELATED TO TENANT'S USE OF THE PARKING FACILITIES OR EXERCISE OF ANY RIGHTS UNDER THIS AGREEMENT, WHETHER OR NOT SUCH LOSS OR DAMAGE RESULTS FROM LANDLORD'S ACTIVE NEGLIGENCE OR NEGLIGENT OMISSION. THE LIMITATION ON LANDLORD'S LIABILITY UNDER THE PRECEDING SENTENCE SHALL NOT APPLY, HOWEVER, TO LOSS OR DAMAGE ARISING DIRECTLY FROM LANDLORD'S WILLFUL MISCONDUCT OR GROSS NEGLIGENCE.
6. WITHOUT LIMITING THE PROVISIONS OF PARAGRAPH 5 ABOVE, TENANT HEREBY VOLUNTARILY RELEASES, DISCHARGES, WAIVES, AND RELINQUISHES ANY AND ALL ACTIONS OR CAUSES OF ACTION FOR PERSONAL INJURY OR PROPERTY DAMAGE OCCURRING TO TENANT ARISING AS A RESULT OF USING THE PARKING FACILITIES, OR ANY ACTIVITIES INCIDENTAL THERETO, WHEREVER OR HOWEVER, THE SAME MAY OCCUR, AND FURTHER AGREES THAT TENANT WILL NOT PROSECUTE ANY CLAIM FOR PERSONAL INJURY OR PROPERTY DAMAGE AGAINST LANDLORD OR ANY OF ITS OFFICERS, AGENTS, SERVANTS, OR EMPLOYEES FOR ANY SUCH CAUSE OF ACTION. IT IS THE INTENTION OF TENANT BY THIS INSTRUMENT, TO EXEMPT AND RELIEVE LANDLORD FROM LIABILITY FOR PERSONAL INJURY OR PROPERTY DAMAGE CAUSED BY THE NEGLIGENCE OF THE LANDLORD.
Tenant acknowledges that it has read the provisions of Paragraph 6 , has been fully and completely advised of the potential dangers of parking in the Parking Facilities, and is fully aware of the legal consequences of this instrument.
Expansion Option: Provided the Tenant is not then in default under the terms and conditions of this Lease after any applicable cure period, the Landlord grants to the Tenant two expansion options to expand the Leased Premises on the same terms and conditions as that set forth in this Lease on the following terms and conditions:
First Expansion Space: Approximately 12,200 NRF of contiguous space on the 8 th floor of the Building.
Commencement Date: The earlier to occur of (i) the date Tenant takes occupancy for its Intended Use of the First Expansion Space; or (ii) the first day of the 37 th month from the Commencement Date of the Initial Premises, so long as Landlord's Construction Obligation is completed at least 90 days prior to such date. Landlord will grant access to Tenant to such space for a period of 90 days prior to the Commencement Date for the purpose of constructing its required leasehold improvements.
Option Exercise: To exercise this Option the Tenant must give written notice on or before 270 days prior to the last day of the 36 th month of the Term. In the event the Tenant does not so exercise this First Expansion Option by such date, the First and Second Expansion Option will be terminated.
Term: The balance of the Term as set forth in Section 1G.
Landlord Construction Obligation: The Landlord will deliver and the Tenant will accept the First Expansion Space AS IS WHERE IS with the Landlord's Construction Obligation as set forth in Exhibit D, completed.
Rental Abatement: See paragraph 1DFirst Expansion Optionin the Main Lease Contract.
Parking: Additional parking permits will be made available based upon 3 spaces per 1,000 RSF. The Tenant will be obligated to accept same at the then prevailing Rental Rate.
EXPANSION NOTICE: The Landlord will notify the Tenant ("Expansion Notice") of its opinion of the Market Rental Rate (defined later) within 15 days of the date that Tenant notifies the Landlord that it intends to exercise any option to expand pursuant to the First Expansion Option or the Second Expansion Option. The Tenant will, within 15 days of receipt of the Expansion Notice (i) accept the rate specified by the Landlord and irrevocably exercise the Expansion Option; or (ii) withdraw its notification and in such event the parties will proceed as if the Tenant had never notified the Landlord of its intent to exercise an Expansion Option; or (iii) reject the rate specified by the Landlord but irrevocably exercise the Expansion Option subject to a determination of Market Rental Rate by Arbitration.
Second Expansion Space: Provided (i) the Tenant has exercised the First Expansion Option; and (ii) the Renewal Option set forth below, approximately 12,200 RSF of contiguous space on the 8 th floor, the location of which will be subject to Landlord's discretion, but will be contiguous to the First Expansion Option Space.
Commencement Date: The earlier to occur of (i) the date Tenant takes occupancy of the Second Expansion Space; or (ii) the first day of the Renewal Term, so long as Landlord's Construction Obligation is completed at least 90 days prior to such date. The Landlord will grant access to Tenant to such space for a period of 90 days prior to the Commencement Date for the purpose of constructing its required leasehold improvements.
Option Exercise: To exercise this Option the Tenant must give written notice on or before 270 days prior to the last day of the Term.
Term: Same as the First Expansion Option.
Landlord Construction Obligation: The Landlord will deliver and the Tenant will accept the Second Expansion Space AS IS WHERE IS with the Landlord's Construction Obligation as set forth in Exhibit D, completed.
Rental Abatement: See paragraph 1DSecond Expansion Optionin the Main Lease Contract.
Parking: Same as the First Expansion Option.
Landlord Notice: See First Expansion Option.
Exercise of Option: Same as the First Expansion Option.
Preferential Right Space: The Landlord grants to the Tenant a preferential leasing right to lease (i) the balance of any floor on which Tenant has leased space; and (ii) any area which is within the Expansion Space ("Preferential Right Space") during the entire Lease Term and any renewal thereof.
"Available Space" will mean the Available Space which is within the Preferential Right Space which (i) the Landlord has determined to lease; (ii) an existing tenant lease expires within 9 months and such space is not otherwise subject to an existing expansion option, renewal right or preferential option to lease; (iii) can be "recaptured" by Landlord or will be recaptured by Landlord as a result of a tenant default or as a result of the exercise by the Landlord of a right to terminate a Lease.
Preferential Notice: If Landlord determines to lease space which is included within the Preferential Right Space it will give notice to the Tenant ("Preferential Notice") which will (i) state the amount of space available; (ii) its location; (iii) the Landlord determination of Market Rental Rate; and (iv) the date of availability. The Tenant will, within 20 days of receipt of Preferential Notice (i) accept the rate specified by the Landlord and irrevocably exercise the Preferential Right; or (ii) withdraw its notification and in such event the parties will proceed as if the Tenant had never notified the Landlord of its intent to exercise a Preferential Right; or (iii) reject the rate specified by the Landlord but irrevocably exercise the Preferential Right subject to a determination of Market Rental Rate by Arbitration.
Rental Rate and Term:
Commencement Date: 90 days after Landlord tenders possession of the Preferential Right Space with Landlord's Construction Obligation complete.
Base Rental: 95% of the Market Rental Rate set forth in the Preferential Notice.
Term: A term equal to the then remaining initial lease term as set forth in paragraph 1g.
Tenant Improvement Allowance: A Tenant Improvement Allowance will be paid to the Tenant based upon the Tenant Improvement Allowance to be paid to the Tenant on the Subsequent Premises.
Parking: Same as the First Expansion Option.
Landlord Construction Obligation: The Landlord will deliver the Preferential Right Space AS IS WHERE IS with the Landlord's Construction Obligation completed as set forth in Exhibit D, completed.
Failure of the Landlord to Lease Preferential Rights Space: If the Tenant elects not to exercise its right to lease, the Landlord may attempt to lease the Available Space to any third party without restriction. Notwithstanding the above, if the Landlord receives a bona fide offer to lease space within such period, the Tenant will have a "Second Preferential Right" to lease the Available Space on the same terms as in the offer, except that the Lease Term will be the remainder of the Lease Term on the Premises, to be exercised within 5 days of receipt of notice from the Landlord of the terms of such bona fide offer.
If Tenant then declines a second time, the Landlord will have a second 120 -day period in which to lease the space for a sum equal to at least 90% of the rental rate set forth in the offer notice.
Provided the Tenant is not in default under the terms of this Lease, then upon written notice from Tenant to Landlord ("Renewal Notice"), not less than 180 days prior to the end of the Lease Term (but no more than 270 days prior to the end of the Lease Term), the Tenant may renew this lease for one additional 60 month term ("Renewal Term") with respect to a minimum of one full floor which is within the Leased Premises, and the rental rate for such term will be 95% of the then prevailing Market Rental Rate provided that other than rental, all other terms and conditions of the Lease will remain in full force and effect. The Renewal Option granted by this paragraph will terminate if during Term, Tenant subleases in excess of 50% of the Premises or assigns this Lease to a nonaffiliated party. Tenant may exercise the option expressed by this paragraph, but in so doing will be required to renew and extend the Lease for the entire Renewal Term for at least 1 full floor of the Premises.
Landlord Construction Obligation: None
Rental Rate: 95% of the Market Rental Rate.
Within 15 business days receipt of the Renewal Notice, Landlord will notify Tenant ("Landlord Renewal Notice") of the Market Rental Rate for such Renewal term. Tenant may accept the terms set forth in the Landlord Renewal Notice by written notice ("Acceptance Notice') to Landlord given within 15 days after receipt of the Renewal Notice. Tenant will within 15 days after receipt of the Landlord's Renewal Notice: (i) accept the rate specified by Landlord and irrevocably exercise the Renewal Option; or (ii) withdraw its Renewal Notice and in such event the parties will proceed as if the Tenant had never notified Landlord of its intent to exercise the Renewal Option; or (iii) reject the rate specified by Landlord but irrevocably exercise the Renewal Option subject to the determination of the Market Rental Rate by Arbitration.
Market Rental Rate ("MRR") is the effective rental rate (as of the date of lease commencement) that a willing tenant would pay and a willing landlord would accept in arm's length, bona fide negotiations for a new lease of the space for which the MRR is being determined to be executed at the time of determination and to commence on the commencement of Tenant's lease of that space under the Lease, based upon other lease transactions made in the Building and other class B office Buildings of equal size in the Midtown and Downtown Houston, Texas taking into consideration all relevant terms and conditions of any comparable leasing transactions, including, without limitation: (i) location, quality and age of the building; (ii) use and size of the space in question; (iii) location and/or floor level within the building; (iv) extent of leasehold improvement allowance; (v) the amount of any abatement of rental or other charges; parking charges or inclusion of same in rental; (ix) relocation allowances; (x) refurbishment and repainting allowances; (xi) any and all other concessions or inducements; (xii) extent of services provided or to be provided; (xiii) distinction between "gross" and "net" leases; (xiv) base year or dollar amount for escalation purposes (both operating costs and ad valorem/real estate taxes); (xv) any other adjustments (including by way of indexes) to base rental; (xvi) credit standing and financial stature of the tenant; and (xvii) length of term. As used herein, "effective rental rate" means the stated net base rental rate (i.e., the base rental exclusive of any "expense stop" or "base year" operating expense amount), less the discounted present value (using a 10% discount factor) of all allowances rental abatements and other concessions or inducements paid or provided to the tenant by the landlord under the applicable lease. In the event of a dispute Market Rental Rate will be determined by binding Arbitration.
Any controversy or claim between the parties arising out of or relating to the Market Rental Rate may be submitted to arbitration upon Tenant or Tenant's written request served on Landlord. Any
arbitration conducted under this section will comply with and be governed by the Texas General Arbitration Act and will be binding on both Landlord and Tenant.
PROS Revenue Management, Inc. | Houston Community College System | |||
by: |
/s/ CHARLES H. MURPHY |
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by: |
/s/ BRUCE LESLIE |
Name: |
Charles H. Murphy
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Bruce Leslie
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SVP & CFO
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Chancellor
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RIDER NO. 2
CLEANING SPECIFICATIONS
GENERAL CLEANING
NIGHTLY
General
Offices:
All hard surfaced flooring to be swept using approved dustdown preparation.
Carpet sweep all carpets moving only light furniture (desks, file cabinets, etc. not to be moved).
Hand dust and wipe clean all furniture, fixtures and window sills.
Empty all waste receptacles and remove wastepaper.
Wash clean al Building water fountains and coolers.
Sweep all private stairways.
Lavatories:
Sweep and wash all floors, using proper disinfectants.
Wash and policy all mirrors, shelves, bright work and enameled surfaces.
Wash and disinfect all basins, bowls and urinals.
Wash all toilet seats.
Hand dust and clean all partitions, tile walls, dispensers and receptacles in lavatories and restrooms.
Empty paper receptacles, fill receptacles from tenant supply and remove wastepaper.
Fill toilet tissue holders from tenant supply.
Empty and clean sanitary disposal receptacles.
WEEKLY
Vacuum
all carpeting and rugs.
Dust all door louvers and other ventilating louvers within a person's normal reach.
Wipe clean all brass and other bright work.
QUARTERLY
High
dust premises complete including the following:
Dust all pictures, frames, charts, graphs and similar wall hangings not reached in nightly cleaning.
Dust all vertical surfaces, such as walls, partitions, doors, doorframes and other surfaces no reached in nightly cleaning.
SEMI-ANNUALLY
Wash all windows (exterior and interior)
Exhibit 10.10.1
FIRST AMENDMENT TO OFFICE LEASE
This FIRST AMENDMENT TO OFFICE LEASE (this " First Amendment ") is executed as of March 31, 2006 (the " Effective Date ") by and between HOUSTON COMMUNITY COLLEGE SYSTEM, a local governmental entity organized pursuant to the Texas Education Code (" Landlord ") and PROS REVENUE MANAGEMENT, L.P., a Texas limited partnership, formerly PROS Revenue Management, Inc, (" Tenant ").
A. Landlord and Tenant entered into that certain Office Lease dated as of January 31, 2001 (the " Original Lease ") covering 73,200 square feet of RSF (as defined in the Original Lease) on floors 9 and 10 of the Building (as defined in the Original Lease) commonly known as the ComTech Center, Houston, Harris County. Texas, and being described in the Original Lease as the " Premises " after including therein the Subsequent Premises (as defined in the Original Lease).
B. The Original Lease is for a term expiring on the Expiration Date (as defined in the Original Lease) and which is currently May 31, 2006.
C. Landlord and Tenant desire to further amend the Original Lease subject to the specific terms and conditions of this First Amendment, but not otherwise.
NOW THEREFORE, in consideration of the of the mutual covenants and agreements contained herein and for Ten and No/100 Dollars ($10.00) and other good and valuable consideration to each party, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant, intending to be legally bound, hereby agree as follows:
1. Capitalized Terms . Capitalized terms that are used herein but not defined in this First Amendment shall have the meanings given to them in the Original Lease. The term " Lease " as used in this First Amendment shall mean the Original Lease as amended by this First Amendment.
2. Premises . Landlord and Tenant acknowledge and agree that the Premises is comprised of "Floor 9" and "Floor 10" of that certain Condominium Declaration for the 3100 Main Condominium recorded under Clerk's File No. W441927 of the Official Public Records of Real Property of Harris County, Texas on February 20, 2003 (the " Condominium Declaration " and that the Premises consists of 73,200 RSF.
3. Base Rent . Paragraph 1.D of the Original Lease is hereby amended to provide that from and after June 1, 2006 Base Rent will be as follows and otherwise Base Rent will remain unchanged:
DATE
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RATE
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6/1/06 to 5/31/08 | $14.75/RSF | |
6/1/08 to 5/31/09 | $15.75/RSF | |
6/1/09 to 7/31/11 | $16.50/RSF |
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4. Rental Abatement.
(a) The portion of Paragraph 1.D of the Original Lease entitled "RENTAL ABATEMENT" is hereby amended and restated in its entirety to read as follows:
(1) Commencing on June 1, 2006, the Tenant will be entitled to receive a credit as prepaid Base Rent equal to two (2) months of Base Rent (but not Taxes) based on 65,406 RSF at the $14.75 RSF annual Base Rent rate, to be applied monthly against Base Rent as it becomes due.
(2) Commencing on June 1, 2006, Tenant will be entitled to receive a credit (the " 9th Floor Credit ") as prepaid Base Rent equal to sixteen (16) months of Base Rent based on the 7,794 RSF of the Premises located on the 9th Floor which is not currently built-out and which is depicted on Exhibit A to this First Amendment (the " 9th Floor Credit Space ") at the $14.75 RSF annual Base Rent rate; provided, however , that at such time as Tenant occupies or uses all or any portion of the 9th Floor Credit Space in any manner (excluding Tenant's continued use of the 9th Floor Credit Space for storage only or the build-out of the 9th Floor Credit Space, but not for any other purposes), the 9th Floor Credit shall no longer be provided to Tenant and Tenant shall immediately begin paying Base Rent on the 9th Floor Credit Space in accordance with the terms of this Lease.
(3) Commencing on June 1, 2006, Tenant will be entitled to receive an abatement for the monthly charges for any unreserved Tenant Parking Spaces or for monthly charges for any Tenant Parking Spaces in the Parking Nest (as defined in Paragraph 4.H), if any. for a period of twenty (20) months (the " Parking Abatement ")."
(b) Tenant acknowledges that it is not entitled to any credits against Rent or any allowances except (i) as expressly provided in Section 4(a) and Section 6(b) of this First Amendment and (ii) the Refurbishment Allowance (as defined below in Section 14 of this First Amendment).
5. Tenant's Pro Rata Share . Paragraph 1.E of the Original Lease is hereby amended and restated in its entirety to read as follows:
"E. " Tenant's Pro Rata Share " is equal to the RSF of the Premises divided by the RSF of the Building and currently equals 13.7853%."
6. Base Year .
(a) Paragraph 1.F of the Original Lease is hereby amended and restated in its entirety to read as follows:
" Base Year" for Operating Expenses : From the Commencement Date through December 31, 2005, the " Base Year " for Operating Expenses shall be 2001. Commencing on January 1, 2006 and for the remainder of the Term, the " Base Year " for Operating Expenses shall be 2006."
(b) Tenant shall not be liable to Landlord for any Excess Operating Expenses for the calendar year 2006. In the event that Tenant has already paid to Landlord any such sums, Tenant will be entitled to a credit against Base Rent equal to such Excess Operating Expenses actually paid by Tenant to Landlord from and after the January 1, 2006 and for the calendar year 2006 (the " 2006 Operating Expense Overpayment "). Such Base Rent credit shall continue until such time as any 2006 Operating Expense Overpayment actually paid by Tenant to Landlord shall have been reimbursed to Tenant pursuant to such Base Rent credit.
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7. Term . Paragraph 1.G of the Original Lease is hereby amended and restated in its entirety to read as follows:
"G. " Term " The term of this Lease for the Premises shall commence on the Commencement Date and expire on July 31, 2011, unless extended or earlier terminated as permitted pursuant to the express terms hereof."
8. Notice Addresses . Paragraph 1.L of the Original Lease is hereby amended and restated in its entirety to read as follows:
"L. " Notice Address ":
9. Definition of Rent . Paragraph 4.A of the Original Lease is hereby amended as follows:
(a) The first sentence of Paragraph 4.A is hereby amended and restated in its entirety to read as follows:
"As consideration for this Lease, commencing on the dates specified in Paragraph 1.D , Tenant will pay Landlord, without setoff or deduction, unless a setoff is specifically permitted by an express provision of this Lease, the total amount of Base Rent, Additional Rent and Premise Taxes due and payable for the Term in the manner set forth in this Lease."
(b) The term "Rent" shall mean Additional Rent, Base Rent and Premise Taxes, collectively.
10. Operating Expenses Defined .
(a) Paragraph 4.D(5) is hereby amended and restated in its entirety to read as follows:
"(5) Real estate taxes, assessments, business taxes, excises, association dues directly related to the Property, fees, levies, charges and other taxes of every kind and nature whatsoever, general and special, extraordinary and ordinary, foreseen and unforeseen, including interest on installment payments, which may be levied or assessed against or arise in connection with the ownership, use, occupancy, rental, operation or possession of the Property (including, without limitation, personal property taxes for property that is owned by Landlord and used in connection with the operation, maintenance and repair of the Property), or substituted, in whole or in part, for a tax previously in existence by any taxing authority, or assessed in lieu of a tax increase, or paid as rent under any ground lease (collectively, " Taxes "). Taxes do not include Landlord's income, franchise or estate taxes (except to the extent such excluded taxes are assessed in lieu of taxes included above). Tenant's share of Taxes for purposes of this Paragraph D.5 and without limiting Tenant's obligations under Paragraph 4.I , shall be based on Tenant's Pro Rata Share of Taxes assessed on, levied against or attributable to the Property other than (i) the Premises, (ii) any portion of the leaseable
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space in the Building or the retail/office space on the first floor of the Parking Facilities which is used, held or occupied exclusively by Landlord, (iii) any portion of the leaseable space in the Building or the retail/office space on the first floor of the Parking Facilities which is either leased to a third party or being held for lease to a third party, (iv) the Auditorium and (v) the Café."
(b) The following is hereby added to the Original Lease as Paragraph 4.E(5) and Paragraph 4.E(6) :
"(5) The routine operation, repair and maintenance of the "Neo Café" located on the first (1st) floor of the Building (the " Café ") including (i) any leasehold build-out, remodeling or interior upgrades to the Café and (ii) any repair and maintenance expenses that would be the responsibility of any tenant occupying the Café if the tenant of the Café was an unaffiliated party; provided, however , that notwithstanding the foregoing or anything herein to the contrary, Landlord shall be permitted to include in Operating Expenses (x) any maintenance, repairs or capital expenditures which would be Landlord's responsibility to perform if the tenant of the Café was an unaffiliated party and which would otherwise be permitted pursuant to the terms of this Lease, including, but not limited to Paragraph 4.D , and (ii) any utilities or services which Landlord typically provides to other tenants in the Building or to the Property generally, such as security, janitorial, electrical, gas, water, sewer, HVAC, etc (but excluding any above building standard services furnished to the Café, provided that nothing herein shall require Landlord to install any submeters within the Café to determine any above building standard utilities being furnished to the Café). In determining the repair and maintenance expenses that would be the responsibility of a tenant or the Landlord, as applicable, the customary repair and maintenance allocation contained in lease agreements between Landlord and unaffiliated tenants of the Building shall be controlling.
(6) The routine operation, repair and maintenance of the Auditorium located on the second (2nd) floor of the Building (the " Auditorium "), including any leasehold build-out, remodeling or interior upgrades to the Auditorium; provided, however , that notwithstanding the foregoing or anything herein to the contrary, Landlord shall be permitted to include in Operating Expenses (x) any maintenance, repairs or capital expenditures necessary to maintain the structural, mechanical, electrical, plumbing, HVAC, fire, health and life safety systems and/or or other similar components of the Auditorium or which are related to the maintenance, repair or upgrade of the Building (as opposed to day-to-day maintenance and repairs resulting from normal wear and tear of the Auditorium) and (y) any utilities or services which Landlord typically provides to other tenants in the Building or to the Property generally, such as security, janitorial, electrical, gas, water, sewer, HVAC, etc. (but excluding any above building standard services furnished to the Auditorium, provided that nothing herein shall require Landlord to install any submeters within the Auditorium to determine any above building standard utilities being furnished to the Auditorium).
11. Audit . Paragraph 4.G of the Original Lease is hereby amended to provide that the " Audit Election Period " shall be within ninety (90) days after Landlord furnishes its statement of actual Operating Expenses for any calendar year (including the Base Year).
12. Parking .
(a) Paragraph 4.H of the Original Lease is hereby amended and restated in its entirety as follows:
"H. Parking Permits/Charges.
(1) Tenant shall be provided, and shall be required to take and pay for, not less than two (2) unreserved parking spaces in the Parking facilities for each 1,000 RSF of the Premises
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leased by Tenant (the " Must Take Spaces ") with the ability to expand the ratio at any time during the Term, upon thirty (30) days prior written notice to Landlord, to up to four (4) unreserved parking spaces per 1,000 RSF leased by Tenant (the unreserved parking spaces actually taken by Tenant in excess of the Must Take Spaces being referred to herein as the " May Take Spaces " and the Must Take Spaces plus the May Take Spaces actually taken by Tenant being referred to herein collectively as the " Tenant Parking Spaces "). All of the Tenant Parking Spaces (except any that are converted to reserved parking spaces as provided below) shall be on a first come first serve basis in the Parking Facilities.
(2) Tenant has been granted the one time right, which Tenant hereby exercises, to convert up to twenty percent (20%) of the Tenant Parking Spaces to reserved parking spaces (" Tenant's One Time Parking Space Conversion "), such conversion to be effective as of the date of this First Amendment. Notwithstanding the foregoing, at any time during the Term, Tenant shall have the right to convert Tenant Parking Spaces from reserved parking spaces to unreserved parking spaces. In the event during the Term Tenant converts more than five percent (5%) of the Tenant Parking Spaces from reserved to unreserved spaces (i.e. the number of reserved Tenant Parking Spaces drops below fifteen percent (15%) of the total number of Tenant Parking Spaces after the exercise of Tenant's One Time Parking Spaces Conversion), thereafter Tenant's right to convert unreserved parking spaces to reserved parking spaces shall be changed to a right to convert up to fifteen percent (15%) of the Tenant Parking Spaces to reserved parking spaces; provided, however , that in the event that Landlord determines, in its sole and absolute discretion as operator of the Parking Facilities, that there is existing availability in the Parking Facilities for additional reserved parking spaces at the time that Tenant requests additional reserved parking spaces, Landlord shall make available to Tenant the right to convert additional Tenant Parking Spaces to reserved parking spaces, but in no event shall Landlord be obligated to provide Tenant with an aggregate amount of reserved parking spaces in excess of twenty percent (20%) of the Tenant Parking Spaces.
(3) Tenant has been granted the one time right, which Tenant hereby exercises, to have one half ( 1 / 2 ) of its reserved Tenant Parking Spaces be located on the 4th floor in a contiguous block of spaces and the balance of Tenant's reserved Tenant Parking Spaces to be located on the 5th floor in a similar contiguous block of spaces In the event Tenant subsequently converts any of the Tenant Parking Spaces from reserved parking spaces to unreserved parking spaces, then at such time Tenant will only have the right to request that the reserved Tenant Parking Spaces be arranged in accordance with the preceding sentence, but such right shall be subject to Landlord's determination, in its sole and absolute discretion as operator of the Parking Facilities, that the ability to arrange the reserved Tenant Parking Spaces in such fashion exists and that such arrangement will not adversely affect the operation of the Parking Facilities.
(4) The rate for the Tenant Parking Spaces during the Term shall be equal to (i) Forty-five and No/100 Dollars ($45.00) per month for each unreserved Tenant Parking Space (plus applicable taxes), (ii) Seventy-five and No/100 Dollars ($75.00) per month for each reserved Tenant Parking Space (plus applicable taxes) and (iii) Forty and No/100 Dollars ($40.00) per month (plus applicable taxes) for each Tenant Parking Space in the Parking Nest.
(5) At any time during the Term, Tenant may opt to create a parking "nest" on the then top floor of the Parking Facilities (currently the 8th floor) (the " Parking Nest "), reserving as many Available Spaces as exist on that floor at the time in question. " Available Spaces " means the parking spaces on the then top floor of the Parking Facilities which are available for parking automobiles and which are not otherwise reserved. In the event that Tenant shall elect to exercise its right to create the Parking Nest, the aggregate number of Tenant Parking Spaces on all of the floors in the Parking Facilities below the floor on which the Parking Nest
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is located (currently floors 1-7)(the " Covered Floors ") shall be reduced by the aggregate number of Tenant Parking Spaces within the Parking Nest with such reduction applying first to any reserved Tenant Parking Spaces located within the Covered Floors and then, after eliminating all reserved Tenant Parking Spaces within the Covered Floors, next to the unreserved Tenant Parking Spaces located within the Covered Floors. Tenant acknowledges that subject to Landlord's repair and maintenance requirements under this Lease, Tenant accepts the floor of the Parking Facilities on which the Parking Nest is located in its then "as-is, where-is" condition and that Landlord shall not be required to make any modifications to such floor of the Parking Facilities to accommodate the Parking Nest, including, but not limited to, creating elevator access.
(6) Without limiting Paragraph 4 of the Parking Agreement (Exhibit E) and in the event the Parking Nest is created, if at any time Tenant, its employees, invitees, guests or anyone utilizing the Tenant Parking Spaces at Tenant's direction shall use more than the number of Tenant Parking Spaces permitted in the Covered Floors, then Landlord shall be entitled to exercise all rights permitted under the Lease as well as the rules and regulations of the Parking Facilities, including, but not limited to, removing vehicles from the Parking Facilities.
(7) Subject to the terms and conditions of this Paragraph 4.H , Tenant may convert any reserved Tenant Parking Space into an unreserved Tenant Parking Space and relinquish any May Take Spaces upon at least thirty (30) days advance written notice to Lessor."
(b) As of the Effective Date of this First Amendment, Tenant has elected to exercise its right to take all of the May Take Spaces for a total of Two Hundred Ninety-Three (293) Tenant Parking Spaces. Of these Tenant Parking Spaces, Two Hundred Thirty-Four (234) Tenant Parking Spaces are unreserved and Fifty-Nine (59) Tenant Parking Spaces are reserved. With respect to the reserved Tenant Parking Spaces, Landlord shall designate such reserved Tenant Parking Spaces (in accordance with the provisions of Paragraph 4.H of the Lease) as soon as reasonably practicable after the Effective Date, provided that Tenant shall pay, subject to the Parking Abatement, the unreserved parking rate until the reserved Tenant Parking Spaces are made available to Tenant.
13. Taxes Attributable to the Premises .
(a) The following is hereby added to the Original Lease as Paragraph 4.I :
" I. Taxes.
(1) Notwithstanding anything in this Lease to the contrary, in addition to Base Rent and Additional Rent, Tenant shall be responsible for paying the entire amount of all Taxes assessed on, levied against or attributable to all or any portion of the Premises, Tenant's personal property and improvements and Tenant's leasehold interest in this Lease (the " Premise Taxes "). Notwithstanding Paragraph 4.A of this Lease to the contrary, Landlord shall bill Tenant for the portion of the Premise Taxes that constitutes real estate ad valorem taxes, assessments or charges, any Taxes in lieu thereof and any other Premise Taxes assessed against Landlord's fee interest in the Premises (collectively, " Real Estate Premise Taxes ") in equal monthly installments based on Landlord's estimate of the Real Estate Premise Taxes. In the event that during any calendar year Tenant shall pay more or less than the actual payment due by Landlord to the applicable taxing authorities for such Real Estate Premise Taxes, including any overpayment in Real Estate Premise Taxes resulting from a successful protest with the applicable taxing authorities as to the assessed valuation for the Premises, then (i) in the event of an overpayment, Landlord shall apply the overpayment by Tenant against the Real Estate Premise Taxes due or next become due; provided, however , that if the Term expires before the determination of the overpayment, Landlord shall refund any overpayment to Tenant after first deducting the amount of Rent due and (ii) in the event of any underpayment, Tenant
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shall pay Landlord, within thirty (30) days after Tenant's receipt of an invoice from Landlord, any underpayment of Real Estate Premise Taxes. All other Premise Taxes shall be paid by Tenant directly to the applicable taxing authority fifteen (15) days prior to such Premise Taxes becoming due and payable. In the event, and only in the event, that Tenant has timely paid to Landlord all Real Estate Premise Taxes due for a calendar year required to be paid to Landlord in accordance with the above, Tenant shall not be responsible for the payment of any penalties or interest assessed by the applicable taxing authority as a result of Landlord's failure to timely pay such taxing authority the Real Estate Premise Taxes which Tenant paid to Landlord for such calendar year in question.
(2) Landlord has assigned to Tenant, on a revocable basis, the right to protest with the applicable taxing authorities the assessed valuation related to the Premises (but not any other portion of the Building or the Parking Facilities) and used for purposes of calculating the Premise Taxes; provided, however , that (i) Tenant shall undertake any such protests at its sole cost and expense, (ii) if Landlord's participation is required in order for Tenant to undertake such protest, Landlord will cooperate with Tenant in connection with such protest as reasonably required by Tenant, but at no cost, expense or inconvenience to Landlord, (iii) Tenant shall not be permitted to bind Landlord in connection with such protest in any manner without Landlord's consent, such consent to be within Landlord's sole and absolute discretion, except that Landlord shall be reasonable with respect to any request to consent to the reduction in the assessed valuation of the Premises and (iv) Tenant's right to undertake such protests shall be revocable by Landlord upon the earlier of any default or breach by Tenant of this Lease and the Expiration Date, except that with respect to the expiration of the Term only (as opposed to the earlier termination of this Lease), to the extent that such expiration occurs prior to Tenant having had an opportunity to protest the Premise Taxes for the calendar in which the expiration occurs and provided that Landlord has not elected to undertake the protest of the Premise Taxes for such calendar year, Tenant's rights under this Paragraph 4.I(2) shall continue beyond the expiration of the Term and until the later of the deadline for filing a protest with the applicable taxing authority for the Premise Taxes in question and, in the event Tenant has timely filed a protest, the conclusion of the protest process."
(b) Tenant has previously paid to Landlord certain outstanding penalties related to the non-payment of certain Real Estate Premise Taxes assessed on the Premises for the calendar years 2003 and 2004 (the " Tax Penalties "). Tenant and Landlord agree to work together to attempt to mitigate the Tax Penalties, but without either party committing to expend any out-of-pocket funds in connection with such effort and provided that Tenant acknowledges that in the event that the Tax Penalties are not reduced or mitigated in any manner, Tenant shall not be entitled to any credit, rebate or compensation of any kind from Landlord for the Tax Penalties. In the event of any reduction by the applicable taxing authorities to the aggregate amount of the Tax Penalties, Landlord shall pay to Tenant or apply to the payment of future Premise Taxes, at Landlord's sole discretion, an amount equal to the adjustment received by Landlord,
14. Refurbishment Allowance . The following is hereby added as Paragraph 4.J to the Original Lease:
" I. Refurbishment Allowance.
(1) Commencing on June 1, 2006, Tenant shall be entitled to receive a refurbishment allowance of Five and No/100 Dollars ($5.00) per RSF (the " Refurbishment Allowance ") for the reimbursement of Tenant's past and future costs in refurbishing the Premises, provided, however , that in order to be entitled to the Refurbishment Allowance, the costs related to refurbishing the Premises must (i) have been incurred between August 15, 2004 and March 31,
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2008, (ii) the expenses must be in the nature of permanent leasehold improvements to the Premises, i.e. carpet, paint, leasehold build-out, HVAC, etc. as opposed to items such as furniture, technology, moving costs, non-permanent fixtures (e.g. cubicles and trade fixtures), office supplies, design fee, other soft costs, etc. (" Build-out ").
(2) The Refurbishment Allowance will be due to Tenant within thirty (30) days after Landlord's receipt of adequate documentation, as reasonably determined by Landlord, evidencing Tenant's actual, out-of-pocket expenditures for the Build-out in accordance with the requirements of Paragraph 4.J(1) of this Lease; provided, however , that (i) at Landlord's option, the Refurbishment Allowance may be extended to Tenant in the form of a credit against Base Rent commencing at the time the payment is due and continuing until Tenant has received a credit against Base Rent due or coming due equal to the sum Tenant would have been otherwise been paid by Landlord pursuant to this Paragraph 4.J and (ii) Tenant shall not submit invoices for the Refurbishment Allowance to Landlord on more than one (1) occasion per month.
15. Building Management . The following is hereby added to the Original Lease as Paragraph 7.E :
" E. Building Management. Landlord agrees to manage and maintain the Building in a manner consistent with other comparable office buildings of a similar class and age in Houston, Harris County, Texas (the " Management Standard "); provided, however , that (i) the foregoing shall not obligate Landlord to hire a third party manager to manage the Building, (ii) Tenant shall not be entitled to terminate this Lease in the event that Tenant believes Landlord has breached this obligation and (iii) Tenant's sole and exclusive remedy for such failure by Landlord shall be a suit for specific performance. Notwithstanding the foregoing, prior to Tenant exercising its remedy of specific performance for Landlord failing to adhere to the Management Standard, Tenant shall be required to give Landlord written notice, specifying in reasonably sufficient detail, the basis upon which Tenant believes that Landlord has not complied with the Management Standard and the manner in which Tenant proposes that Landlord remedy same. Landlord shall have until the date which is sixty (60) days after Landlord's receipt of such notice to either (i) respond to Tenant that it disagrees with Tenant's belief that Landlord has not complied with the Management Standard or (ii) commence to remedy such failure (but without having any obligation to remedy in the manner suggested by Tenant in its notice). If Landlord commences to remedy such failure within such sixty (60) day period, Tenant shall not be entitled to exercise its remedy of specific performance for so long as Landlord is diligently prosecuting such cure, subject to any cessation of the prosecution of such cure resulting from force majeure or other factors outside of Landlord's control. If, however, Landlord either (i) notifies Tenant prior to the expiration of such sixty (60) day period that it disagrees with Tenant's determination that Landlord has failed to comply with the Management Standard or (ii) Landlord commences within such sixty (60) day period to remedy such failure and diligently prosecutes same, but then subsequently ceases before the cure is achieved and without any basis for such cessation, e.g. force majeure, then Landlord and Tenant shall meet in an effort to resolve such dispute. If after ninety (90) days from and after the first day that Landlord and Tenant met in an effort to resolve such dispute, Landlord and Tenant are still unable to resolve such dispute, then Tenant shall be entitled to pursue, as its sole and exclusive remedy, a suit for specific performance to require Landlord to adhere to the Management Standard."
16. Tax Waiver . Paragraph 32.K of the Original Lease is hereby amended and restated in its entirety as follows:
" K. Tax Waiver. SUBJECT TO PARAGRAPH 4.I(2) , TENANT WAIVES ALL RIGHTS PURSUANT TO ALL LAWS TO PROTEST APPRAISED VALUES OR RECEIVE NOTICE OF REAPPRAISAL REGARDING THE PROPERTY (INCLUDING LANDLORD'S PERSONALTY), IRRESPECTIVE OF WHETHER LANDLORD CONTESTS SAME."
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17. Renewal Option: Right of First Offer . Rider 1 of the Original Lease is hereby amended (but not restated) as follows:
(a) Any Expansion Options (including, but not limited to, the First Expansion Option and the Second Expansion Option) are deleted in their entirety and Tenant acknowledges that the Lease does not contain any expansion options.
(b) The preferential right to lease is hereby deleted in its entirety and Tenant acknowledges that the Lease, as hereby amended, does not contain any preferential rights to lease in favor of Tenant other than the Renewal Option, as contained in the Original Lease and modified by this First Amendment, and the Right of First Offer, as contained in this First Amendment.
(c) The renewal option (the " Renewal Option ") as contained in the Original Lease shall remain in effect in accordance with its current terms except that the following is hereby added to the end of the first full paragraph under the Renewal Option in Rider 1 :
"In the event that Tenant elects to renew as to a partial floor as permitted pursuant to the terms of the renewal option described above, then Tenant shall pay for the cost to demise the Premises. Notwithstanding anything herein to the contrary, this renewal option shall not be exercised by Tenant in the event that (i) Landlord elects to not lease all or any portion of the Premises and instead opts to leave the Premises, or any portion, vacant or (ii) Landlord elects to lease all or any portion of the Premises to any Affiliate of Landlord or (iii) Landlord elects to use all or any portion of the Premises for its own use; provided, however , that if Landlord only elects to cause a portion of the Premises to be left vacant, leased to an Affiliate or used by Landlord, Landlord will offer Tenant the right to renew the Lease as to the portion of the Premises not being left vacant, leased to an Affiliate or used by Landlord pursuant to the terms and conditions of this renewal option except that Landlord shall be required to pay for the cost to demise the Premises if it will include a partial floor.
Tenant's renewal option as provided above is not subordinate to any tenant of the Building or any third party, other than Landlord and its Affiliates as expressly provided above."
(d) The following is hereby inserted into Rider 1 as the Right of First Offer:
Right of First Offer: Tenant shall have an ongoing right of first offer (the " Right of First Offer ") on all Available Space. Such right will be subordinate to all other rights in favor of any third party, e.g. preferential rights to lease, expansion options, renewal rights, right of first offer, etc., and in existence as of February 15, 2006. Anytime Landlord has Available Space, Landlord shall notify Tenant in writing (the " Offer Notice "), which Offer Notice shall include (i) the Market Rental Rate for the Available Space (the " Right of First Offer Space "), (ii) the amount of RSF in the Right of First Offer Space, (iii) how the Right of First Offer Space is divisible and (iv) the amount of reserved/unreserved parking spaces allocated to the Right of First Offer Space. Tenant shall have a period of twenty (20) Business Days to notify Landlord in writing whether it will (x) lease all or, to the extent permitted pursuant to the Offer Notice, a portion of the Right of First Offer Space pursuant to the terms contained in the Offer Notice, (y) lease all or, to the extent permitted pursuant to the Offer Notice, a portion of the Right of First Offer Space but request arbitration of the Market Rental Rate pursuant to the arbitration provision contained in this Rider 1 below or (iii) pass on the option to lease the Right of First Offer Space.
Renewal of Right of First Offer: In the event that Tenant shall fail to respond to the Offer Notice in writing within such twenty (20) Business Day period, Tenant shall be deemed to
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have elected to pass on the option to lease the Right of First Offer Space. If Tenant passes on the option to lease the Right of First Offer Space (or is deemed to have passed), Landlord shall be free to market the Right of First Offer Space without having to provide Tenant with any notice or opportunity to lease the Right of First Offer Space until the date which is one hundred twenty (120) days after Tenant delivered its notice to Landlord that it was electing to not lease the Right of First Offer Space (or the date that Tenant was deemed to have elected same, if applicable) (the " First Offer Refusal Date ") and as provided below, except that if during such one hundred twenty (120) period Landlord shall offer third parties the right to lease less than all of the Right of First Offer Space in a manner that is materially different than the manner in which Landlord advised Tenant that the Right of First Offer Space was divisible pursuant to the Offer Notice, Landlord shall provide Tenant with a new Offer Notice identifying such divisibility of the Right of First Offer Space and Tenant shall have five (5) Business Days after its receipt of such new Offer Notice from Landlord to elect to (x) lease a portion, but not all, of the Right of First Offer Space pursuant to the terms contained in the new Offer Notice, (y) lease a portion, but not all, of the Right of First Offer Space but request arbitration of the Market Rental Rate pursuant to the arbitration provision contained in this Rider 1 below or (iii) pass again on the option to lease the Right of First Offer Space. After the First Offer Refusal Date, so long as (i) Landlord has not entered into a lease for the Right of First Offer Space, (ii) Landlord is not in active lease negotiations with a prospective tenant for the Right of First Offer Space and (iii) Landlord is still offering the Right of First Offer Space for lease to third parties (other than Affiliates), then, in such event only, Tenant may give Landlord notice that Tenant will lease the Right of First Offer Space pursuant to the then current Market Rental Rate and the other terms and conditions upon which Landlord is currently offering the Right of First Offer Space for lease. Otherwise, the Right of First Offer as to the Right of First Offer Space will only arise once the Right of First Offer Space has become Available Space after not being available because of a lease to another tenant or Landlord withdrawing the space from the market.
Terms of Lease of Right of First Offer Space: If Tenant elects to lease the Right of First Offer Space, (i) the term for such Right of First Offer Space shall be coterminous with the Term of this Lease, (ii) the Base Rent rate for the Right of First Offer Space shall be equal to the Market Rental Rate, (iii) the Right of First Offer Space shall be provided to Tenant on an "As-Is" "Where-Is" basis, with all faults."
(d) The Arbitration portion of Rider 1 shall be amended and restated in its entirety with the following:
" ARBITRATION
Any controversy or claim between the parties arising out of or relating to the Market Rental Rate, and only such matter (the " Market Rate Dispute ") may be submitted to arbitration upon either party's written request (provided that Tenant's request must be made within the time periods provided for in the Renewal Option and Right of First Offer sections of this Rider 1 above). Any arbitration conducted under this section will comply with the following, and any determination as a result thereof shall be binding upon the parties:
(1) Appointment of Arbitrators . Landlord and Tenant shall use all reasonable efforts to agree, within ten (10) Business Days following one party's delivery to the other of a written notice requesting the submittal of a Market Rate Dispute to arbitration, upon the appointment of one (1) arbitrator to resolve the Market Rate Dispute. If an agreement on a single arbitrator cannot be reached within such ten (10) Business Day period, Landlord and Tenant shall each appoint an arbitrator within seven (7) Business Days following the expiration of the ten (10) Business Day period and shall specify the name and address of their
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respective arbitrator to the other party prior to the expiration of such seven (7) Business Day period; provided. however , that if one party fails to specify the name and address of its selected arbitrator within such seven (7) Business Day period the other party shall give such failing party written notice and if within five (5) Business Days after such written notice the failing party still has not specified an arbitrator, the arbitrator selected by the other party shall act as the single arbitrator as if both parties had agreed to the appointment of such arbitrator as provided above. The selected arbitrators shall then meet and if such arbitrators are unable to agree upon the resolution to the Market Rate Dispute, they shall appoint a third arbitrator within twenty (20) days following their appointment. If the two (2) arbitrators are unable to agree upon a third arbitrator within such twenty (20) day period, the third arbitrator shall be appointed as soon as reasonably possible thereafter by the American Arbitration Association (or any successor organization, or if no successor organization shall then exist, by a court of competent jurisdiction residing in Harris County, Texas), subject to the qualification requirements set forth below. In the event of the failure, refusal or inability of any arbitrator to act, a new arbitrator shall be appointed in his/her stead, which appointment shall be made in the same manner as set forth above for the appointment of such resigning arbitrator. Immediately following the selection of the final arbitrator, the arbitrator(s) shall meet and, within thirty (30) days following the complete selection of the arbitrator(s), endeavor to resolve the matter; such thirty (30) day period may be extended only to the extent of delay caused by force majeure or if resolution within such thirty (30) day period is not reasonable under the circumstances.
(2) Arbitration Proceeding; Decisions of Arbitrators . Within five (5) Business Days following the selection of all arbitrators, each party shall submit to such arbitrators such party's proposed resolution to the Market Rent Dispute in the form of an annual Base Rent per RSF in accordance with the definition of Market Rental Rate as provided in this Rider 1, together with reasonable evidence supporting such proposed resolution. The arbitrator(s) shall select either the proposed resolution of the Market Rate Dispute submitted by Landlord or the proposed resolution of the Market Rate Dispute submitted by Tenant, whichever proposal such arbitrator(s) deem to be the most correct according to the definitions, terms and requirements set forth in this Lease, with no compromise. The power of the arbitrators shall be exercised by the concurrence of at least two (2) arbitrators, except that if only one arbitrator is required, the decision of such arbitrator shall govern. The arbitrator(s) shall have the authority to request additional facts or evidence from each of the parties and, if such arbitrators so require, a hearing to present the same. In the event of such a hearing, rules of evidence applicable to judicial proceedings in Houston, Texas civil district courts shall govern; provided, however, that evidence will be admitted or excluded in the sole discretion of the arbitrator(s). The arbitrator(s) shall resolve the Market Rate Dispute and shall execute and acknowledge their decision, together with a brief statement describing the rationale for such decision, in writing and deliver a copy thereof to each of the parties personally or by registered or certified mail, return receipt requested. If the arbitrators fail to reach an agreement during such thirty (30) day period (as extended as aforesaid), they shall be discharged, and new arbitration proceedings shall commence, which appointments shall be made in the same manner as set forth above. By agreement in writing, Landlord and Tenant may extend the time to reach agreement either before or after the expiration thereof.
(3) Costs . Each party shall bear their own costs and expenses in connection with the arbitration except that the cost of a single arbitrator or the third arbitrator, as applicable, shall be split equally.
(4) Qualifications . Each arbitrator shall (i) be a real estate broker licensed under the laws of the State of Texas having actively and continuously engaged in leasing transactions
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involving in the aggregate more than 2,000,000 square feet of rentable area of office space in Houston, Texas for the immediately preceding ten (10) year period. In addition to all of the foregoing, the third arbitrator shall be an independent broker not having any prior relationship representing either Landlord or Tenant.
(5) Binding ; Complete Defense . The decision of the arbitrator(s) shall be final and non-appealable, shall be binding on both Landlord and Tenant, and may be enforced in any court of competent jurisdiction. The parties to the arbitration agree that compliance by a party with the provisions of this arbitration provision shall be a complete defense to any suit, action or proceeding instituted in any federal or state court, or before any administrative tribunal by any of the other parties with respect to any Market Rate Dispute, other than a suit or action alleging non-compliance with a final and binding arbitration award rendered hereunder.
(e) The following is hereby inserted into Rider 1 at the end of Rider 1 :
" Definitions:
As used herein, "Available Space" means rentable space within the Building which none of Landlord, St. Luke's Episcopal Health Care System or any of their Affiliates desires to lease, use or, with respect to Landlord or its Affiliates, leave such space vacant and which (i) Landlord has determined to lease to third parties, (ii) an existing tenant lease expires within nine (9) months and such space is not otherwise subject to an existing expansion option, renewal right or preferential option to lease or (iii) can be "recaptured" by Landlord and Landlord actually recaptures such space.
As used herein, "Affiliate" means any person or entity of any kind directly or indirectly controlling, directly or indirectly controlled by or under direct or indirect common control with such person or entity. The term "control", "controlling" or "controlled by" shall mean the possession, directly or indirectly, of the power either to (a) vote fifty percent (50%) or more of the securities or interests having ordinary voting power for the election of directors (or other comparable controlling body) of such person or entity or (b) direct or cause the direction of management or policies of such person or entity, whether through the ownership of voting securities or interests, by contract or otherwise or (c) any person or entity with whom exists a joint venture of any kind,
As used herein, the exchange of a letter of intent, execution of a letter of intent, lease draft negotiations and the receipt of a proposal to lease shall all constitute "active lease negotiations"."
18. Existing Claims . Tenant hereby waives any claims, damages, suits, liabilities costs or expenses (" Claims ") it may have against Landlord with respect to the Lease or all or any part of the Property to the extent such Claims are related to the payment of Taxes, the Tax Penalties and/or the operation or management of the Property and which arose prior to the Effective Date, but not any such Claims arising from and after the Effective Date.
19. Brokers . Tenant represents that it has dealt only with Cushman & Wakefield of Texas, Inc. (" Tenant's Broker ") in connection with this First Amendment. Tenant agrees to indemnify, defend, protect and hold Landlord harmless from all claims of any broker, agent or similar person or entity (other than Tenant's Broker) arising by, through or under Tenant and in connection with the Property or this First Amendment. Landlord shall pay a real estate commission to Tenant's Broker equal to four percent (4%) times the Base Rent (and not including Additional Rent, Taxes or Excess Operating Expenses) due by Tenant during the portion of the Term commencing on June 1, 2006 and ending on July 31, 2011, less the abatements provided for in Section 4 of this First Amendment (other than the Parking Abatement).
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20. Successors and Assigns . The obligations in this First Amendment shall be binding upon and inure to the benefit of the successors and assigns of Landlord, and shall be binding upon and inure to the benefit of the permitted successors and assigns of Tenant.
21. Original Lease In Full Force and Effect . The Original Lease remains in full force and effect and is unchanged except specifically modified by the provisions of this First Amendment. In the event of any conflicts between the terms of the Original Lease and this First Amendment, the terms of this First Amendment shall control.
22. Entire Agreement . This First Amendment and the Original Lease contain all the agreements of the parties regarding the matters discussed in this First Amendment, and no prior agreement, understanding or representation about any such matter is effective for any purpose. The terms and conditions of this First Amendment may not be amended or otherwise affected except by instrument in writing executed by each party to be bound by the instrument. All references in the Original Lease to the "Lease" shall mean and refer to the Original Lease as amended by this First Amendment.
EXECUTED to be effective for all purposes as of the Effective Date.
TENANT: | LANDLORD: | |||
PROS Revenue Management, L.P. (formerly Houston Community College System PROS Revenue Management, Inc.) |
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By: |
/s/ Charles H. Murphy |
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By: |
/s/ Bruce Leslie |
Name: |
Charles H. Murphy
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Name: |
Bruce Leslie
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Title: |
EVP & CFO
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Title: |
Chancellor
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Exhibit "A"
9
th
Floor Credit Space
[GRAPHIC OF FLOORPLAN]
14
Exhibit 10.11
THIS EMPLOYMENT AGREEMENT (this " Agreement ") is made and entered into as of September 30, 2005 (the " Effective Date ") by and between PROS Revenue Management, L.P., a Delaware limited partnership (the " Company "), and Albert Winemiller (the " Employee "). The Company and the Employee are sometimes collectively referred to herein as the " Parties " and individually referred to herein as a " Party ."
WHEREAS, the Employee and the Company desire to enter into an employment agreement containing the material terms and conditions set forth herein.
WHEREAS, the Parties intend that this Agreement memorialize all of the rights, duties and obligations of the Parties with respect to the employment of Employee with the Company.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which is acknowledged, the Parties hereby agree as follows:
1. Position and Duties . Employee shall be employed by the Company as Chief Executive Officer and President and will have such corresponding duties and responsibilities as determined by the Board of Directors of the Company (the " Board "). Employee agrees to devote his full time, energy and skill to his responsibilities and duties to the Company.
2. Term of Agreement . The term of Employee's employment shall commence on the Effective Date and shall continue for a period of twenty-four (24) months thereafter (the " Employment Term "), unless earlier terminated as provided in this Agreement. The Employment Term will be automatically extended unless the Company decides, in its sole discretion, not to so extend and provides notice thereof to Employee (each such extension being a " Renewal Term "); provided, however, that no single Renewal Term may be less than twelve (12) months unless consented to in writing by each Party or earlier terminated as provided in this Agreement.
3. Compensation . Employee shall be compensated by the Company for the performance of his duties and obligations hereunder as follows:
(a) Salary . Employee shall be paid a salary of $22,916.67 per month, less applicable withholdings and deductions, in accordance with the Company's normal payroll procedures (the " Salary ").
(b) Benefits . Employee shall be eligible, on the same basis as other employees of the Company, to participate in and to receive the benefits of the Company's employee benefit plans and vacation, holiday and business expense reimbursement policies, each as in effect from time to time.
(c) Review . The Compensation Committee will review the Salary of Employee provided hereunder on a periodic basis consistent with its review of other management generally and may adjust upward in its discretion such Salary.
4. Termination . Employee agrees that his employment is on an at-will basis and may be terminated at any time by the Company or the Employee, with or without cause. Upon the termination (voluntarily or otherwise) of Employee's employment with the Company, neither Party shall have any continuing obligations or liabilities with respect to compensation, benefits, or severance except as set forth in this Section 4 .
(a) Voluntary Termination; Termination for Cause . If Employee's employment is voluntarily terminated by Employee other than for Good Reason (a " Voluntary Termination ") or is terminated by the Company for Cause (as defined below), Employee shall be entitled to no compensation or benefits
from the Company other than accrued and unpaid compensation and benefits through the date of termination. For purposes of this Section 4 , a termination of Employee's employment as a result of his death or Disability (as defined below) shall constitute a Voluntary Termination.
(i) " Cause " shall mean (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 thereof; (c) any intentional wrongdoing by Employee, whether by omission or commission, which adversely affects the business or affairs of the Company (or any parent or subsidiary); or (d) continued failure to perform assigned duties after receiving written notification from the CEO or the Board and following a reasonable cure period.
(ii) " Disability " shall mean the good-faith determination by the Board after consultation with medical personnel that the Employee has ceased to be able to materially perform his duties and obligations, with or without reasonable accommodation, due to a mental or physical illness or incapacity that is reasonably expected to materially prevent Employee from performing his duties and obligations for a period of not less than ninety (90) days.
(iii) " Good Reason " shall mean any one or more of the following:
(A) the assignment to the Employee of any duties, or any material limitation of the Employee's responsibilities, substantially inconsistent with the Employee's duties and status with the Company as contemplated on the date of this Agreement;
(B) the relocation of the principal place of the Employee's service to a location that is more than fifty (50) miles from the Employee's principal place of service as of the date of this Agreement;
(C) any material reduction by the Company of the Employee's Salary (unless reductions comparable in amount and duration are concurrently made for all other senior executives of the Company with responsibilities and organizational level comparable to the Employee's); or
(D) any failure by the Company to continue to provide the Employee with the opportunity to participate, on terms no less favorable than those in effect for the benefit of any employee holding a comparable position within the Company, in any benefit or compensation plans and programs.
(b) Termination Without Cause or for Good Reason; Non-Renewal . In the event Employee's employment is terminated by the Company without Cause or by voluntarily by Employee for Good Reason or the Company elects not to renew the Employment Term or any Renewal Term, Employee shall be entitled only to the following:
(i) accrued and unpaid compensation through the date of termination;
(ii) continued health benefits as made generally available to employees for twelve (12) months following the date of such termination;
(iii) the then-current base monthly salary of Employee, less applicable withholdings and deductions, for twelve (12) months following the date of such termination, payable on normal payroll cycles; and
(iv) the acceleration of vesting of stock options and other equity awards with respect to shares that would have vested in the twelve (12) months following such date of termination (collectively, the " Severance ").
5. Confidential Information . Employee acknowledges and agrees that the Company considers to be confidential the information, observations and data obtained by him while employed by the Company concerning the actual or anticipated business or affairs of the Company, its subsidiaries or affiliates (collectively, " Confidential Information ") and that such Confidential Information is the property of the Company and/or the respective subsidiary or affiliate. Therefore, Employee agrees that he shall not
disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public or persons knowledgeable in the Company's industry other than as a result of Employee's acts or omissions which constitute a breach hereof. Employee shall deliver to the Company at the termination (whether voluntary or otherwise) of Employee's employment, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business or anticipated business of the Company, its subsidiaries or affiliates (including, without limitation, trade secrets, business or marketing plans, reports, projections, diskettes, intangible information stored on diskettes, software programs and data compiled with the use of those programs, tangible copies of trade secrets and confidential information, memoranda, credit cards, telephone charge cards, manuals, building keys and passes, cell phones, computers, names and addresses of the Company's or its subsidiaries' or affiliates' customers and potential customers, customer lists, customer contracts, sales information and any and all other similar information or property) which he may then possess or have under his control. Employee further agrees that in the event he discovers any other materials of the Company, its subsidiaries or affiliates in his possession or control after the date of termination, he will immediately return such property to the Company.
6. Inventions and Patents . Employee acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which (i) relate to the Company's or its subsidiaries' actual or anticipated business, research and development or existing or future products or services or (ii) result from any work performed by Employee for the Company or its subsidiaries, and which are conceived, developed or made by the Employee during the Noncompete Period (" Work Product ") belong to the Company or such subsidiary; provided, however, that this Section 6 does not apply to any invention for which no equipment, supplies, materials, facilities, trade secrets, or other proprietary information of the Company or its subsidiaries was used and which was developed entirely on Employee's own time, unless (i) the invention relates to the actual or anticipated business of the Company or its subsidiaries or to the Company's or any of its subsidiaries' actual or anticipated research or development, or existing or future products or services or (ii) the invention results from any work performed by Employee for the Company or its subsidiaries. Employee shall promptly disclose such Work Product to the Board and perform all actions requested by the Board (whether during or after the Employment Period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). The Parties acknowledge and agree that Work Product is subject to this Section 6 and is Confidential Information unless and to the extent that such Work Product (i) becomes generally known to and available for use by the public or persons knowledgeable in the Company's industry other than as a result of Employee's acts or omissions which constitute a breach of this Agreement or (ii) the Employee discloses such Work Product to the Board and the Board by vote or written consent waives its rights under this Agreement with respect thereto.
7. Non-Compete, Non-Solicitation .
(a) In further consideration of the compensation to be paid to Employee hereunder, including the Severance, if any, the Company shall, upon execution of this Agreement, disclose to Employee the Company's trade secrets and other Confidential Information concerning the Company, its subsidiaries and affiliates. Employee acknowledges that his services have been and shall be of special, unique, and extraordinary value to the Company. Therefore, Employee agrees that, during the Employment Term, each Renewal Term, if any, and for one (1) year following the termination of his employment with the Company for any reason (collectively, the " Noncompete Period "), he shall not, directly or indirectly, own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the actual or anticipated businesses of the Company, its subsidiaries or affiliates, on the date of the termination of Employee's employment, within any geographical area in which the Company, its subsidiaries or affiliates engage or plan to engage in such businesses. A termination of this Agreement pursuant to Section 4 or otherwise shall constitute a
termination of the Employment Term or Renewal Term, as applicable. Nothing herein shall prohibit Employee from being a passive owner of not more than two percent (2%) of the outstanding capital stock of any class of a corporation which is publicly traded, so long as Employee has no active participation in the business of such corporation.
(b) During the Noncompete Period, Employee shall not directly himself or indirectly through another person or entity (i) induce or attempt to induce any employee of the Company, its subsidiaries or affiliates to leave the employ thereof, or in any way interfere with the relationship between the Company, its subsidiaries and affiliates and any employee thereof, (ii) hire any person who was an employee or contractor of the Company, its subsidiaries or affiliates or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee, contractor or other business relation of the Company, its subsidiaries or affiliates, or in any way interfere with the relationship between any such customer, supplier, licensee, franchisee, contractor or other business relation and the Company, its subsidiaries or affiliates (including, without limitation, making any negative statements or communications about the Company, its subsidiaries, or affiliates).
(c) If, at the time of enforcement of this Section 7 , a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law.
(d) Employee acknowledges and agrees that the restrictions contained in this Section 7 are enforceable and reasonable. Accordingly, should Employee assert in any context that the restrictions contained in this Section 7 are unenforceable or unreasonable, Employee agrees that as of the date of such assertion the Company shall have no further obligation to provide him with Severance.
8. Non-Disparagement . Each of the Parties represents and agrees that such Party will not, directly or indirectly, engage during the Noncompete Period in any defamatory, disparaging or critical communication with any other person or entity concerning the business, operations, services, marketing strategies, pricing policies, management, business practices, officers, directors, employees, attorneys, representatives, affiliates, agents affairs and/or financial condition of the other Party, its subsidiaries or affiliates.
9. Injunctive Relief and Additional Remedy . Employee acknowledges and agrees that any breach or threatened breach by Employee of any of the provisions of Sections 5 , 6 , 7 , or 8 would result in irreparable injury and damage to the Company and/or its subsidiaries and affiliates for which the Company and/or its subsidiaries and affiliates would have no adequate remedy at law. The Employee therefore also acknowledges and agrees that in the event of such breach or threatened breach the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions thereof (without posting a bond or other security). The terms of this Section 9 shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach thereof including, without limitation, the recovery of damages from Employee. In addition, in the event of an alleged breach or violation by Employee of any of the provisions of Sections 5 , 6 , 7 , or 8 , the Noncompete Period shall be tolled with respect to such provision until such breach or violation has been duly cured.
10. Dispute Resolution . In the event of any dispute or claim relating to or arising out of this Agreement (including, without limitation, any claims of breach of contract, wrongful termination or age, sex, race or other discrimination), Employee and the Company agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American Arbitration Association in Austin, Texas in accordance with its National Employment Dispute Resolution rules, as those rules are currently in effect (and not as they may be modified in the future). Employee acknowledges that by accepting this arbitration provision he is waiving any right to a jury trial in the event of such dispute; provided, however, that this arbitration provision shall not apply to any disputes or claims relating to or arising out of Sections 5 , 6 ,, 7 , or 8 or any misuse or misappropriation of Confidential Information,
Work Product or other trade secrets or proprietary information of the Company, its subsidiaries or affiliates.
11. Attorneys' Fees . The prevailing Party in any dispute or claim relating to or arising out of this Agreement shall be entitled to recover from the losing Party all fees and expenses of any nature or kind (including, without limitation, attorney's fees and expenses) incurred in any such dispute or claim.
12. Interpretation . The Company and Employee agree that this Agreement shall be interpreted in accordance with and governed by the laws of the State of Texas, without giving effect to conflicts of law principles.
13. Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon Employee and its successors and assigns. In view of the personal nature of the services to be performed under this Agreement by Employee, Employee shall not have the right to sell, assign, pledge, hypothecate, donate or otherwise transfer any of his rights, obligations or benefits hereunder.
14. Entire Agreement . This Agreement constitutes the entire employment agreement between the Company and Employee regarding the terms and conditions of his employment, with the exception of that certain Employee Inventions and Proprietary Rights Assignment Agreement, dated January 5, 1999, between the Company and Employee (the " Assignment Agreement "); provided, however, that the provisions of this Agreement shall control if there exists any conflicting provisions in the Option Agreement or the Assignment Agreement. This Agreement, together with the Option Agreement and the Assignment Agreement, supersede all prior negotiations, representations or agreements between the Company and Employee, whether written or oral, regarding Employee's employment by the Company.
15. Severability . If any one or more of the provisions (or any part thereof) of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions (or any part thereof) shall not in any way be affected or impaired thereby.
16. No Representations . Employee acknowledges that he is not relying, and has not relied, on any promise, representation or statement made by or on behalf of the Company which is not set forth in this Agreement.
17. Notices . All notices requests, reports and other communications pursuant hereto shall be in writing, either by letter (delivered by hand or commercial delivery service or sent by certified mail, return receipt requested) or facsimile, addressed as follows:
If to the Company:
PROS
Holdings, Inc.
3100 Main Street, Suite 900
Houston, Texas 77006
Attention: Chief Executive Officer
Facsimile: (713) 529-7037
with a copy to (which shall not constitute notice):
DLA
Piper Rudnick Gray Cary US LLP
1221 S. Mopac Expressway, Suite 400
Austin, Texas 78746
Attention: John J. Gilluly
Facsimile: (512) 457-7001
If to the Employee:
Albert Winemiller
____________________________
____________________________
Facsimile: ___________________
Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand to such party at its address specified above, or, if sent by certified mail, return receipt requested, postage prepaid, on the third business day following the date it was deposited in the mail, or in the case of facsimile notice, when transmitted addressed as aforesaid, confirmation received, if the notice is also delivered by hand or mail in the manner described above. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given hereunder only when actually received by the party to which it is addressed.
18. Counterparts . This Agreement may be executed in any number of counterparts, provided, however, that each of such counterparts when taken together shall constitute one and the same agreement.
19. Amendments . This Agreement may be modified or amended only by a supplemental written agreement signed by both the Employee and the Company and approved by unanimous vote or written consent of the Compensation Committee.
IN WITNESS WHEREOF, the Parties hereto have entered into this Agreement as of the Effective Date.
COMPANY: | |||
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PROS REVENUE MANAGEMENT, L.P., |
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By: |
/s/ Kurt R. Jaggers |
Name: | Kurt R. Jaggers | ||
Title: | |||
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EMPLOYEE: |
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/s/ Albert Winemiller ALBERT WINEMILLER |
Exhibit 10.12
THIS EMPLOYMENT AGREEMENT (this " Agreement ") is made and entered into as of September 30, 2005 (the " Effective Date ") by and between PROS Revenue Management, L.P., a Delaware limited partnership (the " Company "), and Charles Murphy (the " Employee "). The Company and the Employee are sometimes collectively referred to herein as the " Parties " and individually referred to herein as a " Party ."
WHEREAS, the Employee and the Company desire to enter into an employment agreement containing the material terms and conditions set forth herein.
WHEREAS, the Parties intend that this Agreement memorialize all of the rights, duties and obligations of the Parties with respect to the employment of Employee with the Company.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which is acknowledged, the Parties hereby agree as follows:
1. Position and Duties . Employee shall be employed by the Company as Executive Vice President and Chief Financial Officer and will have such corresponding duties and responsibilities as determined by the Chief Executive Officer of the Company (the " CEO "), or, during any period(s) when a CEO is not appointed, as determined by the Board of Directors of the Company (the " Board "). Employee agrees to devote his full time, energy and skill to his responsibilities and duties to the Company.
2. Term of Agreement . The term of Employee's employment shall commence on the Effective Date and shall continue for a period of twenty-four (24) months thereafter (the " Employment Term "), unless earlier terminated as provided in this Agreement. The Employment Term will be automatically extended unless the Company decides, in its sole discretion, not to so extend and provides notice thereof to Employee (each such extension being a " Renewal Term "); provided, however, that no single Renewal Term may be less than twelve (12) months unless consented to in writing by each Party or earlier terminated as provided in this Agreement.
3. Compensation . Employee shall be compensated by the Company for the performance of his duties and obligations hereunder as follows:
(a) Salary . Employee shall be paid a salary of $20,416.68 per month, less applicable withholdings and deductions, in accordance with the Company's normal payroll procedures (the " Salary ").
(b) Benefits . Employee shall be eligible, on the same basis as other employees of the Company, to participate in and to receive the benefits of the Company's employee benefit plans and vacation, holiday and business expense reimbursement policies, each as in effect from time to time.
(c) Review . The Compensation Committee will review the Salary of Employee provided hereunder on a periodic basis consistent with its review of other management generally and may adjust upward in its discretion such Salary.
4. Termination . Employee agrees that his employment is on an at-will basis and may be terminated at any time by the Company or the Employee, with or without cause. Upon the termination (voluntarily or otherwise) of Employee's employment with the Company, neither Party shall have any continuing obligations or liabilities with respect to compensation, benefits, or severance except as set forth in this Section 4 .
(a) Voluntary Termination; Termination for Cause . If Employee's employment is voluntarily terminated by Employee other than for Good Reason (a " Voluntary Termination ") or is terminated by
the Company for Cause (as defined below), Employee shall be entitled to no compensation or benefits from the Company other than accrued and unpaid compensation and benefits through the date of termination. For purposes of this Section 4 , a termination of Employee's employment as a result of his death or Disability (as defined below) shall constitute a Voluntary Termination.
(i) " Cause " shall mean (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 thereof; (c) any intentional wrongdoing by Employee, whether by omission or commission, which adversely affects the business or affairs of the Company (or any parent or subsidiary); or (d) continued failure to perform assigned duties after receiving written notification from the CEO or the Board and following a reasonable cure period.
(ii) " Disability " shall mean the good-faith determination by the Board after consultation with medical personnel that the Employee has ceased to be able to materially perform his duties and obligations, with or without reasonable accommodation, due to a mental or physical illness or incapacity that is reasonably expected to materially prevent Employee from performing his duties and obligations for a period of not less than ninety (90) days.
(iii) " Good Reason " shall mean any one or more of the following:
(A) the assignment to the Employee of any duties, or any material limitation of the Employee's responsibilities, substantially inconsistent with the Employee's duties and status with the Company as contemplated on the date of this Agreement;
(B) the relocation of the principal place of the Employee's service to a location that is more than fifty (50) miles from the Employee's principal place of service as of the date of this Agreement;
(C) any material reduction by the Company of the Employee's Salary (unless reductions comparable in amount and duration are concurrently made for all other senior executives of the Company with responsibilities and organizational level comparable to the Employee's); or
(D) any failure by the Company to continue to provide the Employee with the opportunity to participate, on terms no less favorable than those in effect for the benefit of any employee holding a comparable position within the Company, in any benefit or compensation plans and programs.
(b) Termination Without Cause or for Good Reason; Non-Renewal . In the event Employee's employment is terminated by the Company without Cause or by voluntarily by Employee for Good Reason or the Company elects not to renew the Employment Term or any Renewal Term, Employee shall be entitled only to the following:
(i) accrued and unpaid compensation through the date of termination;
(ii) continued health benefits as made generally available to employees for twelve (12) months following the date of such termination;
(iii) the then-monthly base salary of Employee, less applicable withholdings and deductions, for twelve (12) months following the date of such termination, payable on normal payroll cycles; and
(iv) the acceleration of vesting of stock options and other equity awards with respect to shares that would have vested in the twelve (12) months following such date of termination (collectively, the " Severance ").
5. Confidential Information . Employee acknowledges and agrees that the Company considers to be confidential the information, observations and data obtained by him while employed by the Company concerning the actual or anticipated business or affairs of the Company, its subsidiaries or affiliates (collectively, " Confidential Information ") and that such Confidential Information is the property of the
Company and/or the respective subsidiary or affiliate. Therefore, Employee agrees that he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public or persons knowledgeable in the Company's industry other than as a result of Employee's acts or omissions which constitute a breach hereof. Employee shall deliver to the Company at the termination (whether voluntary or otherwise) of Employee's employment, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business or anticipated business of the Company, its subsidiaries or affiliates (including, without limitation, trade secrets, business or marketing plans, reports, projections, diskettes, intangible information stored on diskettes, software programs and data compiled with the use of those programs, tangible copies of trade secrets and confidential information, memoranda, credit cards, telephone charge cards, manuals, building keys and passes, cell phones, computers, names and addresses of the Company's or its subsidiaries' or affiliates' customers and potential customers, customer lists, customer contracts, sales information and any and all other similar information or property) which he may then possess or have under his control. Employee further agrees that in the event he discovers any other materials of the Company, its subsidiaries or affiliates in his possession or control after the date of termination, he will immediately return such property to the Company.
6. Inventions and Patents . Employee acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which (i) relate to the Company's or its subsidiaries' actual or anticipated business, research and development or existing or future products or services or (ii) result from any work performed by Employee for the Company or its subsidiaries, and which are conceived, developed or made by the Employee during the Noncompete Period (" Work Product ") belong to the Company or such subsidiary; provided, however, that this Section 6 does not apply to any invention for which no equipment, supplies, materials, facilities, trade secrets, or other proprietary information of the Company or its subsidiaries was used and which was developed entirely on Employee's own time, unless (i) the invention relates to the actual or anticipated business of the Company or its subsidiaries or to the Company's or any of its subsidiaries' actual or anticipated research or development, or existing or future products or services or (ii) the invention results from any work performed by Employee for the Company or its subsidiaries. Employee shall promptly disclose such Work Product to the Board and perform all actions requested by the Board (whether during or after the Employment Period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). The Parties acknowledge and agree that Work Product is subject to this Section 6 and is Confidential Information unless and to the extent that such Work Product (i) becomes generally known to and available for use by the public or persons knowledgeable in the Company's industry other than as a result of Employee's acts or omissions which constitute a breach of this Agreement or (ii) the Employee discloses such Work Product to the Board and the Board by vote or written consent waives its rights under this Agreement with respect thereto.
7. Non-Compete, Non-Solicitation .
(a) In further consideration of the compensation to be paid to Employee hereunder, including the Severance, if any, the Company shall, upon execution of this Agreement, disclose to Employee the Company's trade secrets and other Confidential Information concerning the Company, its subsidiaries and affiliates. Employee acknowledges that his services have been and shall be of special, unique, and extraordinary value to the Company. Therefore, Employee agrees that, during the Employment Term, each Renewal Term, if any, and for one (1) year following the termination of his employment with the Company for any reason (collectively, the " Noncompete Period "), he shall not, directly or indirectly, own any interest in, manage, control, participate in, consult with, render services for, or in any manner engage in any business competing with the actual or anticipated businesses of the Company, its subsidiaries or affiliates, on the date of the termination of Employee's employment, within any geographical area in which the Company, its subsidiaries or affiliates engage or plan to engage in such
businesses. A termination of this Agreement pursuant to Section 4 or otherwise shall constitute a termination of the Employment Term or Renewal Term, as applicable. Nothing herein shall prohibit Employee from being a passive owner of not more than two percent (2%) of the outstanding capital stock of any class of a corporation which is publicly traded, so long as Employee has no active participation in the business of such corporation.
(b) During the Noncompete Period, Employee shall not directly himself or indirectly through another person or entity (i) induce or attempt to induce any employee of the Company, its subsidiaries or affiliates to leave the employ thereof, or in any way interfere with the relationship between the Company, its subsidiaries and affiliates and any employee thereof, (ii) hire any person who was an employee or contractor of the Company, its subsidiaries or affiliates or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee, contractor or other business relation of the Company, its subsidiaries or affiliates, or in any way interfere with the relationship between any such customer, supplier, licensee, franchisee, contractor or other business relation and the Company, its subsidiaries or affiliates (including, without limitation, making any negative statements or communications about the Company, its subsidiaries, or affiliates).
(c) If, at the time of enforcement of this Section 7 , a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law.
(d) Employee acknowledges and agrees that the restrictions contained in this Section 7 are enforceable and reasonable. Accordingly, should Employee assert in any context that the restrictions contained in this Section 7 are unenforceable or unreasonable, Employee agrees that as of the date of such assertion the Company shall have no further obligation to provide him with Severance.
8. Non-Disparagement . Each of the Parties represents and agrees that such Party will not, directly or indirectly, engage during the Noncompete Period in any defamatory, disparaging or critical communication with any other person or entity concerning the business, operations, services, marketing strategies, pricing policies, management, business practices, officers, directors, employees, attorneys, representatives, affiliates, agents affairs and/or financial condition of the other Party, its subsidiaries or affiliates.
9. Injunctive Relief and Additional Remedy . Employee acknowledges and agrees that any breach or threatened breach by Employee of any of the provisions of Sections 5 , 6 , 7 , or 8 would result in irreparable injury and damage to the Company and/or its subsidiaries and affiliates for which the Company and/or its subsidiaries and affiliates would have no adequate remedy at law. The Employee therefore also acknowledges and agrees that in the event of such breach or threatened breach the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions thereof (without posting a bond or other security). The terms of this Section 9 shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach thereof including, without limitation, the recovery of damages from Employee. In addition, in the event of an alleged breach or violation by Employee of any of the provisions of Sections 5 , 6 , 7 , or 8 , the Noncompete Period shall be tolled with respect to such provision until such breach or violation has been duly cured.
10. Dispute Resolution . In the event of any dispute or claim relating to or arising out of this Agreement (including, without limitation, any claims of breach of contract, wrongful termination or age, sex, race or other discrimination), Employee and the Company agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American Arbitration Association in Austin, Texas in accordance with its National Employment Dispute Resolution rules, as those rules are currently in effect (and not as they may be modified in the future). Employee acknowledges that by accepting this arbitration provision he is waiving any right to a jury trial in the event of such dispute; provided, however, that this arbitration provision shall not apply to any disputes or claims relating to or
arising out of Sections 5 , 6 ,, 7 , or 8 or any misuse or misappropriation of Confidential Information, Work Product or other trade secrets or proprietary information of the Company, its subsidiaries or affiliates.
11. Attorneys' Fees . The prevailing Party in any dispute or claim relating to or arising out of this Agreement shall be entitled to recover from the losing Party all fees and expenses of any nature or kind (including, without limitation, attorney's fees and expenses) incurred in any such dispute or claim.
12. Interpretation . The Company and Employee agree that this Agreement shall be interpreted in accordance with and governed by the laws of the State of Texas, without giving effect to conflicts of law principles.
13. Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon Employee and its successors and assigns. In view of the personal nature of the services to be performed under this Agreement by Employee, Employee shall not have the right to sell, assign, pledge, hypothecate, donate or otherwise transfer any of his rights, obligations or benefits hereunder.
14. Entire Agreement . This Agreement constitutes the entire employment agreement between the Company and Employee regarding the terms and conditions of his employment, with the exception of that certain Stock Option Agreements (the " Option Agreement ") previously entered into between Employee and the Company and that certain Employee Inventions and Proprietary Rights Assignment Agreement, dated January 11, 1999, between the Company and Employee (the " Assignment Agreement "); provided, however, that the provisions of this Agreement shall control if there exists any conflicting provisions in the Option Agreement or the Assignment Agreement. This Agreement, together with the Option Agreement and the Assignment Agreement, supersede all prior negotiations, representations or agreements between the Company and Employee, whether written or oral, regarding Employee's employment by the Company.
15. Severability . If any one or more of the provisions (or any part thereof) of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions (or any part thereof) shall not in any way be affected or impaired thereby.
16. No Representations . Employee acknowledges that he is not relying, and has not relied, on any promise, representation or statement made by or on behalf of the Company which is not set forth in this Agreement.
17. Notices . All notices requests, reports and other communications pursuant hereto shall be in writing, either by letter (delivered by hand or commercial delivery service or sent by certified mail, return receipt requested) or facsimile, addressed as follows:
If to the Company:
PROS
Holdings, Inc.
3100 Main Street, Suite 900
Houston, Texas 77006
Attention: Chief Executive Officer
Facsimile: (713) 529-7037
with a copy to (which shall not constitute notice):
DLA
Piper Rudnick Gray Cary US LLP
1221 S. Mopac Expressway, Suite 400
Austin, Texas 78746
Attention: John J. Gilluly
Facsimile: (512) 457-7001
If to the Employee:
Charles
Murphy
1000 South Point Drive, #507
Miami Beach, Florida 33139
Facsimile: (305) 672-3138
Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand to such party at its address specified above, or, if sent by certified mail, return receipt requested, postage prepaid, on the third business day following the date it was deposited in the mail, or in the case of facsimile notice, when transmitted addressed as aforesaid, confirmation received, if the notice is also delivered by hand or mail in the manner described above. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given hereunder only when actually received by the party to which it is addressed.
18. Counterparts . This Agreement may be executed in any number of counterparts, provided, however, that each of such counterparts when taken together shall constitute one and the same agreement.
19. Amendments . This Agreement may be modified or amended only by a supplemental written agreement signed by both the Employee and the Company and approved by unanimous vote or written consent of the Compensation Committee.
IN WITNESS WHEREOF, the Parties hereto have entered into this Agreement as of the Effective Date.
COMPANY: | |||
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PROS REVENUE MANAGEMENT, L.P., |
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By: |
/s/ Kurt R. Jaggers |
Name: | Kurt R. Jaggers | ||
Title: | |||
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EMPLOYEE: |
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/s/ Charles Murphy CHARLES MURPHY |
Exhibit 10.12.1
PROS HOLDINGS, INC.
1999 EQUITY INCENTIVE PLAN
IMMEDIATELY EXERCISABLE INCENTIVE STOCK OPTION GRANT
Charles Murphy, Optionee:
Pros Holdings, Inc., a Delaware corporation (the " Company "), pursuant to its 1999 Equity Incentive Plan (the " Plan "), has granted to you, the Optionee named above, an immediately exercisable option to purchase shares of the common stock of the Company (" Common Stock "). This option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the " Code ").
The grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers) directors or consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the " Act "). Defined terms not explicitly defined in this agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. Total Number of Shares Subject to this Option. The total number of shares of Common Stock subject to this option is one hundred thousand (100,000) shares.
2. Vesting.
(a) Standard Vesting. Subject to the limitations contained herein and except as described below, twenty-five percent (25%) of the shares will vest December 31, 2005, and 2.0833% of the shares will then vest each month thereafter until either (i) the termination of Optionee's Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company for any reason, or (ii) this option becomes fully vested.
(b) Termination After Change in Control. In the event of a termination of Optionee's Continuous Status as an Employee, Director or Consultant as a result of a Termination After Change in Control (as defined below), the Option, to the extent unvested on the date such termination, shall become immediately vested in full. " Termination After Change in Control " shall mean either of the following events occurring within twelve (12) months after a Change in Control:
(i) termination by the surviving company of the Optionee's Continuous Status as an Employee, Director or Consultant for any reason other than for Cause (as defined in that certain Employment Agreement, dated September 30, 2005 between the Company and Optionee (the " Employment Agreement "); or
(ii) the Optionee's resignation for Good Reason (as defined in the Employment Agreement) from all capacities in which the Optionee is then rendering to the surviving company within a reasonable period of time following the event constituting Good Reason.
Notwithstanding any provision herein to the contrary, Termination After Change in Control shall not include any termination of the Optionee's Continuous Status as an Employee, Director or Consultant with the surviving company which (1) is for Cause (as defined below); (2) is a result of the Optionee's death or disability; (3) is a result of the Optionee's voluntary resignation other than for Good Reason; or (4) occurs prior to the effectiveness of a Change in Control.
(c) Termination Without Cause or for Good Reason. Notwithstanding anything in this Agreement to the contrary, upon the involuntary termination without Cause (as defined in the
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Employment Agreement) or Optionee's voluntary termination for Good Reason (within a reasonable period following the event constituting Good Reason) of Optionee's Continuous Status as an Employee, Director or Consultant, the Option, to the extent unvested on the date on such termination, shall become immediately vested with respect to shares that would have vested in the twelve (12) months following such date of termination.
(d) Termination For Cause. Notwithstanding anything in this Agreement to the contrary, upon the termination for Cause (as defined in the Employment Agreement) of the Optionee's Continuous Status as an Employee, Director or Consultant, the Option shall terminate and cease to be exercisable on the date of such termination.
3. Exercise Price And Method Of Payment.
(a) Exercise Price. The exercise price of this option is Forty-Three Cents ($0.43) per share, being not less than the fair market value of the Common Stock on the date of grant of this option.
(b) Method of Payment. Payment of the exercise price per share is due and payable upon exercise of the Option. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives:
(i) Payment of the exercise price per share in cash (including check) at the time of exercise;
(ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;
(iii) Provided that at the time of exercise the Company's Common Stock is publicly traded and quoted regularly in the Wall Street Journal, payment by delivery of already-owned shares of Common Stock, held for the period required to avoid a charge to the Company's reported earnings, and owned free and clear of any liens, claims, encumbrances or security interests, which Common Stock shall be valued at its fair market value on the date of exercise; or
(iv) Payment by a combination of the methods of payment permitted by subparagraph 3(b)(i) through 3(b)(iii) above.
4. Whole Shares. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares.
5. Securities Law Compliance. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act.
6. Term. The term of this option commences on September 30, 2005, the date of grant, and expires on September 29, 2015 (the " Expiration Date ," which date shall be no more than ten (10) years from the date this option is granted), unless this option expires sooner as set forth below or in the Plan. In no event may this option be exercised on or after the Expiration Date. This option shall terminate prior to the Expiration Date as follows: three (3) months after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company unless one of the following circumstances exists:
(a) Your termination of Continuous Status as an Employee, Director or Consultant is due to your disability (within the meaning of Section 422(c)(6) of the Code. This option will then expire
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on the earlier of the Expiration Date set forth above or twelve (12) months following such termination of Continuous Status as an Employee, Director or Consultant.
(b) Your termination of Continuous Status as an Employee, Director or Consultant is due to your death or your death occurs within three (3) months following your termination of Continuous Status as an Employee, Director or Consultant for any other reason. This option will then expire on the earlier of the Expiration Date set forth above or six (6) months after your death.
(c) If during any part of such three (3) months period you may not exercise your option solely because of the condition set forth in paragraph 5 above, then your option will not expire until the earlier of the Expiration Date set forth above or until this option shall have been exercisable for an aggregate period of three (3) months after your termination of the Continuous Status as an Employee, Director or Consultant.
(d) If your exercise of the option within three (3) months after termination of your Continuous Status as an Employee, Director or Consultant with the Company or with an Affiliate of the Company would result in liability under section 16(b) of the Securities Exchange Act of 1934, then your option will expire on the earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day after the last date upon which exercise would result in such liability or (iii) six (6) months and ten (10) days after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company.
(e) Your termination of Continuous Status as an Employee, Director or Consultant is for Cause. This option will then expire on the date of such termination.
To the extent this Option may be exercised following termination of Continuous Status as an Employee, Director or Consultant, this Option may only be exercisable as to that number of shares as to which it was vested on the date of termination of Continuous Status as an Employee, Director or Consultant under the provisions of paragraph 2 of this option.
In order to obtain the federal income tax advantages associated with an "incentive stock option," the Code requires that at all times beginning on the date of grant of the option and ending on the day three (3) months before the date of the option's exercise, you must be an employee of the Company or an Affiliate of the Company, except in the event of your death or permanent and total disability. The Company has provided for continued vesting or extended exercisability of your option under certain circumstances for your benefit, but cannot guarantee that your option will necessarily be treated as an "incentive stock option" if you provide services to the Company or an Affiliate of the Company as a consultant or exercise your option more than three (3) months after the date your Continuous Status as an Employee with the Company and all Affiliates of the Company terminates.
7. Exercise.
(a) This option may be exercised by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subsection 12(e) of the Plan.
(b) If the Optionee exercises this option to purchase shares that are both nontransferable and subject to a substantial risk of forfeiture, the Optionee understands that the Optionee should consult with the Optionee's tax advisor regarding the advisability of filing with the Internal Revenue Service an election under Section 83(b) of the Code, which must be filed no later than thirty (30) days after the date on which the Optionee exercises the option. Shares acquired upon exercise of the Option are nontransferable and subject to a substantial risk of forfeiture if, for example, (a) they are unvested and are subject to a right of the Company to repurchase such shares at the Optionee's original purchase price if the Optionee's Continuous Status as an
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Employee, Director or Consultant with the Company or an Affiliate of the Company terminates, or (b) the Optionee is an Insider and, under certain circumstances, exercises the Option within six (6) months of the date of option grant (if a class of equity security of the Company is registered under Section 12 of the Exchange Act). Failure to file an election under Section 83(b), if appropriate, may result in adverse tax consequences to the Optionee. The Optionee acknowledges that the Optionee has been advised to consult with a tax advisor prior to the exercise of the Option regarding the tax consequences to the Optionee of the exercise of the Option.
AN ELECTION UNDER SECTION 83(b) MUST BE FILED WITHIN 30 DAYS AFTER THE DATE ON WHICH THE OPTIONEE PURCHASES SHARES. THIS TIME PERIOD CANNOT BE EXTENDED. THE OPTIONEE ACKNOWLEDGES THAT TIMELY FILING OF A SECTION 83(b) ELECTION IS THE OPTIONEE'S SOLE RESPONSIBILITY, EVEN IF THE OPTIONEE REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO FILE SUCH ELECTION ON HIS OR HER BEHALF.
(c) Notwithstanding anything in this agreement or the Plan to the contrary, and except as provided in Section 4.1(c) , the aggregate fair market value of the shares with respect to which the Optionee may exercise this option for the first time during any calendar year, when added to the aggregate fair market value of the shares subject to any other options designated as incentive stock options granted to the Optionee under all stock option plans of the Company prior to the date of option grant with respect to which such options are exercisable for the first time during the same calendar year, shall not exceed One Hundred Thousand Dollars ($100,000. For purposes of the preceding sentence, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the fair market value of shares shall be determined as of the time the option with respect to such shares is granted. Such limitation on exercise shall be referred to in this Option Agreement as the " ISO Exercise Limitation ." If Section 422 of the Code is amended to provide for a different limitation from that set forth in this section, the ISO Exercise Limitation shall be deemed amended effective as of the date required or permitted by such amendment to the Code. The ISO Exercise Limitation shall terminate upon the earlier of (i) the termination of Optionee's Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company, (ii) the day immediately prior to the effective date of a Change in Control in which the Option is not assumed or substituted for by the acquiring corporation, or (iii) the day ten (10) days prior to the option Expiration Date. Upon such termination of the ISO Exercise Limitation, the Option shall be deemed a nonstatutory stock option to the extent of the number of shares subject to the Option which would otherwise exceed the ISO Exercise Limitation.
(d) Notwithstanding any other provision of this option agreement, if compliance with the ISO Exercise Limitation will result in the exercisability of any vested shares being delayed more than thirty (30) days beyond the date such shares become vested shares (the " Vesting Date "), the Option shall be deemed to be two (2) options. The first option shall be for the maximum portion of the number of shares that can comply with the ISO Exercise Limitation without causing the Option to be unexercisable in the aggregate as to vested shares on the Vesting Date for such shares. The second option, which shall not be treated as an Incentive Stock Option as described in Section 422(b) of the Code, shall be for the balance of the number of Option Shares; that is, those such shares which, on the respective Vesting Date for such shares, would be unexercisable if included in the first option and thereby made subject to the ISO Exercise Limitation. Shares treated as subject to the second option shall be exercisable on the same terms and at the same time as set forth in this Option Agreement; provided, however, that (i) subsection (c) shall not apply to the second option and (ii) each such share shall become a vested share on the Vesting Date such share must first be allocated to the second option pursuant to the preceding sentence. Unless the Optionee specifically elects to the contrary in the Optionee's written notice of exercise,
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the first option shall be deemed to be exercised first to the maximum possible extent and then the second option shall be deemed to be exercised.
(e) By exercising this option you agree that
(i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise;
(ii) you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of this option; and
(iii) the Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the " Effective Date ") of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. You further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.
8. Right of Repurchase; Right of First Refusal.
(a) The Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares exercised pursuant to the Option; provided, however , that (i) such repurchase right shall be exercisable only within (A) the one hundred and twenty (120) day period following the termination Optionee's Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), (ii) such repurchase right shall be exercisable for less than all of the vested shares only with the Optionee's consent, and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares at a repurchase price equal to the greater of (A) the stock's Fair Market Value at the time of such termination or (B) the original purchase price paid for such shares by the Optionee. Such right of repurchase may be assigned by the Company.
(b) If the Company does not elect to exercise its right of repurchase under Section 8(a) above, and at any time thereafter but prior to the Listing Date the Optionee (including any permitted transferee of the Optionee's shares under Section 8(c)) receives a bona fide offer to purchase all or any of the vested shares exercised pursuant to the Option (the " Offer ") from a third party other than a permitted transferee of his shares under Section 8(c) (the " Offeror ") which the Optionee wishes to accept, the Optionee may transfer such shares pursuant to and in accordance with the following provisions
(i) the Optionee shall cause the Offer to be reduced to writing and shall notify the Company in writing of his or her desire to accept the Offer and otherwise comply with the provisions of this Section 8(b). The Optionee's notice shall constitute an irrevocable offer to sell such shares to the Company at a price equal to the price contained in, and on the same terms and conditions of, the Offer. The notice shall be accompanied by a true copy of the Offer (which shall identify the Offeror).
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(ii) the Company shall have the right to offer to purchase all, but not less than all, of the shares covered by the Offer. To exercise such right, the Company shall, within fifteen (15) days of receipt of such written notice, communicate in writing such election to the Optionee. Such written election to purchase shall constitute a valid, legally binding and enforceable agreement for the sale and purchase of all of the shares covered by the Offer.
(c) Permitted transfers by an Optionee are (i) transfers to the Optionee's spouse or children, to a trust of which the Optionee is the settlor or a trustee for the benefit of his spouse or children, and (ii) transfers upon an Optionee's death to his heirs, executors or administrators or to a trust under his or her will or to his or her guardian or conservator, provided that in any such case the transferee shall have entered into an enforceable written agreement providing that all shares so transferred shall continue to be subject to the provisions of Section 8(b) and (c) as if such shares were still held by the Optionee, and provided further that such permitted transferee shall not be permitted to make any further transfers without complying with the provisions of Section 8(b) and (c). Anything to the contrary herein notwithstanding, transferees permitted by this Section 8(c) shall take any shares so transferred subject to all obligations under Section 8(b) and (c) as if such shares were still held by the Optionee whether or not such transferees so expressly agree.
9. Unvested Share Repurchase Option.
(a) In the event the Optionee's Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company is terminated for any reason or no reason, with or without cause, or if the Optionee or the Optionee's legal representative attempts to sell, exchange, transfer, pledge or otherwise dispose of (" Transfer ") any Unvested Shares (as defined below) other than to a Permitted Transferee (as defined below), the Company shall have the right to reacquire the Unvested Shares under the terms and subject to the conditions set forth in this Section 9 (the " Unvested Share Repurchase Option ")
(b) " Unvested Shares " shall mean, on any given date, the number of shares of stock acquired upon exercise of the Option which exceed the number of vested shares determined as of such date.
(c) The Company must notify in writing the Optionee or the Optionee's legal representative the Company's election to repurchase the Unvested Shares within sixty (60) days after termination of Optionee's Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company or after the Company has received notice of the attempted Transfer. Payment by the Company to the Optionee or the Optionee's legal representative shall be made in cash within sixty (60) days after the date of the mailing of the written notice of exercise of the Unvested Share Repurchase Option. For purposes of the foregoing, cancellation of any indebtedness of the Optionee to the Company shall be treated as payment to the Optionee in cash to the extent of the unpaid principal and any accrued interest canceled. The purchase price per share for the shares being repurchased by the Company shall be an amount equal to the exercise price paid for such shares. Contemporaneous with receipt of such payment by the Company, the Optionee or the Optionee's legal representative shall give the shares which the Company has purchased to the Company.
(d) The Optionee may not Transfer any Unvested Shares still subject to the Unvested Share Repurchase Option except to the Optionee's spouse, siblings, ancestors, descendants or to a trustee for their benefit or the benefit of the Optionee (a " Permitted Transferee "), provided that such Permitted Transferee shall agree in writing (in a form satisfactory to the Company) to receive and hold the shares subject to all the terms, conditions and restrictions contained in this Agreement and, provided further that such Transfer does not cause the option to not be treated as an "incentive stock option" within the meaning of Section 422 of the Code or otherwise violate applicable law.
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(e) The Company shall have the right to assign the Unvested Share Repurchase Option at any time, whether or not such option is then exercisable, to one or more persons as may be selected by the Company.
(f) Upon the occurrence of a Change in Control, any and all new, substituted or additional securities or other property to which the Optionee is entitled by reason of the Optionee's ownership of Unvested Shares shall be immediately subject to the Unvested Share Repurchase Option and included in the term " Unvested Shares " for all purposes of the Unvested Share Repurchase Option with the same force and effect as the Unvested Shares immediately prior to the Change in Control. While the aggregate repurchase price shall remain the same after such Change in Control, the repurchase price per Unvested Share upon exercise of the Unvested Share Repurchase Option following such Change in Control shall be adjusted as appropriate.
(g) All certificates representing any shares subject to the Unvested Share Repurchase Option shall have endorsed thereon the following legends (together with any legend required by applicable law):
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A REPURCHASE OPTION, A RIGHT OF FIRST REFUSAL IN FAVOR OF THE COMPANY OR ITS ASSIGNEE, AND OTHER RESTRICTIONS ON TRANSFER SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THIS COMPANY."
10. Transferability. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option.
11. Option Not a Service Contract. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. In addition, nothing in this option shall obligate the Company or any Affiliate of the Company, or their respective stockholders, Board of Directors, officers or employees to continue any relationship which you might have as a Director or Consultant for the Company or Affiliate of the Company.
12. Notices. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company.
13. Independent Counsel. Each of the parties hereto acknowledges and agrees that DLA Piper Rudnick Gray Cary US, LLP is counsel to the Company and not to the Optinoee individually, and Optionee has had reasonable opportunity to consult with separate counsel with respect to the matters contained herein and is not relying on any representations of any party with respect to the terms of this Agreement not otherwise contained herein.
14. Governing Plan Document. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 6 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control.
7
Dated the 30th day of September, 2005.
Very truly yours, | |||
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By: |
/s/ KURT R. JAGGERS |
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Duly authorized on behalf of the Board of Directors |
Attachments:
Pros
Holdings, Inc. 1999 Equity Incentive Plan
Notice of Exercise
The undersigned:
(a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and
(b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned Optionee and the Company and its Affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only:
NONE
/s/ CHM
(Initial) |
OTHER
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Signature: |
/s/ CHARLES H. MURPHY |
Printed Name: |
/s/
CHARLES H. MURPHY
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Address: |
1000 S. Point Dr. #507 |
Miami Beach, FL 33139
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PROS HOLDING, INC. | ||
3100 Main Street, Suite 900 | ||
Houston, Texas 77002 | Date of Exercise: _______________________________ |
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below.
Type of option (check one): | Incentive o | Nonstatutory o | ||
Stock option dated: |
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________________________ |
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Number of shares as to which option is exercised: |
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________________________ |
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Certificates to be issued in name of: |
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________________________ |
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Total exercise price: |
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$ ________________________ |
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Cash payment delivered here with: |
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$ ________________________ |
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Value of shares of PROS HOLDINGS, INC.: |
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$ ________________________ |
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By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of the 1999 Equity Incentive Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option.
I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above:
I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the "Act"), and are deemed to constitute "restricted securities" under Rule 701 and "control securities" under Rule 144 promulgated under the Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Act and any applicable state securities laws.
I further acknowledge that I will not be able to resell the Shares for at least ninety days after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144.
I further acknowledge and agree that under the provisions of the Option, the Company may elect, prior to the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange, or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system (the "Listing Date"), to repurchase all or any part of the Shares on the terms and conditions provided in the Option and that
9
such right of repurchase may be assigned by the Company. I further acknowledge and agree that if the Company does not elect to exercise such right of repurchase, and at any time thereafter but prior to the Listing Date, I (including any permitted transferee of the Shares under the provisions of the Option) receive a bona fide offer to purchase all or any of the Shares from a third party (other than such a permitted transferee) which I wish to accept, I may only transfer such Shares pursuant to and in accordance with the provisions of the Option which provide the Company with a right of first refusal.
I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or applicable securities laws.
I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Act, I will not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Act (the "Effective Date") as may be requested by the Company or the representative of the underwriters. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period.
Very truly yours, | |||
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Printed Name |
10
Exhibit 10.13
THIS EMPLOYMENT AGREEMENT (this " Agreement ") is made and entered into as of January 15, 1999 (the " Effective Date ") by and between PROS Strategic Solutions, Inc., a Delaware corporation (the " Company "), and Ronald F. Woestemeyer (the " Employee "). The Company and the Employee are sometimes collectively referred to herein as the " Parties " and individually referred to herein as a " Party ."
WHEREAS, the Parties, together with other holders of capital stock of the Company, entered into that certain Mutual Release and Settlement Agreement, dated December 31, 1998 (the " MRSA "), pursuant to which and as a condition to the obligations of the Investors (as defined therein), the Employee and the Company agreed to enter into an employment agreement containing the material terms and conditions set forth in Exhibit E attached thereto.
WHEREAS, the Parties intend that this Agreement memorialize all of the rights, duties and obligations of the Parties with respect to the employment of Employee with the Company.
NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and adequacy of which is acknowledged, the Parties hereby agree as follows:
1. Position and Duties . Employee shall be employed on an at-will basis by the Company and will have such duties and responsibilities as determined by the Chief Executive Officer of the Company (the " CEO "), or, during any period(s) when a CEO is not appointed, as determined by the Board of Directors of the Company (the " Board "). Employee agrees to devote his full time, energy and skill to his responsibilities and duties to the Company.
2. Term of Agreement . The term of Employee's employment shall commence on the Effective Date and shall continue for a period of twenty-four (24) months thereafter (the " Employment Term "), unless earlier terminated as provided in this Agreement. The Employment Term will be automatically extended unless the Company decides, in its sole discretion, not to to so extend and provides notice thereof to Employee (each such extension being a " Renewal Term "); provided, however, that no single Renewal Term may be less than twenty-four (24) months unless consented to in writing by each Party or earlier terminated as provided in this Agreement.
3. Compensation . Employee shall be compensated by the Company for the performance of his duties and obligations hereunder as follows:
(a) Salary . Employee shall be paid a salary of $19,479.17 per month, less applicable withholdings and deductions, in accordance with the Company's normal payroll procedures (the " Salary "). At such time as the Compensation Committee of the Board (the " Compensation Committee ") approves an increase in salaries for the management team as a whole (other than normal cost-of-living adjustments), then the Salary shall increase to $22,916.67 per month thereafter.
(b) Benefits . Employee shall have the right, on the same basis as other employees of the Company, to participate in and to receive the benefits of the Company's employee benefit plans and vacation, holiday and business expense reimbursement policies, each as in effect from time to time.
(c) Review . The Compensation Committee will review the Salary of Employee provided hereunder on a periodic basis consistent with its review of other management generally and may adjust upward in its discretion such Salary.
4. Termination . Employee agrees that his employment is on an at-will basis and may be terminated at any time by the Company or the Employee, with or without cause. Upon the termination (voluntarily or otherwise) of Employee's employment with the Company, neither Party shall have any continuing obligations or liabilities with respect to compensation, benefits, or severance except as set forth in this Section 4 .
(a) Voluntary Termination; Termination for Cause . If Employee's employment is voluntarily terminated by Employee (a " Voluntary Termination ") or is terminated by the Company for Cause (as defined below), Employee shall be entitled to no compensation or benefits from the Company other than accrued and unpaid compensation and benefits through the date of termination. For purposes of this Section 4 , a termination of Employee's employment as a result of his death or Disability (as defined below) shall constitute a Voluntary Termination.
(i) " Cause " shall mean (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 thereof; or (c) continued failure to perform assigned duties after receiving written notification from the CEO or the Board and following a reasonable cure period.
(ii) " Disability " shall mean the good-faith determination by the Board after consultation with medical personnel that the Employee has ceased to be able to materially perform his duties and obligations, without reasonable accommodation, due to a mental or physical illness or incapacity that is reasonably expected to materially prevent Employee from performing his duties and obligations for a period of not less than ninety (90) days.
(b) Termination Without Cause . In the event Employee's employment is terminated by the Company without Cause, Employee shall be entitled only to the following:
(i) accrued and unpaid compensation and benefits through the date of termination; and
(ii) $22,916.67 per month, less applicable withholdings and deductions, for twelve (12) months following the date of such termination, payable on normal payroll cycles (the " Minimum Severance ").
Notwithstanding the foregoing, if the Employee's employment is terminated without Cause any time during the first twelve (12) months of the Employment Term, the Employee will receive $22,916.67 per month for the remainder of the first twelve (12) months of service under this Agreement following the Effective Date, payable on normal payroll cycles (the " Additional Severance "), and then receive the Minimum Severance over the following twelve (12) months. If the Employee's employment is terminated without Cause during any Renewal Term, the Employee shall only be eligible to receive the Minimum Severance following the date of such termination.
(c) Non-Renewal . In the event the Company decides not to renew the Employment Term or any Renewal Term, Employee shall be entitled to severance benefits as follows:
(i) if the Company provides Employee with at least sixty (60) days notice of its decision not to renew, then Employee shall be entitled to $22,916.67 per month, less applicable withholdings and deductions, for ten (10) months following the end of such Employment Term or Renewal Term, payable on normal payroll cycles; or
(ii) if the Company does not provide Employee with at least sixty (60) days notice of its decision not to renew, then Employee shall be entitled to $22,916.67 per month, less applicable withholdings and deductions, for twelve (12) months following the end of such Employment Term or Renewal Term, payable on normal payroll cycles (amounts payable under (i) or (ii) being " Non-Renewal Severance ").
The period of time during which the Employee is eligible to receive any Non-Renewal Severance, Additional Severance and/or Minimum Severance shall be the " Severance Period ."
5. Confidential Information . Employee acknowledges and agrees that the Company considers to be confidential the information, observations and data obtained by him while employed by the Company concerning the actual or anticipated business or affairs of the Company, its subsidiaries or affiliates (collectively, " Confidential Information ") and that such Confidential Information is the property of the Company and/or the respective subsidiary or affiliate. Therefore, Employee agrees that he shall not disclose to any unauthorized person or use for his own purposes any Confidential Information without the prior written consent of the Board, unless and to the extent that the aforementioned matters become generally known to and available for use by the public or persons knowledgeable in the Company's industry other than as a result of Employee's acts or omissions which constitute a breach hereof. Employee shall deliver to the Company at the termination (whether voluntary or otherwise) of Employee's employment, or at any other time the Company may request, all memoranda, notes, plans, records, reports, computer tapes, printouts and software and other documents and data (and copies thereof) relating to the Confidential Information, Work Product (as defined below) or the business or anticipated business of the Company, its subsidiaries or affiliates (including, without limitation, trade secrets, business or marketing plans, reports, projections, diskettes, intangible information stored on diskettes, software programs and data compiled with the use of those programs, tangible copies of trade secrets and confidential information, memoranda, credit cards, telephone charge cards, manuals, building keys and passes, cell phones, computers, names and addresses of the Company's or its subsidiaries' or affiliates' customers and potential customers, customer lists, customer contracts, sales information and any and all other similar information or property) which he may then possess or have under his control. Employee further agrees that in the event he discovers any other materials of the Company, its subsidiaries or affiliates in his possession or control after the date of termination, he will immediately return such property to the Company.
6. Inventions and Patents . Employee acknowledges that all inventions, innovations, improvements, developments, methods, designs, analyses, drawings, reports and all similar or related information (whether or not patentable) which (i) relate to the Company's or its subsidiaries' actual or anticipated business, research and development or existing or future products or services or (ii) result from any work performed by Employee for the Company or its subsidiaries, and which are conceived, developed or made by the Employee during the Noncompete Period (" Work Product ") belong to the Company or such subsidiary; provided, however, that this Section 6 does not apply to any invention for which no equipment, supplies, materials, facilities, trade secrets, or other proprietary information of the Company or its subsidiaries was used and which was developed entirely on Employee's own time, unless (i) the invention relates to the actual or anticipated business of the Company or its subsidiaries or to the Company's or any of its subsidiaries' actual or anticipated research or development, or existing or future products or services or (ii) the invention results from any work performed by Employee for the Company or its subsidiaries. Employee shall promptly disclose such Work Product to the Board and perform all actions requested by the Board (whether during or after the Employment Period) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments). The Parties acknowledge and agree that Work Product is subject to this Section 6 and is Confidential Information unless and to the extent that such Work Product (i) becomes generally known to and available for use by the public or persons knowledgeable in the Company's industry other than as a result of Employee's acts or omissions which constitute a breach of this Agreement or (ii) the Employee discloses such Work Product to the Board and the Board by vote or written consent waives its rights under this Agreement with respect thereto.
7. Non-Compete, Non-Solicitation .
(a) In further consideration of the compensation to be paid to Employee hereunder, Employee acknowledges that in the course of his employment with the Company, he shall become familiar with the Company's trade secrets and with other Confidential Information concerning the Company, its subsidiaries and affiliates and that his services have been and shall be of special, unique, and extraordinary value. Therefore, Employee agrees that, during the Employment Term, each Renewal Term, if any, and the Severance Period, if any (collectively, the " Noncompete Period "), he shall not, directly or indirectly, own any interest in, manage, control, participate in,
consult with, render services for, or in any manner engage in any business competing with the actual or anticipated businesses of the Company, its subsidiaries or affiliates, on the date of the termination of Employee's employment, within any geographical area in which the Company, its subsidiaries or affiliates engage or plan to engage in such businesses. A termination of this Agreement pursuant to Section 4 or otherwise shall constitute a termination of the Employment Term or Renewal Term, as applicable. Nothing herein shall prohibit Employee from being a passive owner of not more than two percent (2%) of the outstanding capital stock of any class of a corporation which is publicly traded, so long as Employee has no active participation in the business of such corporation.
(b) During the Noncompete Period, Employee shall not directly himself or indirectly through another person or entity (i) induce or attempt to induce any employee of the Company, its subsidiaries or affiliates to leave the employ thereof, or in any way interfere with the relationship between the Company, its subsidiaries and affiliates and any employee thereof, (ii) hire any person who was an employee or contractor of the Company, its subsidiaries or affiliates or (iii) induce or attempt to induce any customer, supplier, licensee, licensor, franchisee, contractor or other business relation of the Company, its subsidiaries or affiliates, or in any way interfere with the relationship between any such customer, supplier, licensee, franchisee, contractor or other business relation and the Company, its subsidiaries or affiliates (including, without limitation, making any negative statements or communications about the Company, its subsidiaries, or affiliates).
(c) If, at the time of enforcement of this Section 7 , a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the Parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum duration, scope and area permitted by law. Employee agrees that the restrictions contained in this Section 7 are reasonable.
8. Non-Disparagement . Each of the Parties represents and agrees that such Party will not, directly or indirectly, engage during the Noncompete Period in any defamatory, disparaging or critical communication with any other person or entity concerning the business, operations, services, marketing strategies, pricing policies, management, business practices, officers, directors, employees, attorneys, representatives, affiliates, agents affairs and/or financial condition of the other Party, its subsidiaries or affiliates.
9. Injunctive Relief and Additional Remedy . Employee acknowledges and agrees that any breach or threatened breach by Employee of any of the provisions of Sections 5 , 6 , 7 , or 8 would result in irreparable injury and damage to the Company and/or its subsidiaries and affiliates for which the Company and/or its subsidiaries and affiliates would have no adequate remedy at law. The Employee therefore also acknowledges and agrees that in the event of such breach or threatened breach the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions thereof (without posting a bond or other security). The terms of this Section 9 shall not prevent the Company from pursuing any other available remedies for any breach or threatened breach thereof including, without limitation, the recovery of damages from Employee. In addition, in the event of an alleged breach or violation by Employee of any of the provisions of Sections 5 , 6 , 7 , or 8 , the Noncompete Period shall be tolled with respect to such provision until such breach or violation has been duly cured.
10. Dispute Resolution . In the event of any dispute or claim relating to or arising out of this Agreement (including, without limitation, any claims of breach of contract, wrongful termination or age, sex, race or other discrimination), Employee and the Company agree that all such disputes shall be fully and finally resolved by binding arbitration conducted by the American Arbitration Association in Austin, Texas in accordance with its National Employment Dispute Resolution rules, as those rules are currently in effect (and not as they may be modified in the future). Employee acknowledges that by accepting this arbitration provision he is waiving any right to a jury trial in the event of such dispute;
provided, however, that this arbitration provision shall not apply to any disputes or claims relating to or arising out of Sections 5 , 6 ,, 7 , or 8 or any misuse or misappropriation of Confidential Information, Work Product or other trade secrets or proprietary information of the Company, its subsidiaries or affiliates.
11. Attorneys' Fees . The prevailing Party in any dispute or claim relating to or arising out of this Agreement shall be entitled to recover from the losing Party all fees and expenses of any nature or kind (including, without limitation, attorney's fees and expenses) incurred in any such dispute or claim.
12. Interpretation . The Company and Employee agree that this Agreement shall be interpreted in accordance with and governed by the laws of the State of Texas, without giving effect to conflicts of law principles.
13. Successors and Assigns . This Agreement shall inure to the benefit of and be binding upon Employee and its successors and assigns. In view of the personal nature of the services to be performed under this Agreement by Employee, Employee shall not have the right to sell, assign, pledge, hypothecate, donate or otherwise transfer any of his rights, obligations or benefits hereunder.
14. Entire Agreement . This Agreement constitutes the entire employment agreement between the Company and Employee regarding the terms and conditions of his employment, with the exception of that certain Employee Inventions and Proprietary Rights Assignment Agreement, dated June 4, 1998, between the Company and Employee attached hereto as Exhibit A (the " Assignment Agreement "); provided, however, that the provisions of this Agreement shall control if there exists any conflicting provisions in the Assignment Agreement. This Agreement, together with the Assignment Agreement, supersede all prior negotiations, representations or agreements between the Company and Employee, whether written or oral, regarding Employee's employment by the Company.
15. Severability . If any one or more of the provisions (or any part thereof) of this Agreement shall be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions (or any part thereof) shall not in any way be affected or impaired thereby.
16. No Representations . Employee acknowledges that he is not relying, and has not relied, on any promise, representation or statement made by or on behalf of the Company which is not set forth in this Agreement.
17. Notices . All notices requests, reports and other communications pursuant hereto shall be in writing, either by letter (delivered by hand or commercial delivery service or sent by certified mail, return receipt requested) or facsimile, addressed as follows:
If to the Company:
PROS
Strategic Solutions, Inc.
3223 Smith Street, Suite 100
Houston, Texas 77006
Attention: Chief Executive Officer
Facsimile: (713) 525-8144
with a copy to (which shall not constitute notice):
Gray
Cary Ware & Freidenrich LLP
100 Congress Avenue, Suite 1440
Austin, Texas 78701
Attention: Paul E. Hurdlow
Facsimile: (512) 457-7070
If to the Employee:
Ronald
F. Woestemeyer
3980 Inverness Drive
Houston, Texas 77019
Facsimile: (713) 960-1332
Any notice, request or communication hereunder shall be deemed to have been given on the day on which it is delivered by hand to such party at its address specified above, or, if sent by certified mail, return receipt requested, postage prepaid, on the third business day following the date it was deposited in the mail, or in the case of facsimile notice, when transmitted addressed as aforesaid, confirmation received, if the notice is also delivered by hand or mail in the manner described above. Any party may change the person or address to whom or which notices are to be given hereunder, by notice duly given hereunder; provided, however, that any such notice shall be deemed to have been given hereunder only when actually received by the party to which it is addressed.
18. Counterparts . This Agreement may be executed in any number of counterparts, provided, however, that each of such counterparts when taken together shall constitute one and the same agreement.
19. Amendments . This Agreement may be modified or amended only by a supplemental written agreement signed by both the Employee and the Company and approved by unanimous vote or written consent of the Compensation Committee.
(The remainder of this page is intentionally left blank.)
IN WITNESS WHEREOF, the Parties hereto have entered into this Agreement as of the Effective Date.
COMPANY: | |||
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PROS Strategic Solutions, Inc., a Delaware corporation |
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By: |
/s/ Charles H. Murphy |
Name: | Charles H. Murphy | ||
Title: | Senior Vice President & CFO | ||
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EMPLOYEE: |
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/s/ Ronald F. Woestemeyer Ronald F. Woestemeyer |
Exhibit 10.13.1
AMENDMENT NO. 1
To the Employment Agreement Dated January 15, 1999
By and Between Ronald F. Woestemeyer &
PROS Revenue Management, L.P. (Successor in Interest to PROS Strategic Solutions,
Inc.)
This is Amendment No. 1 (the "Amendment") to the above referenced Employment Agreement, and shall be effective this 2nd day of February, 2004.
1.0 Amendment to Section 3(a) of Employment Agreement. The second sentence of paragraph 3(a) shall be amended and the revised section 3(a) shall now read as follows:
Salary. Employee shall be paid a salary of $19,479.17 per month, less applicable withholdings and deductions, in accordance with the Company's normal payroll procedures (the "Salary"). Any increase in the Salary shall be at the discretion of the Compensation Committee of the Board of Managers.
2.0 Effect on the Employment Agreement . Except as specifically amended hereby, the Employment Agreement and all other documents executed in connection therewith, shall remain in full force and effect and are hereby ratified and confirmed.
EXECUTED in Houston, Texas, this 2nd day of February 2004.
Employee | |||
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/s/ Ronald F. Woestemeyer Ronald F. Woestemeyer |
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PROS Revenue Management, L.P. (Successor in Interest to PROS Strategic Solutions, Inc.) |
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/s/ Charlie Murphy Charlie Murphy Executive Vice President & C.F.O. |
Exhibit 10.14
$28,000,000
REVOLVING
CREDIT
AND TERM LOAN AGREEMENT
Dated as of March 23, 2007
among
PROS
REVENUE MANAGEMENT, L.P.,
as Borrower
PROS
HOLDINGS, INC.,
PROS REVENUE I, LLC, and
PROS REVENUE II, LLC,
as Guarantors
THE LENDERS AND L/C ISSUERS PARTY HERETO
and
CHURCHILL FINANCIAL LLC
,
as Administrative Agent and Lead Arranger
and
FREEPORT FINANCIAL LLC
,
as Syndication Agent
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ARTICLE I DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS | 1 | ||||
Section 1.1 |
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Defined Terms |
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1 |
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Section 1.2 | UCC Terms | 23 | |||
Section 1.3 | Accounting Terms and Principles | 23 | |||
Section 1.4 | Payments | 24 | |||
Section 1.5 | Interpretation | 24 | |||
ARTICLE II THE FACILITIES |
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25 |
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Section 2.1 |
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The Commitments |
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25 |
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Section 2.2 | Borrowing Procedures | 25 | |||
Section 2.3 | Swing Loans | 26 | |||
Section 2.4 | Letters of Credit | 27 | |||
Section 2.5 | Reduction and Termination of the Commitments | 30 | |||
Section 2.6 | Repayment of Loans | 30 | |||
Section 2.7 | Optional Prepayments | 30 | |||
Section 2.8 | Mandatory Prepayments | 30 | |||
Section 2.9 | Interest | 31 | |||
Section 2.10 | Conversion and Continuation Options | 32 | |||
Section 2.11 | Fees | 32 | |||
Section 2.12 | Application of Payments | 33 | |||
Section 2.13 | Payments and Computations | 34 | |||
Section 2.14 | Evidence of Debt | 35 | |||
Section 2.15 | Suspension of Eurodollar Rate Option | 36 | |||
Section 2.16 | Breakage Costs; Increased Costs; Capital Requirements | 37 | |||
Section 2.17 | Taxes | 38 | |||
Section 2.18 | Substitution of Lenders | 40 | |||
ARTICLE III CONDITIONS TO LOANS AND LETTERS OF CREDIT |
|
41 |
|||
Section 3.1 |
|
Conditions Precedent to Initial Loans and Letters of Credit |
|
41 |
|
Section 3.2 | Conditions Precedent to Each Loan and Letter of Credit | 43 | |||
Section 3.3 | Determinations of Initial Borrowing Conditions | 44 | |||
ARTICLE IV REPRESENTATIONS AND WARRANTIES |
|
44 |
|||
Section 4.1 |
|
Corporate Existence; Compliance with Law |
|
44 |
|
Section 4.2 | Loan and Related Documents | 44 | |||
Section 4.3 | Ownership of Group Members | 45 | |||
Section 4.4 | Financial Statements | 45 | |||
Section 4.5 | Material Adverse Effect | 46 | |||
Section 4.6 | Solvency | 46 | |||
Section 4.7 | Litigation | 46 | |||
Section 4.8 | Taxes | 46 | |||
Section 4.9 | Margin Regulations | 46 | |||
Section 4.10 | No Burdensome Obligations; No Defaults | 46 | |||
Section 4.11 | Investment Company Act; Public Utility Holding Company Act | 47 | |||
Section 4.12 | Labor Matters | 47 | |||
Section 4.13 | ERISA | 47 | |||
Section 4.14 | Environmental Matters | 47 | |||
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Section 4.15 | Intellectual Property | 48 | |||
Section 4.16 | Title; Real Property | 48 | |||
Section 4.17 | Full Disclosure | 48 | |||
ARTICLE V FINANCIAL COVENANTS |
|
49 |
|||
Section 5.1 |
|
Maximum Consolidated Leverage Ratio |
|
49 |
|
Section 5.2 | Minimum Consolidated Fixed Charge Coverage Ratio | 49 | |||
Section 5.3 | Minimum Consolidated EBITDA | 50 | |||
Section 5.4 | Capital Expenditures | 50 | |||
ARTICLE VI REPORTING COVENANTS |
|
51 |
|||
Section 6.1 |
|
Financial Statements |
|
51 |
|
Section 6.2 | Other Events | 52 | |||
Section 6.3 | Copies of Notices and Reports | 53 | |||
Section 6.4 | Taxes | 53 | |||
Section 6.5 | Labor Matters | 53 | |||
Section 6.6 | ERISA Matters | 53 | |||
Section 6.7 | Environmental Matters | 53 | |||
Section 6.8 | Other Information | 54 | |||
ARTICLE VII AFFIRMATIVE COVENANTS |
|
54 |
|||
Section 7.1 |
|
Maintenance of Corporate Existence |
|
54 |
|
Section 7.2 | Compliance with Laws, Etc | 54 | |||
Section 7.3 | Payment of Obligations | 54 | |||
Section 7.4 | Maintenance of Property | 55 | |||
Section 7.5 | Maintenance of Insurance | 55 | |||
Section 7.6 | Keeping of Books | 55 | |||
Section 7.7 | Access to Books and Property | 55 | |||
Section 7.8 | Environmental | 56 | |||
Section 7.9 | Use of Proceeds | 56 | |||
Section 7.10 | Additional Collateral and Guaranties | 56 | |||
Section 7.11 | Deposit Accounts; Securities Accounts and Cash Collateral Accounts | 57 | |||
Section 7.12 | Payment of Taxes | 57 | |||
ARTICLE VIII NEGATIVE COVENANTS |
|
58 |
|||
Section 8.1 |
|
Indebtedness |
|
58 |
|
Section 8.2 | Liens | 59 | |||
Section 8.3 | Investments | 60 | |||
Section 8.4 | Asset Sales | 60 | |||
Section 8.5 | Restricted Payments | 61 | |||
Section 8.6 | Prepayment of Indebtedness | 61 | |||
Section 8.7 | Fundamental Changes | 62 | |||
Section 8.8 | Change in Nature of Business | 62 | |||
Section 8.9 | Transactions with Affiliates | 62 | |||
Section 8.10 | Third-Party Restrictions on Indebtedness, Liens, Investments or Restricted Payments | 63 | |||
Section 8.11 | Modification of Certain Documents | 63 | |||
Section 8.12 | Accounting Changes; Fiscal Year | 63 | |||
Section 8.13 | Margin Regulations | 63 | |||
Section 8.14 | Compliance with ERISA | 63 | |||
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Section 8.15 | Hazardous Materials | 64 | |||
ARTICLE IX EVENTS OF DEFAULT |
|
64 |
|||
Section 9.1 |
|
Definition |
|
64 |
|
Section 9.2 | Remedies | 65 | |||
Section 9.3 | Actions in Respect of Letters of Credit | 66 | |||
ARTICLE X INTENTIONALLY OMITTED |
|
66 |
|||
ARTICLE XI THE ADMINISTRATIVE AGENT |
|
66 |
|||
Section 11.1 |
|
Appointment and Duties |
|
66 |
|
Section 11.2 | Binding Effect | 67 | |||
Section 11.3 | Use of Discretion | 67 | |||
Section 11.4 | Delegation of Rights and Duties | 68 | |||
Section 11.5 | Reliance and Liability | 68 | |||
Section 11.6 | Administrative Agent Individually | 69 | |||
Section 11.7 | Lender Credit Decision | 69 | |||
Section 11.8 | Expenses; Indemnities | 69 | |||
Section 11.9 | Resignation of Administrative Agent or L/C Issuer | 70 | |||
Section 11.10 | Release of Collateral or Guarantors | 70 | |||
Section 11.11 | Additional Secured Parties | 71 | |||
ARTICLE XII MISCELLANEOUS |
|
71 |
|||
Section 12.1 |
|
Amendments, Waivers, Etc |
|
71 |
|
Section 12.2 | Assignments and Participations; Binding Effect | 73 | |||
Section 12.3 | Costs and Expenses | 75 | |||
Section 12.4 | Indemnities | 75 | |||
Section 12.5 | Survival | 76 | |||
Section 12.6 | Limitation of Liability for Certain Damages | 76 | |||
Section 12.7 | Lender-Creditor Relationship | 76 | |||
Section 12.8 | Right of Setoff | 76 | |||
Section 12.9 | Sharing of Payments, Etc | 77 | |||
Section 12.10 | Marshaling; Payments Set Aside | 77 | |||
Section 12.11 | Notices | 77 | |||
Section 12.12 | Electronic Transmissions | 78 | |||
Section 12.13 | Governing Law | 79 | |||
Section 12.14 | Jurisdiction | 79 | |||
Section 12.15 | Waiver Of Jury Trial | 80 | |||
Section 12.16 | Severability | 80 | |||
Section 12.17 | Execution in Counterparts | 80 | |||
Section 12.18 | Entire Agreement | 80 | |||
Section 12.19 | Use of Name | 80 | |||
Section 12.20 | Non-Public Information; Confidentiality | 81 | |||
Section 12.21 | Patriot Act Notice | 81 |
iii
SCHEDULES
Schedule I | | Commitments | ||
Schedule II | | Addresses for Notices | ||
Schedule 4.2 | | Consents | ||
Schedule 4.3 | | Ownership of Borrower and Subsidiaries | ||
Schedule 4.7 | | Litigation | ||
Schedule 4.12 | | Labor Matters | ||
Schedule 4.13 | | List of Plans | ||
Schedule 4.14 | | Environmental Matters | ||
Schedule 4.16 | | Real Property | ||
Schedule 8.1 | | Existing Indebtedness | ||
Schedule 8.2 | | Existing Liens | ||
Schedule 8.3 | | Existing Investments |
EXHIBITS
Exhibit A | | Form of Assignment | ||
Exhibit B | | Form of Note | ||
Exhibit C | | Form of Notice of Borrowing | ||
Exhibit D | | Form of Swingline Request | ||
Exhibit E | | Form of L/C Request | ||
Exhibit F | | Form of Notice of Conversion or Continuation | ||
Exhibit G | | Form of Compliance Certificate | ||
Exhibit H | | Form of Guaranty, Pledge and Security Agreement | ||
Exhibit I | | Closing Checklist |
iv
This CREDIT AGREEMENT, dated as of March 23, 2007, is entered into among PROS Revenue Management, L.P., a Delaware limited partnership (" Borrower "), PROS Holdings, Inc., a Delaware corporation (" Holdings "), PROS Revenue I, LLC, a Delaware limited liability company (" General Partner "), PROS Revenue II, LLC, a Delaware limited liability company (" Limited Partner ") (Holdings, General Partner and Limited Partner, each a " Guarantor " and collectively the " Parent Guarantors "), the Lenders (as defined below), the L/C Issuers (as defined below) and Churchill Financial LLC (" Churchill "), as administrative agent and lead arranger for the Lenders and the L/C Issuers (in such capacity, and together with its successors and permitted assigns, the " Administrative Agent ").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS
Section 1.1 Defined Terms. As used in this Agreement, the following terms have the following meanings:
" Acquisition Pro Forma " means, with respect to a Proposed Acquisition, a pro forma Consolidated balance sheet, income statement and cash flow statement of Borrower, based on recent Financial Statements, which shall be complete and shall fairly present in all material respects the assets, liabilities, financial condition and results of operations of Borrower and its Subsidiaries in accordance with GAAP, but taking into account such Proposed Acquisition and the funding of all Loans in connection therewith, and which shall reflect that (x) the average daily Revolver Availability for the six month period preceding the consummation of such Proposed Acquisition would have exceeded $2,000,000 on a pro forma basis (after giving effect to such Proposed Acquisition and all Loans funded in connection therewith as if made on the first day of such period) and the Acquisition Projections shall reflect that such Revolver Availability of $2,000,000 shall continue for at least six months after the consummation of such Proposed Acquisition, and (y) Borrower would have been in compliance with the financial covenants set forth in Article V on a Pro Forma Basis as of the last day of the last Fiscal Quarter for which Financial Statements have been delivered hereunder (after giving effect to such Proposed Acquisition and all Loans funded in connection therewith as if made on the first day of such period).
" Acquisition Projections " means, with respect to a Proposed Acquisition, updated versions of the most recently delivered Projections covering the 3-year period commencing on the date of such Proposed Acquisition and otherwise prepared in accordance with the Projections, and based upon historical financial data of a recent date reasonably satisfactory to the Administrative Agent, taking into account such Proposed Acquisition.
" Adjusted EBITDA " means the Consolidated EBITDA of Borrower, adjusted to reflect such additions and subtractions as shall be reasonably acceptable to the Required Lenders and the Borrower.
" Affected Lender " has the meaning specified in Section 2.18 .
" Affiliate " means, with respect to any Person, each officer, director, general partner or joint-venturer of such Person and any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person; provided , however , that no Secured Party shall be an Affiliate of Borrower. For purpose of this definition, " control " means the possession of either (a) the power to vote, or the beneficial ownership of, 10% or more of the Voting Stock of such Person or (b) the power to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.
" Agreement " means this Credit Agreement.
1
" Applicable Margin " means (a) with respect to Revolving Loans and Swing Line Loans (i) in the case of Base Rate Loans, 1.50% and (ii) in the case of Eurodollar Rate Loans, 2.75% and (b) with respect to the Term Loan (i) in the case of Base Rate Loans, 1.50% and (ii) in the case of Eurodollar Rate Loans, 2.75%.
" Approved Fund " means any Person (other than a natural Person) that (a) is or will be engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and (b) is advised or managed by (i) a Lender, (ii) any Affiliate of a Lender or (iii) any Person (other than an individual) or any Affiliate of any Person (other than an individual) that administers or manages a Lender.
" Assignment " means an assignment agreement entered into by a Lender, as assignor, and any prospective assignee thereof and accepted by the Administrative Agent, in substantially the form of Exhibit A .
" Base Rate " means, at any time, a rate per annum equal to the higher of (a) the rate last quoted by The Wall Street Journal in its "Money Rates" section as the "base rate on corporate loans posted by at least 75% of the nation's largest banks" in the United States or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Federal Reserve Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the "bank prime loan" rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as reasonably determined by the Administrative Agent) or any similar release by the Federal Reserve Board (as reasonably determined by the Administrative Agent) and (b) the sum of 0.5% per annum and the Federal Funds Rate.
" Base Rate Loan " means any Loan that bears interest based on the Base Rate.
" Benefit Plan " means any employee benefit plan as defined in Section 3(3) of ERISA (whether governed by the laws of the United States or otherwise) to which any Group Member incurs or otherwise has any obligation or liability, contingent or otherwise.
" Borrower " has the meaning specified in the preamble to this Agreement.
" Borrowing " means a borrowing consisting of Loans (other than Swing Loans and Loans deemed made pursuant to Section 2.3 or 2.4 ) made in one Facility on the same day by the Lenders according to their respective Commitments under such Facility.
" Business Day " means any day of the year that is not a Saturday, Sunday or a day on which banks are required or authorized to close in New York City and, when determined in connection with notices and determinations in respect of any Eurodollar Rate or Eurodollar Rate Loan or any funding, conversion, continuation, Interest Period or payment of any Eurodollar Rate Loan, that is also a day on which dealings in Dollar deposits are carried on in the London interbank market.
" Capital Expenditures " means, for any Person for any period, the aggregate of all expenditures, whether or not made through the incurrence of Indebtedness, by such Person and its Subsidiaries during such period for the acquisition, leasing (pursuant to a Capital Lease), construction, replacement, repair, substitution or improvement of fixed or capital assets or additions to equipment, in each case required to be capitalized under GAAP on a Consolidated balance sheet of such Person, excluding (a) interest capitalized during construction and (b) any expenditure to the extent, for purpose of the definition of Permitted Acquisition, such expenditure is part of the aggregate amounts payable in connection with, or other consideration for, any Permitted Acquisition consummated during or prior to such period.
" Capital Lease " means, with respect to any Person, any lease of, or other arrangement conveying the right to use, any property (whether real, personal or mixed) by such Person as lessee that has been or should be accounted for as a capital lease on a balance sheet of such Person prepared in accordance with GAAP.
2
" Capitalized Lease Obligations " means, at any time, with respect to any Capital Lease, any lease entered into as part of any synthetic lease, the amount of all obligations of such Person that is (or that would be, if such synthetic lease or other lease were accounted for as a Capital Lease) capitalized on a balance sheet of such Person prepared in accordance with GAAP.
" Cash Collateral Account " means a deposit account or securities account in the name of Borrower and under the sole control (as defined in the applicable UCC) of the Administrative Agent and (a) in the case of a deposit account, from which Borrower may not make withdrawals except as permitted by the Administrative Agent and (b) in the case of a securities account, with respect to which the Administrative Agent shall be the entitlement holder and the only Person authorized to give entitlement orders with respect thereto.
" Cash Equivalents " means (a) any readily-marketable securities (i) issued by, or directly, unconditionally and fully guaranteed or insured by the United States federal government or (ii) issued by any agency of the United States federal government the obligations of which are fully backed by the full faith and credit of the United States federal government, (b) any readily-marketable direct obligations issued by any other agency of the United States federal government, any state of the United States or any political subdivision of any such state or any public instrumentality thereof, in each case having a rating of at least "A-1" from S&P or at least "P-1" from Moody's, (c) any commercial paper rated at least " A-1 " by S&P or " P-1 " by Moody's and issued by any Person organized under the laws of any state of the United States, (d) any Dollar-denominated time deposit, insured certificate of deposit, overnight bank deposit or bankers' acceptance issued or accepted by (i) any Lender or (ii) any commercial bank that is (A) organized under the laws of the United States, any state thereof or the District of Columbia, (B) "adequately capitalized" (as defined in the regulations of its primary federal banking regulators) and (C) has Tier 1 capital (as defined in such regulations) in excess of $250,000,000 and (e) shares of any United States money market fund that (i) has substantially all of its assets invested continuously in the types of investments referred to in clause (a) , (b) , (c) or (d) above with maturities as set forth in the proviso below, (ii) has net assets in excess of $500,000,000 and (iii) has obtained from either S&P or Moody's the highest rating obtainable for money market funds in the United States; provided , however , that the maturities of all obligations specified in any of clauses (a) , (b) , (c) and (d) above shall not exceed 365 days.
" CERCLA " means the United States Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. §§ 9601 et seq.).
" Change of Control " means the occurrence of any of the following: (a) the stockholders of Holdings on the Closing Date, together with their Affiliates, shall cease to own and control, legally and beneficially, the economic and voting rights associated with ownership of at least 51% of the outstanding shares of Stock of Holdings on a fully-diluted basis free and clear of all Liens, rights, options, warrants or other similar agreements or understandings, (b) the Sponsor Group collectively shall cease to own and control, legally and beneficially, the economic and voting rights associated with ownership of at least 20% of the outstanding shares of Stock of Holdings on a fully-diluted basis free and clear of all Liens, rights, options, warrants or other similar agreements or understandings, (c) Holdings shall cease to own and control, legally and beneficially, all of the economic and voting rights associated with ownership of all outstanding Stock of General Partner and Limited Partner, or (d) General Partner and Limited Partner shall cease to own and control, legally and beneficially, all of the economic and voting rights associated with ownership of all outstanding Stock of Borrower.
" Churchill " has the meaning specified in the preamble to this Agreement.
" Closing Checklist " means the checklist of closing items attached as Exhibit I .
" Closing Date " means the first date on which any Loan is made or any Letter of Credit is Issued.
" Code " means the U.S. Internal Revenue Code of 1986, as amended.
3
" Collateral " means all property and interests in property and proceeds thereof now owned or hereafter acquired by any Loan Party in or upon which a Lien is granted or purported to be granted pursuant to any Loan Document.
" Commitment " means, with respect to any Lender, such Lender's Revolving Credit Commitment and Term Loan Commitment.
" Compliance Certificate " means a certificate substantially in the form of Exhibit G .
" Consolidated " means, with respect to any Person, the accounts of such Person and its Subsidiaries consolidated in accordance with GAAP.
" Consolidated Cash Interest Expense " means, with respect to any Person for any period, the Consolidated Interest Expense of such Person paid or payable in cash during such fiscal period.
" Consolidated EBITDA " means, with respect to any Person for any period, (a) the Consolidated Net Income of such Person for such period plus (b) the sum of, in each case to the extent included in the calculation of such Consolidated Net Income but without duplication, (i) any provision for United States federal income taxes or other taxes measured by income, (ii) Consolidated Interest Expense, amortization of debt discount and commissions and other fees and charges associated with Indebtedness, (iii) any depreciation and amortization expense, (iv) any aggregate net loss on the Sale of property (other than accounts (as defined under the applicable UCC) and inventory) outside the ordinary course of business, (v) the aggregate amount of all fees, costs or expenses (up to but not exceeding an aggregate amount of $400,000) paid to the holders of the Notes pursuant to the terms of this Agreement or otherwise incurred in connection with the financing transactions contemplated hereby, and (vi) any other non-cash expenditure, charge or loss for such period (other than any non-cash expenditure, charge or loss relating to write-offs, write-downs or reserves with respect to accounts and inventory), including the amount of any compensation deduction as the result of any grant of Stock or Stock Equivalents to employees, officers, directors or consultants made pursuant to an equity incentive plan approved by the board of directors of such Person, and minus (c) the sum of, in each case to the extent included in the calculation of such Consolidated Net Income and without duplication, (i) any credit for United States federal income taxes or other taxes measured by income, (ii) any gain from extraordinary items and any other non-recurring gain, (iii) any aggregate net gain from the Sale of property (other than accounts (as defined in the applicable UCC) and inventory) outside the ordinary course of business by such Person, (iv) any other non-cash gain, including any reversal of a charge referred to in clause (b)(vi) above by reason of a decrease in the value of any Stock or Stock Equivalent, and (v) any other cash payment in respect of expenditures, charges and losses that have been added to Consolidated EBITDA of such Person pursuant to clause (b)(vi) above in any prior period.
In addition, for purposes of calculating the Consolidated Leverage Ratio for any reference period, Borrower may include without duplication the EBITDA of Permitted Acquisitions during the reference period as if such transaction had occurred as of the first day of the reference period; provided , however, that (a) only the actual historical results of operations of the Person so acquired, without adjustment for pro forma expense savings or revenue increases, shall be used for such calculation, (b) such acquired EBITDA may be included only if (i) the financial statements of such Permitted Acquisitions have been audited for the period sought to be included or (ii) the Required Lenders consent to such inclusion after being furnished with other acceptable financial statements, (c) such acquired EBITDA shall be adjusted to exclude expenses which are discontinued upon acquisition (including, without limitation, owner's compensation), as approved by the Required Lenders, and (d) any Indebtedness of such Person that assumed by a Loan Party shall be included during the reference period as if such Indebtedness had been assumed as of the first day of the reference period.
4
" Consolidated Fixed Charge Coverage Ratio " means, with respect to any Person for any period, the ratio of (a) Consolidated EBITDA of such Person for such period minus Non-Financed Capital Expenditures of such Person for such period minus the total liability for United States federal income taxes and other taxes measured by net income actually payable by such Person during such period (other than the Excluded Tax Payment) to (b) the Consolidated Fixed Charges of such Person for such period.
" Consolidated Fixed Charges " means, with respect to any Person for any period, the sum, determined on a Consolidated basis, of (a) Consolidated Cash Interest Expense, (b) the principal amount of Consolidated Total Debt payable during such period, (c) all cash dividends on Stock in respect of such period paid or payable by such Person and its Subsidiaries other than the Specified Dividend, (d) all commitment fees and other costs, fees and expenses payable in order to effect, or because of, the incurrence of any Indebtedness and (e) management fees payable during such period.
" Consolidated Interest Expense " means, for any Person for any period, (a) Consolidated total interest expense of such Person for such period and including, in any event, (i) interest capitalized during such period and net costs under Interest Rate Contracts for such period and (ii) all fees, charges, commissions, discounts and other similar obligations (other than reimbursement obligations) with respect to letters of credit, bank guarantees, banker's acceptances, surety bonds and performance bonds (whether or not matured) payable during such period minus (b) the sum of (i) Consolidated net gains of such Person under Interest Rate Contracts for such period and (ii) Consolidated interest income of such Person.
" Consolidated Leverage Ratio " means, with respect to any Person as of any date, the ratio of (a) Consolidated Total Debt of such Person outstanding as of such date to (b) Consolidated EBITDA for such Person for the last period of four consecutive Fiscal Quarters ending on or before such date.
" Consolidated Net Income " means, with respect to any Person, for any period, the Consolidated net income (or loss) of such Person and its Subsidiaries for such period; provided , however , that the following shall be excluded: (a) the net income of any other Person in which such Person or one of its Subsidiaries has a joint interest with a third-party (which interest does not cause the net income of such other Person to be Consolidated into the net income of such Person), except to the extent of the amount of cash dividends or distributions paid to such Person or Subsidiary, (b) the net income of any Subsidiary of such Person that is, on the last day of such period, subject to any restriction or limitation on the payment of dividends or the making of other distributions, to the extent of such restriction or limitation and (c) the net income of any other Person arising prior to such other Person becoming a Subsidiary of such Person or merging or consolidating into such Person or its Subsidiaries.
" Consolidated Total Debt " of any Person means all Indebtedness of a type described in clause (a) , (b) , (c)(i) , (d) or (f) of the definition thereof and all Guaranty Obligations with respect to any such Indebtedness, in each case of such Person and its Subsidiaries on a Consolidated basis.
" Constituent Documents " means, with respect to any Person, collectively and, in each case, together with any modification of any term thereof, (a) the articles of incorporation, certificate of incorporation, constitution or certificate of formation of such Person, (b) the bylaws, operating agreement or joint venture agreement of such Person, (c) any other constitutive, organizational or governing document of such Person, whether or not equivalent, and (d) any other document setting forth the manner of election or duties of the directors, officers or managing members of such Person or the designation, amount or relative rights, limitations and preferences of any Stock of such Person.
" Contractual Obligation " means, with respect to any Person, any provision of any Security issued by such Person or of any document or undertaking (other than a Loan Document) to which such Person is a party or by which it or any of its property is bound or to which any of its property is subject.
5
" Control Agreement " means, with respect to any deposit account, any securities account, commodity account, securities entitlement or commodity contract, an agreement, in form and substance reasonably satisfactory to the Administrative Agent, among the Administrative Agent, the financial institution or other Person at which such account is maintained or with which such entitlement or contract is carried and the Loan Party maintaining such account, effective to grant "control" (as defined under the applicable UCC) over such account to the Administrative Agent.
" Controlled Deposit Account " means each deposit account (including all funds on deposit therein) that is the subject of an effective Control Agreement and that is maintained by any Loan Party with a financial institution approved by the Administrative Agent.
" Controlled Securities Account " means each securities account or commodity account (including all financial assets held therein and all certificates and instruments, if any, representing or evidencing such financial assets) that is the subject of an effective Control Agreement and that is maintained by any Loan Party with a securities intermediary or commodity intermediary approved by the Administrative Agent.
" Copyrights " means all rights, title and interests (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to copyrights and all mask work, database and design rights, whether or not registered or published, all registrations and recordations thereof and all applications in connection therewith.
" Corporate Chart " means a document in form reasonably acceptable to the Administrative Agent and setting forth, as of a date set forth therein, for each Person that is a Loan Party, that is subject to Section 7.10 or that is a Subsidiary or joint venture of any of them, (a) the full legal name of such Person, (b) the jurisdiction of organization and any organizational number and tax identification number of such Person, (c) the location of such Person's chief executive office (or, if applicable, sole place of business) and (d) the number of shares of each class of Stock of such Person (other than Holdings) authorized, the number outstanding and the number and percentage of such outstanding shares for each such class owned, directly or indirectly, by any Loan Party or any Subsidiary or any other equity holder of any of them.
" Customary Permitted Liens " means, with respect to any Person, any of the following:
(a) Liens (i) with respect to the payment of taxes, assessments or other governmental charges or (ii) of suppliers, carriers, materialmen, warehousemen, workmen or mechanics and other similar Liens, in each case imposed by law or arising in the ordinary course of business, and, for each of the Liens in clauses (i) and (ii) above for amounts that are not yet due or that are being contested in good faith by appropriate proceedings diligently conducted and with respect to which adequate reserves or other appropriate provisions are maintained on the books of such Person in accordance with GAAP;
(b) Liens of a collection bank on items in the course of collection arising under Section 4-208 of the UCC as in effect in the State of New York or any similar section under any applicable UCC or any similar Requirement of Law of any foreign jurisdiction;
(c) pledges or cash deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance or other types of social security benefits (other than any Lien imposed by ERISA), (ii) to secure the performance of bids, tenders, leases (other than Capital Leases), sales or other trade contracts (other than for the repayment of borrowed money) or (iii) made in lieu of, or to secure the performance of, surety, customs, reclamation or performance bonds (in each case not related to judgments or litigation);
(d) judgment liens (other than for the payment of taxes, assessments or other governmental charges) securing judgments and other proceedings not constituting an Event of Default under
6
Section 9.1(e) and pledges or cash deposits made in lieu of, or to secure the performance of, judgment or appeal bonds in respect of such judgments and proceedings;
(e) Liens (i) arising by reason of zoning restrictions, easements, licenses, reservations, restrictions, covenants, rights-of-way, encroachments, minor defects or irregularities in title (including leasehold title) and other similar encumbrances on the use of real property or (ii) consisting of leases, licenses, subleases or sublicenses granted by a lessor, licensor, sublicensor or sublessor on its property (in each case other than Capital Leases) otherwise permitted under Section 8.4 that, for each of the Liens in clauses (i) and (ii) above, do not, in the aggregate, materially (x) impair the value or marketability of such real property or (y) interfere with the ordinary conduct of the business conducted and proposed to be conducted at such real property;
(f) Liens of landlords and mortgagees of landlords (i) arising by statute or under any lease or related Contractual Obligation entered into in the ordinary course of business, (ii) on fixtures and movable tangible property located on the real property leased or subleased from such landlord, (iii) for amounts not yet due or that are being contested in good faith by appropriate proceedings diligently conducted and (iv) for which adequate reserves or other appropriate provisions are maintained on the books of such Person in accordance with GAAP; and
(g) the title and interest of a lessor or sublessor in and to personal property leased or subleased (other than through a Capital Lease), in each case extending only to such personal property.
" Default " means any Event of Default and any event that, with the passing of time or the giving of notice or both, would become an Event of Default.
" Disclosure Documents " means, collectively, (a) all confidential information memoranda and related materials prepared in connection with the syndication of the Facilities and (b) all other documents filed by any Group Member with the United States Securities and Exchange Commission.
" Dollars " and the sign " $ " each mean the lawful money of the United States of America.
" Domestic Person " means any " United States person " under and as defined in Section 770l(a)(30) of the Code.
" Electronic Transmission " means each document, instruction, authorization, file, information and any other communication transmitted, posted or otherwise made or communicated by e-mail or E-Fax, or otherwise to or from an E-System or other equivalent service.
" Employee Stock Buybacks " means the redemption, purchase or other acquisition or retirement for value by Holdings of its common Stock (or Stock Equivalents with respect to its common Stock) from any present or former employee, director or officer (or the assigns, estate, heirs or current or former spouses thereof) of any Group Member upon the death, disability or termination of employment of such employee, director or officer.
" Environmental Laws " means all Requirements of Law and Permits imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources, including CERCLA, the SWDA, the Hazardous Materials Transportation Act (49 U.S.C. §§ 5101 et seq.), the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.), the Toxic Substances Control Act (15 U.S.C. §§ 2601 et seq.), the Clean Air Act (42 U.S.C. §§ 7401 et seq.), the Federal Water Pollution Control Act (33 U.S.C. §§ 1251 et seq.), the Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.), the Safe Drinking Water Act (42 U.S.C. §§ 300(f) et seq.), all regulations promulgated under any of the foregoing, all analogous Requirements of Law and Permits and any environmental transfer of ownership notification or approval statutes, including the Industrial Site Recovery Act (N.J. Stat. Ann. §§ 13:1K-6 et seq.).
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" Environmental Liabilities " means all Liabilities (including costs of Remedial Actions, natural resource damages and costs and expenses of investigation and feasibility studies) that may be imposed on, incurred by or asserted against any Group Member as a result of, or related to, any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law or otherwise, arising under any Environmental Law or in connection with any environmental, health or safety condition or with any Release and resulting from the ownership, lease, sublease or other operation or occupation of property by any Group Member, whether on, prior or after the date hereof.
" ERISA " means the United States Employee Retirement Income Security Act of 1974.
" ERISA Affiliate " means, collectively, any Group Member, and any Person under common control, or treated as a single employer, with any Group Member, within the meaning of Section 414(b), (c), (m) or (o) of the Code.
" ERISA Event " means any of the following: (a) a reportable event described in Section 4043(b) of ERISA (or, unless the 30-day notice requirement has been duly waived under the applicable regulations, Section 4043(c) of ERISA) with respect to a Title IV Plan, (b) the withdrawal of any ERISA Affiliate from a Title IV Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA, (c) the complete or partial withdrawal of any ERISA Affiliate from any Multiemployer Plan, (d) with respect to any Multiemployer Plan, the filing of a notice of reorganization, insolvency or termination (or treatment of a plan amendment as termination) under Section 4041A of ERISA, (e) the filing of a notice of intent to terminate a Title IV Plan (or treatment of a plan amendment as termination) under Section 4041 of ERISA, (f) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC, (g) the failure to make any required contribution to any Title IV Plan or Multiemployer Plan when due, (h) the imposition of a lien under Section 412 of the Code or Section 302 or 4068 of ERISA on any property (or rights to property, whether real or personal) of any ERISA Affiliate, (i) the failure of a Benefit Plan or any trust thereunder intended to qualify for tax exempt status under Section 401 or 501 of the Code or other Requirements of Law to qualify thereunder and (j) any other event or condition that might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of any liability upon any ERISA Affiliate under Title IV of ERISA other than for PBGC premiums due but not delinquent.
" E-Signature " means the process of attaching to or logically associating with an Electronic Transmission an electronic symbol, encryption, digital signature or process (including the name or an abbreviation of the name of the party transmitting the Electronic Transmission) with the intent to sign, authenticate or accept such Electronic Transmission.
" E-System " means any electronic system, including Intralinks® and any other Internet or extranet-based site, whether such electronic system is owned, operated or hosted by the Administrative Agent, any of its Related Persons or any other Person, providing for access to data protected by passcodes or other security system.
" Eurodollar Base Rate " means, with respect to any Interest Period for any Eurodollar Rate Loan, the rate determined by the Administrative Agent to be the offered rate for deposits in Dollars for the applicable Interest Period appearing on the Reuters Screen LIBOR01 Page as of 11:00 a.m. (London time) on the second full Business Day next preceding the first day of each Interest Period. In the event that such rate does not appear on the Reuters Screen LIBOR01 Page (or otherwise on the Reuters screen) at such time, the " Eurodollar Base Rate " shall be determined by reference to such other page as may replace that page on that service or such other comparable publicly available service for displaying the offered rate for deposit in Dollars in the London interbank market as may be selected by
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the Administrative Agent and, in the absence of availability, such other method to determine such offered rate as may be selected by the Administrative Agent in its reasonable discretion.
" Eurodollar Rate " means, with respect to any Interest Period and for any Eurodollar Rate Loan, an interest rate per annum determined as the ratio of (a) the Eurodollar Base Rate with respect to such Interest Period for such Eurodollar Rate Loan to (b) the difference between the number one and the Eurodollar Reserve Requirements with respect to such Interest Period and for such Eurodollar Rate Loan.
" Eurodollar Rate Loan " means any Loan that bears interest based on the Eurodollar Rate.
" Eurodollar Reserve Requirements " means, with respect to any Interest Period and for any Eurodollar Rate Loan, a rate per annum equal to the aggregate, without duplication, of the maximum rates (expressed as a decimal number) of reserve requirements in effect 2 Business Days prior to the first day of such Interest Period (including basic, supplemental, marginal and emergency reserves) under any regulations of the Federal Reserve Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "eurocurrency liabilities" in Regulation D of the Federal Reserve Board) maintained by a member bank of the United States Federal Reserve System.
" Event of Default " has the meaning specified in Section 9.1 .
" Excess Cash Flow " means, for any period, Consolidated EBITDA of Holdings for such period plus ( minus ) reductions (additions) to Working Capital for such period, minus , without duplication, (i) any cash principal payment on the Loans during such period (but only, in the case of payment in respect of Revolving Loans, to the extent that the Revolving Credit Commitments are permanently reduced by the amount of such payment) including any mandatory prepayments made to the Administrative Agent pursuant to Sections 2.8(b) or Section 2.8(c) , (ii) any scheduled cash principal payment made by Borrower or any of its Subsidiaries during such period on any Capitalized Lease Obligation or other Indebtedness (but only, if such Indebtedness may be reborrowed, to the extent such payment results in a permanent reduction in commitments thereof), (iii) any Capital Expenditure made by Holdings or any of its Subsidiaries during such period to the extent permitted by this Agreement, excluding the portion thereof financed with Indebtedness payable over a period in excess of 12 months, (iv) the Consolidated Cash Interest Expense of Holdings for such period, (v) any cash payment made during such period to satisfy obligations for United States federal income taxes or other taxes measured by income, and (vi) the aggregate amount of all fees, costs or expenses (up to but not exceeding an aggregate amount of $400,000) paid to the holders of the Notes pursuant to the terms of this Agreement or otherwise incurred in connection with the financing transactions contemplated hereby.
" Excluded Foreign Subsidiary " means any Subsidiary of Holdings that is not a Domestic Person and in respect of which any of (a) the pledge of all of the Stock of such Subsidiary as Collateral for the Obligations, (b) the grant by such Subsidiary of a Lien on any of its property as Collateral for any Obligation of Holdings or any Subsidiary thereof or (c) such Subsidiary incurring Guaranty Obligations with respect to any Obligation of Holdings, Borrower or any Domestic Person would, in the good faith judgment of Holdings, result in incremental adverse income tax consequences to the Loan Parties and their Subsidiaries, taken as a whole under Section 956 of the Code taking into account actual anticipated repatriation of funds, foreign tax credits and all relevant factors; provided , however , that (x) the Required Lenders and Holdings may agree that, despite the foregoing, any such Subsidiary shall not be an " Excluded Foreign Subsidiary " and (y) no such Subsidiary shall be an " Excluded Foreign Subsidiary " if, with substantially similar tax consequences, such Subsidiary has entered into any Guaranty Obligations with respect to, such Subsidiary has granted a security interest in any of its property to secure, or more than 66% of the Voting Stock of such Subsidiary was pledged to secure, directly or indirectly, any Indebtedness (other than the Obligations) of any Loan Party.
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" Excluded Tax Payment " means the cash tax payment in an amount of up to $1,200,000 made or to be made by Borrower during the Fiscal Quarter ended March 31, 2007 relating to earnings during the Fiscal Year ended December 31, 2006.
" Facilities " means (a) the Term Loan Facility and (b) the Revolving Credit Facility.
" Federal Funds Rate " means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as determined by the Administrative Agent in its sole discretion.
" Federal Reserve Board " means the Board of Governors of the United States Federal Reserve System and any successor thereto.
" Fee Letter " means the letter agreement from Borrower and addressed to and accepted by Churchill, with respect to certain fees to be paid from time to time to Churchill as the Administrative Agent and its Related Persons.
" Financial Statement " means each financial statement delivered pursuant to Section 4.4 or 6.1 .
" Fiscal Quarter " means each 3 fiscal month period ending on March 31, June 30, September 30 or December 31.
" Fiscal Year " means the twelve month period ending on December 31.
" GAAP " means generally accepted accounting principles in the United States of America, as in effect from time to time, set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants, in the statements and pronouncements of the Financial Accounting Standards Board and in such other statements by such other entity as may be in general use by significant segments of the accounting profession that are applicable to the circumstances as of the date of determination. Subject to Section 1.3 , all references to " GAAP " shall be to GAAP applied consistently with the principles used in the preparation of the Financial Statements described in Section 4.4(a) .
" General Partner " means PROS Revenue I, LLC, a Delaware limited liability company.
" Governmental Authority " means any nation, sovereign or government, any state or other political subdivision thereof, any agency, authority or instrumentality thereof and any entity or authority exercising executive, legislative, taxing, judicial, regulatory or administrative functions of or pertaining to government, including any central bank, stock exchange, regulatory body, arbitrator, public sector entity, supra-national entity (including the European Union and the European Central Bank) and any self-regulatory organization (including the National Association of Insurance Commissioners).
" Group Members " means, collectively, Holdings and each of its Subsidiaries (including Borrower).
" Group Members' Accountants " means PricewaterhouseCoopers LLC or other nationally-recognized independent registered certified public accountants acceptable to the Administrative Agent.
" Guarantor " means Holdings, each Subsidiary of Holdings, each Wholly Owned Subsidiary of Borrower that is not an Excluded Foreign Subsidiary, and each other Person that enters into any Guaranty Obligation with respect to any Obligation of any Loan Party. As of the Closing Date, the Guarantors are: Holdings, General Partner and Limited Partner.
" Guaranty, Pledge and Security Agreement " means a guaranty, pledge and security agreement, in substantially the form of Exhibit H , among the Administrative Agent, Borrower and Guarantors from time to time party thereto.
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" Guaranty Obligation " means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of such Person for any Indebtedness, lease, dividend or other obligation (the " primary obligation ") of another Person (the " primary obligor "), if the purpose or intent of such Person in incurring such liability, or the economic effect thereof, is to guarantee such primary obligation or provide support, assurance or comfort to the holder of such primary obligation or to protect or indemnify such holder against loss with respect to such primary obligation, including (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of any primary obligation, (b) the incurrence of reimbursement obligations with respect to any letter of credit or bank guarantee in support of any primary obligation, (c) the existence of any Lien, or any right, contingent or otherwise, to receive a Lien, on the property of such Person securing any part of any primary obligation and (d) any liability of such Person for a primary obligation through any Contractual Obligation (contingent or otherwise) or other arrangement (i) to purchase, repurchase or otherwise acquire such primary obligation or any security therefor or to provide funds for the payment or discharge of such primary obligation (whether in the form of a loan, advance, stock purchase, capital contribution or otherwise), (ii) to maintain the solvency, working capital, equity capital or any balance sheet item, level of income or cash flow, liquidity or financial condition of any primary obligor, (iii) to make take-or-pay or similar payments, if required, regardless of non-performance by any other party to any Contractual Obligation, (iv) to purchase, sell or lease (as lessor or lessee) any property, or to purchase or sell services, primarily for the purpose of enabling the primary obligor to satisfy such primary obligation or to protect the holder of such primary obligation against loss or (v) to supply funds to or in any other manner invest in, such primary obligor (including to pay for property or services irrespective of whether such property is received or such services are rendered); provided , however , that " Guaranty Obligations " shall not include (x) endorsements for collection or deposit in the ordinary course of business and (y) product warranties given in the ordinary course of business. The outstanding amount of any Guaranty Obligation shall equal the outstanding amount of the primary obligation so guaranteed or otherwise supported or, if lower, the stated maximum amount for which such Person may be liable under such Guaranty Obligation.
" Hazardous Material " means any substance, material or waste that is classified, regulated or otherwise characterized under any Environmental Law as hazardous, toxic, a contaminant or a pollutant or by other words of similar meaning or regulatory effect, including petroleum or any fraction thereof, asbestos, polychlorinated biphenyls and radioactive substances.
" Hedging Agreement " means any Interest Rate Contract, foreign exchange, swap, option or forward contract, spot, cap, floor or collar transaction, any other derivative instrument and any other similar speculative transaction and any other similar agreement or arrangement designed to alter the risks of any Person arising from fluctuations in any underlying variable.
" Holdings " means PROS Holdings, Inc., a Delaware corporation.
" Indebtedness " of any Person means, without duplication, any of the following, whether or not matured: (a) all indebtedness for borrowed money, (b) all obligations evidenced by notes, bonds, debentures or similar instruments, (c) all reimbursement and all obligations with respect to (i) letters of credit, bank guarantees or bankers' acceptances or (ii) surety, customs, reclamation or performance bonds (in each case not related to judgments or litigation), (d) all obligations to pay the deferred purchase price of property or services, other than trade payables incurred in the ordinary course of business that are unsecured and not overdue by more than 60 days unless being contested in good faith, (e) all obligations created or arising under any conditional sale or other title retention agreement, regardless of whether the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property, (f) all Capitalized Lease Obligations and the net present value (discounted at the Base Rate as in effect on the Closing Date) of future rental payments under all synthetic leases, (g) all obligations, whether or not contingent, to purchase, redeem,
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retire, defease or otherwise acquire for value any of its own Stock or Stock Equivalents (or any Stock or Stock Equivalent of a direct or indirect parent entity thereof) prior to the date that is one year after the Scheduled Maturity Date, valued at, in the case of redeemable preferred Stock, the greater of the voluntary liquidation preference and the involuntary liquidation preference of such Stock plus accrued and unpaid dividends, (h) all payments that would be required to be made in respect of any Hedging Agreement in the event of a termination (including an early termination) on the date of determination, (i) "earnouts" and similar payment obligations, and (j) all Guaranty Obligations for obligations of any other Person constituting Indebtedness of such other Person; provided , however , that the items in each of clauses (a) through (j) above shall constitute " Indebtedness " of such Person solely to the extent, directly or indirectly, (x) such Person is liable for any part of any such item, (y) any such item is secured by a Lien on such Person's property or (z) any other Person has a right, contingent or otherwise, to cause such Person to become liable for any part of any such item or to grant such a Lien.
" Indemnified Matter " has the meaning specified in Section 12.4 .
" Indemnitee " has the meaning specified in Section 12.4 .
" Initial Projections " means those financial projections, dated March 2, covering the Fiscal Years ending in 2007 through 2011 and delivered to the Administrative Agent by Borrower prior to the date hereof.
" Intellectual Property " means all rights, title and interests in or relating to intellectual property and industrial property arising under any Requirement of Law and all IP Ancillary Rights relating thereto, including all Copyrights, Patents, Trademarks, Internet Domain Names, Trade Secrets and IP Licenses.
" Interest Period " means, with respect to any Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is made or converted to a Eurodollar Rate Loan or, if such loan is continued, on the last day of the immediately preceding Interest Period therefor and, in each case, ending 1, 2, 3, 6 or, if available to all Lenders, 9 or 12 months thereafter, as selected by Borrower pursuant hereto; provided , however , that (a) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless the result of such extension would be to extend such Interest Period into another such Business Day falls in the next calendar month, in which case such Interest Period shall end on the immediately preceding Business Day, (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month, (c) Borrower may not select any Interest Period (i) in the case of Revolving Loans, ending after the Scheduled Maturity Date and (ii) in the case of Term Loans, ending after the Term Loan Maturity Date, (d) Borrower may not select any Interest Period in respect of Loans having an aggregate principal amount of less than $1,000,000 and (e) there shall be outstanding at any one time no more than 8 Interest Periods.
" Interest Rate Contracts " means all interest rate swap agreements, interest rate cap agreements, interest rate collar agreements and interest rate insurance.
" Internet Domain Names " means all rights, title and interests (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to Internet domain names.
" Investment " means, with respect to any Person, directly or indirectly, (a) to own, purchase or otherwise acquire, in each case whether beneficially or otherwise, any investment in, including any interest in, any Security of any other Person (other than any evidence of any Obligation), (b) to purchase or otherwise acquire, whether in one transaction or in a series of transactions, all or a significant part of the property of any other Person or a business conducted by any other Person or all or substantially all of the assets constituting the business of a division, branch, brand or other unit operation of any other Person, (c) to incur, or to remain liable under, any Guaranty Obligation for Indebtedness of any other Person, to assume the Indebtedness of any other Person or to make, hold,
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purchase or otherwise acquire, in each case directly or indirectly, any deposit, loan, advance, commitment to lend or advance, or other extension of credit (including by deferring or extending the date of, in each case outside the ordinary course of business, the payment of the purchase price for Sales of property or services to any other Person, to the extent such payment obligation constitutes Indebtedness of such other Person), excluding deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable and similar items created in the ordinary course of business, (d) to make, directly or indirectly, any contribution to the capital of any other Person or (e) to Sell any property for less than fair market value (including a disposition of cash or Cash Equivalents in exchange for consideration of lesser value); provided , however , that such Investment shall be valued at the difference between the value of the consideration for such Sale and the fair market value of the property Sold.
" IP Ancillary Rights " means, with respect to any Intellectual Property, as applicable, all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions of, such Intellectual Property and all income, royalties, proceeds and Liabilities at any time due or payable or asserted under or with respect to any of the foregoing or otherwise with respect to such Intellectual Property, including all rights to sue or recover at law or in equity for any past, present or future infringement, misappropriation, dilution, violation or other impairment thereof, and, in each case, all rights to obtain any other IP Ancillary Right.
" IP License " means all Contractual Obligations (and all related IP Ancillary Rights), whether written or oral, granting any right title and interest in or relating to any Intellectual Property.
" IRS " means the Internal Revenue Service of the United States and any successor thereto.
" Issue " means, with respect to any Letter of Credit, to issue, extend the expiration date of, renew (including by failure to object to any automatic renewal on the last day such objection is permitted), increase the face amount of, or reduce or eliminate any scheduled decrease in the face amount of, such Letter of Credit, or to cause any Person to do any of the foregoing. The terms " Issued " and " Issuance " have correlative meanings.
" Landlord Waiver " means the waiver executed by Houston Community College System as lessor of office space located at ComTech Center, 3100 South Main Street, Houston, Harris County, Texas, in a form reasonably acceptable to the Administrative Agent.
" L/C Cash Collateral Account " means any Cash Collateral Account (a) specifically designated as such by the applicable Borrower in a notice to the Administrative Agent and (b) from and after the effectiveness of such notice, not containing any funds other than those required under the Loan Documents to be placed therein.
" L/C Issuer " means (a) the Administrative Agent or any of its Affiliates and (b) each Person that hereafter becomes an L/C Issuer with the approval of, and pursuant to an agreement with and in form and substance satisfactory to, the Administrative Agent and Borrower, in each case in their capacity as L/C Issuers hereunder and together with their successors.
" L/C Obligations " means, for any Letter of Credit at any time, the sum of (a) the L/C Reimbursement Obligations at such time for such Letter of Credit and (b) the aggregate maximum undrawn face amount of such Letter of Credit outstanding at such time.
" L/C Reimbursement Agreement " has the meaning specified in Section 2.4(a) .
" L/C Reimbursement Date " has the meaning specified in Section 2.4(e) .
" L/C Reimbursement Obligation " means, for any Letter of Credit, the obligation of Borrower to the L/C Issuer thereof, as and when matured, to pay all amounts drawn under such Letter of Credit.
" L/C Request " has the meaning specified in Section 2.4(b) .
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" L/C Sublimit " means $1,000,000.
" Lender " means, collectively, the Swingline Lender and any other financial institution or other Person that (a) is listed on the signature pages hereof as a " Lender " or (b) from time to time becomes a party hereto by execution of an Assignment, in each case together with its successors.
" Letter of Credit " means any letter of credit Issued pursuant to Section 2.4 .
" Liabilities " means all claims, actions, suits, judgments, damages, losses, liability, obligations, responsibilities, fines, penalties, sanctions, costs, fees, taxes, commissions, charges, disbursements and expenses, in each case of any kind or nature (including interest accrued thereon or as a result thereto and fees, charges and disbursements of financial, legal and other advisors and consultants), whether joint or several, whether or not indirect, contingent, consequential, actual, punitive, treble or otherwise.
" Lien " means any mortgage, deed of trust, pledge, hypothecation, assignment, charge, deposit arrangement, encumbrance, easement, lien (statutory or other), security interest or other security arrangement and any other preference, priority or preferential arrangement of any kind or nature whatsoever, including any conditional sale contract or other title retention agreement, the interest of a lessor under a Capital Lease and any synthetic or other financing lease having substantially the same economic effect as any of the foregoing.
" Limited Partner " means PROS Revenue II, LLC, a Delaware limited liability company.
" Loan " means any loan made or deemed made by any Lender hereunder.
" Loan Documents " means, collectively, this Agreement, any Notes, the Guaranty, Pledge and Security Agreement, any Mortgages, the Control Agreements, the Fee Letter, the L/C Reimbursement Agreements, the Landlord Waiver, and, when executed, each document executed by a Loan Party and delivered to the Administrative Agent, any Lender or any L/C Issuer in connection with or pursuant to any of the foregoing or the Obligations, together with any modification of any term, or any waiver with respect to, any of the foregoing.
" Loan Party " means Borrower and each Guarantor.
" Material Adverse Effect " means an effect that results in or causes, or could reasonably be expected to result in or cause, a material adverse change in any of (a) the condition (financial or otherwise), business, performance, operations or property of the Group Members, taken as a whole, (b) the ability of any Loan Party to perform its obligations under any Loan Document and (c) the validity or enforceability of any Loan Document or the rights and remedies of the Administrative Agent, the Lenders and the other Secured Parties under any Loan Document.
" Material Contract " means with respect to any Person, each contract or agreement to which such Person is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto would reasonably be expected to have a Material Adverse Effect.
" Material Environmental Liabilities " means Environmental Liabilities exceeding $250,000 in the aggregate.
" Moody's " means Moody's Investors Service, Inc.
" Mortgage " means any mortgage, deed of trust or other document executed or required herein to be executed by any Loan Party and granting a security interest over real property in favor of the Administrative Agent as security for the Obligations.
" Mortgage Supporting Documents " means, with respect to any Mortgage for a parcel of real property, each document (including title policies or marked-up unconditional insurance binders (in each case, together with copies of all documents referred to therein), maps, ALTA (or TLTA, if applicable) as-built surveys (in form and as to date that is sufficiently acceptable to the title insurer issuing title
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insurance to the Administrative Agent for such title insurer to deliver endorsements to such title insurance as reasonably requested by the Administrative Agent), environmental assessments and reports and evidence regarding recording and payment of fees, insurance premium and taxes) that the Administrative Agent may reasonably request, to create, register, perfect, maintain, evidence the existence, substance, form or validity of or enforce a valid lien on such parcel of real property in favor of the Administrative Agent for the benefit of the Secured Parties, subject only to such Liens as the Administrative Agent may approve.
" Multiemployer Plan " means any multiemployer plan, as defined in Section 400l(a)(3) of ERISA, to which any ERISA Affiliate incurs or otherwise has any obligation or liability, contingent or otherwise.
" Net Cash Proceeds " means proceeds received in cash from (a) any Sale of, or Property Loss Event with respect to, property, net of (i) the customary reasonable out-of-pocket cash costs, fees and expenses paid in connection therewith, (ii) taxes paid or reasonably estimated to be payable as a result thereof and (iii) any amount required to be paid or prepaid on Indebtedness (other than the Obligations and Indebtedness owing to any Group Member) secured by the property subject thereto or (b) any sale or issuance of Stock or incurrence of Indebtedness, in each case net of brokers', advisors', legal, printing and investment banking fees and other customary reasonable out-of-pocket underwriting discounts, commissions and other customary reasonable out-of-pocket cash costs, fees and expenses, in each case incurred in connection with such transaction; provided , however , that any such proceeds received by any Subsidiary of Holdings that is not a Wholly Owned Subsidiary of Holdings shall constitute " Net Cash Proceeds " only to the extent of the aggregate direct and indirect beneficial ownership interest of Holdings therein.
" Non-Financed Capital Expenditures " means Capital Expenditures that are not financed by the incurrence of Indebtedness.
" Non-Funding Lender " has the meaning specified in Section 2.2(c) .
" Non-U.S. Lender Party " means each of the Administrative Agent, each Lender, each L/C Issuer, each SPV and each participant, in each case that is not a Domestic Person.
" Note " means a promissory note of Borrower, in substantially the form of Exhibit B , payable to the order of a Lender in any Facility in a principal amount equal to the amount of such Lender's Commitment under such Facility (or, in the case of the Term Loan Facility, the aggregate initial principal amount of the Term Loans).
" Notice of Borrowing " has the meaning specified in Section 2.2 .
" Notice of Conversion or Continuation " has the meaning specified in Section 2.10 .
" Obligations " means, with respect to any Loan Party, all amounts, obligations, liabilities, covenants and duties of every type and description owing by such Loan Party to the Administrative Agent, any Lender, any L/C Issuer, any other Indemnitee, any participant or any SPV arising out of, under, or in connection with, any Loan Document, whether direct or indirect (regardless of whether acquired by assignment), absolute or contingent, due or to become due, whether liquidated or not, now existing or hereafter arising and however acquired, and whether or not evidenced by any instrument or for the payment of money, including, without duplication, (a) if such Loan Party is a Borrower, all Loans and L/C Obligations of such Loan Party, (b) all interest, whether or not accruing after the filing of any petition in bankruptcy or after the commencement of any insolvency, reorganization or similar proceeding, and whether or not a claim for post-filing or post-petition interest is allowed in any such proceeding, and (c) all other fees, expenses (including reasonable fees, charges and disbursement of counsel), interest, commissions, charges, costs, disbursements, indemnities and reimbursement of amounts paid and other sums chargeable to such Loan Party under any Loan Document (including those payable to L/C Issuers as described in Section 2.11 ).
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" Other Taxes " has the meaning specified in Section 2.17(c) .
" Parent Guarantors " means, collectively, Holdings, General Partner and Limited Partner.
" Patents " means all rights, title and interests (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to letters patent and applications therefor.
" PBGC " means the United States Pension Benefit Guaranty Corporation and any successor thereto.
" Permit " means, with respect to any Person, any permit, approval, authorization, license, registration, certificate, concession, grant, franchise, variance or permission from, and any other Contractual Obligations with, any Governmental Authority, in each case whether or not having the force of law and applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
" Permitted Acquisition " means any Proposed Acquisition satisfying each of the following conditions: (a) the aggregate amounts payable in connection with, and other consideration for (in each case, including all transaction costs and all Indebtedness, liabilities and Guaranty Obligations incurred or assumed in connection therewith or otherwise reflected in a Consolidated balance sheet of Holdings and the Proposed Acquisition Target), such Proposed Acquisition shall not exceed $2,000,000 individually and $4,000,000 when aggregated with all other Permitted Acquisitions, (b) the Administrative Agent shall have received reasonable advance notice of such Proposed Acquisition including a reasonably detailed description thereof at least 15 days prior to the consummation of such Proposed Acquisition (or such later date as may be agreed by the Administrative Agent) and on or prior to the date of such Proposed Acquisition, the Administrative Agent shall have received copies of the acquisition agreement and related Contractual Obligations and other documents (including financial information and analysis, environmental assessments and reports, opinions, certificates and lien searches) and information reasonably requested by the Administrative Agent, (c) as of the date of consummation of such Proposed Acquisition and after giving effect to all transactions to occur on such date as part of such Proposed Acquisition, all conditions set forth in clauses (i) and (ii) of Section 3.2(b) shall be satisfied or duly waived, (d) as of the date of consummation of such Proposed Acquisition and after giving effect to all transactions to occur on such date as part of such Proposed Acquisition, there shall be not less than $2,000,000 Revolver Availability, (e) such Proposed Acquisition shall only involve assets located in the United States and comprising a business, or those assets of a business, of the type engaged in by Borrower as of the Closing Date, (f) such Proposed Acquisition shall be consensual and shall have been approved by the Proposed Acquisition Target's board of directors, (g) the Proposed Acquisition Target shall not have incurred an operating loss for the trailing twelve-month period preceding the date of the Proposed Acquisition, as determined based upon the Target's financial statements for its most recently completed fiscal year and its most recent interim financial period completed within sixty (60) days prior to the date of consummation of such Proposed Acquisition, (h) at or prior to the closing of any Proposed Acquisition, the Administrative Agent will be granted a first priority perfected Lien in all assets acquired pursuant thereto or in the assets and Stock of the Target to the extent required under Section 7.10 , and Loan Parties shall have executed such documents and taken such actions as may be reasonably required by the Administrative Agent in connection therewith, (i) as of the date of consummation of such Proposed Acquisition and after giving effect to all transactions to occur on such date as part of such Proposed Acquisition, Borrower and its Subsidiaries shall continue to be in compliance with the financial covenants set forth in Article V , provided , however , that the Consolidated Leverage Ratio of Borrower shall be at least 0.25 below the maximum Consolidated Leverage Ratio permitted as of the applicable date (for example, if the maximum Consolidated Leverage Ratio then permitted under Article V is 3.50 to 1.0, then, after giving effect to the Proposed Acquisition, the Consolidated Leverage Ratio could not greater than 3.25 to
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1.0); and (j) Borrower shall have delivered to Administrative Agent, in form and substance reasonably satisfactory to Administrative Agent:
" Permitted Indebtedness " means any Indebtedness of any Group Member that is not prohibited by Section 8.1 or any other provision of any Loan Document.
" Permitted Investment " means any Investment of any Group Member that is not prohibited by Section 8.3 or any other provision of any Loan Document.
" Permitted Lien " means any Lien on or with respect to the property of any Group Member that is not prohibited by Section 8.2 or any other provision of any Loan Document.
" Permitted Redemptions " means, collectively, the redemption of Holdings' redeemable preferred stock on or before April 6, 2007 in an amount not to exceed $17,618,212 and a subsequent redemption at a date selected by Holdings in an amount not to exceed $1,000.
" Permitted Refinancing " means Indebtedness constituting a refinancing or extension of Permitted Indebtedness that (a) has an aggregate outstanding principal amount not greater than the aggregate principal amount of such Permitted Indebtedness outstanding at the time of such refinancing or extension, (b) has a weighted average maturity (measured as of the date of such refinancing or extension) and maturity no shorter than that of such Permitted Indebtedness, (c) is not secured by any property or any Lien other than those securing such Permitted Indebtedness, (d) is subordinated to the Obligations on terms no less favorable (in the reasonable judgment of the Administrative Agent) to the holders of the Obligations as the Indebtedness being refinanced or extended and (e) is otherwise on terms no less favorable to the Group Members, taken as a whole, than those of such Permitted Indebtedness; provided , however , that, notwithstanding the foregoing, (x) the terms of such Permitted Indebtedness may be modified as part of such Permitted Refinancing if such modification would have been permitted pursuant to Section 8.11 and (y) no Guaranty Obligation for such Indebtedness shall constitute part of such Permitted Refinancing unless similar Guaranty Obligations with respect to such Permitted Indebtedness existed and constituted Permitted Indebtedness prior to such refinancing or extension.
" Permitted Reinvestment " means, with respect to the Net Cash Proceeds received by any Group Member from any Sale or Property Loss Event, to acquire (or make Capital Expenditures to finance
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the acquisition, repair, improvement or construction of), to the extent otherwise permitted hereunder, property useful in the business of Borrower or any of its Subsidiaries or, if such Property Loss Event involves loss or damage to property, to repair such loss or damage.
" Person " means any individual, partnership, corporation (including a business trust and a public benefit corporation), joint stock company, estate, association, firm, enterprise, trust, limited liability company, unincorporated association, joint venture and any other entity or Governmental Authority.
" Primary Syndication " means the assignment by Churchill of Commitments to one or more Lenders such that the amount of Churchill's total Commitment does not exceed $15,000,000.
" Pro Forma Balance Sheet " has the meaning specified in Section 4.4(d) .
" Pro Forma Basis " means, with respect to any determination for any period and any Pro Forma Transaction, that such determination shall be made by giving pro forma effect to each such Pro Forma Transaction, as if each such Pro Forma Transaction had been consummated on the first day of such period, based on historical results accounted for in accordance with GAAP and, to the extent applicable, reasonable assumptions that are specified in detail in the relevant Compliance Certificate, Financial Statement or other document provided to the Administrative Agent or any Lender in connection herewith in accordance with Regulation S-X of the Securities Act of 1933.
" Pro Forma Transaction " means any transaction consummated as part of any Permitted Acquisition, together with each other transaction relating thereto and consummated in connection therewith, including any incurrence or repayment of Indebtedness.
" Projections " means, collectively, the Initial Projections and any document delivered pursuant to Section 6.1(f) .
" Property Loss Event " means, with respect to any property, any loss of or damage to such property or any taking of such property or condemnation thereof.
" Proposed Acquisition " means (a) any proposed acquisition that is consensual and approved by the board of directors of the applicable Proposed Acquisition Target, of all or substantially all of the assets or Stock of such Proposed Acquisition Target by Borrower or any Subsidiary (that is a Loan Party) of Borrower (or by Holdings to the extent such assets and Stock are transferred to Borrower or any Subsidiary (that is a Loan Party) of Borrower contemporaneously with such acquisition) or (b) any proposed merger of any Proposed Acquisition Target with or into Borrower or any Subsidiary (that is a Loan Party) of Borrower (and, in the case of a merger with Borrower, with Borrower being the surviving corporation).
" Proposed Acquisition Target " means any Person or any brand, line of business, division, branch, operating division or other unit operation of any Person.
" Pro Rata Outstandings ", of any Lender at any time, means (a) in the case of the Term Loan Facility, the outstanding principal amount of the Term Loans owing to such Lender and (b) in the case of the Revolving Credit Facility, the sum of (i) the outstanding principal amount of Revolving Loans owing to such Lender and (ii) the amount of the participation of such Lender in the L/C Obligations outstanding with respect to all Letters of Credit.
" Pro Rata Share " means, with respect to any Lender and any Facility or Facilities at any time, the percentage obtained by dividing (a) the sum of the Commitments (or, if such Commitments in any such Facility are terminated, the Pro Rata Outstandings therein) of such Lender then in effect under such Facilities by (b) the sum of the Commitments (or, if such Commitments in any such Facility are terminated, the Pro Rata Outstandings therein) of all Lenders then in effect under such Facilities; provided , however , that, if there are no Commitments and no Pro Rata Outstandings in any of such Facilities, such Lender's Pro Rata Share in such Facilities shall be determined based on the Pro Rata
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Share in such Facilities most recently in effect, after giving effect to any subsequent assignment and any subsequent non-pro rata payments of any Lender pursuant to Section 2.18 .
" Register " has the meaning specified in Section 2.14(b) .
" Reinvestment Prepayment Amount " means, with respect to any Net Cash Proceeds received by any Group Member and on the Reinvestment Prepayment Date therefor, the amount of such Net Cash Proceeds less any amount actually paid by any Group Member to make Permitted Reinvestments with such Net Cash Proceeds pursuant to a Contractual Obligation entered into prior to such Reinvestment Prepayment Date with any Person that is not an Affiliate of Borrower.
" Reinvestment Prepayment Date " means, with respect to any portion of any Net Cash Proceeds received by any Group Member from any Sale or Loss Event, the earliest of (a) the 180 th day after the completion of the portion of such Sale or Property Loss Event corresponding to such Net Cash Proceeds, (b) the date that is 5 Business Days after the date on which Borrower shall have notified the Administrative Agent of the determination of the applicable Group Member not to make Permitted Reinvestments with such Net Cash Proceeds, (c) the occurrence of any Event of Default set forth in Section 9.1(e)(ii) and (d) 5 Business Days after the delivery of a notice by the Administrative Agent or the Required Lenders to such Group Member during the continuance of any other Event of Default.
" Related Person " means, with respect to any Person, each Affiliate of such Person and each director, officer, employee, agent, trustee, representative, attorney, accountant and each insurance, environmental, legal, financial and other advisor (including those retained in connection with the satisfaction or attempted satisfaction of any condition set forth in Article III ) and other consultants and agents of or to such Person or any of its Affiliates, together with, if such Person is the Administrative Agent, each other Person or individual designated, nominated or otherwise mandated by or helping the Administrative Agent pursuant to and in accordance with Section 11.4 or any comparable provision of any Loan Document.
" Release " means any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material into or through the environment.
" Remedial Action " means all actions required to (a) clean up, remove, treat or in any other way address any Hazardous Material in the indoor or outdoor environment, (b) prevent or minimize any Release so that a Hazardous Material does not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment or (c) perform pre-remedial studies and investigations and post-remedial monitoring and care with respect to any Hazardous Material.
" Required Lenders " means, at any time, Lenders having at such time at least 51% of the sum of the aggregate Revolving Credit Commitments (or, if such Commitments are terminated, the sum of the amounts of the participations in Swing Loans, the principal amount of unparticipated portions of the Swing Loans and the Pro Rata Outstandings in the Revolving Credit Facility) and Term Loan Commitments (or, if such Commitments are terminated, the Pro Rata Outstandings in the Term Loan Facility) then in effect, ignoring, in such calculation, the amounts held by any Non-Funding Lender; provided , however , that if at any time there are only two (2) Lenders, then " Required Lenders " shall mean each of the Lenders; provided that each Lender and its Approved Funds and Affiliates shall be deemed to be a single Lender for all purposes of this definition.
" Required Revolving Credit Lenders " means, at any time, Lenders having at such time at least 51% of the aggregate Revolving Credit Commitments (or, if such Commitments are terminated, the sum of the amounts of the participations in Swing Loans, the principal amount of the unparticipated portions of the Swing Loans and the Pro Rata Outstandings in the Revolving Credit Facility) then in effect, ignoring, in such calculation, the amounts held by any Non-Funding Lender; provided , however , that if at any time there are only two (2) Revolving Credit Lenders, then " Required Revolving Credit Lenders "
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shall mean each of the Revolving Credit Lenders; provided that each Lender and its Approved Funds and Affiliates shall be deemed to be a single Lender for all purposes of this definition.
" Required Term Loan Lenders " means, at any time, Lenders having at such time at least 51% of the aggregate Term Loan Commitments (or, if such Commitments are terminated, the Pro Rata Outstandings in the Term Loan Facility) then in effect, ignoring, in such calculation, the Commitments and Pro Rata Outstandings of any Non-Funding Lender; provided , however , that if at any time there are only two (2) Term Loan Lenders, then " Required Term Loan Lenders " shall mean each of the Term Loan Lenders; provided that each Lender and its Approved Funds and Affiliates shall be deemed to be a single Lender for all purposes of this definition.
" Requirements of Law " means, with respect to any Person, collectively, the common law and all federal, state, local, foreign, multinational or international laws, statutes, codes, treaties, standards, rules and regulations, guidelines, ordinances, orders, judgments, writs, injunctions, decrees (including administrative or judicial precedents or authorities) and the interpretation or administration thereof by, and other determinations, directives, requirements or requests of, any Governmental Authority, in each case whether or not having the force of law and that are applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.
" Responsible Officer " means, with respect to any Person, any of the president, chief executive officer, treasurer, assistant treasurer, controller, managing member or general partner of such Person but, in any event, with respect to financial matters, any such officer that is responsible for preparing the Financial Statements delivered hereunder and, with respect to the Corporate Chart and other documents delivered pursuant to Section 6.1(e) , documents delivered on the Closing Date and documents delivered pursuant to Section 7.10 , the secretary or assistant secretary of such Person or any other officer responsible for maintaining the corporate and similar records of such Person.
" Restricted Payment " means (a) any dividend, return of capital, distribution or any other payment or Sale of property for less than fair market value, whether direct or indirect (including through the use of Hedging Agreements, the making, repayment, cancellation or forgiveness of Indebtedness and similar Contractual Obligations) and whether in cash, Securities or other property, on account of any Stock or Stock Equivalent of any Group Member, in each case now or hereafter outstanding, including with respect to a claim for rescission of a Sale of such Stock or Stock Equivalent, (b) any redemption, retirement, termination, defeasance, cancellation, purchase or other acquisition for value, whether direct or indirect (including through the use of Hedging Agreements, the making, repayment, cancellation or forgiveness of Indebtedness and similar Contractual Obligations), of any Stock or Stock Equivalent of any Group Member or of any direct or indirect parent entity of Borrower, now or hereafter outstanding, and any payment or other transfer setting aside funds for any such redemption, retirement, termination, cancellation, purchase or other acquisition, whether directly or indirectly and whether to a sinking fund, a similar fund or otherwise and (c) any payment of a consulting or management fee (or other fee of a similar nature) or out-of-pocket expenses in connection therewith by any Group Member to any holder of Stock of such Group Member or its Affiliates.
" Revolver Availability " means, as of any date of determination, the amount by which the then effective aggregate Revolving Credit Commitments exceeds the aggregate Revolving Credit Outstandings at such time.
" Revolving Credit Commitment " means, with respect to each Revolving Credit Lender, the commitment of such Lender to make Revolving Loans and acquire interests in other Revolving Credit Outstandings, which commitment is in the amount set forth opposite such Lender's name on Schedule I under the caption " Revolving Credit Commitment ", as amended to reflect Assignments and as such amount may be reduced pursuant to this Agreement. The aggregate amount of the Revolving Credit Commitments on the date hereof equals $8,000,000.
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" Revolving Credit Facility " means the Revolving Credit Commitments and the provisions herein related to the Revolving Loans, Swing Loans and Letters of Credit.
" Revolving Credit Lender " means each Lender that has a Revolving Credit Commitment, holds a Revolving Loan or participates in any Swing Loan or Letter of Credit.
" Revolving Credit Outstandings " means, at any time, the sum of, in each case to the extent outstanding at such time, (a) the aggregate principal amount of the Revolving Loans and Swing Loans and (b) the L/C Obligations for all Letters of Credit.
" Revolving Credit Termination Date " shall mean the earliest of (a) the Scheduled Maturity Date, (b) the date of termination of the Revolving Credit Commitments pursuant to Section 2.5 or 9.2 and (c) the date on which the Obligations become due and payable pursuant to Section 9.2 .
" Revolving Loan " has the meaning specified in Section 2.1 .
" Rollover Amount " has the meaning specified in Section 5.4(b).
" S&P " means Standard & Poor's Rating Services.
" Sale and Leaseback Transaction " means, with respect to any Person (the " obligor "), any Contractual Obligation or other arrangement with any other Person (the " counterparty ") consisting of a lease by such obligor of any property that, directly or indirectly, has been or is to be Sold by the obligor to such counterparty or to any other Person to whom funds have been advanced by such counterparty based on a Lien on, or an assignment of, such property or any obligations of such obligor under such lease.
" Scheduled Maturity Date " means the fifth anniversary of the Closing Date.
" Secured Parties " means the Lenders, the L/C Issuers, the Administrative Agent, each other Indemnitee and any other holder of any Obligation of any Loan Party.
" Security " means all Stock, Stock Equivalents, voting trust certificates, bonds, debentures, instruments and other evidence of Indebtedness, whether or not secured, convertible or subordinated, all certificates of interest, share or participation in, all certificates for the acquisition of, and all warrants, options and other rights to acquire, any Security.
" Sell " means, with respect to any property, to sell, convey, transfer, assign, license, lease or otherwise dispose of, any interest therein or to permit any Person to acquire any such interest, including, in each case, through a Sale and Leaseback Transaction or through a sale, factoring at maturity, collection of or other disposal, with or without recourse, of any notes or accounts receivable. Conjugated forms thereof and the noun " Sale " have correlative meanings.
" Solvent " means, with respect to any Person as of any date of determination, that, as of such date, on a Consolidated basis, (a) such Person is able to pay all liabilities of such Person as such liabilities mature and (b) such Person does not have unreasonably small capital for the normal obligations reasonably foreseeable in a business of its size and in light of its contemplated business operations. In computing the amount of contingent or unliquidated liabilities at any time, such liabilities shall be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
" Specified Dividend " means a distribution or distributions to be made (a) by Borrower to General Partner and Limited Partner, (b) by General Partner and Limited Partner to Holdings, and (c) by Holdings (i) to be paid as a ratable dividend by Holdings to the holders of Stock in an aggregate amount up to but not exceeding $41,600,000, which will occur on or before March 31, 2007, and (ii) to fund the Permitted Redemptions.
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" Sponsor Group " means, collectively, JMI Equity Fund III, L.P., TA / Advent VIII, L.P., Advent Atlantic and Pacific III, L.P., TA Executive Fund, L.L.C., and TA Venture Investors, L.P.
" SPV " means any special purpose funding vehicle identified as such in a writing by any Lender to the Administrative Agent.
" Stock " means all shares of capital stock (whether denominated as common stock or preferred stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in or equivalents (regardless of how designated) of or in a Person (other than an individual), whether voting or non-voting.
" Stock Equivalents " means all securities convertible into or exchangeable for Stock or any other Stock Equivalent and all warrants, options or other rights to purchase, subscribe for or otherwise acquire any Stock or any other Stock Equivalent, whether or not presently convertible, exchangeable or exercisable.
" Subordinated Debt " means any Indebtedness that is subordinated to the payment in full of the Obligations on terms and conditions satisfactory to the Administrative Agent and otherwise satisfactory to the Administrative Agent.
" Subsidiary " means, with respect to any Person, any corporation, partnership, joint venture, limited liability company, association or other entity, the management of which is, directly or indirectly, controlled by, or of which an aggregate of more than 50% of the outstanding Voting Stock is, at the time, owned or controlled directly or indirectly by, such Person or one or more Subsidiaries of such Person.
" Substitute Lender " has the meaning specified in Section 2.18(a) .
" SWDA " means the Solid Waste Disposal Act (42 U.S.C. §§ 6901 et seq.).
" Swingline Commitment " means $500,000.
" Swingline Lender " means, each in its capacity as Swingline Lender hereunder, Churchill Financial Cayman Ltd., by its agent, Churchill, or, upon the resignation of Churchill as Administrative Agent hereunder, any Lender (or Affiliate or Approved Fund of any Lender) that agrees, with the approval of the Administrative Agent (or, if there is no such successor Administrative Agent, the Required Lenders) and Borrower, to act as the Swingline Lender hereunder.
" Swingline Request " has the meaning specified in Section 2.3(b) .
" Swing Loan " has the meaning specified in Section 2.3 .
" Tax Affiliate " means, (a) each Group Member and (b) any Affiliate of any Group Member with which such Group Member files or is eligible to file consolidated, combined or unitary tax returns.
" Tax Return " has the meaning specified in Section 4.8 .
" Taxes " has the meaning specified in Section 2.17(a) .
" Term Loan " has the meaning specified in Section 2.1(b) .
" Term Loan Commitment " means, with respect to each Term Loan Lender, the commitment of such Lender to make Term Loans to Borrower, which commitment is in the amount set forth opposite such Lender's name on Schedule I under the caption " Term Loan Commitment ", as amended to reflect Assignments and as such amount may be reduced pursuant to this Agreement. The aggregate amount of the Term Loan Commitments on the date hereof equals $20,000,000.
" Term Loan Facility " means the Term Loan Commitments and the provisions herein related to the Term Loans.
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" Term Loan Lender " means each Lender that has a Term Loan Commitment or that holds a Term Loan.
" Title IV Plan " means a pension plan subject to Title IV of ERISA, other than a Multiemployer Plan, to which any ERISA Affiliate incurs or otherwise has any obligation or liability, contingent or otherwise.
" Trademarks " means all rights, title and interests (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers and, in each case, all goodwill associated therewith, all registrations and recordations thereof and all applications in connection therewith.
" Trade Secrets " means all right, title and interest (and all related IP Ancillary Rights) arising under any Requirement of Law in or relating to trade secrets.
" UCC " means the Uniform Commercial Code of any applicable jurisdiction and, if the applicable jurisdiction shall not have any Uniform Commercial Code, the Uniform Commercial Code as in effect in the State of New York.
" United States " means the United States of America.
" Unused Commitment Fee " has the meaning specified in Section 2.11 .
" U.S. Lender Party " means each of the Administrative Agent, each Lender, each L/C Issuer, each SPV and each participant, in each case that is a Domestic Person.
" Voting Stock " means Stock of any Person having ordinary power to vote in the election of members of the board of directors, managers, trustees or other controlling Persons, of such Person (irrespective of whether, at the time, Stock of any other class or classes of such entity shall have or might have voting power by reason of the occurrence of any contingency).
" Wholly Owned Subsidiary " of any Person means any Subsidiary of such Person, all of the Stock of which (other than nominal holdings and director's qualifying shares) is owned by such Person, either directly or through one or more Wholly Owned Subsidiaries of such Person.
" Withdrawal Liability " means, at any time, any liability incurred (whether or not assessed) by any ERISA Affiliate and not yet satisfied or paid in full at such time with respect to any Multiemployer Plan pursuant to Section 4201 of ERISA.
" Working Capital" means, as at any date of determination and in conformity with GAAP, the excess, if any, of (i) Borrower's Consolidated current assets, except cash and Cash Equivalents, over (ii) Borrower's Consolidated current liabilities, except current maturities of Indebtedness due within 12 months of the date of determination.
Section 1.2 UCC Terms. The following terms have the meanings given to them in the applicable UCC: " account ", " commodity account ", " commodity contract ", " commodity intermediary ", " deposit account ", " entitlement holder ", " entitlement order ", " equipment ", " financial asset ", " general intangible ", " goods ", " instruments ", " inventory ", " securities account ", " securities intermediary " and " security entitlement ".
Section 1.3 Accounting Terms and Principles. (a) GAAP . All accounting determinations required to be made pursuant hereto shall, unless expressly otherwise provided herein, be made in accordance with GAAP. No change in the accounting principles used in the preparation of any Financial Statement hereafter adopted by Borrower shall be given effect if such change would affect a calculation that measures compliance with any provision of Article V or VIII unless Borrower, the Administrative Agent and the Required Lenders agree to modify such provisions to reflect such changes in GAAP and,
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unless such provisions are modified, all Financial Statements, Compliance Certificates and similar documents provided hereunder shall be provided together with a reconciliation between the calculations and amounts set forth therein before and after giving effect to such change in GAAP.
(b) Pro Forma. All components of financial calculations made to determine compliance with Article V shall be adjusted on a Pro Forma Basis to include or exclude, as the case may be, without duplication, such components of such calculations attributable to any Pro Forma Transaction consummated after the first day of the applicable period of determination and prior to the end of such period, as determined in good faith by Borrower based on assumptions expressed therein and that were reasonable based on the information available to Borrower at the time of preparation of the Compliance Certificate setting forth such calculations.
Section 1.4 Payments. The Administrative Agent may set up standards and procedures to determine or redetermine the equivalent in Dollars of any amount expressed in any currency other than Dollars and otherwise may, but shall not be obligated to, rely on any determination made by any Loan Party or any L/C Issuer. Any such determination or redetermination by the Administrative Agent shall be conclusive and binding for all purposes, absent manifest error. No determination or redetermination by any Secured Party or Loan Party and no other currency conversion shall change or release any obligation of any Loan Party or of any Secured Party (other than the Administrative Agent and its Related Persons) under any Loan Document, each of which agrees to pay separately for any shortfall remaining after any conversion and payment of the amount as converted. The Administrative Agent may round up or down, and may set up appropriate mechanisms to round up or down, any amount hereunder to nearest higher or lower amounts and may determine reasonable de minimis payment thresholds.
Section 1.5 Interpretation. (a) Certain Terms . Except as set forth in any Loan Document, all accounting terms not specifically defined herein shall be construed in accordance with GAAP (except for the term " property ", which shall be interpreted as broadly as possible, including, in any case, cash, Securities, other assets, rights under Contractual Obligations and Permits and any right or interest in any property). The terms " herein ", " hereof " and similar terms refer to this Agreement as a whole. In the computation of periods of time from a specified date to a later specified date in any Loan Document, the terms " from " means "from and including" and the words " to " and " until " each mean "to but excluding" and the word " through " means "to and including." In any other case, the term " including " when used in any Loan Document means "including without limitation." The term " documents " means all writings, however evidenced and whether in physical or electronic form, including all documents, instruments, agreements, notices, demands, certificates, forms, financial statements, opinions and reports. The term " incur " means incur, create, make, issue, assume or otherwise become directly or indirectly liable in respect of or responsible for, in each case whether directly or indirectly, and the terms "incurrence" and "incurred" and similar derivatives shall have correlative meanings.
(b) Certain References. Unless otherwise expressly indicated, references (i) in this Agreement to an Exhibit, Schedule, Article, Section or clause refer to the appropriate Exhibit or Schedule to, or Article, Section or clause in, this Agreement and (ii) in any Loan Document, to (A) any agreement shall include, without limitation, all exhibits, schedules, appendixes and annexes to such agreement and, unless the prior consent of any Secured Party required therefor is not obtained, any modification, amendment, restatement or amendment and restatement to any term of such agreement, (B) any statute shall be to such statute as modified from time to time and to any successor legislation thereto, in each case as in effect at the time any such reference is operative and (C) any time of day shall be a reference to New York time. Titles of articles, sections, clauses, exhibits, schedules and annexes contained in any Loan Document are without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto. Unless otherwise expressly indicated,
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the meaning of any term defined (including by reference) in any Loan Document shall be equally applicable to both the singular and plural forms of such term.
Section 2.1 The Commitments. (a) Revolving Credit Commitments . On the terms and subject to the conditions contained in this Agreement, each Revolving Credit Lender, severally but not jointly, agrees to make loans in Dollars (each a " Revolving Loan ") to Borrower from time to time on any Business Day during the period from the date hereof until the Revolving Credit Termination Date in an aggregate principal amount at any time outstanding for all such loans by such Lender not to exceed such Lender's Revolving Credit Commitment; provided , however , that (i) at no time shall any Revolving Credit Lender be obligated to make a Revolving Loan in excess of such Lender's Pro Rata Share of the amount by which the then effective Revolving Credit Commitments exceeds the aggregate Revolving Credit Outstandings at such time and (ii) none of the Revolving Credit Commitments (including Letters of Credit) may be utilized on the Closing Date. Within the limits set forth in the first sentence of this clause (a) , amounts of Revolving Loans repaid may be reborrowed under this Section 2.1 .
(b) Term Loan Commitments. On the terms and subject to the conditions contained in this Agreement, each Term Loan Lender, severally but not jointly, agrees to make, on March 29, 2007 (or such earlier date as may be requested by Borrower by delivery of a Notice of Borrowing at least 48 hours in advance), a loan (each a " Term Loan ") in Dollars to Borrower in an amount not to exceed such Lender's Term Loan Commitment. Amounts of Term Loans repaid may not be reborrowed.
Section 2.2 Borrowing Procedures. (a) Notice From the Applicable Borrower . Each Borrowing shall be made on notice given by Borrower to the Administrative Agent not later than 11:00 a.m. on (i) the first Business Day, in the case of a Borrowing of Base Rate Loans and (ii) the third Business Day, in the case of a Borrowing of Eurodollar Rate Loans, prior to the date of the proposed Borrowing; provided , however , that Borrower may not request a Eurodollar Rate Loan until the earlier to occur of (x) the date that is 45 days after the Closing Date and (y) the date of completion of the Primary Syndication. Each such notice may be made in a writing substantially in the form of Exhibit C (a " Notice of Borrowing ") duly completed or by telephone if confirmed promptly, but in any event confirmed in writing prior to such Borrowing. Loans shall be made as Base Rate Loans unless, outside of a suspension period pursuant to Section 2.15 , the Notice of Borrowing specifies that all or a portion thereof shall be Eurodollar Rate Loans. Each Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000.
(b) Notice to Each Lender. The Administrative Agent shall give to each Lender prompt notice of the Administrative Agent's receipt of a Notice of Borrowing and, if Eurodollar Rate Loans are properly requested in such Notice of Borrowing, prompt notice of the applicable interest rate. Each Lender shall, before 11:00 a.m. on the date of the proposed Borrowing, make available to the Administrative Agent at its address referred to in Section 12.11 such Lender's Pro Rata Share of such proposed Borrowing. Upon fulfillment or due waiver (i) on the Closing Date, of the applicable conditions set forth in Section 3.1 and (ii) on the Closing Date and any time thereafter, of the applicable conditions set forth in Section 3.2 , the Administrative Agent shall make such funds available to the applicable Borrower.
(c) Non-Funding Lenders. Unless the Administrative Agent shall have received notice from any Lender prior to the date such Lender is required to make any payment hereunder with respect to any Loan or any participation in any Swing Loan or Letter of Credit that such Lender will not make such payment (or any portion thereof) available to the Administrative Agent, the Administrative Agent may assume that such Lender has made such payment available to the Administrative Agent on the date
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such payment is required to be made in accordance with this Article II and the Administrative Agent may, in reliance upon such assumption, make available to Borrower on such date a corresponding amount. The Borrower agrees to repay to the Administrative Agent on demand such amount (until repaid by such Lender) with respect to Loans and Letters of Credit of Borrower with interest thereon for each day from the date such amount is made available to Borrower until the date such amount is repaid to the Administrative Agent, at the interest rate applicable to the Obligation that would have been created when the Administrative Agent made available such amount to Borrower had such Lender made a corresponding payment available; provided , however , that such payment shall not relieve such Lender of any obligation it may have to Borrower, the Swingline Lender or any L/C Issuer. In addition, any Lender that shall not have made available to the Administrative Agent any portion of any payment described above (any such Lender, a " Non-Funding Lender ") agrees to pay such amount to the Administrative Agent on demand together with interest thereon, for each day from the date such amount is made available to the applicable Borrower until the date such amount is repaid to the Administrative Agent, at the Federal Funds Rate for the first Business Day and thereafter (i) in the case of a payment in respect of a Loan, at the interest rate applicable at the time to such Loan and (ii) otherwise, at the interest rate applicable to Base Rate Loans under the Revolving Credit Facility. Such repayment shall then constitute the funding of the corresponding Loan (including any Loan deemed to have been made hereunder with such payment) or participation. The existence of any Non-Funding Lender shall not relieve any other Lender of its obligations under any Loan Document, but no other Lender shall be responsible for the failure of any Non-Funding Lender to make any payment required under any Loan Document.
Section 2.3 Swing Loans (a) Availability . On the terms and subject to the conditions contained in this Agreement, the Swingline Lender may, in its sole discretion, make loans in Dollars (each a " Swing Loan ") available to Borrower under the Revolving Credit Facility from time to time on any Business Day during the period from the date hereof until the Revolving Credit Termination Date in an aggregate principal amount at any time outstanding not to exceed its Swingline Commitment; provided , however , that the Swingline Lender may not make any Swing Loan (x) to the extent that after giving effect to such Swing Loan, the aggregate Revolving Credit Outstandings would exceed the Revolving Credit Commitments and (y) in the period commencing on the first Business Day after it receives notice from the Administrative Agent or the Required Revolving Credit Lenders that one or more of the conditions precedent contained in Section 3.2 are not satisfied and ending when such conditions are satisfied or duly waived. In connection with the making of any Swing Loan, the Swingline Lender may but shall not be required to determine that, or take notice whether, the conditions precedent set forth in Section 3.2 have been satisfied or waived. Each Swing Loan shall be a Base Rate Loan and must be repaid in full on the earliest of (i) the funding date of any Borrowing of Revolving Loans and (ii) the Revolving Credit Termination Date. Within the limits set forth in the first sentence of this clause (a) , amounts of Swing Loans repaid may be reborrowed under this clause (a) .
(b) Borrowing Procedures. In order to request a Swing Loan, Borrower shall give to the Administrative Agent a notice to be received not later than 1:00 p.m. on the day of the proposed borrowing, which may be made in a writing substantially in the form of Exhibit D duly completed (a " Swingline Request ") or by telephone if confirmed promptly but, in any event, prior to such borrowing, with such a Swingline Request. In addition, if any Notice of Borrowing from Borrower requests a Borrowing of Base Rate Loans, the Swing Line Lender may, notwithstanding anything else to the contrary in Section 2.2 , make a Swing Loan available to Borrower in an aggregate amount not to exceed such proposed Borrowing, and the aggregate amount of the corresponding proposed Borrowing shall be reduced accordingly by the principal amount of such Swing Loan. The Administrative Agent shall promptly notify the Swingline Lender of the details of the requested Swing Loan. Upon receipt of such notice and subject to the terms of this Agreement, the Swingline Lender may make a Swing Loan available to Borrower by making the proceeds thereof available to the Administrative Agent and, in
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turn, the Administrative Agent shall make such proceeds available to Borrower on the date set forth in the relevant Swingline Request.
(c) Refinancing Swing Loans. The Swingline Lender may at any time, and shall no less frequently than once each week, forward a demand to the Administrative Agent (which the Administrative Agent shall, upon receipt, forward to each Revolving Credit Lender) that each Revolving Credit Lender pay to the Administrative Agent, for the account of the Swingline Lender, such Revolving Credit Lender's Pro Rata Share of all or a portion of the outstanding Swing Loans. Each Revolving Credit Lender shall pay such Pro Rata Share to the Administrative Agent for the account of the Swingline Lender. Upon receipt by the Administrative Agent of such payment (other than during the continuation of any Event of Default under Section 9.1(e) ), such Revolving Credit Lender shall be deemed to have made a Revolving Loan to Borrower, which, upon receipt of such payment by the Swingline Lender from the Administrative Agent, Borrower shall be deemed to have used in whole to refinance such Swing Loan. In addition, regardless of whether any such demand is made, upon the occurrence of any Event of Default under Section 9.1(e) , each Revolving Credit Lender shall be deemed to have acquired, without recourse or warranty, an undivided interest and participation in each Swing Loan in an amount equal to such Lender's Pro Rata Share of such Swing Loan. If any payment made by any Revolving Credit Lender as a result of any such demand is not deemed a Revolving Loan, such payment shall be deemed a funding by such Lender of such participation. Such participation shall not be otherwise required to be funded. Upon receipt by the Swingline Lender of any payment from any Revolving Credit Lender pursuant to this clause (c) with respect to any portion of any Swing Loan, the Swingline Lender shall promptly pay over to such Revolving Credit Lender all payments of principal (to the extent received after such payment by such Lender) and interest (to the extent accrued with respect to periods after such payment) received by the Swingline Lender with respect to such portion.
(d) Obligation to Fund Absolute. Each Revolving Credit Lender's obligations pursuant to clause (c) above shall be absolute, unconditional and irrevocable and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever, including (A) the existence of any setoff, claim, abatement, recoupment, defense or other right that such Lender, any Affiliate thereof or any other Person may have against the Swing Loan Lender, any other Secured Party or any other Person, (B) the failure of any condition precedent set forth in Section 3.2 to be satisfied or the failure of Borrower to deliver any notice set forth in Section 2.2(a) (each of which requirements the Revolving Credit Lenders hereby irrevocably waive) and (C) any adverse change in the condition (financial or otherwise) of any Loan Party.
Section 2.4 Letters of Credit. (a) Commitment and Conditions . On the terms and subject to the conditions contained herein, each L/C Issuer agrees to Issue, at the request of Borrower on behalf of Borrower, in accordance with such L/C Issuer's usual and customary business practices, and for the account of Borrower (or, as long as Borrower remains responsible for the payment in full of all amounts drawn thereunder and related fees, costs and expenses, for the account of any Group Member), Letters of Credit (denominated in Dollars and with face amounts that are multiples of $100,000) from time to time on any Business Day during the period from the Closing Date through the earlier of the Revolving Credit Termination Date and 7 days prior to the Scheduled Maturity Date; provided , however , that such L/C Issuer shall not be under any obligation to Issue any Letter of Credit for the account of Borrower upon the occurrence of any of the following, after giving effect to such Issuance:
(i) (A) the aggregate Revolving Credit Outstandings would exceed the aggregate Revolving Credit Commitments or (B) the L/C Obligations for all Letters of Credit would exceed the L/C Sublimit;
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(ii) the expiration date of such Letter of Credit (A) is not a Business Day, (B) is more than one year after the date of issuance thereof or (C) is later than 7 days prior to the Scheduled Revolving Credit Termination Date; provided , however , that any Letter of Credit with a term not exceeding one year may provide for its renewal for additional periods not exceeding one year as long as (x) each of Borrower and such L/C Issuer has the option to prevent such renewal before the expiration of such term or any such period and (y) neither such L/C Issuer nor Borrower shall permit any such renewal to extend such expiration date beyond the date set forth in clause (C) above; or
(iii) (A) any fee due in connection with, and on or prior to, such Issuance has not been paid (after giving effect to any applicable grace period), (B) such Letter of Credit is requested to be Issued in a form that is not acceptable to such L/C Issuer or (C) such L/C Issuer shall not have received, each in form and substance reasonably acceptable to it and duly executed by Borrower (and, if such Letter of Credit is Issued for the account of any other Group Member, such Group Member), the documents that such L/C Issuer generally uses in the ordinary course of its business for the Issuance of letters of credit of the type of such Letter of Credit (collectively, the " L/C Reimbursement Agreement ").
For each such Issuance, the applicable L/C Issuer may, but shall not be required to, determine that, or take notice whether, the conditions precedent set forth in Section 3.2 have been satisfied or waived in connection with the Issuance of any Letter of Credit; provided , however , that no Letter of Credit shall be Issued during the period starting on the first Business Day after the receipt by such L/C Issuer of notice from the Administrative Agent or the Required Revolving Credit Lenders that any condition precedent contained in Section 3.2 is not satisfied and ending on the date all such conditions are satisfied or duly waived.
(b) Notice of Issuance. The Borrower shall give the relevant L/C Issuer and the Administrative Agent a notice of any Issuance of any Letter of Credit requested on behalf of Borrower, which shall be effective only if received by such L/C Issuer and the Administrative Agent not later than 11:00 a.m. on the third Business Day prior to the date of such requested Issuance. Such notice may be made in a writing substantially the form of Exhibit E duly completed or in a writing in any other form acceptable to such L/C Issuer (an " L/C Request ") or by telephone if confirmed promptly, but in any event within one Business Day and prior to such Issuance, with such an L/C Request.
(c) Reporting Obligations of L/C Issuers. Each L/C Issuer agrees to provide the Administrative Agent (which, after receipt, the Administrative Agent shall provide to each Revolving Credit Lender), in form and substance satisfactory to the Administrative Agent, each of the following on the following dates: (i) on or prior to (A) any Issuance of any Letter of Credit by such L/C Issuer, (B) any drawing under any such Letter of Credit or (C) any payment (or failure to pay when due) by the applicable Loan Party of any related L/C Reimbursement Obligation, notice thereof, which shall contain a reasonably detailed description of such Issuance, drawing or payment, (ii) upon the request of the Administrative Agent (or any Revolving Credit Lender through the Administrative Agent), copies of any Letter of Credit Issued by such L/C Issuer and any related L/C Reimbursement Agreement and such other documents and information as may reasonably be requested by the Administrative Agent and (iii) on the first Business Day of each calendar week, a schedule of the Letters of Credit Issued by such L/C Issuer, in form and substance reasonably satisfactory to the Administrative Agent, setting forth the L/C Obligations for such Letters of Credit outstanding on the last Business Day of the previous calendar week.
(d) Acquisition of Participations. Upon any Issuance of a Letter of Credit in accordance with the terms of this Agreement resulting in any increase in the L/C Obligations, each Revolving Credit Lender shall be deemed to have acquired, without recourse or warranty, an undivided interest and participation
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in such Letter of Credit and the related L/C Obligations in an amount equal to such Lender's Pro Rata Share of such L/C Obligations.
(e) Reimbursement Obligations of Borrower. Borrower agrees to pay to the L/C Issuer of any Letter of Credit Issued for the account of any Loan Party each L/C Reimbursement Obligation owing with respect to such Letter of Credit no later than the first Business Day after Borrower receives notice from such L/C Issuer that payment has been made under such Letter of Credit or that such L/C Reimbursement Obligation is otherwise due (the " L/C Reimbursement Date ") with interest thereon computed as set forth in clause (i) below. In the event that any L/C Issuer incurs any L/C Reimbursement Obligation not repaid by Borrower as provided in this clause (e) (or any such payment by Borrower is rescinded or set aside for any reason), such L/C Issuer shall promptly notify the Administrative Agent of such failure (and, upon receipt of such notice, the Administrative Agent shall forward a copy to each Revolving Credit Lender) and, irrespective of whether such notice is given, such L/C Reimbursement Obligation shall be payable on demand by Borrower with interest thereon computed (i) from the date on which such L/C Reimbursement Obligation arose to the L/C Reimbursement Date, at the interest rate applicable during such period to Revolving Loans that are Base Rate Loans and (ii) thereafter until payment in full, at the interest rate applicable during such period to past due Revolving Loans that are Base Rate Loans.
(f) Reimbursement Obligations of the Revolving Credit Lenders. Upon receipt of the notice described in clause (e) above from the Administrative Agent, each Revolving Credit Lender shall pay to the Administrative Agent for the account of such L/C Issuer its Pro Rata Share of such L/C Reimbursement Obligation. By making such payment (other than during the continuation of an Event of Default under Section 9.1(e) ), such Lender shall be deemed to have made a Revolving Loan to Borrower, which, upon receipt thereof by such L/C Issuer, Borrower shall be deemed to have used in whole to repay such L/C Reimbursement Obligation. Any such payment that is not deemed a Revolving Loan shall be deemed a funding by such Lender of its participation in the applicable Letter of Credit and the related L/C Obligations. Such participation shall not otherwise be required to be funded. Upon receipt by any L/C Issuer of any payment from any Lender pursuant to this clause (f) with respect to any portion of any L/C Reimbursement Obligation, such L/C Issuer shall promptly pay over to such Lender all payments received after such payment by such L/C Issuer with respect to such portion.
(g) Obligations Absolute. The obligations of Borrower and the Revolving Credit Lenders pursuant to clauses (d) , (e) and (f) above shall be absolute, unconditional and irrevocable and performed strictly in accordance with the terms of this Agreement irrespective of (i) (A) the invalidity or unenforceability of any term or provision in any Letter of Credit, any document transferring or purporting to transfer a Letter of Credit, any Loan Document (including the sufficiency of any such instrument), or any modification to any provision of any of the foregoing, (B) any document presented under a Letter of Credit being forged, fraudulent, invalid, insufficient or inaccurate in any respect or failing to comply with the terms of such Letter of Credit or (C) any loss or delay, including in the transmission of any document, (ii) the existence of any setoff, claim, abatement, recoupment, defense or other right that any Person (including any Group Member) may have against the beneficiary of any Letter of Credit or any other Person, whether in connection with any Loan Document or any other Contractual Obligation or transaction, or the existence of any other withholding, abatement or reduction, (iii) in the case of the obligations of any Revolving Credit Lender, (A) the failure of any condition precedent set forth in Section 3.2 to be satisfied (each of which conditions precedent the Revolving Credit Lenders hereby irrevocably waive) or (B) any adverse change in the condition (financial or otherwise) of any Loan Party and (iv) any other act or omission to act or delay of any kind of any Secured Party or any other Person or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.4 , constitute a legal or equitable discharge of any obligation of Borrower or any Revolving Credit Lender hereunder.
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Section 2.5 Reduction and Termination of the Commitments. (a) Optional . The Borrower may, upon notice to the Administrative Agent, terminate in whole or reduce in part ratably any unused portion of the Revolving Credit Commitments; provided , however , that each partial reduction shall be in an aggregate amount that is an integral multiple of $100,000.
(b) Mandatory. All outstanding Commitments shall terminate (i) in the case of the Term Loan Facility, on the Closing Date (after giving effect to any Borrowing occurring on such date) and (ii) in the case of the Revolving Credit Facility, on the Scheduled Revolving Credit Termination Date.
Section 2.6 Repayment of Loans. (a) The Borrower promises to repay the entire unpaid principal amount of the Revolving Loans and the Swing Loans advanced to Borrower on the Scheduled Revolving Credit Termination Date.
(b) The Borrower promises to repay the Term Loans on the Term Loan Maturity Date and at the dates and in the amounts set forth below:
DATE
|
AMOUNT
|
||
---|---|---|---|
June 30, 2007 | $ | 50,000 | |
September 30, 2007 | $ | 50,000 | |
December 31, 2007 | $ | 50,000 | |
March 31, 2008 | $ | 50,000 | |
June 30, 2008 | $ | 50,000 | |
September 30, 2008 | $ | 50,000 | |
December 31, 2008 | $ | 50,000 | |
March 31, 2009 | $ | 50,000 | |
June 30, 2009 | $ | 50,000 | |
September 30, 2009 | $ | 50,000 | |
December 31, 2009 | $ | 50,000 | |
March 31, 2010 | $ | 50,000 | |
June 30, 2010 | $ | 50,000 | |
September 30, 2010 | $ | 50,000 | |
December 31, 2010 | $ | 50,000 | |
March 31, 2011 | $ | 50,000 | |
June 30, 2011 | $ | 50,000 | |
September 30, 2011 | $ | 50,000 | |
December 31, 2011 | $ | 50,000 | |
March 22, 2012 | $ | 19,050,000 |
Amounts repaid on the Term Loan may not be reborrowed.
Section 2.7 Optional Prepayments. (a) The Borrower may prepay the outstanding principal amount of any Loan advanced to it in whole or in part at any time (together with any breakage costs that may be owing pursuant to Section 2.16(a) after giving effect to such prepayment) upon at least two (2) Business Days' prior written notice to the Administrative Agent; provided , however , that each partial prepayment that is not of the entire outstanding amount under any Facility shall be in an aggregate amount that is an integral multiple of $100,000.
(b) Any payments made to the Administrative Agent pursuant to this Section 2.7 shall be applied to the Obligations in accordance with Section 2.12(a) .
Section 2.8 Mandatory Prepayments. (a) Excess Cash Flow . (a) The Borrower shall pay or cause to be paid to the Administrative Agent, on the earlier of (x) the date on which Financial Statements are delivered pursuant to Section 6.1(c) for any Fiscal Year ending after the Closing Date and (y) the last date Financial Statements can be delivered pursuant to Section 6.1(c) for any Fiscal Year ending
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after the Closing Date, an amount equal to 50% of the Excess Cash Flow for such Fiscal Year; provided , however , that (i) in the event that the Consolidated Leverage Ratio for any Fiscal Year is less than 2.00 to 1 and greater than or equal to 1.50 to 1, then the percentage of Excess Cash Flow required to be paid under this Section 2.8(a) in the immediately succeeding Fiscal Year shall be 25%), and (ii) in the event that the Consolidated Leverage Ratio for any Fiscal Year is less than 1.50 to 1, then the percentage of Excess Cash Flow required to be paid under this Section 2.8(a) in the immediately succeeding Fiscal Year shall be 0%.
(b) Equity and Debt Issuances. Upon receipt on or after the Closing Date by any Group Member or any of its Subsidiaries of Net Cash Proceeds arising from either (i) the issuance or Sale by any Group Member of its own Stock or (ii) the incurrence by any Group Member of Indebtedness for borrowed money, Borrower shall immediately pay or cause to be paid to the Administrative Agent an amount equal to the amount of such Net Cash Proceeds; provided , however , that there shall be excluded from the requirements of this paragraph the following: (x) Net Cash Proceeds arising from sales of its Stock by Holdings to the Sponsor Group, to the other Persons (and their Affiliates) that are stockholders of Holdings on the Closing Date, and to officers, directors and employees of Borrower pursuant to an equity incentive plan approved by the board of directors of Holdings, and (y) Net Cash Proceeds of any Indebtedness permitted hereunder in reliance upon any of clauses (a) through (h) of Section 8.1 .
(c) Asset Sales and Property Loss Events. Upon receipt on or after the Closing Date by any Loan Party or any of its Subsidiaries of Net Cash Proceeds arising from (i) any Sale by any Group Member of any of its property other than (i) Sales of its own Stock and (ii) Sales of property permitted hereunder in reliance upon any of clauses (a) through (d) of Section 8.4 or (ii) any Property Loss Event with respect to any property of any Group Member to the extent resulting in the aggregate with all other such Property Loss Events in the receipt by any of them of Net Cash Proceeds in excess of $250,000, Borrower shall immediately pay or cause to be paid to the Administrative Agent an amount equal to the amount of such Net Cash Proceeds; provided, however , that, upon any such receipt, as long as no Event of Default shall be continuing, any Group Member may make Permitted Reinvestments with such Net Cash Proceeds and Borrower shall not be required to make or cause such payment on such Loans with such Net Cash Proceeds to the extent (x) such Net Cash Proceeds are intended to be used to make Permitted Reinvestments and (y) on each Reinvestment Prepayment Date for such Net Cash Proceeds, Borrower shall pay or cause to be paid to the Administrative Agent an amount equal to the Reinvestment Prepayment Amount applicable to such Reinvestment Prepayment Date.
(d) Excess Outstandings. On any date on which the aggregate principal amount of Revolving Credit Outstandings exceeds the aggregate Revolving Credit Commitments, Borrower shall pay to the Administrative Agent an amount equal to such excess.
(e) Application of Payments. Any payments made to the Administrative Agent pursuant to this Section 2.8 shall be applied to the Obligations in accordance with Section 2.12(b) .
Section 2.9 Interest. (a) Rate . All Loans and the outstanding amount of all other Obligations shall bear interest, in the case of Loans, on the unpaid principal amount thereof from the date such Loans are made and, in the case of such other Obligations, from the date such other Obligations are due and payable until, in all cases, paid in full, except as otherwise provided in clause (c) below, as follows: (i) in the case of Base Rate Loans, at a rate per annum equal to the sum of the Base Rate and the Applicable Margin, each as in effect from time to time, (ii) in the case of Eurodollar Rate Loans, at a rate per annum equal to the sum of the Eurodollar Rate and the Applicable Margin, each as in effect for the applicable Interest Period, and (iii) in the case of other Obligations, at a rate per annum equal to the sum of the Base Rate and the Applicable Margin for Revolving Loans that are Base Rate Loans, each as in effect from time to time.
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(b) Payments. Interest accrued shall be payable in arrears (i) if accrued on the principal amount of any Loan, (A) at maturity (whether by acceleration or otherwise), (B) if such Loan is a Term Loan, upon the payment or prepayment of the principal amount on which such interest has accrued and (C)(1) if such Loan is a Base Rate Loan (including a Swing Loan), on the last day of each calendar quarter commencing on the first such day following the making of such Loan, (2) if such Loan is a Eurodollar Rate Loan, on the last day of each Interest Period applicable to such Loan and, if applicable, on each date during such Interest Period occurring every 3 months from the first day of such Interest Period and (ii) if accrued on any other Obligation, on demand after the time such Obligation is due and payable (whether by acceleration or otherwise).
(c) Default Interest. Notwithstanding the rates of interest specified in clause (a) above or elsewhere in any Loan Document, effective immediately upon (A) the occurrence of any Event of Default under Section 9.1(e) or (B) the delivery of a notice by the Administrative Agent or the Required Lenders to Borrower during the continuance of any other Event of Default arising under Section 9.1(a) or Section 9.1(c) as a result of a breach of Article V , and, in each case, for as long as such Event of Default shall be continuing, all Obligations (including any Obligation that bears interest by reference to the rate applicable to any other Obligation) shall bear interest at a rate that is 2% per annum in excess of the interest rate applicable to such Obligations from time to time ( e.g. , an Applicable Margin of 1.50% would become an Applicable Margin of 3.50%), payable on demand or, in the absence of demand, on the date that would otherwise be applicable.
Section 2.10 Conversion and Continuation Options. (a) Option . The Borrower may elect (i) in the case of any Eurodollar Rate Loan advanced to Borrower, upon 3 Business Days' prior written notice given to the Administrative Agent not later than 11:00 a.m. (A) to continue such Eurodollar Rate Loan or any portion thereof for an additional Interest Period on the last day of the Interest Period applicable thereto and (B) to convert such Eurodollar Rate Loan or any portion thereof into a Base Rate Loan at any time on any Business Day, subject to the payment of any breakage costs required by Section 2.16(a) , and (ii) in the case of Base Rate Loans (other than Swing Loans) advanced to Borrower, to convert such Base Rate Loans or any portion thereof into Eurodollar Rate Loans at any time on any Business Day upon 3 Business Days' prior written notice given to the Administrative Agent not later than 11:00 a.m.; provided , however , that, (x) for each Interest Period, the aggregate amount of Eurodollar Rate Loans having such Interest Period must be an integral multiple of $500,000 and (y) no conversion in whole or in part of Base Rate Loans to Eurodollar Rate Loans and no continuation in whole or in part of Eurodollar Rate Loans shall be permitted at any time at which (1) a Default or Event of Default shall be continuing and the Administrative Agent or the Required Lenders shall have determined in their sole discretion not to permit such conversions or continuations or (2) such continuation or conversion would be made during a suspension imposed by Section 2.15 .
(b) Procedure. Each such election shall be made by giving the Administrative Agent at least 3 Business Days' prior notice in substantially the form of Exhibit F (a " Notice of Conversion or Continuation ") duly completed. The Administrative Agent shall promptly notify each Lender of its receipt of a Notice of Conversion or Continuation and of the options selected therein. If the Administrative Agent does not receive a timely Notice of Conversion or Continuation from Borrower containing a permitted election to continue or convert any Eurodollar Rate Loan, then, upon the expiration of the applicable Interest Period, such Loan shall be automatically converted to a Base Rate Loan. Each partial conversion or continuation shall be allocated ratably among the Lenders in the applicable Facility in accordance with their Pro Rata Share.
Section 2.11 Fees. (a) Unused Commitment Fee . The Borrower agrees to pay to each Revolving Credit Lender a commitment fee on the average daily amount by which the Revolving Credit Commitment of such Lender exceeds its Pro Rata Share of the sum of (i) the aggregate outstanding principal amount of Revolving Loans and (ii) the outstanding amount of the L/C Obligations for all Letters of Credit from the date hereof through the Revolving Credit Termination Date at a rate of
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0.50% per annum, payable in arrears (x) on the last day of each calendar quarter and (y) on the Revolving Credit Termination Date (the " Unused Commitment Fee ").
(b) Letter of Credit Fees. The Borrower agrees to pay, with respect to all Letters of Credit Issued by any L/C Issuer, (i) to such L/C Issuer, certain fees, documentary and processing charges as separately agreed between Borrower and such L/C Issuer or otherwise in accordance with such L/C Issuer's standard schedule in effect at the time of determination thereof and (ii) to the Administrative Agent, for the benefit of the Revolving Credit Lenders according to their Pro Rata Shares, a fee accruing at a rate per annum equal to the Applicable Margin for Revolving Loans that are Eurodollar Rate Loans on the maximum undrawn face amount of such Letters of Credit, payable in arrears (A) on the last day of each calendar quarter, ending after the issuance of such Letter of Credit and (B) on the Revolving Credit Termination Date; provided , however , that the fee payable under this clause (ii) shall be increased by 2% per annum and shall be payable, in addition to being payable on any date it is otherwise required to be paid hereunder, on demand effective immediately upon (x) the occurrence of any Event of Default under Section 9.1(e) or (y) the delivery of a notice by the Administrative Agent or the Required Lenders to Borrower during the continuance of any Event of Default arising under Section 9.1(a) or Section 9.1(c) as a result of a breach of Article V , and, in each case, for as long as such Event of Default shall be continuing.
(c) Additional Fees. The Borrower (i) shall pay to the Administrative Agent and its Related Persons its reasonable and customary fees and expenses in connection with any payments made pursuant to Section 2.16(a) ( Breakage Costs ) and (ii) has agreed to pay the additional fees described in the Fee Letter.
Section 2.12 Application of Payments. (a) Application of Voluntary Prepayments . Unless otherwise provided in this Section 2.12 or elsewhere in any Loan Document, all payments and any other amounts received by the Administrative Agent from or for the benefit of Borrower as a voluntary prepayment of the Term Loan shall be applied as directed by Borrower.
(b) Application of Mandatory Prepayments. Subject to the provisions of clause (c) below with respect to the application of payments during the continuance of an Event of Default, any payment made by Borrower to the Administrative Agent pursuant to Section 2.8 or any other prepayment of the Obligations required to be applied in accordance with this clause (b) shall be applied first , (other than in respect of any payment required pursuant to Section 2.8(d) ) to repay the outstanding principal balance of the Term Loans, ratably among all remaining scheduled payments of principal thereof until the Term Loan is repaid in full, second , to repay the outstanding principal balance of the Revolving Loans and the Swing Loans (which shall not effect a permanent reduction in the Revolving Credit Commitment unless Borrower so elects), third , in the case of any payment required pursuant to Section 2.8(d) , to provide cash collateral to the extent and in the manner set forth in Section 9.3 and, then , any excess shall be retained by the applicable Borrower.
(c) Application of Payments During an Event of Default. Borrower and each Parent Guarantor hereby irrevocably waives, and agrees to cause each Loan Party and each other Group Member to waive, the right to direct the application during the continuance of an Event of Default of any and all payments in respect of any Obligation and any proceeds of Collateral and agrees that, notwithstanding the provisions of clauses (a) and (b) above, the Administrative Agent may, and, upon either (A) the direction of the Required Lenders or (B) the termination of any Commitment or the acceleration of any Obligation pursuant to Section 9.2 , shall, apply all payments in respect of any Obligation, all funds on deposit in any Cash Collateral Account and all other proceeds of Collateral (i) first , to pay Obligations in respect of any cost or expense reimbursements, fees or indemnities then due to the Administrative Agent, (ii) second , to pay Obligations in respect of any cost or expense reimbursements, fees or indemnities then due to the Lenders and the L/C Issuers, (iii) third , to pay interest then due and payable in respect of the Loans and L/C Reimbursement Obligations, (iv) fourth , to repay the
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outstanding principal amounts of the Loans and L/C Reimbursement Obligations, to provide cash collateral for Letters of Credit in the manner and to the extent described in Section 9.3 , and (v) fifth , to the ratable payment of all other Obligations.
(d) Application of Payments Generally. All payments that would otherwise be allocated to the Revolving Credit Loans pursuant to this Section 2.12 shall instead be allocated first , to repay interest on Swing Loans, on any portion of the Revolving Loans that the Administrative Agent may have advanced on behalf of any Lender and on any L/C Reimbursement Obligation, in each case for which the Administrative Agent or, as the case may be, the L/C Issuer has not then been reimbursed by such Lender or the applicable Borrower, second to pay the outstanding principal amount of the foregoing obligations and third , to repay the Revolving Loans. All repayments of any Revolving Loans or the Term Loan shall be applied first , to repay such Loans outstanding as Base Rate Loans and then , to repay such Loans outstanding as Eurodollar Rate Loans, with those Eurodollar Rate Loans having earlier expiring Interest Periods being repaid prior to those having later expiring Interest Periods. All repayments of the Term Loan shall be applied to reduce ratably the remaining installments of such outstanding principal amounts of the Term Loan. If sufficient amounts are not available to repay all outstanding Obligations described in any priority level set forth in this Section 2.12 , the available amounts shall be applied, unless otherwise expressly specified herein, to such Obligations ratably based on the proportion of the Secured Parties' interest in such Obligations. Any priority level set forth in this Section 2.12 that includes interest shall include all such interest, whether or not accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or similar proceeding, and whether or not a claim for post-filing or post-petition interest is allowed in any such proceeding.
Section 2.13 Payments and Computations. (a) Procedure . The Borrower shall make each payment to be made by it under any Loan Document not later than 11:00 a.m. on the day when due to the Administrative Agent by wire transfer to the following account (or at such other account or by such other means to such other address as the Administrative Agent shall have notified Borrower in writing within a reasonable time prior to such payment) in immediately available Dollars and without setoff or counterclaim:
ABA
No. 091000022
Account Number 173103781352 (Attn: Roy Vorrelli)
U.S. Bank N.A.
Account Name: Churchill Financial LLC
Reference: PROS Revenue Management, L.P.
The Administrative Agent shall promptly thereafter cause to be distributed immediately available funds relating to the payment of principal, interest or fees to the Lenders, in accordance with the application of payments set forth in Section 2.12 . The Lenders shall make any payment under any Loan Document in immediately available Dollars and without setoff or counterclaim. Each Revolving Credit Lender shall make each payment for the account of any L/C Issuer or Swingline Lender required pursuant to Section 2.3 or 2.4 (A) if the notice or demand therefor was received by such Lender prior to 11:00 a.m. on any Business Day, on such Business Day and (B) otherwise, on the Business Day following such receipt. Payments received by the Administrative Agent after 11:00 a.m. shall be deemed to be received on the next Business Day.
(b) Computations of Interests and Fees. All computations of interest and of fees shall be made by the Administrative Agent on the basis of a year of 360 days (or, in the case of Base Rate Loans whose interest rate is calculated based on the rate set forth in clause (a) of the definition of "Base Rate", 365/366 days), in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest and fees are payable. Each determination of an interest rate or the amount of a fee hereunder shall be made by the Administrative Agent (including
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determinations of a Eurodollar Rate or Base Rate in accordance with the definitions of "Eurodollar Rate" and "Base Rate", respectively) and shall be conclusive, binding and final for all purposes, absent manifest error.
(c) Payment Dates. Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, the due date for such payment shall be extended to the next succeeding Business Day without any increase in such payment as a result of additional interest or fees; provided , however , that such interest and fees shall continue accruing as a result of such extension of time.
(d) Advancing Payments. Unless the Administrative Agent shall have received notice from Borrower to the Lenders prior to the date on which any payment is due hereunder that Borrower will not make such payment in full, the Administrative Agent may assume that Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent that Borrower shall not have made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent on demand such amount distributed to such Lender together with interest thereon (at the Federal Funds Rate for the first Business Day and thereafter, at the rate applicable to Base Rate Loans under the applicable Facility) for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent.
Section 2.14 Evidence of Debt. (a) Records of Lenders . Each Lender shall maintain in accordance with its usual practice accounts evidencing Indebtedness of Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. In addition, each Lender having sold a participation in any of its Obligations or having identified an SPV as such to the Administrative Agent, acting as agent of Borrower solely for this purpose and solely for tax purposes, shall establish and maintain at its address referred to in Section 12.11 (or at such other address as such Lender shall notify Borrower) a record of ownership, in which such Lender shall register by book entry (A) the name and address of each such participant and SPV (and each change thereto, whether by assignment or otherwise) and (B) the rights, interest or obligation of each such participant and SPV in any Obligation, in any Commitment and in any right to receive any payment hereunder.
(b) Records of Administrative Agent. The Administrative Agent, acting as agent of Borrower solely for tax purposes and solely with respect to the actions described in this Section 2.14 , shall establish and maintain at its address referred to in Section 12.11 (or at such other address as the Administrative Agent may notify Borrower) (A) a record of ownership (the " Register ") in which the Administrative Agent agrees to register by book entry the interests (including any rights to receive payment hereunder) of the Administrative Agent, each Lender and each L/C Issuer in the Term Loan advanced to, and the Revolving Credit Outstandings of, Borrower, its obligations under this Agreement to participate in each Loan to be advanced to, Letter of Credit to be Issued for the amount of, and L/C Reimbursement Obligation of, Borrower, and any assignment of any such interest, obligation or right and (B) accounts in the Register in accordance with its usual practice in which it shall record (1) the names and addresses of the Lenders and the L/C Issuers (and each change thereto pursuant to Section 2.18 ( Substitution of Lenders ) and Section 12.2 ( Assignments and Participations; Binding Effect )), (2) the Commitments of each Lender, (3) the amount of each Loan advanced to Borrower and each funding of any participation described in clause (A) above and, for Eurodollar Rate Loans, the Interest Period applicable thereto, (4) the amount of any principal or interest due from, and payable or paid by, Borrower, (5) the amount of the L/C Reimbursement Obligations of Borrower due and payable or paid and (6) any other payment received by the Administrative Agent from Borrower and its application to the Obligations.
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(c) Registered Obligations. Notwithstanding anything to the contrary contained in this Agreement, the Loans (including any Notes evidencing such Loans and, in the case of Revolving Loans, the corresponding obligations to participate in L/C Obligations and Swing Loans) and the L/C Reimbursement Obligations are registered obligations, the right, title and interest of the Lenders and the L/C Issuers and their assignees in and to such Loans or L/C Reimbursement Obligations, as the case may be, shall be transferable only upon notation of such transfer in the Register and no assignment thereof shall be effective until recorded therein. This Section 2.14 and Section 12.2 shall be construed so that the Loans and L/C Reimbursement Obligations are at all times maintained in " registered form " within the meaning of Sections 163(f), 871(h)(2) and 881(c)(2) of the Code and any related regulations (and any successor provisions).
(d) Prima Facie Evidence. The entries made in the Register and in the accounts maintained pursuant to clauses (a) and (b) above shall, to the extent permitted by applicable Requirements of Law, be prima facie evidence of the existence and amounts of the obligations recorded therein; provided , however , that no error in such account and no failure of any Lender or the Administrative Agent to maintain any such account shall affect the obligations of any Loan Party to repay the Loans in accordance with their terms. In addition, the Loan Parties, the Administrative Agent, the Lenders and the L/C Issuers shall treat each Person whose name is recorded in the Register as a Lender or L/C Issuer, as applicable, for all purposes of this Agreement. Information contained in the Register with respect to any Lender or L/C Issuer shall be available for inspection by Borrower, the Administrative Agent, such Lender or such L/C Issuer at any reasonable time and from time to time upon reasonable prior notice.
(e) Notes. Upon any Lender's request, Borrower shall promptly execute and deliver Notes to such Lender evidencing the Loans of such Lender in a Facility and substantially in the form of Exhibit B ; provided , however , that only one Note for each Facility shall be issued by Borrower to each Lender, except (i) to an existing Lender exchanging existing Notes to reflect changes in the Register relating to such Lender, in which case the new Notes delivered to such Lender shall be dated the date of the original Notes and the original Notes shall forthwith be cancelled and destroyed, and (ii) in the case of loss, destruction or mutilation of existing Notes and similar circumstances. Each Note, if issued, shall only be issued as means to evidence the right, title or interest of a Lender or a registered assignee in and to the related Loan, as set forth in the Register, and in no event shall any Note be considered a bearer instrument or obligation.
Section 2.15 Suspension of Eurodollar Rate Option. Notwithstanding any provision to the contrary in this Article II , the following shall apply:
(a) Interest Rate Unascertainable, Inadequate or Unfair. In the event that (A) the Administrative Agent determines that adequate and fair means do not exist for ascertaining the applicable interest rates by reference to which the Eurodollar Rate is determined or (B) the Required Lenders notify the Administrative Agent that the Eurodollar Rate for any Interest Period will not adequately reflect the cost to the Lenders of making or maintaining such Loans for such Interest Period, the Administrative Agent shall promptly so notify Borrower and the Lenders, whereupon the obligation of each Lender to make or to continue Eurodollar Rate Loans shall be suspended as provided in clause (c) below until the Administrative Agent shall notify Borrower that the Required Lenders have determined that the circumstances causing such suspension no longer exist.
(b) Illegality. If any Lender determines that the introduction of, or any change in or in the interpretation of, any Requirement of Law after the date of this Agreement shall make it unlawful, or any Governmental Authority shall assert that it is unlawful, for any Lender or its applicable lending office to make Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans, then, on notice thereof and demand therefor by such Lender to Borrower through the
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Administrative Agent, the obligation of such Lender to make or to continue Eurodollar Rate Loans shall be suspended as provided in clause (c) below until such Lender shall, through the Administrative Agent, notify Borrower that it has determined that it may lawfully make Eurodollar Rate Loans.
(c) Effect of Suspension. If the obligation of any Lender to make or to continue Eurodollar Rate Loans is suspended, (A) the obligation of such Lender to convert Base Rate Loans into Eurodollar Rate Loans shall be suspended, (B) such Lender shall make a Base Rate Loan at any time such Lender would otherwise be obligated to make a Eurodollar Rate Loan, (C) Borrower may revoke any pending Notice of Borrowing or Notice of Conversion or Continuation delivered on behalf of Borrower to make or continue any Eurodollar Rate Loan or to convert any Base Rate Loan into a Eurodollar Rate Loan and (D) each Eurodollar Rate Loan of such Lender shall automatically and immediately (or, in the case of any suspension pursuant to clause (a) above, on the last day of the current Interest Period thereof) be converted into a Base Rate Loan.
Section 2.16 Breakage Costs; Increased Costs; Capital Requirements. (a) Breakage Costs . The Borrower shall compensate each Lender, upon demand from such Lender to Borrower (with copy to the Administrative Agent), for all Liabilities (including, in each case, those incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to prepare to fund, to fund or to maintain the Eurodollar Rate Loans of such Lender to Borrower but excluding any loss of the Applicable Margin on the relevant Loans) that such Lender may incur (A) to the extent, for any reason other than solely by reason of such Lender being a Non-Funding Lender, a proposed Borrowing, conversion into or continuation of Eurodollar Rate Loans by Borrower does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conversion or Continuation or in a similar request made by telephone by Borrower, (B) to the extent any Eurodollar Rate Loan is paid (whether through a scheduled, optional or mandatory prepayment) or converted to a Base Rate Loan (including because of Section 2.15 ) on a date that is not the last day of the applicable Interest Period or (C) as a consequence of any failure by Borrower to repay Eurodollar Rate Loans when required by the terms hereof. For purposes of this clause (a) , each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it using a matching deposit or other borrowing in the London interbank market.
(b) Increased Costs. If at any time any Lender or L/C Issuer determines that, after the date hereof, the adoption of, or any change in or in the interpretation, application or administration of, or compliance with, any Requirement of Law (other than any imposition or increase of Eurodollar Reserve Requirements) from any Governmental Authority shall have the effect of (i) increasing the cost to such Lender of making, funding or maintaining any Eurodollar Rate Loan to Borrower or to agree to do so or of participating, or agreeing to participate, in extensions of credit to Borrower, (ii) increasing the cost to such L/C Issuer of Issuing or maintaining any Letter of Credit for the account of Borrower or of agreeing to do so or (iii) imposing any other cost to such Lender or L/C Issuer with respect to compliance with its obligations under any Loan Document, then, upon demand by such Lender or L/C Issuer (with copy to the Administrative Agent), Borrower shall pay to the Administrative Agent for the account of such Lender or L/C Issuer amounts sufficient to compensate such Lender or L/C Issuer for such increased cost.
(c) Increased Capital Requirements. If at any time any Lender or L/C Issuer determines that, after the date hereof, the adoption of, or any change in or in the interpretation, application or administration of, or compliance with, any Requirement of Law (other than any imposition or increase of Eurodollar Reserve Requirements) from any Governmental Authority regarding capital adequacy, reserves, special deposits, compulsory loans, insurance charges against property of, deposits with or for the account of, Obligations of Borrower owing to, or other credit extended or participated in by, any Lender or L/C Issuer or any similar requirement (in each case other than any imposition or increase of Eurodollar Reserve Requirements) shall have the effect of reducing the rate of return on the capital of
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such Lender's or L/C Issuer (or any corporation controlling such Lender or L/C Issuer) as a consequence of its obligations under or with respect to any Loan Document or Letter of Credit for the account of Borrower to a level below that which, taking into account the capital adequacy policies of such Lender, L/C Issuer or corporation, such Lender, L/C Issuer or corporation could have achieved but for such adoption or change, then, upon demand from time to time by such Lender or L/C Issuer (with a copy of such demand to the Administrative Agent), Borrower shall pay to the Administrative Agent for the account of such Lender amounts sufficient to compensate such Lender for such reduction.
(d) Compensation Certificate. Each demand for compensation under this Section 2.16 shall be accompanied by a certificate of the Lender or L/C Issuer claiming such compensation, setting forth the amounts to be paid hereunder, which certificate shall be conclusive, binding and final for all purposes, absent manifest error. In determining such amount, such Lender or L/C Issuer may use any reasonable averaging and attribution methods.
(e) Failure or delay on the part of any Lender or L/C Issuer to demand compensation pursuant to clauses (b) or (c) of this Section 2.16 shall not constitute a waiver of such Lender's or L/C Issuer's right to demand such compensation; provided that Borrower shall not be required to compensate a Lender or L/C Issuer pursuant to this Section for any increased costs or reductions incurred more than 180 days prior to the date that such Lender or L/C Issuer, as the case may be, notifies Borrower of the change in law giving rise to such increased costs or reductions and of such Lender's or L/C Issuer's intention to claim compensation therefor; provided further that, if the change in law giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof.
Section 2.17 Taxes. (a) Payments Free and Clear of Taxes . Except as otherwise provided in this Section 2.17 , each payment by any Loan Party under any Loan Document shall be made free and clear of all present or future taxes, levies, imposts, deductions, charges or withholdings and all liabilities with respect thereto (and without deduction for any of them) (collectively " Taxes ") other than (i) Taxes measured by net income (including branch profits taxes) and franchise taxes imposed in lieu of net income taxes, in each case imposed on any Secured Party as a result of a present or former connection between such Secured Party and the jurisdiction of the Governmental Authority imposing such Tax or any political subdivision or taxing authority thereof or therein (other than such connection arising from any Secured Party having executed, delivered or performed its obligations or received a payment under, or enforced, any Loan Document), (ii) U.S. federal withholding Taxes that are imposed on amounts payable to a Secured Party to the extent that the obligation to withhold amounts existed on the date that such Secured Party became a "Secured Party" under this Agreement in the capacity under which such Secured Party makes a claim under clause (b) , except in each case to the extent such Secured Party is a direct or indirect assignee (other than pursuant to Section 2.18 (Substitution of Lenders)) of any other Secured Party that was entitled, at the time the assignment of such other Secured Party became effective, to receive additional amounts under clause (b) or (iii) Taxes that are directly attributable to the failure (other than as a result of a change in any Requirement of Law) by any Secured Party to deliver the documentation required to be delivered pursuant to clause (f) below (collectively, " Excluded Taxes " and all such non-Excluded Taxes, " Non-Excluded Taxes ").
(b) Additional Payments. If any Taxes shall be required by law to be deducted from or in respect of any amount payable under any Loan Document to any Secured Party (i) in the case of Non-Excluded Taxes, such amount shall be increased as necessary to ensure that, after all required deductions for Non-Excluded Taxes are made (including deductions applicable to any increases to any amount under this Section 2.17 ), such Secured Party receives on, an after-Tax basis, the amount it would have received had no such deductions been made, (ii) the relevant Loan Party shall make such deductions, (iii) the relevant Loan Party shall timely pay the full amount deducted to the relevant taxing authority or other authority in accordance with applicable Requirements of Law and (iv) within
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30 days after such payment is made, the relevant Loan Party shall deliver to the Administrative Agent an original or certified copy of a receipt evidencing such payment.
(c) Other Taxes. In addition, Borrower agrees to pay, and authorize the Administrative Agent to pay in their name, any stamp, documentary, excise or property tax, charges or similar levies imposed by any applicable Requirement of Law or Governmental Authority and all Liabilities with respect thereto (including by reason of any delay in payment thereof), in each case arising from the execution, delivery or registration of, or otherwise with respect to, any Loan Document or any transaction contemplated therein (collectively, " Other Taxes "). The Swingline Lender may, without any need for notice, demand or consent from Borrower, by making funds available to the Administrative Agent in the amount equal to any such payment, make a Swing Loan to Borrower in such amount, the proceeds of which shall be used by the Administrative Agent in whole to make such payment. Within 30 days after the date of any payment of Taxes or Other Taxes by any Loan Party, Borrower shall furnish to the Administrative Agent, at its address referred to in Section 12.11 , the original or a certified copy of a receipt evidencing payment thereof.
(d) Indemnification. The Borrower shall reimburse and indemnify, within 30 days after receipt of demand therefor (with copy to the Administrative Agent), each Secured Party for all Non-Excluded Taxes and Other Taxes (including any Non-Excluded Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 2.17 ) paid by such Secured Party and any Liabilities arising therefrom or with respect thereto, whether or not such Non-Excluded Taxes or Other Taxes were correctly or legally asserted. A certificate of the Secured Party (or of the Administrative Agent on behalf of such Secured Party) claiming any compensation under this clause (d) , setting forth the amounts to be paid thereunder and delivered to Borrower with copy to the Administrative Agent, shall be conclusive, binding and final for all purposes, absent manifest error. In determining such amount, the Administrative Agent and such Secured Party may use any reasonable averaging and attribution methods.
(e) Mitigation. Any Lender claiming any additional amounts payable pursuant to this Section 2.17 shall use its reasonable efforts (consistent with its internal policies and Requirements of Law) to change the jurisdiction of its lending office if such a change would reduce any such additional amounts (or any similar amount that may thereafter accrue) and would not, in the sole determination of such Lender, be otherwise disadvantageous to such Lender.
(f) Tax Forms. (i) Each Non-U.S. Lender Party that, at any of the following times, is entitled to an exemption from United States withholding tax or, after a change in any Requirement of Law, is subject to such withholding tax at a reduced rate under an applicable tax treaty, shall (w) on or prior to the date such Non-U.S. Lender Party becomes a "Non-U.S. Lender Party" hereunder, (x) upon reasonable request of Borrower or Administrative Agent, on or prior to the date on which any such form or certification expires or becomes obsolete, (y) after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it pursuant to this clause (i) and (z) from time to time if otherwise reasonably requested by Borrower or the Administrative Agent (or, in the case of a participant or SPV, the relevant Lender), provide the Administrative Agent and Borrower (or, in the case of a participant or SPV, the relevant Lender) with two properly completed originals of each of the following, as applicable: (A) Forms W-8ECI (claiming exemption from U.S. withholding tax because the income is effectively connected with a U.S. trade or business), W-8BEN (claiming exemption from, or a reduction of, U.S. withholding tax under an income tax treaty) or any successor forms, (B) in the case of a Non-U.S. Lender Party claiming exemption under Sections 871(h) or 881(c) of the Code, Form W-8BEN (claiming exemption from U.S. withholding tax under the portfolio interest exemption) or any successor form and a certificate in form and substance acceptable to the Administrative Agent that such Non-U.S. Lender Party is not (1) a "bank" within the meaning of Section 881(c)(3)(A) of the Code, (2) a "10 percent shareholder" of Borrower within the meaning of Section 881(c)(3)(B) of the Code or (3) a "controlled foreign corporation" described in
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Section 881(c)(3)(C) of the Code or (C) any other applicable document prescribed by the IRS properly certifying as to the entitlement of such Non-U.S. Lender Party to such exemption from United States withholding tax or reduced rate with respect to all payments to be made to such Non-U.S. Lender Party under the Loan Documents. Unless Borrower and the Administrative Agent have received forms or other documents satisfactory to them indicating that payments under any Loan Document to or for a Non-U.S. Lender Party are not subject to United States withholding tax, the Loan Parties and the Administrative Agent shall withhold amounts required to be withheld by applicable Requirements of Law from such payments at the applicable statutory rate.
(ii) Each U.S. Lender Party shall (A) on or prior to the date such U.S. Lender Party becomes a "U.S. Lender Party" hereunder, (B) upon reasonable request of Borrower or Administrative Agent, on or prior to the date on which any such form or certification expires or becomes obsolete, (C) after the occurrence of any event requiring a change in the most recent form or certification previously delivered by it pursuant to this clause (f) and (D) from time to time if otherwise reasonably requested by Borrower or the Administrative Agent (or, in the case of a participant or SPV, the relevant Lender), provide the Administrative Agent and Borrower (or, in the case of a participant or SPV, the relevant Lender) with two properly completed originals of Form W-9 (certifying that such U.S. Lender Party is entitled to an exemption from U.S. backup withholding tax) or any successor form.
(iii) Each Lender having sold a participation in any of its Obligations or identified an SPV as such to the Administrative Agent shall collect from such participant or SPV the documents described in this clause (f) and provide them to the Administrative Agent.
Section 2.18 Substitution of Lenders. (a) Substitution Right . In the event that any Lender in any Facility that is not an Affiliate of the Administrative Agent (an " Affected Lender "), (i) makes a claim under clause (b) ( Increased Costs ) or (c) ( Increased Capital Requirements ) of Section 2.16 , (ii) notifies Borrower pursuant to Section 2.15(b) ( Illegality ) that it becomes illegal for such Lender to continue to fund or make any Eurodollar Rate Loan in such Facility, (iii) makes a claim for payment pursuant to Section 2.17(b) ( Taxes ), (iv) becomes a Non-Funding Lender with respect to such Facility or (v) does not consent to any amendment, waiver or consent to any Loan Document for which the consent of the Required Lenders is obtained but that requires the consent of other Lenders in such Facility, Borrower or the Administrative Agent may either pay in full such Affected Lender with respect to amounts due in such Facility with the consent of the Administrative Agent or substitute for such Affected Lender in such Facility any Lender or any Affiliate or Approved Fund of any Lender or any other Person acceptable (which acceptance shall not be unreasonably withheld or delayed) to the Administrative Agent (in each case, a " Substitute Lender ").
(b) Procedure. To substitute such Affected Lender or pay in full the Obligations owed to such Affected Lender under such Facility, Borrower shall deliver a notice to the Administrative Agent and such Affected Lender. The effectiveness of such payment or substitution shall be subject to the delivery to the Administrative Agent by Borrower (or, as may be applicable in the case of a substitution, by the Substitute Lender) of (i) payment for the account of such Affected Lender, of, to the extent accrued through, and outstanding on, the effective date for such payment or substitution, all Obligations owing to such Affected Lender with respect to such Facility (including those that will be owed because of such payment and all Obligations that would be owed to such Lender if it was solely a Lender in such Facility), (ii) in the case of a payment in full of the Obligations owing to such Affected Lender in the Revolving Credit Facility, payment of any amount that, after giving effect to the termination of the Commitment of such Affected Lender, is required to be paid pursuant to Section 2.8(e) ( Excess Outstandings ) and (iii) in the case of a substitution, (A) payment of the assignment fee set forth in Section 12.2(c) and (B) an assumption agreement in form and substance satisfactory to the Administrative Agent whereby the Substitute Lender shall, among other things, agree to be bound by
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the terms of the Loan Documents and assume the Commitment of the Affected Lender under such Facility.
(c) Effectiveness. Upon satisfaction of the conditions set forth in clause (b) above, the Administrative Agent shall record such substitution or payment in the Register, whereupon (i) in the case of any payment in full in any Facility, such Affected Lender's Commitments in such Facility shall be terminated and (ii) in the case of any substitution in any Facility, (A) the Affected Lender shall sell and be relieved of, and the Substitute Lender shall purchase and assume, all rights and claims of such Affected Lender under the Loan Documents with respect to such Facility, except that the Affected Lender shall retain such rights expressly providing that they survive the repayment of the Obligations and the termination of the Commitments, (B) the Substitute Lender shall become a " Lender " hereunder having a Commitment in such Facility in the amount of such Affected Lender's Commitment in such Facility and (C) the Affected Lender shall execute and deliver to the Administrative Agent an Assignment to evidence such substitution and deliver any Note in its possession with respect to such Facility; provided , however , that the failure of any Affected Lender to execute any such Assignment or deliver any such Note shall not render such sale and purchase (or the corresponding assignment) invalid.
ARTICLE III
CONDITIONS TO LOANS AND LETTERS OF CREDIT
Section 3.1 Conditions Precedent to Initial Loans and Letters of Credit. The obligation of each Lender to make any Loan on the Closing Date and the obligation of each L/C Issuer to Issue any Letter of Credit on the Closing Date is subject to the satisfaction or written waiver of each of the following conditions precedent on or before March 23, 2007:
(a) Certain Documents. The Administrative Agent shall have received on or prior to the Closing Date each of the following, each dated the Closing Date unless otherwise agreed by the Administrative Agent, in form and substance satisfactory to the Administrative Agent and each Lender:
(i) this Agreement duly executed by Holdings and Borrower and, for the account of each Lender having requested the same, by notice to the Administrative Agent and Borrower received by each at least 3 Business Days prior to the Closing Date (or such later date as may be agreed by Borrower), Notes in each applicable Facility conforming to the requirements set forth in Section 2.14(e) ;
(ii) the Guaranty, Pledge and Security Agreement, duly executed by each Guarantor, together with (A) copies of UCC, Intellectual Property and other appropriate search reports and of all effective prior filings listed therein, together with evidence of the termination of such prior filings and other documents with respect to the priority of the security interest of the Administrative Agent in the Collateral, in each case as may be reasonably requested by the Administrative Agent, (B) all documents representing all Securities being pledged pursuant to such Guaranty, Pledge and Security Agreement and related undated powers or endorsements duly executed in blank (C) all Control Agreements that, in the reasonable judgment of the Administrative Agent, are required for the Loan Parties to comply with the Loan Documents as of the Closing Date, each duly executed by, in addition to the applicable Loan Party, the applicable financial institution (it being agreed, however, that such Control Agreements may be delivered up to 30 days following the Closing Date or such later date as the Administrative Agent may in writing agree), and (D) properly completed perfection certificates with respect to Borrower and each Guarantor;
41
(iii) a duly executed favorable opinion of DLA Piper US LLP, counsel to the Loan Parties, addressed to the Administrative Agent, the L/C Issuers and the Lenders and addressing such matters as the Administrative Agent may reasonably request;
(iv) a copy of each Constituent Document of each Loan Party that is on file with any Governmental Authority in any jurisdiction, certified as of a recent date by such Governmental Authority, together with, if applicable, certificates attesting to the good standing of such Loan Party in such jurisdiction and each other jurisdiction where such Loan Party is qualified to do business as a foreign entity or where such qualification is necessary (and, if appropriate in any such jurisdiction, related tax certificates), except where the failure to be so qualified would not be materially adverse to such Loan Party;
(v) a certificate of the secretary or other officer of each Loan Party in charge of maintaining books and records of such Loan Party certifying as to (A) the names and signatures of each officer of such Loan Party authorized to execute and deliver any Loan Document, (B) the Constituent Documents of such Loan Party attached to such certificate are complete and correct copies of such Constituent Documents as in effect on the date of such certification (or, for any such Constituent Document delivered pursuant to clause (v) above, that there have been no changes from such Constituent Document so delivered), and (C) the resolutions of such Loan Party's board of directors or other appropriate governing body approving and authorizing the execution, delivery and performance of each Loan Document to which such Loan Party is a party;
(vi) a certificate of a Responsible Officer of Borrower to the effect that (A) each condition set forth in Section 3.2(b) has been satisfied with respect to Borrower, and (B) Borrower and each other Loan Party on a Consolidated basis, are Solvent after giving effect to the Term Loan, the application of the proceeds thereof in accordance with Section 7.9 , the payment of the Specified Dividend, and the payment of all estimated legal, accounting and other fees and expenses related hereto and thereto;
(vii) insurance certificates in form and substance satisfactory to the Administrative Agent demonstrating that the insurance policies required by Section 7.5 are in full force and effect and have all endorsements required by such Section 7.5 ;
(viii) satisfactory completion of the Administrative Agent's legal, accounting and financial due diligence investigations, including receipt and review of the Initial Projections, review of Borrower's insurance, review of employment and noncompetition agreements of Borrower's key employees, review of Borrower's standard forms of customer contracts and its actual contracts with its major customers, and review of such other documents as the Administrative Agent or any Lender may reasonably request to determine that all third-party and regulatory approvals and consents necessary to consummate the transactions contemplated on the Closing Date and the Specified Dividend shall have been obtained and shall be final and non-appealable,
(ix) the other documents listed on the Closing Checklist; and
(x) such other documents and information as any Lender through the Administrative Agent may reasonably request.
(b) Fee and Expenses. There shall have been paid to the Administrative Agent, for the account of the Administrative Agent, its Related Persons, any L/C Issuer or any Lender, as the case may be, all fees and all reimbursements of costs or expenses, in each case due and payable under any Loan Document on or before the Closing Date.
42
(c) Consents. Each Group Member shall have received all material consents and authorizations required pursuant to any material Contractual Obligation with any other Person and shall have obtained all material Permits of, and effected all material notices to and filings with, any Governmental Authority, in each case, as may be necessary in connection with the consummation of the transactions contemplated in any Loan Document and the payment of the Specified Dividend.
(d) No Initial Revolving Loans. On the Closing Date, after giving effect to the Loans and payment in full of the Specified Dividend, there shall be no Revolving Loans or L/Cs outstanding and none shall be required to pay in full the Specified Dividend.
(e) Opening Cash Balance On the Closing Date, Borrower will have an opening unencumbered amount of cash and Cash Equivalents of at least $4,500,000 after giving effect to payment in full of the Specified Dividend and the borrowing of the Term Loan, and assuming that no Revolving Loans or L/Cs are outstanding.
(f) Minimum Consolidated EBITDA. On the Closing Date, the aggregate Adjusted EBITDA of Borrower for the 12 consecutive preceding months for which financial statements are available shall be no less than $7,800,000.
(g) Consolidated Total Debt. On the Closing Date, after giving effect to the transactions occurring on the Closing Date and the payment of the Specified Dividend, (i) the Consolidated Total Debt of Borrower shall not exceed $20,000,000, and (ii) the ratio of Consolidated Total Debt to Adjusted EBITDA shall be less than 2.60 to 1.
(h) No Material Adverse Change. (x) No event shall have occurred (including with respect to the contracts or other Collateral of Borrower and the other Loan Parties) that would cause or in the reasonable judgment of the Administrative Agent be reasonably likely to result in a Material Adverse Effect, and (y) no litigation, suit or investigation by any Governmental Authority shall have commenced or been threatened in writing against any Loan Party that in the reasonable judgment of the Administrative Agent could reasonably be expected to have a Material Adverse Effect if determined adversely to such Loan Party.
Section 3.2 Conditions Precedent to Each Loan and Letter of Credit. The obligation of each Lender on any date (including the Closing Date) to make any Loan and of each L/C Issuer on any date (including the Closing Date) to Issue any Letter of Credit is subject to the satisfaction of each of the following conditions precedent:
(a) Request. The Administrative Agent (and, in the case of any Issuance, the relevant L/C Issuer) shall have received, to the extent required by Article II , a written, timely and duly executed and completed Notice of Borrowing, Swingline Request or, as the case may be, L/C Request.
(b) Representations and Warranties; No Defaults. The following statements shall be true on such date, both before and after giving effect to such Loan or, as applicable, such Issuance: (i) the representations and warranties set forth in any Loan Document shall be true and correct (A) if such date is the Closing Date, on and as of such date and (B) otherwise, in all material respects (if not qualified as to materiality or Material Adverse Effect) or in any respect (if so qualified) on and as of such date or, to the extent such representations and warranties expressly relate to an earlier date, on and as of such earlier date and (ii) no Default or Event of Default shall be continuing.
(c) Additional Matters. The Administrative Agent shall have received such additional documents and information as any Lender, through the Administrative Agent, may reasonably request.
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The representations and warranties set forth in any Notice of Borrowing, Swingline Request or L/C Request (or any certificate delivered in connection therewith) shall be deemed to be made again on and as of the date of the relevant Loan or Issuance and the acceptance of the proceeds thereof or of the delivery of the relevant Letter of Credit.
Section 3.3 Determinations of Initial Borrowing Conditions. For purposes of determining compliance with the conditions specified in Section 3.1 , each Lender shall be deemed to be satisfied with each document and each other matter required to be satisfactory to such Lender unless, prior to the Closing Date, the Administrative Agent receives notice from such Lender specifying such Lender's objections and such Lender has not made available its Pro Rata Share of any Borrowing scheduled to be made on the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lenders, the L/C Issuers and the Administrative Agent to enter into the Loan Documents, Borrower and each Parent Guarantor (and, to the extent set forth in any other Loan Document, each other Loan Party) represents and warrants to each of them each of the following on and as of each date applicable pursuant to Section 3.2 :
Section 4.1 Corporate Existence; Compliance with Law. Each Group Member (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) is duly qualified to do business as a foreign entity and in good standing under the laws of each jurisdiction where such qualification is necessary, except where the failure to be so qualified or in good standing would not, in the aggregate, have a Material Adverse Effect, (c) has all requisite power and authority and the legal right to own, pledge, mortgage and operate its property, to lease or sublease any property it operates under lease or sublease and to conduct its business as now or currently proposed to be conducted, (d) is in compliance with its Constituent Documents, (e) is in compliance with all applicable Requirements of Law except where the failure to be in compliance would not have a Material Adverse Effect and (f) has all necessary Permits from or by, has made all necessary filings with, and has given all necessary notices to, each Governmental Authority having jurisdiction, to the extent required for such ownership, lease, sublease, operation, occupation or conduct of business, except where the failure to obtain such Permits, make such filings or give such notices would not, in the aggregate, have a Material Adverse Effect.
Section 4.2 Loan and Related Documents. (a) Power and Authority . The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party and the payment of the Specified Dividend (i) are within such Loan Party's corporate or similar powers and, at the time of execution thereof, have been duly authorized by all necessary corporate and similar action (including, if applicable, consent of holders of its Securities), (ii) do not (A) contravene such Loan Party's Constituent Documents, (B) violate any applicable Requirement of Law, (C) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material Contractual Obligation of any Loan Party or any of its Subsidiaries (including other Loan Documents) other than those that would not, in the aggregate, have a Material Adverse Effect and are not created or caused by, or a conflict, breach, default or termination or acceleration event under, any Loan Document or (D) result in the imposition of any Lien (other than a Permitted Lien) upon any property of any Loan Party or any of its Subsidiaries and (iii) do not require any Permit of, or filing with, any Governmental Authority or any consent of, or notice to, any Person, other than (A) with respect to the Loan Documents, the filings required to perfect the Liens created by the Loan Documents, and (B) those listed on Schedule 4.2 and that have been, or will be prior to the Closing Date, obtained or made, copies of which have been, or will be prior to the Closing Date, delivered to the Administrative Agent, and each of which on the Closing Date will be in full force and effect.
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(b) Due Execution and Delivery. From and after its delivery to the Administrative Agent, each Loan Document has been duly executed and delivered to the other parties thereto by each Loan Party thereto, is the legal, valid and binding obligation of such Loan Party and is enforceable against such Loan Party in accordance with its terms except as such enforceability may be limited by bankruptcy, insolvency, reorganization, receivership, moratorium or other laws affecting creditors' rights generally and by general principles of equity.
Section 4.3 Ownership of Group Members. Set forth on Schedule 4.3 is a complete and accurate list showing, as of the Closing Date, for each Group Member and each Subsidiary of any Group Member and each joint venture of any of them, its jurisdiction of organization, the number of shares of each class of Stock authorized (if applicable), the number outstanding on the Closing Date and the number and percentage of the outstanding shares of each such class owned (directly or indirectly) by Borrower and each Parent Guarantor. All outstanding Stock of each of them has been validly issued, is fully paid and non-assessable (to the extent applicable) and, except in the case of Holdings, is owned beneficially and of record by a Group Member free and clear of all Liens other than the security interests created by the Loan Documents and, in the case of joint ventures, Permitted Liens. There are no Stock Equivalents with respect to the Stock of any Group Member (other than Holdings) or any Subsidiary of any Group Member or any joint venture of any of them and, as of the Closing Date, except as set forth on Schedule 4.3 , there are no Stock Equivalents with respect to the Stock of Holdings. There are no Contractual Obligations or other understandings to which any Group Member, any Subsidiary of any Group Member or any joint venture of any of them is a party with respect to (including any restriction on) the issuance, voting, Sale or pledge of any Stock or Stock Equivalent of any Group Member or any such Subsidiary or joint venture.
Section 4.4 Financial Statements. (a) Each of (i) the audited Consolidated balance sheet of Borrower as at December 31, 2006, and the related Consolidated statements of income, retained earnings and cash flows of Borrower for the Fiscal Year then ended, certified by PricewaterhouseCoopers LLP, and (ii) subject to the absence of footnote disclosure and normal recurring year-end audit adjustments, the unaudited Consolidated balance sheets of Borrower as at January 31, 2007 and the related Consolidated statements of income, retained earnings and cash flows of Borrower for the one month then ended, copies of each of which have been furnished to the Administrative Agent, fairly present in all material respects the Consolidated financial position, results of operations and cash flow of Borrower as at the dates indicated and for the periods indicated in accordance with GAAP.
(b) On the Closing Date, (i) Holdings has no material property (other than the Stock of General Partner and Limited Partner), liabilities or Contractual Obligations other than the Loan Documents, and (ii) General Partner and Limited Partner have no property (other than the Stock of Borrower), liabilities or Contractual Obligations other than the Loan Documents. On the Closing Date, (x) neither Borrower nor any of its Subsidiaries has any material liability or other obligation (including Indebtedness, Guaranty Obligations, contingent liabilities and liabilities for taxes, long-term leases and unusual forward or long-term commitments) that is not reflected in the Financial Statements referred to in clause (a) above or in the notes thereto and not otherwise permitted by this Agreement and (y) since the date of the unaudited Financial Statements referenced in clause (a)(ii) above, there has been no Sale of any material property of Borrower or any of its Subsidiaries and no purchase or other acquisition of any material property.
(c) The Initial Projections have been prepared by Borrower in light of the past operations of the business of Borrower and its Subsidiaries and reflect projections for the 5-year period beginning as of January 1, 2007 on a year by year basis. As of the Closing Date, the Initial Projections are based upon estimates and assumptions stated therein, all of which Borrower believes to be reasonable and fair in light of conditions and facts known to Borrower as of the Closing Date and reflect the good faith, reasonable and fair estimates by Borrower of the future Consolidated financial performance of
45
Borrower and the other information projected therein for the periods set forth therein; provided , however, that Borrower gives no assurances whatsoever that such projections will be attained.
(d) The unaudited Consolidated balance sheet of Holdings (the " Pro Forma Balance Sheet ") delivered to the Administrative Agent prior to the date hereof has been prepared as of March 31, 2007 and reflects as of such date, on a Pro Forma Basis for the Related Transactions and the other transactions contemplated herein to occur on the Closing Date, the Consolidated financial condition of Holdings, and the assumptions expressed therein are reasonable based on the information available to Holdings and Borrower at such date and on the Closing Date.
Section 4.5 Material Adverse Effect. Since December 31, 2006, there have been no events, circumstances, developments or other changes in facts that could reasonably be expected, in the aggregate, to have a Material Adverse Effect.
Section 4.6 Solvency. Both before and after giving effect to (a) the Loans and Letters of Credit made or Issued on or prior to the date this representation and warranty is made, (b) the disbursement of the proceeds of such Loans, (c) the payment of the Specified Dividend and (d) the payment and accrual of all transaction costs in connection with the foregoing, all of the Loan Parties on a Consolidated basis are Solvent.
Section 4.7 Litigation. There are no pending (or, to the knowledge of any Group Member, threatened in writing) actions, investigations, suits, proceedings, audits, claims, demands, orders or disputes affecting Borrower or any of its Subsidiaries or any Guarantor with, by or before any Governmental Authority other than those that cannot reasonably be expected to affect the Obligations, the Loan Documents, the Letters of Credit, and the other transactions contemplated in any of the foregoing and would not, in the aggregate, have a Material Adverse Effect.
Section 4.8 Taxes. All federal, state, local and foreign income and franchise and other material tax returns, reports and statements (collectively, the " Tax Returns ") required to be filed by any Tax Affiliate have been filed with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are required to be filed, all such Tax Returns are true and correct in all material respects, and all taxes, charges and other impositions reflected therein or otherwise due and payable have been paid prior to the date on which any Liability may be added thereto for non-payment thereof except for those contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves are maintained on the books of the appropriate Tax Affiliate in accordance with GAAP. No Tax Return is under audit or examination by any Governmental Authority and no notice of such an audit or examination or any assertion of any claim for Taxes has been given or made by any Governmental Authority. Proper and accurate amounts have been withheld by each Tax Affiliate from their respective employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable Requirements of Law and such withholdings have been timely paid to the respective Governmental Authorities. No Tax Affiliate has participated in a "reportable transaction" within the meaning of Treasury Regulation Section 1.6011-4(b) or has been a member of an affiliated, combined or unitary group other than the group of which a Tax Affiliate is the common parent.
Section 4.9 Margin Regulations. No Loan Party is engaged in the business of extending credit for the purpose of, and no proceeds of any Loan or other extensions of credit hereunder will be used for the purpose of, buying or carrying margin stock (within the meaning of Regulation U of the Federal Reserve Board) or extending credit to others for the purpose of purchasing or carrying any such margin stock, in each case in contravention of Regulation T, U or X of the Federal Reserve Board.
Section 4.10 No Burdensome Obligations; No Defaults. No Group Member is a party to any Contractual Obligation, no Group Member has Constituent Documents containing obligations, and, to the knowledge of any Group Member, there are no applicable Requirements of Law, in each case the
46
compliance with which would have, in the aggregate, a Material Adverse Effect. No Group Member (and, to the knowledge of each Group Member, no other party thereto) is in default under or with respect to any Contractual Obligation of any Group Member, other than those that would not, in the aggregate, have a Material Adverse Effect.
Section 4.11 Investment Company Act. No Group Member is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940.
Section 4.12 Labor Matters. There are no strikes, work stoppages, slowdowns or lockouts existing, pending (or, to the knowledge of any Group Member, threatened in writing) against or involving any Group Member, except for those that would not, in the aggregate, have a Material Adverse Effect. Except as set forth on Schedule 4.12 , as of the Closing Date, (a) there is no collective bargaining or similar agreement with any union, labor organization, works council or similar representative covering any employee of any Group Member, (b) no petition for certification or election of any such representative is existing or pending with respect to any employee of any Group Member and (c) no such representative has sought certification or recognition with respect to any employee of any Group Member.
Section 4.13 ERISA. Schedule 4.13 sets forth, as of the Closing Date, a complete and correct list of, and that separately identifies, (a) all Title IV Plans, (b) all Multiemployer Plans and (c) all material Benefit Plans. Each Benefit Plan, and each trust thereunder, intended to qualify for tax exempt status under Section 401 or 501 of the Code or other Requirements of Law so qualifies. Except for those that would not, in the aggregate, have a Material Adverse Effect, (x) each Benefit Plan is in compliance with applicable provisions of ERISA, the Code and other Requirements of Law, (y) there are no existing or pending (or, to the knowledge of any Group Member, threatened in writing) claims (other than routine claims for benefits in the normal course), sanctions, actions, lawsuits or other proceedings or investigation involving any Benefit Plan to which any Group Member incurs or otherwise has or could have an obligation or any Liability and (z) no ERISA Event is reasonably expected to occur. On the Closing Date, no ERISA Event has occurred in connection with which obligations and liabilities (contingent or otherwise) remain outstanding. No ERISA Affiliate would have any Withdrawal Liability as a result of a complete withdrawal from any Multiemployer Plan on the date this representation is made.
Section 4.14 Environmental Matters. Except as set forth on Schedule 4.14 , (a) the operations of each Group Member are and have been in compliance with all applicable Environmental Laws, including obtaining, maintaining and complying with all Permits required by any applicable Environmental Law, other than non-compliances that, in the aggregate, would not have a reasonable likelihood of resulting in Material Environmental Liabilities, (b) no Group Member is party to, and no Group Member and no real property currently (or to the knowledge of any Group Member previously) owned, leased, subleased, operated or otherwise occupied by or for any Group Member is subject to or the subject of, any Contractual Obligation or any pending (or, to the knowledge of any Group Member, threatened) order, action, investigation, suit, proceeding, audit, claim, demand, dispute or notice of violation or of potential liability or similar notice under or pursuant to any Environmental Law other than those that, in the aggregate, are not reasonably likely to result in Material Environmental Liabilities, (c) no Lien in favor of any Governmental Authority securing, in whole or in part, Environmental Liabilities has attached to any property of any Group Member and, to the knowledge of any Group Member, no facts, circumstances or conditions exist that could reasonably be expected to result in any such Lien attaching to any such property, (d) no Group Member has caused or suffered to occur a Release of Hazardous Materials at, to or from any real property of any Group Member and each such real property is free of contamination by any Hazardous Materials except for such Release or contamination that could not reasonably be expected to result, in the aggregate, in Material Environmental Liabilities, (e) no Group Member (i) is or has been engaged in, or has permitted any
47
current or former tenant to engage in, operations, or (ii) knows of any facts, circumstances or conditions, including receipt of any information request or notice of potential responsibility under CERCLA or similar Environmental Laws, that, in the aggregate, would have a reasonable likelihood of resulting in Material Environmental Liabilities and (f) each Group Member has made available to the Administrative Agent copies of all existing environmental reports, reviews and audits and all documents pertaining to actual or potential Environmental Liabilities, in each case to the extent such reports, reviews, audits and documents are in their possession, custody or control.
Section 4.15 Intellectual Property. Each Group Member owns or licenses all Intellectual Property that is necessary for the operations of its businesses. The conduct and operations of the businesses of each Group Member does not, to the knowledge of any Group Member, infringe, misappropriate, dilute, violate or otherwise impair any Intellectual Property owned by any other Person and (b) no other Person has contested any right, title or interest of any Group Member in, or relating to, any Intellectual Property, other than, in each case, as cannot reasonably be expected to affect the Loan Documents and the transactions contemplated therein and would not, in the aggregate, have a Material Adverse Effect. In addition, (x) there are no pending (or, to the knowledge of any Group Member, threatened) actions, investigations, suits, proceedings, audits, claims, demands, orders or disputes affecting any Group Member with respect to, (y) no judgment or order regarding any such claim has been rendered by any competent Governmental Authority, no settlement agreement or similar Contractual Obligation has been entered into by any Group Member, with respect to and (z) no Group Member knows or has any reason to know of any valid basis for any claim based on, any such infringement, misappropriation, dilution, violation or impairment or contest, other than, in each case, as cannot reasonably be expected to affect the Loan Documents and the transactions contemplated therein and would not, in the aggregate, have a Material Adverse Effect.
Section 4.16 Title; Real Property. (a) As of the Closing Date, no Group Member owns any real property. Each Group Member owns all personal property, in each case that is purported to be owned or leased by it, including those reflected on the most recent Financial Statements delivered by Borrower, and none of such property is subject to any Lien except Permitted Liens.
(b) Set forth on Schedule 4.16 is, as of the Closing Date, a complete and accurate list of all real property in which any Group Member owns a leasehold interest setting forth, for each such real property, the current street address (including, where applicable, county, state and other relevant jurisdictions) and the record owner thereof.
Section 4.17 Full Disclosure. The written information prepared or furnished by or on behalf of any Group Member in connection with any Loan Document (including the information contained in any Financial Statement or Disclosure Document), taken as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained therein, taken as a whole, in light of the circumstances when made, not materially misleading; provided , however , that projections contained therein are not to be viewed as factual and that actual results during the periods covered thereby may differ from the results set forth in such projections by a material amount. All projections that are part of such information (including those set forth in any Projections delivered subsequent to the Closing Date) are based upon good faith estimates and stated assumptions believed to be reasonable and fair as of the date made in light of conditions and facts then known and, as of such date, reflect good faith, reasonable and fair estimates of the information projected for the periods set forth therein. All facts known to any Group Member and material to an understanding of the financial condition, business, property or prospects of the Group Member taken as one enterprise have been disclosed to the Lenders.
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Borrower and each Parent Guarantor (and, to the extent set forth in any other Loan Document, each other Loan Party) agrees with the Lenders, the L/C Issuers and the Administrative Agent to each of the following, as long as any Obligation or any Commitment remains outstanding:
Section 5.1 Maximum Consolidated Leverage Ratio. Holdings shall not have, on the last day of each Fiscal Quarter set forth below, a Consolidated Leverage Ratio greater than the maximum ratio set forth opposite such Fiscal Quarter:
FISCAL QUARTER ENDING
|
MAXIMUM CONSOLIDATED
LEVERAGE RATIO |
|
---|---|---|
March 31, 2007 | 3.50 to 1 | |
June 30, 2007 | 3.50 to 1 | |
September 30, 2007 | 3.50 to 1 | |
December 31, 2007 | 3.50 to 1 | |
March 31, 2008 | 3.30 to 1 | |
June 30, 2008 | 3.10 to 1 | |
September 30, 2008 | 2.90 to 1 | |
December 31, 2008 | 2.80 to 1 | |
March 31, 2009 | 2.65 to 1 | |
June 30, 2009 | 2.50 to 1 | |
September 30, 2009 | 2.35 to 1 | |
December 31, 2009 | 2.25 to 1 | |
March 31, 2010 | 2.10 to 1 | |
June 30, 2010 | 1.95 to 1 | |
September 30, 2010 | 1.80 to 1 | |
December 31, 2010 | 1.75 to 1 | |
March 31, 2011 | 1.70 to 1 | |
June 30, 2011 | 1.60 to 1 | |
September 30, 2011 | 1.60 to 1 | |
December 31, 2011 | 1.50 to 1 |
Section 5.2 Minimum Consolidated Fixed Charge Coverage Ratio. Holdings shall not have, on the last day of any Fiscal Quarter, a Consolidated Fixed Charge Coverage Ratio for the four (4) Fiscal Quarter period ending on such day less than 1.40 to 1 (taking into account, for the applicable periods, the carve-out for the Excluded Tax Payment that is contained within the definition of such ratio).
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Section 5.3 Minimum Consolidated EBITDA. Holdings shall not have, on the last day of each Fiscal Quarter set forth below, a Consolidated EBITDA for the four (4) Fiscal Quarter period ending on such day less than the minimum Consolidated EBITDA set forth opposite such Fiscal Quarter:
FISCAL QUARTER ENDING
|
MINIMUM CONSOLIDATED
EBITDA |
||
---|---|---|---|
March 31, 2007 | $ | 7,200,000 | |
June 30, 2007 | $ | 7,300,000 | |
September 30, 2007 | $ | 6,800,000 | |
December 31, 2007 | $ | 6,700,000 | |
March 31, 2008 | $ | 7,100,000 | |
June 30, 2008 | $ | 7,600,000 | |
September 30, 2008 | $ | 8,000,000 | |
December 31, 2008 | $ | 8,500,000 | |
March 31, 2009 | $ | 8,500,000 | |
June 30, 2009 | $ | 8,600,000 | |
September 30, 2009 | $ | 8,600,000 | |
December 31, 2009 | $ | 8,700,000 | |
March 31, 2010 | $ | 8,900,000 | |
June 30, 2010 | $ | 9,200,000 | |
September 30, 2010 | $ | 9,500,000 | |
December 31, 2010 | $ | 9,800,000 | |
March 31, 2011 | $ | 10,100,000 | |
June 30, 2011 | $ | 10,500,000 | |
September 30, 2011 | $ | 10,800,000 | |
December 31, 2011 | $ | 11,100,000 |
Section 5.4 Capital Expenditures .
(a) The Group Members shall not, on a Consolidated basis, incur or permit to be incurred Capital Expenditures in the aggregate during any Fiscal Year set forth below in excess of the maximum amount set forth below for such Fiscal Year:
FISCAL YEAR ENDING
|
MAXIMUM CAPITAL
EXPENDITURES |
||
---|---|---|---|
Fiscal Year 2007 | $ | 2,200,000 | |
Fiscal Year 2008 | $ | 3,025,000 | |
Fiscal Year 2009 | $ | 3,135,000 | |
Fiscal Year 2010 | $ | 3,300,000 | |
Fiscal Year 2011 | $ | 3,300,000 |
(b) Notwithstanding anything to the contrary contained in clause (a) above, to the extent that the aggregate amount of Capital Expenditures made by the Group Members in any Fiscal Year pursuant to Section 5.5(a) is less than the amount set forth for such fiscal year, an amount equal to 50% of such difference (the " Rollover Amount ") may be carried forward and used to make Capital Expenditures in the immediately succeeding fiscal year (with the Rollover Amount being used after the current year's amount).
Section 5.5 Make-Well Payments. Notwithstanding anything to the contrary contained in Section 5.1, the stockholders of Holdings shall have the right, but not the obligation, to cure any Default of the Maximum Consolidated Leverage Ratio occurring at the end of a Fiscal Quarter by contributing additional equity to Holdings, which shall contribute such equity to Borrower (each such equity investment by the stockholders, a " Make-Well Payment "); provided , however, that such right to
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cure the Maximum Consolidated Leverage Ratio shall be limited to two such occasions during any period of four consecutive Fiscal Quarters. Any Make-Well Payment must, as a condition to curing a Default, (a) be contributed to Borrower within 5 Business Days of the occurrence of such Default, (b) be used by Borrower solely to repay the Term Loan, and (c) be equal to, but not exceed, the amount necessary to effect a cure of the applicable Default. For the purposes of calculating the Maximum Consolidated Leverage Ratio for any Fiscal Quarter with respect to which a Make-Well Payment is being made, the Consolidated Total Debt for such Fiscal Quarter shall be reduced by the amount of the Make-Well Payment.
ARTICLE VI
REPORTING COVENANTS
Borrower and each Parent Guarantor (and, to the extent set forth in any other Loan Document, each other Loan Party) agrees with the Lenders, the L/C Issuers and the Administrative Agent to each of the following, as long as any Obligation or any Commitment remains outstanding:
Section 6.1 Financial Statements. The Borrower shall deliver to the Administrative Agent each of the following:
(a) Monthly Reports. As soon as available, and in any event within 30 days after the end of each fiscal month (other than any fiscal month constituting the last month of a Fiscal Quarter), the Consolidated and consolidating unaudited balance sheet of Holdings as of the close of such fiscal month and related Consolidated and consolidating statements of income and cash flow for such fiscal month and that portion of the Fiscal Year ending as of the close of such fiscal month, setting forth in comparative form the figures for the corresponding periods in the prior Fiscal Year and the figures contained in the latest Projections, in each case certified by a Responsible Officer of Borrower as fairly presenting in all material respects the Consolidated financial position, results of operations and cash flow of Holdings as at the dates indicated and for the periods indicated in accordance with GAAP (subject to the absence of footnote disclosure and normal year-end audit adjustments).
(b) Quarterly Reports. As soon as available, and in any event within 45 days after the end of each Fiscal Quarter, the Consolidated and consolidating unaudited balance sheet of Holdings as of the close of such Fiscal Quarter and related Consolidated and consolidating statements of income and cash flow for such Fiscal Quarter and that portion of the Fiscal Year ending as of the close of such Fiscal Quarter, setting forth in comparative form the figures for the corresponding periods in the prior Fiscal Year and the figures contained in the latest Projections, in each case certified by a Responsible Officer of Borrower as fairly presenting in all material respects the Consolidated and consolidating financial position, results of operations and cash flow of Holdings as at the dates indicated and for the periods indicated in accordance with GAAP (subject to the absence of footnote disclosure and normal year-end audit adjustments).
(c) Annual Reports. As soon as available, and in any event within 90 days after the end of each Fiscal Year, the Consolidated and consolidating balance sheet of Holdings as of the end of such year and related Consolidated and consolidating statements of income, stockholders' equity and cash flow for such Fiscal Year, each prepared in accordance with GAAP, together with a certification by the Group Members' Accountants that (i) such Consolidated Financial Statements fairly present in all material respects the Consolidated financial position, results of operations and cash flow of Holdings as at the dates indicated and for the periods indicated therein in accordance with GAAP without qualification as to the scope of the audit or as to going concern and without any other similar qualification and (ii) in the course of the regular audit of the businesses of the Group Members, which audit was conducted in accordance with the standards of the United States' Public Company Accounting Oversight Board (or any successor entity), such Group
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Members' Accountants have obtained no knowledge that a Default in respect of any financial covenant contained in Article V is continuing or, if in the opinion of the Group Members' Accountants such a Default is continuing, a statement as to the nature thereof.
(d) Compliance Certificate. Together with each delivery of any Financial Statement pursuant to clause (b) or (c) above, a Compliance Certificate duly executed by a Responsible Officer of Borrower that, among other things, (i) shows in reasonable detail the calculations used in determining Excess Cash Flow, if delivered together with any Financial Statement pursuant to clause (c) above, (ii) demonstrates compliance with each financial covenant contained in Article V that is tested at least on a quarterly basis and (iii) states that no Default is continuing as of the date of delivery of such Compliance Certificate or, if a Default is continuing, states the nature thereof and the action that Borrower proposes to take with respect thereto.
(e) Additional Projections. As soon as available and in any event not later than 30 days after the end of each Fiscal Year, (i) the annual business plan of the Group Members for the Fiscal Year next succeeding such Fiscal Year and (ii) forecasts prepared by management of Borrower (A) for each Fiscal Quarter in such next succeeding Fiscal Year and (B) for each other succeeding Fiscal Year through the Fiscal Year containing the Scheduled Maturity Date, in each case including in such forecasts (x) a projected year-end Consolidated balance sheet, income statement and statement of cash flows, (y) a statement of all of the material assumptions on which such forecasts are based and (z) substantially the same type of financial information as that contained in the Initial Projections.
(f) Management Discussion and Analysis. Together with each delivery of any Financial Statement pursuant to clause (b) above, a discussion and analysis of the financial condition and results of operations of the Group Members for the portion of the Fiscal Year then elapsed and discussing the reasons for any significant variations from the Projections for such period and the figures for the corresponding period in the previous Fiscal Year. In addition, Borrower and its senior management will be available to discuss with the Administrative Agent and the Lenders any monthly Financial Statement that, in the reasonable judgment of the Administrative Agent, requires discussion.
(g) Audit Reports, Management Letters, Etc. Together with each delivery of any Financial Statement for any Fiscal Year pursuant to clause (c) above, copies of each management letter, audit report or similar letter or report received by any Group Member from any independent registered certified public accountant (including the Group Members' Accountants) in connection with such Financial Statements or any audit thereof, each certified to be complete and correct copies by a Responsible Officer of Borrower as part of the Compliance Certificate delivered in connection with such Financial Statements.
(h) Insurance. Together with each delivery of any Financial Statement for any Fiscal Year pursuant to clause (c) above, each in form and substance satisfactory to the Administrative Agent and certified as complete and correct by a Responsible Officer of Borrower as part of the Compliance Certificate delivered in connection with such Financial Statements, a summary of all material insurance coverage maintained as of the date thereof by any Group Member, together with such other related documents and information as the Administrative Agent may reasonably require.
Section 6.2 Other Events. The Borrower shall give the Administrative Agent notice of each of the following (which may be made by telephone if promptly confirmed in writing) promptly after any Responsible Officer of any Group Member knows or has reason to know of it: (a)(i) any Default or Event of Default and (ii) any event or condition that could reasonably be expected to have a Material Adverse Effect, specifying, in each case, the nature and anticipated effect thereof and any action proposed to be taken in connection therewith, (b) any event (other than any event involving loss or
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damage to property) reasonably expected to result in a mandatory payment of the Obligations pursuant to Section 2.8 , stating the material terms and conditions of such transaction and estimating the Net Cash Proceeds thereof, (c) the commencement of, or any material developments in, any action, investigation, suit, proceeding, audit, claim, demand, order or dispute with, by or before any Governmental Authority affecting any Group Member or any property of any Group Member that (i) seeks injunctive or similar relief, (ii) in the reasonable judgment of Borrower exposes any Group Member to liability in an aggregate amount in excess of $250,000 or (iii) if adversely determined would have a Material Adverse Effect, and (d) the acquisition of any material real property or the entering into of any material lease.
Section 6.3 Copies of Notices and Reports. The Borrower shall promptly deliver to the Administrative Agent copies of each of the following: (a) all reports that Holdings transmits to its security holders generally, (b) all documents that any Group Member files with the Securities and Exchange Commission, the National Association of Securities Dealers, Inc., any securities exchange or any Governmental Authority exercising similar functions, (c) all press releases not made available directly to the general public, (d) all material documents transmitted or received pursuant to, or in connection with, any Related Document, (e) any material document transmitted or received pursuant to, or in connection with, any default, termination, waiver or material amendment of any Contractual Obligation governing Indebtedness of any Group Member and (f) any material notices that any Loan Party executes or receives in connection with any Material Contract.
Section 6.4 Taxes. The Borrower shall give the Administrative Agent notice of each of the following (which may be made by telephone if promptly confirmed in writing) promptly after any Responsible Officer of any Group Member knows or has reason to know of it: (a) the creation, or filing with the IRS or any other Governmental Authority, of any Contractual Obligation or other document extending, or having the effect of extending, the period for assessment or collection of any taxes with respect to any Tax Affiliate and (b) the creation of any Contractual Obligation of any Tax Affiliate, or the receipt of any request directed to any Tax Affiliate, to make any adjustment under Section 481(a) of the Code, by reason of a change in accounting method or otherwise, which would have a Material Adverse Effect.
Section 6.5 Labor Matters. The Borrower shall give the Administrative Agent notice of each of the following (which may be made by telephone if promptly confirmed in writing), promptly after any Responsible Officer of any Group Member knows or has reason to know of it: (a) the commencement of any material labor dispute to which any Group Member is or may become a party, including any strikes, lockouts or other disputes relating to any of such Person's plants and other facilities and (b) the incurrence by any Group Member of any Worker Adjustment and Retraining Notification Act or related or similar liability incurred with respect to the closing of any plant or other facility of any such Person (other than, in the case of this clause (b) , those that would not, in the aggregate, have a Material Adverse Effect).
Section 6.6 ERISA Matters. The Borrower shall give the Administrative Agent (a) on or prior to any filing by any ERISA Affiliate of any notice of intent to terminate any Title IV Plan, a copy of such notice and (b) promptly, and in any event within 10 days, after any Responsible Officer of any ERISA Affiliate knows or has reason to know that a request for a minimum funding waiver under Section 412 of the Code has been filed with respect to any Title IV Plan or Multiemployer Plan, a notice (which may be made by telephone if promptly confirmed in writing) describing such waiver request and any action that any ERISA Affiliate proposes to take with respect thereto, together with a copy of any notice filed with the PBGC or the IRS pertaining thereto.
Section 6.7 Environmental Matters. (a) The Borrower shall provide the Administrative Agent notice of each of the following (which may be made by telephone if promptly confirmed by the Administrative Agent in writing) promptly after any Responsible Officer of any Group Member knows
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or has reason to know of it (and, upon reasonable request of the Administrative Agent, documents and information in connection therewith): (i)(A) unpermitted Releases, (B) the receipt by any Group Member of any notice of violation of or potential liability or similar notice under, or the existence of any condition that could reasonably be expected to result in violations of or liabilities under, any Environmental Law or (C) the commencement of, or any material change to, any action, investigation, suit, proceeding, audit, claim, demand, dispute alleging a violation of or liability under any Environmental Law, that, for each of clauses (A) , (B) and (C) above (and, in the case of clause (C) , if adversely determined), in the aggregate for each such clause, could reasonably be expected to result in Environmental Liabilities in excess of $250,000, (ii) the receipt by any Group Member of notification that any property of any Group Member is subject to any Lien in favor of any Governmental Authority securing, in whole or in part, Environmental Liabilities and (iii) any proposed acquisition or lease of real property (except as part of any Permitted Acquisition) if such acquisition or lease would have a reasonable likelihood of resulting in aggregate Environmental Liabilities in excess of $250,000.
(b) Upon the reasonable request of the Administrative Agent, Borrower shall provide the Administrative Agent a report containing an update as to the status of any environmental, health or safety compliance, hazard or liability issue identified in any document delivered to any Secured Party pursuant to any Loan Document or as to any condition reasonably believed by the Administrative Agent to result in or to be reasonably likely to result in material Environmental Liabilities.
Section 6.8 Other Information. Borrower shall provide the Administrative Agent with updates to the information disclosed herein and in the Perfection Certificate as and when any information contained herein or therein becomes obsolete or incomplete. Borrower shall also provide the Administrative Agent such other documents and information with respect to the business, property, condition (financial or otherwise), legal, financial or corporate or similar affairs or operations of any Group Member as the Administrative Agent or any Lender through the Administrative Agent may from time to time reasonably request.
ARTICLE VII
AFFIRMATIVE COVENANTS
Each of Holdings and Borrower (and, to the extent set forth in any other Loan Document, each other Loan Party) agrees with the Lenders, the L/C Issuers and the Administrative Agent to each of the following, as long as any Obligation or any Commitment remains outstanding:
Section 7.1 Maintenance of Corporate Existence. Each Group Member shall (a) preserve and maintain its legal existence, except in the consummation of transactions expressly permitted by Sections 8.4 and 8.7 , and (b) preserve and maintain it rights (charter and statutory), privileges, franchises and Permits necessary or desirable in the conduct of its business, except, in the case of this clause (b), where the failure to do so would not, in the aggregate, have a Material Adverse Effect.
Section 7.2 Compliance with Laws, Etc. Each Group Member shall comply with all applicable Requirements of Law, Contractual Obligations and Permits, except for such failures to comply that would not, in the aggregate, have a Material Adverse Effect.
Section 7.3 Payment of Obligations. Each Group Member shall pay or discharge before they become due (a) all material claims, taxes, assessments, charges and levies imposed by any Governmental Authority and (b) all other lawful claims that if unpaid would, by the operation of applicable Requirements of Law, become a Lien (other than a Permitted Lien) upon any property of any Group Member, except, in each case, for those whose amount or validity is being contested in good faith by proper proceedings diligently conducted and for which adequate reserves are maintained on the books of the appropriate Group Member in accordance with GAAP.
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Section 7.4 Maintenance of Property. Each Group Member shall maintain and preserve (a) in good working order and condition all of its property necessary in the conduct of its business and (b) all rights, permits, licenses, approvals and privileges (including all Permits) necessary, used or useful, whether because of its ownership, lease, sublease or other operation or occupation of property or other conduct of its business, and shall make all necessary or appropriate filings with, and give all required notices to, Government Authorities, except for such failures to maintain and preserve the items set forth in clauses (a) and (b) above, and the failures to make filings or give notices, that would not in the aggregate have a Material Adverse Effect.
Section 7.5 Maintenance of Insurance. Each Group Member shall (a) maintain or cause to be maintained in full force and effect all policies of insurance of any kind with respect to the property and businesses of the Group Members (including policies of life, fire, theft, errors and omissions, product liability, public liability, property damage, other casualty, employee fidelity, workers' compensation, business interruption and employee health and welfare insurance) with financially sound and reputable insurance companies or associations (in each case that are not Affiliates of Borrower) of a nature and providing such coverage as is sufficient and as is customarily carried by businesses of the size and character of the business of the Group Members and (b) cause all such insurance relating to any property or business of any Loan Party to name the Administrative Agent on behalf of the Secured Parties as additional insured or loss payee, as appropriate, and to provide that no cancellation, material addition in amount or material change in coverage shall be effective until after 30 days' notice thereof to the Administrative Agent; provided , however , that with respect to business interruption insurance, Borrower's obligation to cause such policies to name the Administrative Agent as loss payee or additional insured shall be limited to Borrower's use of its commercially reasonable efforts.
Section 7.6 Keeping of Books. The Group Members shall keep proper books of record and account, in which full, true and correct entries shall be made in accordance with GAAP and all other applicable Requirements of Law of all financial transactions and the assets and business of each Group Member.
Section 7.7 Access to Books and Property. Each Group Member shall permit the Administrative Agent, the Lenders and any Related Person of any of them, at any reasonable time during normal business hours and with reasonable advance notice (except that, during the continuance of an Event of Default, no such notice shall be required) to:
(a) visit and inspect the property of each Group Member and examine and make copies of and abstracts from, the corporate, partnership, financial, operating and other books and records of each Group Member; provided , however , that in the absence of any Event of Default hereunder, such visits shall (i) be undertaken solely by Administrative Agent and its Related Persons, and shall occur no more than twice in any 12-month period, or (ii) be undertaken by another Lender at its sole expense after the Company's completion of its own audit and no more than once in any 12-month period,
(b) discuss the affairs, finances and accounts of each Group Member with any officer or director of any Group Member, and
(c) communicate directly with any registered certified public accountants (including the Group Members' Accountants) of any Group Member.
Each Group Member shall maintain the authorization of their respective registered certified public accountants (including the Group Members' Accountants) to communicate directly with the Administrative Agent, the Lenders and their Related Persons and to disclose to the Administrative Agent, the Lenders and their Related Persons all financial statements and other financial documents and information as they might have and the Administrative Agent or any Lender reasonably requests with respect to any Group Member.
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Section 7.8 Environmental. Each Group Member shall comply with, and maintain its real property, whether owned, leased, subleased or otherwise operated or occupied, in compliance with, all applicable Environmental Laws (including by implementing any Remedial Action necessary to achieve such compliance or that is required by orders and directives of any Governmental Authority) except for failures to comply that would not, in the aggregate, have a Material Adverse Effect or be reasonably likely to cause a Material Adverse Effect. Without limiting the foregoing, if an Event of Default is continuing or if the Administrative Agent at any time has a reasonable basis to believe that there exist violations of Environmental Laws by any Group Member or that there exist any Environmental Liabilities, in each case, that would have or be reasonably likely to cause, in the aggregate, a Material Adverse Effect, then each Group Member shall, promptly upon receipt of request from the Administrative Agent, cause the performance of, and allow the Administrative Agent and its Related Persons access to such real property for the purpose of conducting, such environmental audits and assessments, including subsurface sampling of soil and groundwater, and cause the preparation of such reports, in each case as the Administrative Agent may from time to time reasonably request. Such audits, assessments and reports, to the extent not conducted by the Administrative Agent or any of its Related Persons, shall be conducted and prepared by reputable environmental consulting firms reasonably acceptable to the Administrative Agent and shall be in form and substance reasonably acceptable to the Administrative Agent.
Section 7.9 Use of Proceeds. The proceeds of the Loans shall be used by Borrower (and, to the extent distributed to them by Borrower, each other Group Member) solely (a) to pay the Specified Dividend, (b) for the payment of transaction costs, fees and expenses incurred in connection with the Loan Documents and the transactions contemplated therein and (c) for working capital and general corporate purposes.
Section 7.10 Additional Collateral and Guaranties. To the extent not delivered to the Administrative Agent on or before the Closing Date (including in respect of after-acquired property and Persons that become Subsidiaries of any Loan Party after the Closing Date), each Group Member shall, promptly, do each of the following, unless otherwise agreed by the Administrative Agent:
(a) deliver to the Administrative Agent such modifications to the terms of the Loan Documents (or, to the extent applicable as determined by the Administrative Agent, such other documents), in each case in form and substance reasonably satisfactory to the Administrative Agent and as the Administrative Agent reasonably deems necessary or advisable in order to ensure the following:
(i) (A) each Subsidiary of any Loan Party that has entered into Guaranty Obligations with respect to any Indebtedness of Borrower and (B) each Wholly Owned Subsidiary of any Loan Party shall guaranty, as primary obligor and not as surety, the payment of the Obligations of Borrower; and
(ii) each Loan Party (including any Person required to become a Guarantor pursuant to clause (i) above) shall effectively grant to the Administrative Agent, for the benefit of the Secured Parties, a valid and enforceable security interest in all of its property, including all of its Stock and Stock Equivalents and other Securities owned by it, as security for the Obligations of such Loan Party;
provided , however , that, unless Borrower and the Administrative Agent otherwise agree, in no event shall (x) any Excluded Foreign Subsidiary be required to guaranty the payment of any Obligation, (y) the Loan Parties, individually or collectively, be required to pledge in excess of 66% of the outstanding Voting Stock of any Excluded Foreign Subsidiary or (z) a security interest be required to be granted on any property of any Excluded Foreign Subsidiary as security for any Obligation;
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(b) deliver to the Administrative Agent all documents representing all Stock, Stock Equivalents and other Securities pledged pursuant to the documents delivered pursuant to clause (a) above, together with undated powers or endorsements duly executed in blank;
(c) upon request of the Administrative Agent, deliver to it a Mortgage on any real property owned by any Loan Party and on any of its leases, together with all Mortgage Supporting Documents relating thereto (or, if such real property or the real property subject to such lease is located in a jurisdiction outside the United States, similar documents deemed appropriate by the Administrative Agent to obtain the equivalent in such jurisdiction of a first-priority mortgage on such real property or lease);
(d) to take all other actions reasonably necessary or advisable to ensure the validity or continuing validity of any guaranty for any Obligation or any Lien securing any Obligation, to perfect, maintain, evidence or enforce any Lien securing any Obligation or to ensure such Liens have the same priority as that of the Liens on similar Collateral set forth in the Loan Documents executed on the Closing Date, including the filing of UCC financing statements in such jurisdictions as may be required by the Loan Documents or applicable Requirements of Law or as the Administrative Agent may otherwise reasonably request; and
(e) deliver to the Administrative Agent legal opinions relating to the matters described in this Section 7.10 , which opinions shall be as reasonably required by, and in form and substance and from counsel reasonably satisfactory to, the Administrative Agent.
Section 7.11 Deposit Accounts; Securities Accounts and Cash Collateral Accounts. (a) The Borrower and each of its Subsidiaries (other than Excluded Foreign Subsidiaries that are not required to provide a guaranty of the Obligations) shall, within 30 days following the Closing Date (or such later date as the Administrative Agent may agree to in writing):
(i) deposit all of its cash in deposit accounts that are Controlled Deposit Account, and
(ii) deposit all of its Cash Equivalents in securities accounts that are Controlled Securities Accounts,
in each case except for cash and Cash Equivalents the aggregate value of which does not exceed $25,000 at any time, and provided , however , that each Group Member may maintain payroll accounts and may maintain zero-balance accounts for the purpose of managing local disbursements.
(b) The Administrative Agent shall not have any responsibility for, or bear any risk of loss of, any investment or income of any funds in any Cash Collateral Account. At any time and from time to time after and during the continuance of an Event of Default, the Administrative Agent may apply funds then held in such Cash Collateral Accounts to the payment of Obligations in accordance with Section 2.12 . During the continuance of an Event of Default, no Group Member and no Person claiming on behalf of or through any Group Member shall have any right to demand payment of any funds held in any Cash Collateral Account.
Section 7.12 Payment of Taxes. Each Tax Affiliate shall properly prepare and file all material tax returns and shall timely pay and discharge (or cause to be paid and discharged) all material taxes, assessments and governmental and other charges or levies imposed upon it or upon its income or profits, or upon property belonging to it; provided that such Tax Affiliate shall not be required to pay any such tax, assessment, charge or levy that is being contested in good faith by appropriate proceedings and for which the affected Tax Affiliate shall have set aside on its books adequate reserves with respect thereto in conformance with GAAP.
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ARTICLE VIII
NEGATIVE COVENANTS
Borrower and each Parent Guarantor (and, to the extent set forth in any other Loan Document, each other Loan Party) agrees with the Lenders, the L/C Issuers and the Administrative Agent to each of the following, as long as any Obligation or any Commitment remains outstanding:
Section 8.1 Indebtedness. No Group Member shall, directly or indirectly, incur or otherwise remain liable with respect to or responsible for, any Indebtedness except for the following:
(a) the Obligations;
(b) Indebtedness existing on the date hereof and set forth on Schedule 8.1 , together with any Permitted Refinancing of any Indebtedness permitted pursuant to this clause (b) ;
(c) Indebtedness consisting of Capitalized Lease Obligations and purchase money Indebtedness, in each case incurred by any Group Member (other than Holdings) to finance the acquisition, repair, improvement or construction of fixed or capital assets of such Group Member, together with any Permitted Refinancing of any Indebtedness permitted pursuant to this clause (c) ; provided , however , that (i) the aggregate outstanding principal amount of all such Indebtedness does not exceed $500,000 at any time and (ii) the principal amount of such Indebtedness does not exceed the lower of the cost or fair market value of the property so acquired or built or of such repairs or improvements financed, whether directly or through a Permitted Refinancing, with such Indebtedness (each measured at the time such acquisition, repair, improvement or construction is made);
(d) Indebtedness of Holdings on account of Employee Stock Buybacks; provided , however , that the amount of such Indebtedness incurred shall not exceed $150,000 in any Fiscal Year and $200,000 in the aggregate for all Fiscal Years; and provided further , that all such Indebtedness incurred under this clause (d) shall be subordinated to the payment in full of the Obligations on terms and conditions satisfactory to the Administrative Agent;
(e) intercompany loans owing to any Group Member and constituting Permitted Investments of such Group Member;
(f) obligations under Hedging Agreements entered into for the sole purpose of hedging in the normal course of business and consistent with industry practices;
(g) Indebtedness in respect of appeal, bid, performance or surety or similar bonds, workers' compensation claims, self-insurance obligations and bankers acceptances issued for the account of any Group Member in the ordinary course of business, including guarantees or obligations of any Group Member with respect to letters of credit supporting such bid, performance or surety bonds, workers' compensation claims, self-insurance obligations and bankers acceptances (in each case other than for an obligation for money borrowed);
(h) Indebtedness arising in connection with endorsement of instruments for deposit in the ordinary course of business;
(i) Guaranty Obligations of (i) any Loan Party with respect to Indebtedness of any other Loan Party, or (ii) any Loan Party with respect to Indebtedness of any Group Member that is not a Loan Party; provided that the aggregate outstanding amount of all Indebtedness guaranteed pursuant to this clause (ii) shall not exceed $50,000 at any time;
(j) Indebtedness of any Loan Party assumed in connection with a Permitted Acquisition in an aggregate amount not greater than $250,000; provided that (A) after giving pro forma effect to the assumption or existence of such Indebtedness and the use of proceeds thereof, the Loan Parties
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would, on a pro forma basis, for the Fiscal Quarter immediately preceding such assumption, be in compliance with the requirements of Article V and the proviso of clause (i) of the definition of Permitted Acquisition, (B) the Loan Parties shall, prior to such assumption, have provided to the Administrative Agent calculations showing compliance with this clause (j), (C) the credit documentation with respect to such Indebtedness shall not contain covenants or default provisions relating to any Loan Party that are more restrictive than the covenants and default provisions contained in the Loan Documents, (D) no Default or Event of Default exists or would exist immediately after giving effect thereto, and (E) for purposes of this clause (j), the Loan Party shall be deemed to have assumed any Indebtedness of the Person acquired pursuant to such Permitted Acquisition at such time outstanding;
(k) any unsecured Subordinated Debt that the Administrative Agent permits in its sole discretion; and
(l) any unsecured Indebtedness of any Group Member; provided , however , that the aggregate outstanding principal amount of all such unsecured Indebtedness shall not exceed $250,000 at any time.
Section 8.2 Liens. No Group Member shall incur, maintain or otherwise suffer to exist any Lien upon or with respect to any of its property, whether now owned or hereafter acquired, or assign any right to receive income or profits, except for the following:
(a) Liens created pursuant to any Loan Document;
(b) Customary Permitted Liens of Group Members;
(c) Liens existing on the date hereof and set forth on Schedule 8.2 ;
(d) Liens on the property of Borrower or any of its Subsidiaries securing Indebtedness permitted hereunder in reliance upon Section 8.1(c) ; provided , however , that (i) such Liens exist prior to the acquisition of, or attach substantially simultaneously with, or within 90 days after, the acquisition, repair, improvement or construction of, such property financed, whether directly or through a Permitted Refinancing, by such Indebtedness and (ii) such Liens do not extend to any property of any Group Member other than the property (and proceeds thereof) acquired or built, or the improvements or repairs, financed, whether directly or through a Permitted Refinancing, by such Indebtedness;
(e) Liens on the property of Borrower or any of its Subsidiaries securing the Permitted Refinancing of any Indebtedness secured by any Lien on such property permitted hereunder in reliance upon clause (c) or (d) above or this clause (e) without any change in the property subject to such Liens;
(f) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary of any Loan Party in connection with a Permitted Acquisition, provided that (A) such Lien shall be less than the fair market value of the asset secured thereby, (B) such Lien shall not have been created in contemplation of such event, (C) such Lien does not at any time encumber any property other than the property financed by such applicable Indebtedness, (D) such Lien does not extend to any inventory or accounts of any Loan Party, and (E) the amount of the Indebtedness secured thereby is not increased; and
(g) other Liens on any property of Borrower or any of its Subsidiaries securing any of their Indebtedness or their other liabilities; provided , however , that the aggregate outstanding principal amount of all such Indebtedness and other liabilities shall not exceed $50,000 at any time.
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Section 8.3 Investments. No Group Member shall make or maintain, directly or indirectly, any Investment except for the following:
(a) Investments existing on the date hereof and set forth on Schedule 8.3 ;
(b) Investments in cash and Cash Equivalents;
(c) (i) endorsements for collection or deposit in the ordinary course of business consistent with past practice, (ii) extensions of trade credit (other than to Affiliates of Borrower) arising or acquired in the ordinary course of business and (iii) Investments received in settlements in the ordinary course of business of such extensions of trade credit;
(d) Investments made as part of a Permitted Acquisition;
(e) Investments by (i) Holdings in General Partner and Limited Partner, (ii) General Partner and Limited Partner in Borrower, (iii) Borrower in any Loan Party that is a Subsidiary of Borrower, (iv) any Group Member that is not a Loan Party in any Group Member (other than a Parent Guarantor) or in any joint venture or (v) Borrower or any Subsidiary of Borrower in any Group Member that is not a Loan Party or in any joint venture; provided , however , that the aggregate outstanding amount of all Investments permitted pursuant to this clause (v) shall not exceed $25,000 at any time; and provided , further , that any Investment consisting of loans or advances to any Loan Party pursuant to clause (iv) above shall be subordinated in full to the payment of the Obligations of such Loan Party on terms and conditions satisfactory to the Administrative Agent;
(f) loans or advances to employees of Borrower or any of its Subsidiaries to finance travel, entertainment and relocation expenses and other ordinary business purposes in the ordinary course of business as presently conducted; provided , however , that the aggregate outstanding principal amount of all loans and advances permitted pursuant to this clause (f) shall not exceed $50,000 at any time;
(g) Investments in Excluded Foreign Subsidiaries in an aggregate amount not to exceed $250,000 for all Excluded Foreign Subsidiaries;
(h) equity interests of an account debtor distributed to a Loan Party under such account debtor's confirmed chapter 11 plan of reorganization in respect of such Loan Party's allowed unsecured claim in such account debtor's case under chapter 11 of the Bankruptcy Code;
(i) to the extent they accrue, assets accruing or arising under any Hedging Agreement; and
(j) any Investment by Borrower or any of its Subsidiaries; provided , however , that the aggregate outstanding amount of all such Investments shall not exceed $250,000 at any time.
Section 8.4 Asset Sales. No Group Member shall Sell any of its property (other than cash) or issue shares of its own Stock, except for the following:
(a) Sales of inventory in the ordinary course of business and, in each case to the extent entered into in the ordinary course of business and made to a Person that is not an Affiliate of Borrower, (i) Sales of Cash Equivalents or property that has become obsolete or worn out and (ii) non-exclusive licenses of Intellectual Property;
(b) Intentionally Omitted;
(c) Intentionally Omitted;
(d) (i) any Sale or issuance by Holdings of its own Stock, (ii) any Sale or issuance by Borrower of its own Stock to a Loan Party that is a Subsidiary of Holdings, (iii) any Sale or issuance by any Subsidiary of Borrower of its own Stock to any Group Member (other than
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Holdings), provided , however , that the proportion of such Stock and of each class of such Stock (both on an outstanding and fully-diluted basis) held by the Loan Parties, taken as a whole, does not change as a result of such Sale or issuance and (iv) to the extent necessary to satisfy any Requirement of Law in the jurisdiction of incorporation of any Subsidiary of Borrower, any Sale or issuance by such Subsidiary of its own Stock constituting directors' qualifying shares or nominal holdings; and
(e) as long as no Default is continuing or would result therefrom, any Sale of property of, or Sale or issuance of its own Stock by, any Group Member (other than Holdings) for fair market value payable in cash upon such sale; provided , however , that the aggregate consideration received during any Fiscal Year for all such Sales shall not exceed $50,000.
Without limiting the foregoing, no Group Member shall engage in any Sale and Leaseback Transaction.
Section 8.5 Restricted Payments. No Group Member (other than Holdings) shall directly or indirectly declare, order, pay, make or set apart any sum for any Restricted Payment except for the following (and Holdings shall not use the proceeds of any Restricted Payment permitted pursuant to clause (c) below other than as set forth in such clause (c) ):
(a) (i) Restricted Payments by any Subsidiary of Borrower to Borrower or any Wholly Owned Subsidiary of Borrower and (ii) dividends and distributions by any Subsidiary of Borrower that is not a Loan Party to any holder of its Stock, to the extent made to all such holders ratably according to their ownership interests in such Stock;
(b) the Specified Dividend (including the Permitted Redemptions);
(c) cash distributions on the Stock of Borrower to General Partner and Limited Partner, and cash distributions by General Partner and Limited Partner to Holdings, paid and declared solely for the purpose of funding the following:
(i) payments by Holdings in respect of taxes currently payable by Holdings in respect of the other Group Members; provided , that each Group Member's aggregate contribution to taxes as a result of filing a consolidated or combined return by Holdings or of having its income otherwise includable on a tax return of Holdings shall not be greater than it would have been had such Group Member filed a stand-alone return;
(ii) ordinary operating expenses of Holdings; provided , however , that the amount of such cash dividends paid in any Fiscal Year shall not exceed $100,000 in the aggregate; and
(iii) for Employee Stock Buybacks; provided , however , that the amount of such cash distributions shall not exceed $100,000 in any Fiscal Year and $300,000 in the aggregate for all Fiscal Years; and provided further that the aggregate amount of all cash distributions for Employee Stock Buybacks, together with the Indebtedness incurred under Section 8.1(d) for Employee Stock Buybacks, shall not exceed $250,000 in any Fiscal Year and $500,000 in the aggregate for all Fiscal Years;
provided , however , that no action that would otherwise be permitted pursuant to clauses (ii) and (iii) of this clause (c) shall be permitted if a Default or Event of Default is then continuing or would result therefrom.
Section 8.6 Prepayment of Indebtedness. No Group Member shall (x) prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof any Indebtedness, (y) set apart any property for such purpose, whether directly or indirectly and whether to a sinking fund, a similar fund or otherwise, or (z) make any payment in violation of any subordination terms of any Indebtedness;
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provided , however , that each Group Member may, to the extent otherwise permitted by the Loan Documents, do each of the following:
(a) (i) prepay the Obligations, and (ii) consummate a Permitted Refinancing;
(b) prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof (or set apart any property for such purpose) (A) in the case of any Group Member that is not a Loan Party, any Indebtedness owing by such Group Member to any other Group Member (other than the Parent Guarantors) and (B) otherwise, any Indebtedness owing to any Loan Party (other than to any of the Parent Guarantors); and
(c) make regularly scheduled or otherwise required repayments or redemptions of Indebtedness (other than Indebtedness owing to any Affiliate of Borrower) but only, in the case of Subordinated Debt, to the extent permitted by the subordination provisions thereof.
Section 8.7 Fundamental Changes. No Group Member shall (a) merge, consolidate or amalgamate with any Person, (b) acquire all or substantially all of the Stock or Stock Equivalents of any Person or (c) acquire any brand or all or substantially all of the assets of any Person or all or substantially all of the assets constituting any line of business, division, branch, operating division or other unit operation of any Person, in each case except for the following: (x) to consummate any Permitted Acquisition, (y) the merger, consolidation or amalgamation of any Subsidiary of Borrower into any Loan Party (excluding any Parent Guarantor) and (z) the merger, consolidation or amalgamation of any Group Member (other than Holdings) for the sole purpose, and with the sole material effect, of changing its State of organization within the United States; provided , however , that (A) in the case of any merger, consolidation or amalgamation involving Borrower, Borrower shall be the surviving Person and (B) in the case of any merger, consolidation or amalgamation involving any other Loan Party, a Loan Party shall be the surviving entity and all actions required to maintain the perfection of the Lien of the Administrative Agent on the Stock or property of such Loan Party shall have been made.
Section 8.8 Change in Nature of Business. (a) Except as permitted by Section 8.8(b), no Group Member shall carry on any business, operations or activities (whether directly, through a joint venture, in connection with a Permitted Acquisition or otherwise) substantially different from those carried on by Borrower and its Subsidiaries at the date hereof and business, operations and activities reasonably related thereto.
(b) None of the Parent Guarantors shall engage in any business, operations or activity, or hold any property, other than (i) Holdings holding Stock and Stock Equivalents in General Partner and Limited Partner, (ii) General Partner and Limited Partner owning Stock and Stock Equivalents in Borrower, (iii) issuing, selling and redeeming its own Stock, (iv) paying taxes, (v) holding directors', shareholders' and partners' meetings, preparing corporate and similar records and other activities required to maintain its separate corporate, partnership or other legal structure, (vi) preparing reports to, and preparing and making notices to and filings with, Governmental Authorities and to its holders of Stock and Stock Equivalents, (vii) receiving, and holding proceeds of, Restricted Payments from Borrower and its Subsidiaries and distributing the proceeds thereof to the extent permitted in Section 8.5 and (viii) as necessary to consummate any Permitted Acquisition or any other action permitted hereunder.
Section 8.9 Transactions with Affiliates. No Group Member shall, except as otherwise expressly permitted herein, enter into any other transaction directly or indirectly with, or for the benefit of, any Affiliate of Borrower that is not a Loan Party (including Guaranty Obligations with respect to any obligation of any such Affiliate), except for (a) transactions in the ordinary course of business on a basis no less favorable to such Group Member as would be obtained in a comparable arm's length transaction with a Person not an Affiliate of Borrower, (b) Restricted Payments, the proceeds of which,
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if received by Holdings, are used as required by Section 8.5 and (c) reasonable salaries and other reasonable director or employee compensation to officers and directors of any Group Member.
Section 8.10 Third-Party Restrictions on Indebtedness, Liens, Investments or Restricted Payments. No Group Member shall incur or otherwise suffer to exist or become effective or remain liable on or responsible for any Contractual Obligation limiting the ability of (a) any Subsidiary of Borrower to make Restricted Payments to, or Investments in, or repay Indebtedness or otherwise Sell property to, any Group Member (other than any Parent Guarantor) or (b) any Group Member to incur or suffer to exist any Lien upon any property of any Group Member, whether now owned or hereafter acquired, securing any of its Obligations (including any "equal and ratable" clause and any similar Contractual Obligation requiring, when a Lien is granted on any property, another Lien to be granted on such property or any other property), except, in respect of each of clauses (a) and (b) above, (x) pursuant to the Loan Documents, and (y) limitations on Liens (other than those securing any Obligation) on any property whose acquisition, repair, improvement or construction is financed by purchase money Indebtedness, Capitalized Lease Obligations or Permitted Refinancings permitted pursuant to Section 8.1(b) or (c) set forth in the Contractual Obligations governing such Indebtedness, Capitalized Lease Obligations or Permitted Refinancing or Guaranty Obligations with respect thereto.
Section 8.11 Modification of Certain Documents. No Group Member shall do any of the following:
(a) waive or otherwise modify any term of any Constituent Document of, or otherwise change the capital structure of, any Group Member (including the terms of any of their outstanding Stock or Stock Equivalents), except for those modifications and waivers that do not materially affect the rights and privileges of any Group Member and do not materially affect the interests of any Secured Party under the Loan Documents or in the Collateral;
(b) waive or otherwise modify any term of any Subordinated Debt if the effect thereof on such Subordinated Debt is to (i) increase the interest rate, (ii) change the due dates for principal or interest, other than to extend such dates, (iii) modify any default or event of default, other than to delete it or make it less restrictive, (iv) add any covenant with respect thereto, (v) modify any subordination provision, (vi) modify any redemption or prepayment provision, other than to extend the dates therefor or to reduce the premiums payable in connection therewith or (vii) materially increase any obligation of any Group Member or confer additional rights to the holder of such Subordinated Debt in a manner adverse to any Group Member or any Secured Party;
Section 8.12 Accounting Changes; Fiscal Year. No Group Member shall (a) change its accounting treatment or reporting practices, except as required by GAAP or any Requirement of Law, or (b) its fiscal year or its method for determining fiscal quarters or fiscal months, except that a Group Member may change its accounting treatment or reporting practices in a manner permitted by GAAP if it receives the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld.
Section 8.13 Margin Regulations. No Group Member shall use all or any portion of the proceeds of any credit extended hereunder to purchase or carry margin stock (within the meaning of Regulation U of the Federal Reserve Board) in contravention of Regulation U of the Federal Reserve Board.
Section 8.14 Compliance with ERISA. No ERISA Affiliate shall cause or suffer to exist (a) any event that could result in the imposition of a Lien with respect to any Title IV Plan or Multiemployer Plan or (b) any other ERISA Event, that would, in the aggregate, have a Material Adverse Effect. No Group Member shall cause or suffer to exist any event that could result in the imposition of a Lien with respect to any Benefit Plan.
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Section 8.15 Hazardous Materials. No Group Member shall cause or suffer to exist any Release of any Hazardous Material at, to or from any real property owned, leased, subleased or otherwise operated or occupied by any Group Member that would violate any Environmental Law, form the basis for any Environmental Liabilities or otherwise adversely affect the value or marketability of any real property (whether or not owned by any Group Member), other than such violations, Environmental Liabilities and effects that would not, in the aggregate, have or be reasonably likely to cause a Material Adverse Effect.
Section 9.1 Definition. Each of the following shall be an Event of Default:
(a) Borrower shall fail to pay (i) any principal of any Loan advanced to Borrower or any L/C Reimbursement Obligation of Borrower or any other Loan Party when the same becomes due and payable or (ii) any interest on any Loan advanced to Borrower, any fee under any Loan Document or any other Obligation (other than those set forth in clause (i) above) and, in the case of this clause (ii) , such non-payment continues for a period of 3 Business Days after the due date therefor; or
(b) any representation, warranty or certification made or deemed made by or on behalf of any Loan Party in any Loan Document or by or on behalf of any Loan Party (or any Responsible Officer thereof) in connection with any Loan Document (including in any document delivered in connection with any Loan Document) shall prove to have been incorrect in any material respect when made or deemed made; or
(c) any Loan Party shall fail to comply with (i) any provision of Article V ( Financial Covenants ), Section 6.1 ( Financial Statements ), 6.2(a)(i) ( Other Events ), 7.1 ( Maintenance of Corporate Existence ), 7.5 ( Maintenance of Insurance ), 7.9 ( Application of Loan Proceeds ) or Article VIII ( Negative Covenants ) or (ii) any other provision of any Loan Document if, in the case of this clause (ii) , such failure shall remain unremedied for 30 days after the earlier of (A) the date on which a Responsible Officer of Borrower becomes aware of such failure and (B) the date on which notice thereof shall have been given to Borrower by the Administrative Agent or the Required Lenders; or
(d) (i) any Group Member shall fail to make any payment when due (whether due because of scheduled maturity, required prepayment provisions, acceleration, demand or otherwise) on any Indebtedness of any Group Member (other than the Obligations) and, in each case, such failure relates to Indebtedness having a principal amount of $100,000 or more, (ii) any other event shall occur or condition shall exist under any Contractual Obligation relating to any such Indebtedness, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness or (iii) any such Indebtedness shall become or be declared to be due and payable, or be required to be prepaid, redeemed, defeased or repurchased (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or
(e) (i) any Group Member shall generally not pay its debts as such debts become due, shall admit in writing its inability to pay its debts generally or shall make a general assignment for the benefit of creditors, (ii) any proceeding shall be instituted by or against any Group Member seeking to adjudicate it a bankrupt or insolvent or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, composition of it or its debts or any similar order, in each case under any Requirement of Law relating to bankruptcy, insolvency or reorganization or relief of debtors or seeking the entry of an order for relief or the appointment of a custodian, receiver, trustee, conservator, liquidating agent, liquidator, other similar official or other official
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with similar powers, in each case for it or for any substantial part of its property and, in the case of any such proceedings instituted against (but not by or with the consent of) any Group Member, either such proceedings shall remain undismissed or unstayed for a period of 60 days or more or any action sought in such proceedings shall occur, (iii) any Group Member shall take any corporate or similar action or any other action to authorize any action described in clause (i) or (ii) above or (iv) the Loan Parties, taken as a whole, or Borrower, individually, ceases to be Solvent; or
(f) one or more judgments, orders or decrees (or other similar process) shall be rendered against any Group Member (i)(A) in the case of money judgments, orders and decrees, involving an aggregate amount (excluding amounts adequately covered by insurance payable to any Group Member, to the extent the relevant insurer has not denied coverage therefor) in excess of $100,000 or (B) otherwise, that would have, in the aggregate, a Material Adverse Effect and (ii)(A) enforcement proceedings shall have been commenced by any creditor upon any such judgment, order or decree or (B) such judgment, order or decree shall not have been vacated or discharged for a period of 30 consecutive days and there shall not be in effect (by reason of a pending appeal or otherwise) any stay of enforcement thereof; or
(g) except pursuant to a valid, binding and enforceable termination or release permitted under the Loan Documents and executed by the Administrative Agent or as otherwise expressly permitted under any Loan Document, (i) any provision of any Loan Document shall, at any time after the delivery of such Loan Document, fail to be valid and binding on, or enforceable against, any Loan Party thereto, or (ii) any Loan Document purporting to grant a Lien to secure any Obligation shall, at any time after the delivery of such Loan Document, fail to create a valid and enforceable Lien on any Collateral purported to be covered thereby or such Lien shall fail or cease to be a perfected Lien with the priority required in the relevant Loan Document or any Group Member shall state in writing that any of the events described in clause (i) or (ii) of this paragraph shall have occurred; or
(h) the failure of any Group Member to comply with the terms of any subordination or intercreditor agreement or any subordination provisions of any note or other document running to the benefit of Administrative Agent or Lenders, or if any such document becomes null and void or any Group Member denies further liability under any such document or provides notice to that effect or any holder of Subordinated Debt or other obligation under such note, agreement or document shall so state in writing; or
(i) there shall occur any Change of Control.
Section 9.2 Remedies. During the continuance of any Event of Default, the Administrative Agent may, and, at the request of the Required Lenders, shall, in each case by notice to Borrower and in addition to any other right or remedy provided under any Loan Document or by any applicable Requirement of Law, do each or any of the following:
(a) declare all or any portion of the Commitments terminated, whereupon the Commitments shall immediately be reduced by such portion or, in the case of a termination in whole, shall terminate together with any obligation any Lender may have hereunder to make any Loan and any L/C Issuer may have hereunder to Issue any Letter of Credit;
(b) declare immediately due and payable all or part of the Obligations (including any accrued but unpaid interest thereon), whereupon the same shall become immediately due and payable, without presentment, demand, protest or further notice or other requirements of any kind, all of which are hereby expressly waived by Holdings and Borrower (and, to the extent provided in any other Loan Document, other Loan Parties); provided , however , that, effective immediately upon the occurrence of any Event of Default specified in Section 9.1(e) , (x) the Commitments of each
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Lender to make Loans and the commitment of each L/C Issuer to Issue Letters of Credit shall each automatically be terminated and (y) the Obligations (including in each case all accrued but unpaid interest thereon) shall automatically become and be due and payable, without presentment, demand, protest or further notice or other requirement of any kind, all of which are hereby expressly waived by Borrower and each Parent Guarantor (and, to the extent provided in any other Loan Document, any other Loan Party),
(c) take the actions described in Section 9.3 , and
(d) exercise any other remedies which may be available under the Loan Documents or applicable law.
Notwithstanding the foregoing, if at any applicable time there are only two Lenders, the Administrative Agent shall not take any of the actions describe in clauses (a) through (d) of this Section 9.2 without the consent of the other Lender, such consent not to be unreasonably withheld or delayed.
Section 9.3 Actions in Respect of Letters of Credit. (i) Upon the Revolving Credit Termination Date, (ii) at any time after the Revolving Credit Termination Date when the aggregate funds on deposit in L/C Cash Collateral Accounts shall be less than 105% of the L/C Obligations for all Letters of Credit at such time, (iii) during the continuance of any Event of Default and (iv) as required by Section 2.12 , Borrower shall pay to the Administrative Agent in immediately available funds at the Administrative Agent's office referred to in Section 12.11 , for deposit in a L/C Cash Collateral Account, the amount required so that, after such payment, the aggregate funds on deposit in the L/C Cash Collateral Accounts equals or exceeds 105% of the L/C Obligations for all Letters of Credit at such time Issued for the account of Borrower (not to exceed, in the case of clause (iv) above, the payment to be applied pursuant to Section 2.12 to provide cash collateral for such Letters of Credit). Borrower hereby grants to the Administrative Agent, for the benefit of L/C Issuers and each Lender with a participation in any Letters of Credit then outstanding, a security interest in such cash collateral to secure all of the L/C Obligations. Any such cash collateral shall be made available by the Administrative Agent to the L/C Issuers to reimburse L/C Issuers for payments of drafts drawn under such Letters of Credit, and any fees, charges and expenses of L/C Issuers with respect to such Letters of Credit and the unused portion thereof, after all such Letters of Credit shall have expired or been fully drawn upon, shall be applied to repay any other Obligations. After all such Letters of Credit shall have expired or been fully drawn upon and all Obligations shall have been satisfied and paid in full, the balance, if any, of such cash collateral shall be returned to Borrower. Borrower shall from time to time execute and deliver to Administrative Agent such further documents and instruments as Administrative Agent may request with respect to such cash collateral.
ARTICLE X
INTENTIONALLY OMITTED
ARTICLE XI
THE ADMINISTRATIVE AGENT
Section 11.1 Appointment and Duties. (a) Appointment of Administrative Agent . Each Lender and each L/C Issuer hereby appoints Churchill (together with any successor Administrative Agent pursuant to Section 11.9 ) as the Administrative Agent hereunder and authorizes the Administrative Agent to (i) execute and deliver the Loan Documents and accept delivery thereof on its behalf from any Group Member, (ii) take such action on its behalf and to exercise all rights, powers and remedies and perform the duties as are expressly delegated to the Administrative Agent under such Loan Documents and (iii) exercise such powers as are reasonably incidental thereto.
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(b) Duties as Collateral and Disbursing Agent. Without limiting the generality of clause (a) above, the Administrative Agent shall have the sole and exclusive right and authority (to the exclusion of the Lenders and L/C Issuers), and is hereby authorized, to (i) act as the disbursing and collecting agent for the Lenders and the L/C Issuers with respect to all payments and collections arising in connection with the Loan Documents (including in any proceeding described in Section 9.1(e)(ii) or any other bankruptcy, insolvency or similar proceeding), and each Person making any payment in connection with any Loan Document to any Secured Party is hereby authorized to make such payment to the Administrative Agent, (ii) file and prove claims and file other documents necessary or desirable to allow the claims of the Secured Parties with respect to any Obligation in any proceeding described in Section 9.1(e)(ii) or any other bankruptcy, insolvency or similar proceeding (but not to vote, consent or otherwise act on behalf of such Secured Party), (iii) act as collateral agent for each Secured Party for purposes of the perfection of all Liens created by such agreements and all other purposes stated therein, (iv) manage, supervise and otherwise deal with the Collateral, (v) take such other action as is necessary or desirable to maintain the perfection and priority of the Liens created or purported to be created by the Loan Documents, (vi) except as may be otherwise specified in any Loan Document, exercise all remedies given to the Administrative Agent and the other Secured Parties with respect to the Collateral, whether under the Loan Documents, applicable Requirements of Law or otherwise and (vii) execute any amendment, consent or waiver under the Loan Documents on behalf of any Lender that has consented in writing to such amendment, consent or waiver; provided , however , that the Administrative Agent hereby appoints, authorizes and directs each Lender and L/C Issuer to act as collateral sub-agent for the Administrative Agent, the Lenders and the L/C Issuers for purposes of the perfection of all Liens with respect to the Collateral, including any deposit account maintained by a Loan Party with, and cash and Cash Equivalents held by, such Lender or L/C Issuer, and may further authorize and direct the Lenders and the L/C Issuers to take further actions as collateral sub-agents for purposes of enforcing such Liens or otherwise to transfer the Collateral subject thereto to the Administrative Agent, and each Lender and L/C Issuer hereby agrees to take such further actions to the extent, and only to the extent, so authorized and directed.
(c) Limited Duties. Under the Loan Documents, the Administrative Agent (i) is acting solely on behalf of the Lenders and the L/C Issuers (except to the limited extent provided in Section 2.14(b) with respect to the Register and in Section 11.11 ), with duties that are entirely administrative in nature, notwithstanding the use of the defined term "Administrative Agent", the terms "agent", "administrative agent" and "collateral agent" and similar terms in any Loan Document to refer to the Administrative Agent, which terms are used for title purposes only, (ii) is not assuming any obligation under any Loan Document other than as expressly set forth therein or any role as agent, fiduciary or trustee of or for any Lender, L/C Issuer or any other Secured Party and (iii) shall have no implied functions, responsibilities, duties, obligations or other liabilities under any Loan Document, and each Lender and L/C Issuer hereby waives and agrees not to assert any claim against the Administrative Agent based on the roles, duties and legal relationships expressly disclaimed in clauses (i) through (iii) above.
Section 11.2 Binding Effect. Each Lender and each L/C Issuer agrees that (i) any action taken by the Administrative Agent or the Required Lenders (or, if expressly required hereby, a greater proportion of the Lenders) in accordance with the provisions of the Loan Documents, (ii) any action taken by the Administrative Agent in reliance upon the instructions of Required Lenders (or, where so required, such greater proportion) and (iii) the exercise by the Administrative Agent or the Required Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Secured Parties.
Section 11.3 Use of Discretion. (a) No Action without Instructions . The Administrative Agent shall not be required to exercise any discretion or take, or to omit to take, any action, including with respect to enforcement or collection, except any action it is required to take or omit to take (i) under any
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Loan Document or (ii) pursuant to instructions from the Required Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders).
(b) Right Not to Follow Certain Instructions. Notwithstanding clause (a) above, the Administrative Agent shall not be required to take, or to omit to take, any action (i) unless, upon demand, the Administrative Agent receives an indemnification satisfactory to it from the Lenders (or, to the extent applicable and acceptable to the Administrative Agent, any other Secured Party) against all Liabilities that, by reason of such action or omission, may be imposed on, incurred by or asserted against the Administrative Agent or any Related Person thereof or (ii) that is, in the opinion of the Administrative Agent or its counsel, contrary to any Loan Document or applicable Requirement of Law.
Section 11.4 Delegation of Rights and Duties. The Administrative Agent may, upon any term or condition it specifies, delegate or exercise any of its rights, powers and remedies under, and delegate or perform any of its duties or any other action with respect to, any Loan Document by or through any trustee, co-agent, employee, attorney-in-fact and any other Person (including any Secured Party). Any such Person shall benefit from this Article XI to the extent provided by the Administrative Agent.
Section 11.5 Reliance and Liability. (a) The Administrative Agent may, without incurring any liability hereunder, (i) treat the payee of any Note as its holder until such Note has been assigned in accordance with Section 12.2(e) , (ii) rely on the Register to the extent set forth in Section 2.14 , (iii) consult with any of its Related Persons and, whether or not selected by it, any other advisors, accountants and other experts (including advisors to, and accountants and experts engaged by, any Loan Party) and (iv) rely and act upon any document and information (including those transmitted by Electronic Transmission) and any telephone message or conversation, in each case believed by it to be genuine and transmitted, signed or otherwise authenticated by the appropriate parties.
(b) None of the Administrative Agent and its Related Persons shall be liable for any action taken or omitted to be taken by any of them under or in connection with any Loan Document, and each Lender, L/C Issuer, Borrower and each Parent Guarantor hereby waives and shall not assert (and Borrower and each Parent Guarantor shall cause each other Loan Party to waive and agree not to assert) any right, claim or cause of action based thereon, except to the extent of liabilities resulting primarily from the gross negligence or willful misconduct of the Administrative Agent or, as the case may be, such Related Person (each as determined in a final, non-appealable judgment by a court of competent jurisdiction) in connection with the duties expressly set forth herein. Without limiting the foregoing, the Administrative Agent:
(i) shall not be responsible or otherwise incur liability for any action or omission taken in reliance upon the instructions of the Required Lenders or for the actions or omissions of any of its Related Persons selected with reasonable care (other than employees, officers and directors of the Administrative Agent, when acting on behalf of the Administrative Agent);
(ii) shall not be responsible to any Secured Party for the due execution, legality, validity, enforceability, effectiveness, genuineness, sufficiency or value of, or the attachment, perfection or priority of any Lien created or purported to be created under or in connection with, any Loan Document;
(iii) makes no warranty or representation, and shall not be responsible, to any Secured Party for any statement, document, information, representation or warranty made or furnished by or on behalf of any Related Person, in or in connection with any Loan Document or any transaction contemplated therein, whether or not transmitted by the Administrative Agent, including as to completeness, accuracy, scope or adequacy thereof, or for the scope, nature or results of any due diligence performed by the Administrative Agent in connection with the Loan Documents; and
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(iv) shall not have any duty to ascertain or to inquire as to the performance or observance of any provision of any Loan Document, whether any condition set forth in any Loan Document is satisfied or waived, as to the financial condition of any Loan Party or as to the existence or continuation or possible occurrence or continuation of any Default or Event of Default and shall not be deemed to have notice or knowledge of such occurrence or continuation unless it has received a notice from Borrower, any Lender or L/C Issuer describing such Default or Event of Default clearly labeled "notice of default" (in which case the Administrative Agent shall promptly give notice of such receipt to all Lenders);
and, for each of the items set forth in clauses (i) through (iv) above, each Lender, L/C Issuer, Borrower and each Parent Guarantor hereby waives and agrees not to assert (and Borrower and each Parent Guarantor shall cause each other Loan Party to waive and agree not to assert) any right, claim or cause of action it might have against the Administrative Agent based thereon.
Section 11.6 Administrative Agent Individually. The Administrative Agent and its Affiliates may make loans and other extensions of credit to, acquire Stock and Stock Equivalents of, engage in any kind of business with, any Loan Party or Affiliate thereof as though it were not acting the Administrative Agent and may receive separate fees and other payments therefor. To the extent the Administrative Agent or any of its Affiliates makes any Loan or otherwise becomes a Lender hereunder, it shall have and may exercise the same rights and powers hereunder and shall be subject to the same obligations and liabilities as any other Lender and the terms "Lender", "Revolving Credit Lender", "Term Loan Lender", "Required Lender", "Required Revolving Credit Lender" and "Required Term Loan Lender" and any similar terms shall, except where otherwise expressly provided in any Loan Document, include, without limitation, the Administrative Agent or such Affiliate, as the case may be, in its individual capacity as Lender, Revolving Credit Lender, Term Loan Lender or as one of the Required Lenders, Required Revolving Credit Lenders or Required Term Loan Lenders, respectively. Any Person designated as Syndication Agent shall have no rights or duties hereunder other than those applicable to any other Lender.
Section 11.7 Lender Credit Decision. Each Lender and each L/C Issuer acknowledges that it shall, independently and without reliance upon the Administrative Agent, any Lender or L/C Issuer or any of their Related Persons or upon any document (including the Disclosure Documents) solely or in part because such document was transmitted by the Administrative Agent or any of its Related Persons, conduct its own independent investigation of the financial condition and affairs of each Loan Party and make and continue to make its own credit decisions in connection with entering into, and taking or not taking any action under, any Loan Document or with respect to any transaction contemplated in any Loan Document, in each case based on such documents and information as it shall deem appropriate.
Section 11.8 Expenses; Indemnities. (a) Each Lender agrees to reimburse the Administrative Agent and each of its Related Persons (to the extent not reimbursed by any Loan Party) promptly upon demand for such Lender's Pro Rata Share with respect to the Facilities of any costs and expenses (including fees, charges and disbursements of financial, legal and other advisors and Other Taxes paid in the name of, or on behalf of, any Loan Party) that may be incurred by the Administrative Agent or any of its Related Persons in connection with the preparation, syndication, execution, delivery, administration, modification, consent, waiver or enforcement (whether through negotiations, through any work-out, bankruptcy, restructuring or other legal or other proceeding or otherwise) of, or legal advice in respect of its rights or responsibilities under, any Loan Document.
(b) Each Lender further agrees to indemnify the Administrative Agent and each of its Related Persons (to the extent not reimbursed by any Loan Party), from and against such Lender's aggregate Pro Rata Share with respect to the Facilities of the Liabilities (including taxes, interests and penalties imposed for not properly withholding or backup withholding on payments made to on or for the account of any Lender) that may be imposed on, incurred by or asserted against the Administrative
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Agent or any of its Related Persons in any matter relating to or arising out of, in connection with or as a result of any Loan Document, any Related Document or any other act, event or transaction related, contemplated in or attendant to any such document, or, in each case, any action taken or omitted to be taken by the Administrative Agent or any of its Related Persons under or with respect to any of the foregoing; provided , however , that no Lender shall be liable to the Administrative Agent or any of its Related Persons to the extent such liability has resulted primarily from the gross negligence or willful misconduct of the Administrative Agent or, as the case may be, such Related Person, as determined by a court of competent jurisdiction in a final non-appealable judgment or order.
Section 11.9 Resignation of Administrative Agent or L/C Issuer. (a) The Administrative Agent may resign at any time by delivering notice of such resignation to the Lenders and Borrower, effective on the date set forth in such notice or, if not such date is set forth therein, upon the date such notice shall be effective. If the Administrative Agent delivers any such notice, the Required Lenders shall have the right to appoint a successor Administrative Agent. If, within 30 days after the retiring Administrative Agent having given notice of resignation no successor Administrative Agent has been appointed by the Required Lenders that has accepted such appointment, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent from among the Lenders. Each appointment under this clause (a) shall be subject to the prior consent of Borrower, which may not be unreasonably withheld, conditioned or delayed but shall not be required during the continuance of a Default or Event of Default.
(b) Effective immediately upon its resignation, (i) the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents, (ii) the Lenders shall assume and perform all of the duties of the Administrative Agent until a successor Administrative Agent shall have accepted a valid appointment hereunder, (iii) the retiring Administrative Agent and its Related Persons shall no longer have the benefit of any provision of any Loan Document other than with respect to any actions taken or omitted to be taken while such retiring Administrative Agent was, or because such Administrative Agent had been, validly acting as Administrative Agent under the Loan Documents and (iv) subject to its rights under Section 11.3 , the retiring Administrative Agent shall take such action as may be reasonably necessary to assign to the successor Administrative Agent its rights as Administrative Agent under the Loan Documents. Effective immediately upon its acceptance of a valid appointment as Administrative Agent, a successor Administrative Agent shall succeed to, and become vested with, all the rights, powers, privileges and duties of the retiring Administrative Agent under the Loan Documents.
(c) Any L/C Issuer may resign at any time by delivering notice of such resignation to the Administrative Agent, effective on the date set forth in such notice or, if no such date is set forth therein, on the date such notice shall be effective. Upon such resignation, the L/C Issuer shall remain an L/C Issuer and shall retain its rights and obligations in its capacity as such (other than any obligation to Issue Letters of Credit but including the right to receive fees or to have Lenders participate in any L/C Reimbursement Obligation thereof) with respect to Letters of Credit Issued by such L/C Issuer prior to the date of such resignation and shall otherwise be discharged from all other duties and obligations under the Loan Documents.
Section 11.10 Release of Collateral or Guarantors. Each Lender and L/C Issuer hereby consents to the release and hereby directs the Administrative Agent to release (or, in the case of clause (b)(ii) below, release or subordinate) the following:
(a) any Subsidiary of Borrower from its guaranty of any Obligation of any Loan Party if all of the Securities of such Subsidiary owned by any Group Member are Sold in a Sale permitted under the Loan Documents (including pursuant to a waiver or consent), to the extent that, after giving effect to such Sale, such Subsidiary would not be required to guaranty any Obligations pursuant to Section 7.10 ; and
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(b) any Lien held by the Administrative Agent for the benefit of the Secured Parties against (i) any Collateral that is Sold by a Loan Party in a Sale permitted by the Loan Documents (including pursuant to a valid waiver or consent), to the extent all Liens required to be granted in such Collateral pursuant to Section 7.10 after giving effect to such Sale have been granted, (ii) any property subject to a Lien permitted pursuant to Section 8.2(d) or (e) and (iii) all of the Collateral and all Loan Parties, upon (A) termination of the Commitments, (B) payment and satisfaction in full of all Loans, all L/C Reimbursement Obligations and all other Obligations that the Administrative Agent has been notified in writing are then due and payable, (C) deposit of cash collateral with respect to all contingent Obligations (or, in the case of any L/C Obligation, a back-up letter of credit has been issued), in amounts and on terms and conditions and with parties satisfactory to the Administrative Agent and each Indemnitee that is owed such Obligations and (D) to the extent requested by the Administrative Agent, receipt by the Secured Parties of liability releases from the Loan Parties each in form and substance acceptable to the Administrative Agent.
Each Lender and L/C Issuer hereby directs the Administrative Agent, and the Administrative Agent hereby agrees, upon receipt of reasonable advance notice from Borrower, to execute and deliver or file such documents and to perform other actions reasonably necessary to release the guaranties and Liens when and as directed in this Section 11.10 .
Section 11.11 Additional Secured Parties. Subject to Section 12.2 , the benefit of the provisions of the Loan Documents directly relating to the Collateral or any Lien granted thereunder shall extend to and be available to any Secured Party that is not a Lender or L/C Issuer as long as, by accepting such benefits, such Secured Party agrees, as among the Administrative Agent and all other Secured Parties, that such Secured Party is bound by (and, if requested by the Administrative Agent, shall confirm such agreement in a writing in form and substance acceptable to the Administrative Agent) this Article XI , Section 12.8 ( Right of Setoff ), Section 12.9 ( Sharing of Payments ) and Section 12.20 ( Confidentiality ) and the decisions and actions of the Administrative Agent and the Required Lenders (or, where expressly required by the terms of this Agreement, a greater proportion of the Lenders) to the same extent a Lender is bound; provided, however, that, notwithstanding the foregoing, (a) such Secured Party shall be bound by Section 11.8 only to the extent of Liabilities, costs and expenses with respect to or otherwise relating to the Collateral held for the benefit of such Secured Party, in which case the obligations of such Secured Party thereunder shall not be limited by any concept of Pro Rata Share or similar concept, (b) each of the Administrative Agent, the Lenders and the L/C Issuers shall be entitled to act at its sole discretion, without regard to the interest of such Secured Party, regardless of whether any Obligation to such Secured Party thereafter remains outstanding, is deprived of the benefit of the Collateral, becomes unsecured or is otherwise affected or put in jeopardy thereby, and without any duty or liability to such Secured Party or any such Obligation and (c) such Secured Party shall not have any right to be notified of, consent to, direct, require or be heard with respect to, any action taken or omitted in respect of the Collateral or under any Loan Document.
Section 12.1 Amendments, Waivers, Etc. (a) No amendment or waiver of any provision of any Loan Document and no consent to any departure by any Loan Party therefrom shall be effective unless the same shall be in writing and signed (i) in the case of an amendment, consent or waiver to cure any ambiguity, omission, defect or inconsistency or granting a new Lien for the benefit of the Secured Parties or extending an existing Lien over additional property, by the Administrative Agent and Borrower, (ii) in the case of any other waiver or consent, by the Required Lenders (or by the Administrative Agent with the consent of the Required Lenders) and (iii) in the case of any other amendment, by the Required Lenders (or by the Administrative Agent with the consent of the Required Lenders) and Borrower; provided , however , that amendments to or waivers of any provision of
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the Fee Letter, the Control Agreements, the Landlord Waiver and the L/C Reimbursement require only the written consent of the Borrower, the Administrative Agent and any third parties thereto, and provided , further , that no amendment, consent or waiver described in clause (ii) or (iii) above shall, unless in writing and signed by each Lender directly affected thereby (or by the Administrative Agent with the consent of such Lender), in addition to any other Person the signature of which is otherwise required pursuant to any Loan Document, do any of the following:
(i) waive any condition specified in Section 3.1 , except any condition referring to any other provision of any Loan Document;
(ii) increase the Commitment of such Lender or subject such Lender to any additional obligation;
(iii) reduce (including through release, forgiveness, assignment or otherwise) (A) the principal amount of, the interest rate on, or any obligation of Borrower to repay (whether or not on a fixed date), any outstanding Loan owing to such Lender, (B) any fee or accrued interest payable to such Lender or (C) if such Lender is a Revolving Credit Lender, any L/C Reimbursement Obligation or any obligation of Borrower to repay (whether or not on a fixed date) any L/C Reimbursement Obligation; provided , however , that this clause (iii) does not apply to (x) any change to any provision increasing any interest rate or fee during the continuance of an Event of Default or to any payment of any such increase or (y) any modification to any financial covenant set forth in Article V or in any definition set forth therein or principally used therein;
(iv) waive or postpone any scheduled maturity date or other scheduled date fixed for the payment, in whole or in part, of principal of or interest on any Loan or fee owing to such Lender or for the reduction of such Lender's Commitment; provided , however, that this clause (iv) does not apply to any change to mandatory prepayments required by Section 2.8(b) or Section 2.8(c)(ii);
(v) except as provided in Section 11.10 , release all or substantially all of the Collateral or any Guarantor from its guaranty of any Obligation of Borrower;
(vi) reduce or increase the proportion of Lenders required for the Lenders (or any subset thereof) to take any action hereunder or change the definition of the terms "Required Lenders", "Pro Rata Share" or "Pro Rata Outstandings"; or
(vii) amend Section 11.10 ( Release of Collateral or Guarantor ), Section 12.9 ( Sharing of Payments ) or this Section 12.1 ;
and provided , further , that (x)(A) any waiver of any payment applied pursuant to Section 2.12(b) ( Application of Mandatory Prepayments ) to, and any modification of the application of any such payment to, (1) the Term Loans shall require the consent of the Required Term Loan Lenders and (2) the Revolving Loans shall require the consent of the Required Revolving Credit Lenders, (B) any change to the definition of the term "Required Term Loan Lender" shall require the consent of the Required Term Loan Lenders and (C) any change to the definition of the term "Required Revolving Credit Lender" shall require the consent of the Required Revolving Credit Lenders, (y) no amendment, waiver or consent shall affect the rights or duties under any Loan Document of, or any payment to, the Administrative Agent (or otherwise modify any provision of Article X or the application thereof), the Swingline Lender, any L/C Issuer or any SPV that has been granted an option pursuant to Section 12.2(f) unless in writing and signed by the Administrative Agent, the Swingline Lender, such L/C Issuer or, as the case may be, such SPV in addition to any signature otherwise required and (z) the consent of Borrower shall not be required to change any order of priority set forth in Section 2.12 .
(b) Each waiver or consent under any Loan Document shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Loan Party shall entitle any Loan Party to any notice or demand in the same, similar or other circumstances.
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No failure on the part of any Secured Party to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right.
Section 12.2 Assignments and Participations; Binding Effect. (a) Binding Effect . This Agreement shall become effective when it shall have been executed by Holdings, General Partner, Limited Partner, Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each Lender and L/C Issuer that such Lender or L/C Issuer has executed it. Thereafter, it shall be binding upon and inure to the benefit of, but only to the benefit of, Holdings, General Partner, Limited Partner, Borrower (in each case except for Article X ), the Administrative Agent, each Lender and L/C Issuer and, to the extent provided in Section 11.11 , each other Indemnitee and Secured Party and, in each case, their respective successors and permitted assigns. Except as expressly provided in any Loan Document (including in Section 11.9 ), none of Holdings, General Partner, Limited Partner, Borrower, any L/C Issuer or the Administrative Agent shall have the right to assign any rights or obligations hereunder or any interest herein.
(b) Right to Assign. Each Lender may sell, transfer, negotiate or assign all or a portion of its rights and obligations hereunder (including all or a portion of its Commitments and its rights and obligations with respect to Loans and Letters of Credit) to (i) any existing Lender, (ii) any Affiliate or Approved Fund of any existing Lender or (iii) any other Person (other than any Group Member or any of its Affiliates) acceptable (which acceptance shall not be unreasonably withheld or delayed) to the Administrative Agent and, as long as no Default or Event of Default is continuing, Borrower; provided , however , that (x) such Sales do not have to be ratable between the Facilities but must be ratable among the obligations owing to and owed by such Lender with respect to a Facility and (y) for each Facility, the aggregate outstanding principal amount (determined as of the effective date of the applicable Assignment) of the Loans, Commitments and L/C Obligations subject to any such Sale shall be an integral multiple of $1,000,000, unless such Sale is made to an existing Lender or an Affiliate or Approved Fund of any existing Lender, is of the assignor's (together with its Affiliates and Approved Funds) entire interest in such Facility or is made with the prior consent of Borrower and the Administrative Agent.
(c) Procedure. The parties to each Sale made in reliance on clause (b) above (other than those described in clause (e) or (f) below) shall execute and deliver to the Administrative Agent (which shall keep a copy thereof) an Assignment, together with any existing Note subject to such Sale (or any affidavit of loss therefor acceptable to the Administrative Agent), any tax forms required to be delivered pursuant to Section 2.17(f) and payment by the assignee of an assignment fee in the amount of $3,500; provided that no such fee shall be payable for assignments among a Lender and its Affiliates and Approved Funds. Upon receipt of all the foregoing, and conditioned upon such receipt and upon the Administrative Agent consenting to such Assignment, from and after the effective date specified in such Assignment, the Administrative Agent shall record or cause to be recorded in the Register the information contained in such Assignment.
(d) Effectiveness. Effective upon the entry of such record in the Register, (i) such assignee shall become a party hereto and, to the extent that rights and obligations under the Loan Documents have been assigned to such assignee pursuant to such Assignment, shall have the rights and obligations of a Lender, (ii) any applicable Note shall be transferred to such assignee through such entry and (iii) the assignor thereunder shall, to the extent that rights and obligations under this Agreement have been assigned by it pursuant to such Assignment, relinquish its rights (except for those surviving the termination of the Commitments and the payment in full of the Obligations) and be released from its obligations under the Loan Documents, other than those relating to events or circumstances occurring prior to such assignment (and, in the case of an Assignment covering all or the remaining portion of an assigning Lender's rights and obligations under the Loan Documents, such Lender shall cease to be a party hereto except that each Lender agrees to remain bound by Article X , Section 12.8 ( Right of Setoff )
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and Section 12.9 ( Sharing of Payments ) to the extent provided in Section 11.11 ( Additional Beneficiaries of Collateral )).
(e) Grant of Security Interests. In addition to the other rights provided in this Section 12.2 , each Lender may grant a security interest in, or otherwise assign as collateral, any of its rights under this Agreement, whether now owned or hereafter acquired (including rights to payments of principal or interest on the Loans), to (A) any federal reserve bank (pursuant to Regulation A of the Federal Reserve Board), without notice to the Administrative Agent or (B) any holder of, or trustee for the benefit of the holders of, such Lender's Securities by notice to the Administrative Agent; provided , however , that no such holder or trustee, whether because of such grant or assignment or any foreclosure thereon (unless such foreclosure is made through an assignment in accordance with clause (b) above), shall be entitled to any rights of such Lender hereunder and no such Lender shall be relieved of any of its obligations hereunder.
(f) Participants and SPVs. In addition to the other rights provided in this Section 12.2 , each Lender may, (x) with notice to the Administrative Agent, grant to an SPV the option to make all or any part of any Loan that such Lender would otherwise be required to make hereunder (and the exercise of such option by such SPV and the making of Loans pursuant thereto shall satisfy the obligation of such Lender to make such Loans hereunder) and such SPV may assign to such Lender the right to receive payment with respect to any Obligation and (y) without notice to or consent from the Administrative Agent or Borrower, sell participations to one or more Persons in or to all or a portion of its rights and obligations under the Loan Documents (including all its rights and obligations with respect to the Term Loans, Revolving Loans and Letters of Credit); provided , however , that, whether as a result of any term of any Loan Document or of such grant or participation, (i) no such SPV or participant shall have a commitment, or be deemed to have made an offer to commit, to make Loans hereunder, and, except as provided in the applicable option agreement, none shall be liable for any obligation of such Lender hereunder, (ii) such Lender's rights and obligations, and the rights and obligations of the Loan Parties and the Secured Parties towards such Lender, under any Loan Document shall remain unchanged and each other party hereto shall continue to deal solely with such Lender, which shall remain the holder of the Obligations in the Register, except that (A) each such participant and SPV shall be entitled to the benefit of Sections 2.16 ( Breakage Costs; Increased Costs; Capital Requirements ) and 2.17 ( Taxes ), but only to the extent such participant or SPV delivers the tax forms such Lender is required to collect pursuant to Section 2.17(f) and then only to the extent of any amount to which such Lender would be entitled in the absence of any such grant or participation and (B) each such SPV may receive other payments that would otherwise be made to such Lender with respect to Loans funded by such SPV to the extent provided in the applicable option agreement and set forth in a notice provided to the Administrative Agent by such SPV and such Lender, provided , however , that in no case (including pursuant to clause (A) or (B) above) shall an SPV or participant have the right to enforce any of the terms of any Loan Document, and (iii) the consent of such SPV or participant shall not be required (either directly, as a restraint on such Lender's ability to consent hereunder or otherwise) for any amendments, waivers or consents with respect to any Loan Document or to exercise or refrain from exercising any powers or rights such Lender may have under or in respect of the Loan Documents (including the right to enforce or direct enforcement of the Obligations), except for those described in clauses (iii) and (iv) of Section 12.1(a) with respect to amounts, or dates fixed for payment of amounts, to which such participant or SPV would otherwise be entitled and, in the case of participants, except for those described in Section 12.1(a)(v) (or amendments, consents and waivers with respect to Section 11.10 to release all or substantially all of the Collateral). No party hereto shall institute against any SPV grantee of an option pursuant to this clause (f) any bankruptcy, reorganization, insolvency, liquidation or similar proceeding, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper of such SPV; provided, however, that each Lender having designated an SPV as such agrees to indemnify each Indemnitee against any Liability that may be incurred by, or asserted against, such Indemnitee as a result of failing to institute
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such proceeding (including a failure to get reimbursed by such SPV for any such Liability). The agreement in the preceding sentence shall survive the termination of the Commitments and the payment in full of the Obligations.
Section 12.3 Costs and Expenses. Any action taken by any Loan Party under or with respect to any Loan Document, even if required under any Loan Document or at the request of any Secured Party, shall be at the expense of such Loan Party, and no Secured Party shall be required under any Loan Document to reimburse any Loan Party or Group Member therefor except as expressly provided therein. In addition, Borrower agrees to pay or reimburse upon demand (a) the Administrative Agent for all reasonable out-of-pocket costs and expenses incurred by it or any of its Related Persons in connection with the investigation, development, preparation, negotiation, syndication, execution, interpretation or administration of, any modification of any term of or termination of, any Loan Document, any commitment or proposal letter therefor, any other document prepared in connection therewith or the consummation and administration of any transaction contemplated therein (including periodic audits in connection therewith and environmental audits and assessments to the extent permitted hereunder), in each case including the reasonable fees, charges and disbursements of legal counsel to the Administrative Agent or such Related Persons, fees, costs and expenses incurred in connection with Intralinks® or any other E-System and allocated to the Facilities by the Administrative Agent in its sole discretion, and fees, charges and disbursements of the auditors, appraisers, printers and other of their Related Persons retained by or on behalf of any of them or any of their Related Persons, (b) the Administrative Agent for all reasonable costs and expenses incurred by it or any of its Related Persons in connection with internal audit reviews, field examinations and Collateral examinations (which shall be reimbursed, in addition to the out-of-pocket costs and expenses of such examiners, at the per diem rate per individual charged by the Administrative Agent for its examiners) and (c) each of the Administrative Agent, its Related Persons, and each Lender and L/C Issuer for all costs and expenses incurred in connection with (i) any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out", (ii) the enforcement or preservation of any right or remedy under any Loan Document, any Obligation, with respect to the Collateral or any other related right or remedy or (iii) the commencement, defense, conduct of, intervention in, or the taking of any other action with respect to, any proceeding (including any bankruptcy or insolvency proceeding) related to any Group Member, Loan Document, Obligation or Related Transaction (or the response to and preparation for any subpoena or request for document production relating thereto), including fees and disbursements of counsel (including allocated costs of internal counsel).
Section 12.4 Indemnities. (a) Borrower and each Parent Guarantor agrees to indemnify, hold harmless and defend the Administrative Agent, each Lender, each L/C Issuer, each Person that each L/C Issuer causes to Issue Letters of Credit hereunder and each of their respective Related Persons (each such Person being an "Indemnitee") from and against all Liabilities (including brokerage commissions, fees and other compensation) that may be imposed on, incurred by or asserted against any such Indemnitee in any matter relating to or arising out of, in connection with or as a result of (i) any Loan Document, any Related Document, any Disclosure Document, any Obligation (or the repayment thereof), any Letter of Credit, the use or intended use of the proceeds of any Loan or the use of any Letter of Credit, any Related Transaction, or any securities filing of, or with respect to, any Group Member, (ii) any commitment letter, proposal letter or term sheet with any Person or any Contractual Obligation, arrangement or understanding with any broker, finder or consultant, in each case entered into by or on behalf of the Acquired Company, any Group Member or any Affiliate of any of them in connection with any of the foregoing and any Contractual Obligation entered into in connection with any E-Systems or other Electronic Transmissions, (iii) any actual or prospective investigation, litigation or other proceeding, whether or not brought by any such Indemnitee or any of its Related Persons, any holders of Securities or creditors (and including reasonable attorneys' fees of one counsel to all Indemnitees in any case), whether or not any such Indemnitee, Related Person, holder or creditor is a party thereto, and whether or not based on any securities or commercial law or regulation or any other
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Requirement of Law or theory thereof, including common law, equity, contract, tort or otherwise, or (iv) any other act, event or transaction related, contemplated in or attendant to any of the foregoing (collectively, the " Indemnified Matters "); provided , however , that no Borrower shall have any liability under this Section 12.4 to any Indemnitee with respect to any Indemnified Matter, and no Indemnitee shall have any liability with respect to any Indemnified Matter other than (to the extent otherwise liable), to the extent such liability has resulted primarily from the gross negligence or willful misconduct of such Indemnitee as determined by a court of competent jurisdiction in a final non-appealable judgment or order. Furthermore, Borrower and each Parent Company waives and agrees not to assert against any Indemnitee, and shall cause each other Loan Party to waive and not assert against any Indemnitee, any right of contribution with respect to any Liabilities that may be imposed on, incurred by or asserted against any Related Person.
(b) Without limiting the foregoing, " Indemnified Matters " includes all Environmental Liabilities, including those arising from, or otherwise involving, any property of any Related Person or any actual, alleged or prospective damage to property or natural resources or harm or injury alleged to have resulted from any Release of Hazardous Materials on, upon or into such property or natural resource or any property on or contiguous to any real property of any Related Person, whether or not, with respect to any such Environmental Liabilities, any Indemnitee is a mortgagee pursuant to any leasehold mortgage, a mortgagee in possession, the successor-in-interest to any Related Person or the owner, lessee or operator of any property of any Related Person through any foreclosure action, in each case except to the extent such Environmental Liabilities (i) are incurred solely following foreclosure by any Secured Party or following any Secured Party having become the successor-in-interest to any Loan Party and (ii) are attributable solely to acts of such Indemnitee .
Section 12.5 Survival. Any indemnification or other protection provided to any Indemnitee pursuant to any Loan Document (including pursuant to Section 2.17 ( Taxes ), Section 2.16 ( Breakage Costs; Increased Costs; Capital Requirements ), Article X ( The Administrative Agent ), Section 12.3 ( Costs and Expenses ), Section 12.4 ( Indemnities ) or this Section 12.5 ) and all representations and warranties made in any Loan Document shall (A) survive the termination of the Commitments and the payment in full of other Obligations and (B) inure to the benefit of any Person that at any time held a right thereunder (as an Indemnitee or otherwise) and, thereafter, its successors and permitted assigns.
Section 12.6 Limitation of Liability for Certain Damages. In no event shall any Indemnitee be liable on any theory of liability for any special, indirect, consequential or punitive damages (including any loss of profits, business or anticipated savings). Borrower and each Parent Guarantor hereby waives, releases and agrees (and shall cause each other Loan Party to waive, release and agree) not to sue upon any such claim for any special, indirect, consequential or punitive damages, whether or not accrued and whether or not known or suspected to exist in its favor.
Section 12.7 Lender-Creditor Relationship. The relationship between the Lenders, the L/C Issuers and the Administrative Agent, on the one hand, and the Loan Parties, on the other hand, is solely that of lender and debtor. No Secured Party has any fiduciary relationship or duty to any Loan Party arising out of or in connection with, and there is no agency, tenancy or joint venture relationship between the Secured Parties and the Loan Parties by virtue of, any Loan Document or any transaction contemplated therein.
Section 12.8 Right of Setoff. Each of the Administrative Agent, each Lender, each L/C Issuer and each Affiliate (including each branch office thereof) of any of them is hereby authorized, without notice or demand (each of which is hereby waived by Borrower and each Parent Guarantor), at any time and from time to time during the continuance of any Event of Default and to the fullest extent permitted by applicable Requirements of Law, to set off and apply any and all deposits (whether general or special, time or demand, provisional or final) at any time held and other Indebtedness, claims or other obligations at any time owing by the Administrative Agent, such Lender, such L/C
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Issuer or any of their respective Affiliates to or for the credit or the account of Borrower or any Parent Guarantor against any Obligation of any Loan Party now or hereafter existing, whether or not any demand was made under any Loan Document with respect to such Obligation and even though such Obligation may be unmatured. Each of the Administrative Agent, each Lender and each L/C Issuer agrees promptly to notify Borrower and the Administrative Agent after any such setoff and application made by such Lender or its Affiliates; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights under this Section 12.8 are in addition to any other rights and remedies (including other rights of setoff) that the Administrative Agent, the Lenders and the L/C Issuers and their Affiliates and other Secured Parties may have.
Section 12.9 Sharing of Payments, Etc. If any Lender, directly or through an Affiliate or branch office thereof, obtains any payment of any Obligation of any Loan Party (whether voluntary, involuntary or through the exercise of any right of setoff or the receipt of any Collateral or "proceeds" (as defined under the applicable UCC) of Collateral) other than pursuant to Sections 2.16 ( Breakage Costs; Increased Costs; Capital Requirements ), 2.17 ( Taxes ) and 2.18 ( Substitution of Lenders ) and such payment exceeds the amount such Lender would have been entitled to receive if all payments had gone to, and been distributed by, the Administrative Agent in accordance with the provisions of the Loan Documents, such Lender shall purchase for cash from other Secured Parties such participations in their Obligations as necessary for such Lender to share such excess payment with such Secured Parties to ensure such payment is applied as though it had been received by the Administrative Agent and applied in accordance with this Agreement (or, if such application would then be at the discretion of Borrower, applied to repay the Obligations in accordance herewith); provided, however, that (a) if such payment is rescinded or otherwise recovered from such Lender or L/C Issuer in whole or in part, such purchase shall be rescinded and the purchase price therefor shall be returned to such Lender or L/C Issuer without interest and (b) such Lender shall, to the fullest extent permitted by applicable Requirements of Law, be able to exercise all its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation.
Section 12.10 Marshaling; Payments Set Aside. (a) Borrower expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel Administrative Agent, any Lender or any L/C Issuer to marshal assets or to proceed in respect of the Obligations guaranteed hereunder against any other Loan Party, any other party or against any security for the payment and performance of the Obligations before proceeding against, or as a condition to proceeding against, Borrower. It is agreed among Borrower, Administrative Agent, each Lender and each L/C Issuer that the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the other Loan Documents and that, but for the provisions of this Article XII and such waivers, Administrative Agent, each Lender and each L/C Issuer would decline to enter into this Agreement;.
(b) No Secured Party shall be under any obligation to marshal any property in favor of any Loan Party or any other party or against or in payment of any Obligation. To the extent that any Secured Party receives a payment from Borrower, from the proceeds of the Collateral, from the exercise of its rights of setoff, any enforcement action or otherwise, and such payment is subsequently, in whole or in part, invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and continued in full force and effect as if such payment had not occurred.
Section 12.11 Notices. (a) Addresses . All notices, demands, requests, directions and other communications required or expressly authorized to be made by this Agreement shall, whether or not specified to be in writing but unless otherwise expressly specified to be given by any other means, be given in writing and (i) addressed to (A) if to Holdings or Borrower, to PROS Revenue Management,
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L.P., 3100 Main Street, Suite 900, Houston, TX 77002, Attention: Charlie Murphy, Chief Financial Officer, Tel: (713) 335-5389, Fax: (713) 335-8144, with copy to DLA Piper US LLP, 1221 South MoPac Expressway, Suite 400, Austin, TX 78746, Attention: John J. Gilluly III, Esq., Tel: (512) 457-7090, Fax: (512) 457-7001, (B) if to the Administrative Agent or the Swingline Lender, to Churchill Financial LLC, 400 Park Avenue, Suite 1510, New York, NY 10022, Attention: Carey B. Davidson, Tel: (212) 763-4640, Fax: (212) 763-4641, and Sean McKeever, Tel: (212) 763-4672, Fax: (212) 763-4649, with copy to Goulston & Storrs, 400 Atlantic Avenue, Boston, MA 02110, Attention: Philip A. Herman, Esq., Tel: (617) 574-4114, Fax: (617) 574-7592, and (C) otherwise to the party to be notified at its address specified opposite its name on Schedule II or on the signature page of any applicable Assignment, (ii) posted to Intralinks® (to the extent such system is available and set up by or at the direction of the Administrative Agent prior to posting) in an appropriate location by uploading such notice, demand, request, direction or other communication to www.intralinks.com, faxing it to 866-545-6600 with an appropriate bar-coded fax coversheet or using such other means of posting to Intralinks® as may be available and reasonably acceptable to the Administrative Agent prior to such posting, (iii) posted to any other E-System set up by or at the direction of the Administrative Agent in an appropriate location or (iv) addressed to such other address as shall be notified in writing (A) in the case of Borrower, the Administrative Agent and the Swingline Lender, to the other parties hereto and (B) in the case of all other parties, to Borrower and the Administrative Agent. Transmission by electronic mail (including E-Fax, even if transmitted to the fax numbers set forth in clause (i) above) shall not be sufficient or effective to transmit any such notice under this clause (a) unless such transmission is an available means to post to any E-System. Notwithstanding the foregoing, Notices of Borrowing or Conversion made to the Administrative Agent shall be to such persons at such addresses as shall be separately specified by the Administrative Agent to Borrower from time to time in writing.
(b) Effectiveness. All communications described in clause (a) above and all other notices, demands, requests and other communications made in connection with this Agreement shall be effective and be deemed to have been received (i) if delivered by hand, upon personal delivery, (ii) if delivered by overnight courier service, one Business Day after delivery to such courier service, (iii) if delivered by mail, when deposited in the mails, (iv) if delivered by facsimile (other than to post to an E-System pursuant to clause (a)(ii) or (a)(iii) above), upon sender's receipt of confirmation of proper transmission, and (v) if delivered by posting to any E-System, on the later of the date of such posting in an appropriate location and the date access to such posting is given to the recipient thereof in accordance with the standard procedures applicable to such E-System; provided , however , that no communications to the Administrative Agent pursuant to Article II or Article X shall be effective until received by the Administrative Agent.
Section 12.12 Electronic Transmissions. (a) Authorization . Subject to the provisions of Section 12.11(a), each of the Administrative Agent, Borrower, the Lenders, the L/C Issuers and each of their Related Persons is authorized (but not required) to transmit, post or otherwise make or communicate, in its sole discretion, Electronic Transmissions in connection with any Loan Document and the transactions contemplated therein. Each of Holdings, General partner, Limited Partner, Borrower and each Secured Party hereby acknowledges and agrees, and each of Holdings, General Partner, Limited Partner and Borrower shall cause each other Group Member to acknowledge and agree, that the use of Electronic Transmissions is not necessarily secure and that there are risks associated with such use, including risks of interception, disclosure and abuse and each indicates it assumes and accepts such risks by hereby authorizing the transmission of Electronic Transmissions.
(b) Signatures. Subject to the provisions of Section 12.11(a) , (i)(A) no posting to any E-System shall be denied legal effect merely because it is made electronically, (B) each E-Signature on any such posting shall be deemed sufficient to satisfy any requirement for a "signature" and (C) each such posting shall be deemed sufficient to satisfy any requirement for a "writing", in each case including pursuant to any Loan Document, any applicable provision of any UCC, the federal Uniform Electronic
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Transactions Act, the Electronic Signatures in Global and National Commerce Act and any substantive or procedural Requirement of Law governing such subject matter, (ii) each such posting that is not readily capable of bearing either a signature or a reproduction of a signature may be signed, and shall be deemed signed, by attaching to, or logically associating with such posting, an E-Signature, upon which each Secured Party and Loan Party may rely and assume the authenticity thereof, (iii) each such posting containing a signature, a reproduction of a signature or an E-Signature shall, for all intents and purposes, have the same effect and weight as a signed paper original and (iv) each party hereto or beneficiary hereto agrees not to contest the validity or enforceability of any posting on any E-System or E-Signature on any such posting under the provisions of any applicable Requirement of Law requiring certain documents to be in writing or signed; provided , however , that nothing herein shall limit such party's or beneficiary's right to contest whether any posting to any E-System or E-Signature has been altered after transmission.
(c) Separate Agreements. All uses of an E-System shall be governed by and subject to, in addition to Section 12.11 and this Section 12.12 , separate terms and conditions posted or referenced in such E-System and related Contractual Obligations executed by Secured Parties and Group Members in connection with the use of such E-System.
(d) LIMITATION OF LIABILITY. ALL E-SYSTEMS AND ELECTRONIC TRANSMISSIONS SHALL BE PROVIDED "AS IS" AND "AS AVAILABLE". NONE OF ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PERSONS WARRANTS THE ACCURACY, ADEQUACY OR COMPLETENESS OF ANY E-SYSTEMS OR ELECTRONIC TRANSMISSION, AND EACH DISCLAIMS ALL LIABILITY FOR ERRORS OR OMISSIONS THEREIN. NO WARRANTY OF ANY KIND IS MADE BY THE ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PERSONS IN CONNECTION WITH ANY E-SYSTEMS OR ELECTRONIC COMMUNICATION, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD-PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS. Each of Holdings, Borrower and each Secured Party agrees (and each of Holdings and Borrower shall cause each other Loan Party to agree) that the Administrative Agent has no responsibility for maintaining or providing any equipment, software, services or any testing required in connection with any Electronic Transmission or otherwise required for any E-System.
Section 12.13 Governing Law. This Agreement, each other Loan Document that does not expressly set forth its applicable law, and the rights and obligations of the parties hereto and thereto shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.
Section 12.14 Jurisdiction. (a) Submission to Jurisdiction . Any legal action or proceeding with respect to any Loan Document may be brought in the courts of the State of New York located in the City of New York, Borough of Manhattan, or of the United States of America for the Southern District of New York and, by execution and delivery of this Agreement, Borrower and each Parent Guarantor hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereto (and, to the extent set forth in any other Loan Document, each other Loan Party) hereby irrevocably waive any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, that any of them may now or hereafter have to the bringing of any such action or proceeding in such jurisdictions.
(b) Service of Process. Borrower and each Parent Guarantor (and, to the extent set forth in any other Loan Document, each other Loan Party) hereby irrevocably waives personal service of any and all legal process, summons, notices and other documents and other service of process of any kind and consents to such service in any suit, action or proceeding brought in the United States of America with respect to or otherwise arising out of or in connection with any Loan Document by any means
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permitted by applicable Requirements of Law, including by the mailing thereof (by registered or certified mail, postage prepaid) to the address of Borrower specified in Section 12.11 (and shall be effective when such mailing shall be effective, as provided therein). Borrower and each Parent Guarantor (and, to the extent set forth in any other Loan Document, each other Loan Party) agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
(c) Non-Exclusive Jurisdiction. Nothing contained in this Section 12.14 shall affect the right of the Administrative Agent or any Lender to serve process in any other manner permitted by applicable Requirements of Law or commence legal proceedings or otherwise proceed against any Loan Party in any other jurisdiction.
SECTION 12.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO, OR DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH, ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREIN OR RELATED THERETO (WHETHER FOUNDED IN CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO OTHER PARTY AND NO RELATED PERSON OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THE LOAN DOCUMENTS, AS APPLICABLE, BY THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 12.15.
Section 12.16 Severability. Any provision of any Loan Document being held illegal, invalid or unenforceable in any jurisdiction shall not affect any part of such provision not held illegal, invalid or unenforceable, any other provision of any Loan Document or any part of such provision in any other jurisdiction.
Section 12.17 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart. Delivery of an executed signature page of this Agreement by facsimile transmission or Electronic Transmission shall be as effective as delivery of a manually executed counterpart hereof.
Section 12.18 Entire Agreement. The Loan Documents embody the entire agreement of the parties and supersede all prior agreements and understandings relating to the subject matter thereof and any prior letter of interest, commitment letter, fee letter, confidentiality and similar agreements involving any Loan Party and any of the Administrative Agent, any Lender or any L/C Issuer or any of their respective Affiliates relating to a financing of substantially similar form, purpose or effect. In the event of any conflict between the terms of this Agreement and any other Loan Document, the terms of this Agreement shall govern (unless such terms of such other Loan Documents are necessary to comply with applicable Requirements of Law, in which case such terms shall govern to the extent necessary to comply therewith).
Section 12.19 Use of Name.
(a) Borrower and each Parent Guarantor agrees, and shall cause each other Loan Party to agree, that it shall not, and none of its Affiliates shall, issue any press release or other public disclosure (other than any document filed with any Governmental Authority relating to a public offering of the Securities of any Loan Party) using the name, logo or otherwise referring to Churchill or any Lender or of any of their Affiliates, the Loan Documents or any transaction contemplated therein to which the Secured
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Parties are party without at least 2 Business Days' prior notice to Churchill and any Lender named in such public disclosure and without the prior consent of Churchill or, if applicable, such named Lender (such consent not to be unreasonably withheld or delayed), except to the extent required to do so under applicable Requirements of Law and then, only after consulting with Churchill (or such applicable Lender) prior thereto.
(b) Churchill and each Lender agrees that it shall not, and none of its Affiliates shall, issue any press release or other public disclosure (other than any document filed with any Governmental Authority relating to a public offering of the Securities of such Person) using the name, logo or otherwise referring to Borrower or any Loan Party, the Loan Documents or any transaction contemplated therein without the prior written consent of Borrower and of TA Associates, Inc., which shall be in each of their sole discretion.
Section 12.20 Non-Public Information; Confidentiality. (a) Each Lender and L/C Issuer acknowledges and agrees that it may receive material non-public information hereunder concerning the Loan Parties and their Affiliates and Securities and agrees to use such information in compliance with all relevant policies, procedures and Contractual Obligations and applicable Requirements of Laws (including United States federal and state security laws and regulations).
(b) Each Lender, L/C Issuer and the Administrative Agent agrees to use all reasonable efforts to maintain, in accordance with its customary practices, the confidentiality of information obtained by it pursuant to any Loan Document and designated in writing by any Loan Party as confidential, except that such information may be disclosed (i) with Borrower's consent, (ii) to Related Persons of such Lender, L/C Issuer or the Administrative Agent, as the case may be, or to any Person that any L/C Issuer causes to Issue Letters of Credit hereunder, that are advised of the confidential nature of such information and are instructed to keep such information confidential, (iii) to the extent such information presently is or hereafter becomes available to such Lender, L/C Issuer or the Administrative Agent, as the case may be, on a non-confidential basis from a source other than any Loan Party, (iv) to the extent disclosure is required by applicable Requirements of Law or other legal process or requested or demanded by any Governmental Authority, (v) to the extent necessary or customary for inclusion in league table measurements or in any tombstone or other advertising materials (and the Loan Parties consent to the publication of such tombstone or other advertising materials by the Administrative Agent, any Lender, any L/C Issuer or any of their Related Persons), (vi) to the National Association of Insurance Commissioners or any similar organization, any examiner or any nationally recognized rating agency or otherwise to the extent consisting of general portfolio information that does not identify borrowers, (vii) to current or prospective assignees, SPVs grantees of any option described in Section 12.2(f) or participants, direct or contractual counterparties to any Hedging Agreement permitted hereunder and to their respective Related Persons, in each case to the extent such assignees, participants, counterparties or Related Persons agree to be bound by the provisions of this Section 12.20 and (viii) in connection with the exercise of any remedy under any Loan Document. In the event of any conflict between the terms of this Section 12.20 and those of any other Contractual Obligation entered into with any Loan Party (whether or not a Loan Document), the terms of this Section 12.20 shall govern.
Section 12.21 Patriot Act Notice. Each Lender subject to the USA Patriot Act of 2001 (31 U.S.C. 5318 et seq.) hereby notifies Borrower that, pursuant to Section 326 thereof, it is required to obtain, verify and record information that identifies Borrower, including the name and address of Borrower and other information allowing such Lender to identify Borrower in accordance with such act.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.
PROS REVENUE MANAGEMENT, L.P.,
as Borrower |
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by: |
PROS Revenue I, LLC, its General Partner |
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By |
/s/ CHARLES H. MURPHY Charles H. Murphy Chief Financial Officer |
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PROS REVENUE I, LLC, as Guarantor |
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By |
/s/ CHARLES H. MURPHY Charles H. Murphy Chief Financial Officer |
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PROS REVENUE II, LLC, as Guarantor |
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By |
/s/ CHARLES H. MURPHY Charles H. Murphy Chief Financial Officer |
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PROS HOLDINGS, INC., as Guarantor |
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By |
/s/ CHARLES H. MURPHY Charles H. Murphy Chief Financial Officer |
S-1
CHURCHILL FINANCIAL LLC,
as Administrative Agent and Lead Arranger |
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By |
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/s/
CHRIS COX
Name: Chris Cox Title: MD |
S-2
CHURCHILL FINANCIAL CAYMAN LTD.,
as Swingline Lender,L/C Issuer and Lender |
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By: |
Churchill Financial LLC, its Agent |
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By |
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/s/
CHRIS COX
Name: Chris Cox Title: MD |
S-3
FREEPORT FINANCIAL LLC,
as Syndication Agent and Lender |
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By |
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/s/
CHRIS COX
Name: Chris Cox Title: MD |
S-4
Exhibit 10.15
GUARANTY, PLEDGE AND SECURITY AGREEMENT
Dated as of March 23, 2007
among
PROS REVENUE MANAGEMENT, L.P.
and
Each Grantor From Time to Time Party Hereto
and
CHURCHILL FINANCIAL LLC
as Administrative Agent and Collateral Agent
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Page
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ARTICLE I |
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DEFINED TERMS |
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1 |
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Section 1.1 |
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Definitions |
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1 |
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Section 1.2 | Certain Other Terms | 3 | |||
ARTICLE II |
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GUARANTY |
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3 |
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Section 2.1 |
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Guaranty |
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3 |
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Section 2.2 | Limitation of Guaranty | 4 | |||
Section 2.3 | Contribution | 4 | |||
Section 2.4 | Authorization; Other Agreements | 4 | |||
Section 2.5 | Guaranty Absolute and Unconditional | 4 | |||
Section 2.6 | Waivers | 5 | |||
Section 2.7 | Reliance | 5 | |||
ARTICLE III |
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GRANT OF SECURITY INTEREST |
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6 |
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Section 3.1 |
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Collateral |
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6 |
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Section 3.2 | Grant of Security Interest in Collateral | 6 | |||
ARTICLE IV |
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REPRESENTATIONS AND WARRANTIES |
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7 |
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Section 4.1 |
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Title; No Other Liens |
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7 |
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Section 4.2 | Perfection and Priority | 7 | |||
Section 4.3 | Jurisdiction of Organization; Chief Executive Office | 7 | |||
Section 4.4 | Locations of Inventory, Equipment and Books and Records | 7 | |||
Section 4.5 | Pledged Collateral | 8 | |||
Section 4.6 | Instruments and Tangible Chattel Paper Formerly Accounts | 8 | |||
Section 4.7 | Intellectual Property | 8 | |||
Section 4.8 | Commercial Tort Claims | 8 | |||
Section 4.9 | Specific Collateral | 9 | |||
Section 4.10 | Enforcement | 9 | |||
Section 4.11 | Representations and Warranties of the Credit Agreement | 9 | |||
ARTICLE V |
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COVENANTS |
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9 |
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Section 5.1 |
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Maintenance of Perfected Security Interest; Further Documentation and Consents |
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9 |
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Section 5.2 | Changes in Locations, Name, Etc | 10 | |||
Section 5.3 | Pledged Collateral | 10 | |||
Section 5.4 | Accounts | 10 | |||
Section 5.5 | Commodity Contracts | 11 | |||
Section 5.6 | Delivery of Instruments and Tangible Chattel Paper and Control of Investment Property, Letter-of-Credit Rights and Electronic Chattel Paper | 11 | |||
Section 5.7 | Intellectual Property | 11 | |||
Section 5.8 | Notices | 12 | |||
Section 5.9 | Notice of Commercial Tort Claims | 12 | |||
Section 5.10 | Compliance with Credit Agreement | 13 | |||
Section 5.11 | UCC Article 8 | 13 | |||
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ARTICLE VI |
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REMEDIAL PROVISIONS |
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13 |
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Section 6.1 |
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Code and Other Remedies |
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13 |
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Section 6.2 | Accounts and Payments in Respect of General Intangibles | 15 | |||
Section 6.3 | Pledged Collateral | 16 | |||
Section 6.4 | Proceeds to be Turned over to and Held by Administrative Agent | 17 | |||
Section 6.5 | Registration Rights | 17 | |||
Section 6.6 | Deficiency | 18 | |||
ARTICLE VII |
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THE ADMINISTRATIVE AGENT |
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18 |
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Section 7.1 |
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Administrative Agent's Appointment as Attorney-in-Fact |
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18 |
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Section 7.2 | Authorization to File Financing Statements | 19 | |||
Section 7.3 | Authority of Administrative Agent | 19 | |||
Section 7.4 | Duty; Obligations and Liabilities | 20 | |||
ARTICLE VIII |
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MISCELLANEOUS |
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20 |
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Section 8.1 |
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Reinstatement |
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20 |
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Section 8.2 | Release of Collateral | 21 | |||
Section 8.3 | Independent Obligations | 21 | |||
Section 8.4 | No Waiver by Course of Conduct | 21 | |||
Section 8.5 | Amendments in Writing | 21 | |||
Section 8.6 | Additional Grantors; Additional Pledged Collateral | 21 | |||
Section 8.7 | Notices | 22 | |||
Section 8.8 | Successors and Assigns | 22 | |||
Section 8.9 | Counterparts | 22 | |||
Section 8.10 | Severability | 22 | |||
Section 8.11 | Governing Law | 22 | |||
Section 8.12 | Waiver of Jury Trial | 22 |
ANNEXES AND SCHEDULES
Annex 1 | Form of Pledge Amendment |
Annex 2 | Form of Joinder Agreement |
Annex 3 | Form of Intellectual Property Security Agreement |
Schedule 1 |
Commercial Tort Claims |
Schedule 2 | Filings |
Schedule 3 | Jurisdiction of Organization; Chief Executive Office |
Schedule 4 | Location of Inventory and Equipment |
Schedule 5 | Pledged Collateral |
Schedule 6 | Intellectual Property |
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GUARANTY, PLEDGE AND SECURITY AGREEMENT, dated as of March 23, 2007, by PROS Revenue Management, L.P., a Delaware limited partnership (the "Borrower") and each of the other entities listed on the signature pages hereof or that becomes a party hereto pursuant to Section 8.6 (together with the Borrower, the " Grantors "), in favor of Churchill Financial LLC (" Churchill "), as administrative agent and collateral agent (in such capacity, together with its successors and permitted assigns, the " Administrative Agent ") for the Lenders and the L/C Issuers and each other Secured Party (each as defined in the Credit Agreement referred to below).
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement dated as of March 23, 2007 (as the same may be modified from time to time, the " Credit Agreement ") among the Borrower, PROS Revenue I, LLC, PROS Revenue II, LLC, PROS Holdings, Inc., the Lenders and the L/C Issuers from time to time party thereto, Churchill, as administrative agent and collateral agent for the Lenders and the L/C Issuers, the Lenders and the L/C Issuers have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS, each Grantor (other than the Borrower) has agreed to guaranty the Obligations (as defined in the Credit Agreement) of the Borrower;
WHEREAS, each Grantor will derive substantial direct and indirect benefits from the making of the extensions of credit under the Credit Agreement; and
WHEREAS, it is a condition precedent to the obligation of the Lenders and the L/C Issuers to make their respective extensions of credit to the Borrower under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent;
NOW, THEREFORE, in consideration of the premises and to induce the Lenders, the L/C Issuers and the Administrative Agent to enter into the Credit Agreement and to induce the Lenders and the L/C Issuers to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby agrees with the Administrative Agent as follows:
ARTICLE
I
DEFINED TERMS
Section 1.1 Definitions . (a) Capital terms used herein without definition are used as defined in the Credit Agreement.
(b) The following terms have the meanings given to them in the UCC and terms used herein without definition that are defined in the UCC have the meanings given to them in the UCC (such meanings to be equally applicable to both the singular and plural forms of the terms defined): " account ", " account debtor ", " as-extracted collateral ", " certificated security ", " chattel paper ", " commercial tort claim ", " commodity contract ", " deposit account ", " electronic chattel paper ", " equipment ", " farm products ", " fixture ", " general intangible ", " goods ", " health-care-insurance receivable ", " instruments ", " inventory ", " investment property ", "l etter-of-credit right ", " proceeds ", " record ", " securities account ", " security ", " supporting obligation " and " tangible chattel paper ".
(c) The following terms shall have the following meanings:
" Agreement " means this Guaranty, Pledge and Security Agreement.
" Applicable IP Office " means the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency within or outside the United States.
" Collateral " has the meaning specified in Section 3.1 .
" Excluded Equity " means any voting stock in excess of 66% of the outstanding voting stock of any Excluded Foreign Subsidiary. For the purposes of this definition, " voting stock " means, with respect to any issuer, the issued and outstanding shares of each class of Stock of such issuer entitled to vote (within the meaning of Treasury Regulations § 1.956-2(c)(2)).
" Excluded Property " means, collectively: (i) Excluded Equity; (ii) any permit or license of, or any Contractual Obligation entered into by, any Grantor (A) that prohibits or requires the consent of any Person other than Borrower and its Affiliates as a condition to the creation by such Grantor of a Lien on any right, title or interest in such permit, license or Contractual Agreement or any Stock or Stock Equivalent related thereto or (B) to the extent that any Requirement of Law applicable thereto prohibits the creation of a Lien thereon, but only, with respect to the prohibition in (A) and (B), to the extent, and for as long as, such prohibition is not terminated or rendered unenforceable or otherwise deemed ineffective by the UCC or any other Requirement of Law; (iii) fixed or capital assets owned by any Grantor that is subject to a purchase money Lien or a Capital Lease if the Contractual Obligation pursuant to which such Lien is granted (or in the document providing for such Capital Lease) prohibits or requires the consent of any Person other than Borrower and its Affiliates as a condition to the creation of any other Lien on such equipment; (iv) assets sold to a Person which is not a Loan Party in compliance with the Credit Agreement; (v) assets owned by a Guarantor after the release of the guarantee of such Guarantor by the Administrative Agent and the Required Lenders pursuant to the Credit Agreement; (vi) any domestic deposit account of which all or a substantial portion of the funds on deposit are used for funding (A) payroll, (B) 401(k) and other retirement plans and employee benefits, including rabbi trusts for deferred compensation, (C) health care benefits, and (D) escrow arrangements (e.g. environmental indemnity accounts); (vii) any foreign deposit accounts not in excess of $50,000; (viii) real estate leasehold interests; (ix) any letter of credit rights for a specified purpose to the extent the Loan Party is required by applicable law to apply the proceeds of such letter of credit rights for a specified purpose; (x) any collateral as to which the Administrative Agent has determined in its sole discretion that collateral value thereof is insufficient to justify the difficulty, time and/or expense of obtaining a perfected security interest; and (xi) any "intent to use" Trademark applications for which a statement of use has not been filed (but only until such statement is filed); provided , however , " Excluded Property " shall not include any proceeds, products, substitutions or replacements of Excluded Property (unless such proceeds, products, substitutions or replacements would otherwise constitute Excluded Property).
" Guaranteed Obligations " has the meaning set forth in Section 2.1 .
" Guarantor " means each Grantor other than a Borrower.
" Guaranty " means the guaranty of the Guaranteed Obligations made by the Guarantors as set forth in this Agreement.
" Material Intellectual Property " means Intellectual Property that is owned by or licensed to a Grantor and material to the conduct of any Grantor's business.
" Pledged Certificated Stock " means all certificated securities and any other Stock or Stock Equivalent of any Person evidenced by a certificate, instrument or other similar document (as defined in the UCC), in each case owned by any Grantor, and any distribution of property made on, in respect of or in exchange for the foregoing from time to time, exceeding $100,000 in the aggregate including all Stock and Stock Equivalents listed on Schedule 5 . Pledged Certificated Stock excludes any Excluded Property and any Cash Equivalents that are not held in Controlled Securities Accounts to the extent permitted by Section 7.11 of the Credit Agreement.
" Pledged Collateral " means, collectively, the Pledged Stock and the Pledged Debt Instruments.
" Pledged Debt Instruments " means all right, title and interest of any Grantor in instruments evidencing any Indebtedness owed to such Grantor or other obligations, and any distribution of property made on, in respect of or in exchange for the foregoing from time to time, exceeding $100,000 in the aggregate including all Indebtedness described on Schedule 5 , issued by the obligors named therein. Pledged Debt Instruments excludes any Cash Equivalents that are not held in Controlled Securities Accounts to the extent permitted by Section 7.11 of the Credit Agreement.
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" Pledged Investment Property " means any investment property of any Grantor, and any distribution of property made on, in respect of or in exchange for the foregoing from time to time, exceeding $100,000 in the aggregate other than any Pledged Stock or Pledged Debt Instruments. Pledged Investment Property excludes any Cash Equivalents that are not held in Controlled Securities Accounts to the extent permitted by Section 7.11 of the Credit Agreement.
" Pledged Stock " means all Pledged Certificated Stock and all Pledged Uncertificated Stock.
" Pledged Uncertificated Stock " means any Stock or Stock Equivalent of any Person that is not Pledged Certificated Stock, including all right, title and interest of any Grantor as a limited or general partner in any partnership not constituting Pledged Certificated Stock or as a member of any limited liability company, all right, title and interest of any Grantor in, to and under any Constituent Document of any partnership or limited liability company to which it is a party, and any distribution of property made on, in respect of or in exchange for the foregoing from time to time, exceeding $100,000 in the aggregate including in each case those interests set forth on Schedule 5 , to the extent such interests are not certificated. Pledged Certificated Stock excludes any Excluded Property and any Cash Equivalents that are not held in Controlled Securities Accounts to the extent permitted by Section 7.11 of the Credit Agreement.
" Security Cash Collateral Account " means a Cash Collateral Account that is not a L/C Cash Collateral Account.
" Software " means (a) all computer programs, including source code and object code versions, (b) all data, databases and compilations of data, whether machine readable or otherwise, and (c) all documentation, training materials and configurations related to any of the foregoing.
" Subsidiary Guarantor " means any Guarantor that is a Subsidiary of Borrower.
" UCC " means the Uniform Commercial Code as from time to time in effect in the State of New York; provided , however , that, in the event that, by reason of mandatory provisions of any applicable Requirement of Law, any of the attachment, perfection or priority of the Administrative Agent's or any other Secured Party's security interest in any Collateral is governed by the Uniform Commercial Code of a jurisdiction other than the State of New York, " UCC " shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection or priority and for purposes of the definitions related to or otherwise used in such provisions.
" Vehicles " means all vehicles covered by a certificate of title law of any state.
Section 1.2 Certain Other Terms . (a) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. The terms " herein ", " hereof " and similar terms refer to this Agreement as a whole and not to any particular Article, Section or clause in this Agreement. References herein to an Annex, Schedule, Article, Section or clause refer to the appropriate Annex or Schedule to, or Article, Section or clause in this Agreement. Where the context requires, provisions relating to any Collateral when used in relation to a Grantor shall refer to such Grantor's Collateral or any relevant part thereof.
(b) Section 1.5 ( Interpretation ) of the Credit Agreement is applicable to this Agreement as and to the extent set forth therein.
ARTICLE
II
GUARANTY
Section 2.1 Guaranty . To induce the Lenders to make the Loans and the L/C Issuers to Issue Letters of Credit, each Guarantor hereby, jointly and severally, absolutely, unconditionally and irrevocably guarantees, as primary obligor and not merely as surety, the full and punctual payment
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when due, whether at stated maturity or earlier, by reason of acceleration, mandatory prepayment or otherwise in accordance with any Loan Document, of all the Obligations of the Borrower whether existing on the date hereof or hereinafter incurred or created (the " Guaranteed Obligations "). This Guaranty by each Guarantor hereunder constitutes a guaranty of payment and not of collection.
Section 2.2 Limitation of Guaranty . Any term or provision of this Guaranty or any other Loan Document to the contrary notwithstanding, the maximum aggregate amount for which any Subsidiary Guarantor shall be liable hereunder shall not exceed the maximum amount for which such Subsidiary Guarantor can be liable without rendering this Guaranty or any other Loan Document, as it relates to such Subsidiary Guarantor, subject to avoidance under applicable Requirements of Law relating to fraudulent conveyance or fraudulent transfer (including the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act and Section 548 of title 11 of the United States Code or any applicable provisions of comparable Requirements of Law) (collectively, " Fraudulent Transfer Laws "). Any analysis of the provisions of this Guaranty for purposes of Fraudulent Transfer Laws shall take into account the right of contribution established in Section 2.3 and, for purposes of such analysis, give effect to any discharge of intercompany debt as a result of any payment made under the Guaranty.
Section 2.3 Contribution . To the extent that any Subsidiary Guarantor shall be required hereunder to pay any portion of any Guaranteed Obligation exceeding the greater of (a) the amount of the economic benefit actually received by such Subsidiary Guarantor from the Loans and other Obligations and (b) the amount such Subsidiary Guarantor would otherwise have paid if such Subsidiary Guarantor had paid the aggregate amount of the Guaranteed Obligations (excluding the amount thereof repaid by the Borrower and Holdings) in the same proportion as such Subsidiary Guarantor's net worth on the date enforcement is sought hereunder bears to the aggregate net worth of all the Subsidiary Guarantors on such date, then such Guarantor shall be reimbursed by such other Subsidiary Guarantors for the amount of such excess, pro rata, based on the respective net worth of such other Subsidiary Guarantors on such date.
Section 2.4 Authorization; Other Agreements . The Secured Parties are hereby authorized, without notice to or demand upon any Guarantor and without discharging or otherwise affecting the obligations of any Guarantor hereunder and without incurring any liability hereunder, from time to time, to do each of the following:
(a) (i) modify, amend, supplement or otherwise change, (ii) accelerate or otherwise change the time of payment or (iii) waive or otherwise consent to noncompliance with, any Guaranteed Obligation or any Loan Document;
(b) apply to the Guaranteed Obligations any sums by whomever paid or however realized to any Guaranteed Obligation in such order as provided in the Loan Documents;
(c) refund at any time any payment received by any Secured Party in respect of any Guaranteed Obligation;
(d) (i) Sell, exchange, enforce, waive, substitute, liquidate, terminate, release, abandon, fail to perfect, subordinate, accept, substitute, surrender, exchange, affect, impair or otherwise alter or release any Collateral for any Guaranteed Obligation or any other guaranty therefor in any manner, (ii) receive, take and hold additional Collateral to secure any Guaranteed Obligation, (iii) add, release or substitute any one or more other Guarantors, makers or endorsers of any Guaranteed Obligation or any part thereof and (iv) otherwise deal in any manner with Borrower and any other Guarantor, maker or endorser of any Guaranteed Obligation or any part thereof; and
(e) settle, release, compromise, collect or otherwise liquidate the Guaranteed Obligations.
Section 2.5 Guaranty Absolute and Unconditional . Each Guarantor hereby waives and agrees not to assert any defense, whether arising in connection with or in respect of any of the following or
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otherwise, and hereby agrees that its obligations under this Guaranty are irrevocable, absolute and unconditional and shall not be discharged as a result of or otherwise affected by any of the following (which may not be pleaded and evidence of which may not be introduced in any proceeding with respect to this Guaranty, in each case except as otherwise agreed in writing by the Administrative Agent):
(a) the invalidity or unenforceability of any obligation of Borrower or any other Guarantor under any Loan Document or any other agreement or instrument relating thereto (including any amendment, consent or waiver thereto), or any security for, or other guaranty of, any Guaranteed Obligation or any part thereof, or the lack of perfection or continuing perfection or failure of priority of any security for the Guaranteed Obligations or any part thereof;
(b) the absence of (i) any attempt to collect any Guaranteed Obligation or any part thereof from Borrower or any other Guarantor or other action to enforce the same or (ii) any action to enforce any Loan Document or any Lien thereunder;
(c) the failure by any Person to take any steps to perfect and maintain any Lien on, or to preserve any rights with respect to, any Collateral;
(d) any workout, insolvency, bankruptcy proceeding, reorganization, arrangement, liquidation or dissolution by or against Borrower, any other Guarantor or any of Borrower's other Subsidiaries or any procedure, agreement, order, stipulation, election, action or omission thereunder, including any discharge or disallowance of, or bar or stay against collecting, any Guaranteed Obligation (or any interest thereon) in or as a result of any such proceeding;
(e) any foreclosure, whether or not through judicial sale, and any other Sale of any Collateral or any election following the occurrence of an Event of Default by any Secured Party to proceed separately against any Collateral in accordance with such Secured Party's rights under any applicable Requirement of Law; or
(f) any other defense, setoff, counterclaim or any other circumstance that might otherwise constitute a legal or equitable discharge of Borrower, any other Guarantor or any of such Borrower's other Subsidiaries, in each case other than the payment in full of the Guaranteed Obligations.
Section 2.6 Waivers . Each Guarantor hereby unconditionally and irrevocably waives and agrees not to assert any claim, defense, setoff or counterclaim based on diligence, promptness, presentment, requirements for any demand or notice hereunder including any of the following: (a) any demand for payment or performance and protest and notice of protest, (b) any notice of acceptance, (c) any presentment, demand, protest or further notice or other requirements of any kind with respect to any Guaranteed Obligation (including any accrued but unpaid interest thereon) becoming immediately due and payable and (d) any other notice in respect of any Guaranteed Obligation or any part thereof, and any defense arising by reason of any disability or other defense of Borrower or any other Guarantor. Each Guarantor further unconditionally and irrevocably agrees not to (x) enforce or otherwise exercise any right of subrogation or any right of reimbursement or contribution or similar right against Borrower or any other Guarantor by reason of any Loan Document or any payment made thereunder or (y) assert any claim, defense, setoff or counterclaim it may have against any other Loan Party or set off any of its obligations to such other Loan Party against obligations of such Loan Party to such Guarantor. No obligation of any Guarantor hereunder shall be discharged other than by complete performance.
Section 2.7 Reliance . Each Guarantor hereby assumes responsibility for keeping itself informed of the financial condition of Borrower, each other Guarantor and any other guarantor, maker or endorser of any Guaranteed Obligation or any part thereof, and of all other circumstances bearing upon the risk of nonpayment of any Guaranteed Obligation or any part thereof that diligent inquiry would reveal, and each Guarantor hereby agrees that no Secured Party shall have any duty to advise
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any Guarantor of information known to it regarding such condition or any such circumstances. In the event any Secured Party, in its sole discretion, undertakes at any time or from time to time to provide any such information to any Guarantor, such Secured Party shall be under no obligation to (a) undertake any investigation not a part of its regular business routine, (b) disclose any information that such Secured Party, pursuant to commercially reasonable commercial finance or banking practices, wishes to maintain confidential or (c) make any future disclosures of such information or any other information to any Guarantor.
ARTICLE
III
GRANT OF SECURITY INTEREST
Section 3.1 Collateral . For the purposes of this Agreement, all of the following property now owned or at any time hereafter acquired by a Grantor or in which a Grantor now has or at any time in the future may acquire any right, title or interests is collectively referred to as the " Collateral ":
(a) all accounts, chattel paper, deposit accounts, documents (as defined in the UCC), equipment, general intangibles, instruments, inventory, investment property and any supporting obligations related thereto;
(b) the commercial tort claims described on Schedule 1 and on any supplement thereto received by the Administrative Agent pursuant to Section 5.9 ;
(c) all books and records pertaining to the other property described in this Section 3.1 ;
(d) all property of such Grantor held by any Secured Party, including all property of every description, in the custody of or in transit to such Secured Party for any purpose, including safekeeping, collection or pledge, for the account of such Grantor or as to which such Grantor may have any right or power, including but not limited to cash;
(e) all other goods (including but not limited to fixtures) and personal property of such Grantor, whether tangible or intangible and wherever located; and
(f) to the extent not otherwise included, all proceeds of the foregoing;
provided , however , that " Collateral " shall not include any Excluded Property; and provided , further , that if and when any property shall cease to be Excluded Property, such property shall be deemed at all times from and after the date hereof to constitute Collateral.
Section 3.2 Grant of Security Interest in Collateral . Each Grantor, as collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Obligations of such Grantor (the " Secured Obligations "), hereby mortgages, pledges and hypothecates to the Administrative Agent for the benefit of the Secured Parties, and grants to the Administrative Agent for the benefit of the Secured Parties a Lien on and security interest in, all of its right, title and interest in, to and under the Collateral of such Grantor.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lenders, the L/C Issuers and the Administrative Agent to enter into the Loan Documents, each Grantor hereby represents and warrants each of the following to the Administrative Agent, the Lenders, the L/C Issuers and the other Secured Parties:
Section 4.1 Title; No Other Liens . Except for the Lien granted to the Administrative Agent pursuant to this Agreement and other Permitted Liens (except for those Permitted Liens not permitted to exist on any Collateral) under any Loan Document (including Section 4.2 ), such Grantor owns each item of the Collateral free and clear of any and all Liens or claims of others. Such Grantor (a) is the record and beneficial owner of the Collateral pledged by it hereunder constituting instruments or certificates and (b) has rights in or the power to transfer each other item of Collateral in which a Lien is granted by it hereunder, free and clear of any other Lien.
Section 4.2 Perfection and Priority . The security interest granted pursuant to this Agreement constitutes a valid and continuing perfected security interest in favor of the Administrative Agent in all Collateral subject, for the following Collateral, to the occurrence of the following: (i) in the case of all Collateral in which a security interest may be perfected by filing a financing statement under the UCC, the completion of the filings and other actions specified on Schedule 2 (which, in the case of all filings and other documents referred to on such schedule, have been delivered to the Administrative Agent in completed and duly authorized form), (ii) with respect to any deposit account, the execution of Control Agreements, (iii) in the case of all Copyrights, Trademarks and Patents for which UCC filings are insufficient, all appropriate filings having been made with the United States Copyright Office or the United States Patent and Trademark Office, as applicable, (iv) in the case of letter-of-credit rights that are not supporting obligations of Collateral, the execution of a Contractual Obligation granting control to the Administrative Agent over such letter-of-credit rights, (v) in the case of electronic chattel paper, the completion of all steps necessary to grant control to the Administrative Agent over such electronic chattel paper and (vi) in the case of Vehicles, the actions required under Section 5.1(e) . Such security interest shall be prior to all other Liens on the Collateral except for Customary Permitted Liens having priority over the Administrative Agent's Lien by operation of law or unless otherwise permitted by any Loan Document upon (i) in the case of all Pledged Certificated Stock, Pledged Debt Instruments and Pledged Investment Property, the delivery thereof to the Administrative Agent of such Pledged Certificated Stock, Pledged Debt Instruments and Pledged Investment Property consisting of instruments and certificates, in each case properly endorsed for transfer to the Administrative Agent or in blank, (ii) in the case of all Pledged Investment Property not in certificated form, the execution of Control Agreements with respect to such investment property and (iii) in the case of all other instruments and tangible chattel paper that are not Pledged Certificated Stock, Pledged Debt Instruments or Pledged Investment Property, the delivery thereof to the Administrative Agent of such instruments and tangible chattel paper. Except as set forth in this Section 4.2 , all actions by each Grantor necessary or desirable to protect and perfect the Lien granted hereunder on the Collateral have been duly taken.
Section 4.3 Jurisdiction of Organization; Chief Executive Office . Such Grantor's jurisdiction of organization, legal name and organizational identification number, if any, and the location of such Grantor's chief executive office or sole place of business, in each case as of the date hereof, is specified on Schedule 3 and such Schedule 3 also lists all jurisdictions of incorporation, legal names and locations of such Grantor's chief executive office or sole place of business for the five years preceding the date hereof.
Section 4.4 Locations of Inventory, Equipment and Books and Records . On the date hereof, such Grantor's inventory and equipment (other than inventory or equipment in transit) and books and records concerning the Collateral are kept at the locations listed on Schedule 4 and such Schedule 4
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also lists the locations of such inventory, equipment and books and records for the five years preceding the date hereof.
Section 4.5 Pledged Collateral . (a) The Pledged Stock pledged by such Grantor hereunder (a) is listed on Schedule 5 and constitutes that percentage of the issued and outstanding equity of all classes of each issuer thereof as set forth on Schedule 5 , (b) has been duly authorized, validly issued and is fully paid and nonassessable (other than as such rights may arise under mandatory provisions of applicable law that may be waived or otherwise agreed and not as a result of any rights contained in any organizational documents, or Pledged Stock in limited liability companies and partnerships) and (c) constitutes the legal, valid and binding obligation of the obligor with respect thereto, enforceable in accordance with its terms.
(b) As of the Closing Date, all Pledged Collateral (other than Pledged Uncertificated Stock) and all Pledged Investment Property consisting of instruments and certificates has been delivered to the Administrative Agent in accordance with Section 5.3(a) .
(c) Upon the occurrence and during the continuance of an Event of Default, the Administrative Agent shall be entitled to exercise all of the rights of the Grantor granting the security interest in any Pledged Stock, and a transferee or assignee of such Pledged Stock shall become a holder of such Pledged Stock to the same extent as such Grantor and be entitled to participate in the management of the issuer of such Pledged Stock and, upon the transfer of the entire interest of such Grantor, such Grantor shall, by operation of law, cease to be a holder of such Pledged Stock.
Section 4.6 Instruments and Tangible Chattel Paper Formerly Accounts . No amount payable to such Grantor under or in connection with any account is evidenced by any instrument or tangible chattel paper that has not been delivered to the Administrative Agent, properly endorsed for transfer, to the extent delivery is required by Section 5.6(a) .
Section 4.7 Intellectual Property . (a) Schedule 6 sets forth a true and complete list of the following Intellectual Property such Grantor owns, licenses or otherwise has the right to use: (i) Intellectual Property that is registered or subject to applications for registration, (ii) Internet Domain Names and (iii) Material Intellectual Property and material Software, separately identifying that which is owned or licensed to such Grantor and including for each of the foregoing items (1) the owner, (2) the title, (3) the jurisdiction in which such item has been registered or otherwise arises or in which an application for registration has been filed, (4) as applicable, the registration or application number and registration or application date and (5) any IP Licenses or other rights (including franchises) granted by the Grantor with respect thereto.
(b) On the Closing Date, all Material Intellectual Property owned by such Grantor is valid, in full force and effect, subsisting, unexpired and enforceable, and no Material Intellectual Property has been abandoned. No breach or default of any material IP License shall be caused by any of the following, and none of the following shall limit or impair the ownership, use, validity or enforceability of, or any rights of such Grantor in, any Material Intellectual Property: (i) the consummation of the transactions contemplated by any Loan Document or (ii) any holding, decision, judgment or order rendered by any Governmental Authority. There are no pending (or, to the knowledge of such Grantor, threatened) actions, investigations, suits, proceedings, audits, claims, demands, orders or disputes challenging the ownership, use, validity, enforceability of, or such Grantor's rights in, any Material Intellectual Property of such Grantor. To such Grantor's knowledge, no Person has been or is infringing, misappropriating, diluting, violating or otherwise impairing any Intellectual Property of such Grantor. Such Grantor, and to such Grantor's knowledge each other party thereto, is not in material breach or default of any material IP License.
Section 4.8 Commercial Tort Claims . The only commercial tort claims of any Grantor existing on the date hereof (regardless of whether the amount, defendant or other material facts can be determined and regardless of whether such commercial tort claim has been asserted, threatened or has
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otherwise been made known to the obligee thereof or whether litigation has been commenced for such claims) are those listed on Schedule 1 , which sets forth such information separately for each Grantor.
Section 4.9 Specific Collateral . None of the Collateral is, or is proceeds or products of, farm products, as-extracted collateral, health-care-insurance receivables or timber to be cut.
Section 4.10 Enforcement . No Permit, notice to or filing with any Governmental Authority or any other Person or any consent from any Person is required for the exercise by the Administrative Agent of its rights (including voting rights) provided for in this Agreement or the enforcement of remedies in respect of the Collateral pursuant to this Agreement, including the transfer of any Collateral, except as may be required in connection with the disposition of any portion of the Pledged Collateral by laws affecting the offering and sale of securities generally or any approvals that may be required to be obtained from any bailees or landlords to collect the Collateral.
Section 4.11 Representations and Warranties of the Credit Agreement . The representations and warranties as to such Grantor and its Subsidiaries made by the Borrower in Article IV ( Representations and Warranties ) of the Credit Agreement are true and correct on each date required by Section 3.2(b) of the Credit Agreement.
ARTICLE
V
COVENANTS
Each Grantor agrees with the Administrative Agent to the following, as long as any Obligation or Commitment remains outstanding and, in each case, unless the Required Lenders otherwise consent in writing:
Section 5.1 Maintenance of Perfected Security Interest; Further Documentation and Consents . (a) Generally . Such Grantor shall (i) not use or permit any Collateral to be used unlawfully or in violation of any provision of any Loan Document, any Related Document, any Requirement of Law or any policy of insurance covering the Collateral and (ii) not enter into any Contractual Obligation or undertaking restricting the right or ability of such Grantor or the Administrative Agent to Sell any Collateral if such restriction would have a Material Adverse Effect.
(b) Such Grantor shall maintain the security interest created by this Agreement as a perfected security interest having at least the priority described in Section 4.2 and shall defend such security interest and such priority against the claims and demands of all Persons.
(c) Pursuant to Section 6.1(e) of the Credit Agreement, such Grantor shall furnish to the Administrative Agent from time to time statements and schedules further identifying and describing the Collateral and such other documents in connection with the Collateral as the Administrative Agent may reasonably request, all in reasonable detail and in form and substance satisfactory to the Administrative Agent.
(d) At any time and from time to time upon the written request of the Administrative Agent, such Grantor shall, for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, (i) promptly and duly execute and deliver, and have recorded, such further documents, including an authorization to file (or, as applicable, the filing) of any financing statement or amendment under the UCC (or other filings under similar Requirements of Law) in effect in any jurisdiction with respect to the security interest created hereby and (ii) take such further action as the Administrative Agent may reasonably request, including (A) using its commercially reasonable efforts to secure all approvals necessary or appropriate for the assignment to or for the benefit of the Administrative Agent of any Contractual Obligation, including any IP License, held by such Grantor and to enforce the security interests granted hereunder and (B) executing and delivering a Control Agreement with respect to any deposit accounts and securities accounts for which Control Agreements are required under the Credit Agreement.
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(e) If requested by the Administrative Agent, the Grantor shall arrange for the Administrative Agent's first priority security interest to be noted on the certificate of title of each Vehicle and shall file any other necessary documentation in each jurisdiction that the Administrative Agent shall deem advisable to perfect its security interests in any Vehicle.
(f) To ensure that any of the Excluded Property set forth in clause (ii) of the definition of "Excluded Property" becomes part of the Collateral, such Grantor shall use its commercially reasonable efforts to obtain any required consents from any Person other than Borrower and its Affiliates with respect to any permit or license or any Contractual Obligation with such Person entered into by such Grantor that requires such consent as a condition to the creation by such Grantor of a Lien on any right, title or interest in such permit, license or Contractual Obligation or any Stock or Stock Equivalent related thereto.
Section 5.2 Changes in Locations, Name, Etc. Except upon 30 days' prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all documents reasonably requested by the Administrative Agent to maintain the validity, perfection and priority of the security interests provided for herein and (b) if applicable, a written supplement to Schedule 4 showing any additional locations at which inventory or equipment shall be kept, such Grantor shall not do any of the following:
(i) permit any inventory or equipment to be kept at a location other than those listed on Schedule 4 , except for inventory or equipment in transit;
(ii) change its jurisdiction of organization or its location, in each case from that referred to in Section 4.3 ; or
(iii) change its legal name or organizational identification number, if any, or corporation, limited liability company, partnership or other organizational structure to such an extent that any financing statement filed in connection with this Agreement would become misleading.
Section 5.3 Pledged Collateral . (a) Delivery of Pledged Collateral . Such Grantor shall (i) deliver to the Administrative Agent, in suitable form for transfer and in form and substance satisfactory to the Administrative Agent, (A) all Pledged Certificated Stock, (B) all Pledged Debt Instruments and (C) all certificates and instruments evidencing Pledged Investment Property and (ii) maintain all other Pledged Investment Property in a Controlled Securities Account.
(b) Event of Default . During the continuance of an Event of Default, the Administrative Agent shall have the right, at any time in its discretion and without notice to the Grantor, to (i) transfer to or to register in its name or in the name of its nominees any Pledged Collateral or any Pledged Investment Property and (ii) exchange any certificate or instrument representing or evidencing any Pledged Collateral or any Pledged Investment Property for certificates or instruments of smaller or larger denominations.
(c) Cash Distributions with respect to Pledged Collateral . Except as provided in Article VI , such Grantor shall be entitled to receive all cash distributions paid in respect of the Pledged Collateral.
(d) Voting Rights . Except as provided in Article VI , such Grantor shall be entitled to exercise all voting, consent and corporate, partnership, limited liability company and similar rights with respect to the Pledged Collateral; provided , however , that no vote shall be cast, consent given or right exercised or other action taken by such Grantor that would impair the Collateral or be inconsistent with or result in any violation of any provision of any Loan Document.
Section 5.4 Accounts . (a) Such Grantor shall not, other than in the ordinary course of business, (i) grant any extension of the time of payment of any account, (ii) compromise or settle any account for less than the full amount thereof, (iii) release, wholly or partially, any Person liable for the payment of any account, (iv) allow any credit or discount on any account or (v) amend, supplement or modify any account in any manner that could adversely affect the value thereof.
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(b) The Administrative Agent shall have the right to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and such Grantor shall furnish all such assistance and information as the Administrative Agent may reasonably require in connection therewith. At any time and from time to time, upon the Administrative Agent's request, such Grantor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the accounts; provided , however , that unless a Default shall be continuing, the Administrative Agent shall request no more than three such reports during any calendar year.
Section 5.5 Commodity Contracts . Such Grantor shall not have any commodity contract other than with a Person approved by the Administrative Agent and subject to a Control Agreement.
Section 5.6 Delivery of Instruments and Tangible Chattel Paper and Control of Investment Property, Letter-of-Credit Rights and Electronic Chattel Paper . (a) If any amount in excess of $100,000 payable under or in connection with any Collateral owned by such Grantor shall be or become evidenced by an instrument or tangible chattel paper other than such instrument delivered in accordance with Section 5.3(a) and in the possession of the Administrative Agent, such Grantor shall mark all such instruments and tangible chattel paper with the following legend: "This writing and the obligations evidenced or secured hereby are subject to the security interest of Churchill Financial LLC, as Administrative Agent" and, at the request of the Administrative Agent, shall deliver within five Business Days such instrument or tangible chattel paper to the Administrative Agent, duly indorsed in a manner satisfactory to the Administrative Agent.
(b) Such Grantor shall not grant "control" (within the meaning of such term under Article 9-106 of the UCC) over any investment property to any Person other than the Administrative Agent.
(c) If such Grantor is or becomes the beneficiary of a letter of credit that is (i) not a supporting obligation of any Collateral and (ii) in excess of $100,000, such Grantor shall promptly, and in any event within 2 Business Days after becoming a beneficiary, notify the Administrative Agent thereof and use commercially reasonable efforts to enter into a Contractual Obligation with the Administrative Agent, the issuer of such letter of credit or any nominated person with respect to the letter-of-credit rights under such letter of credit. Such Contractual Obligation shall assign such letter-of-credit rights to the Administrative Agent and such assignment shall be sufficient to grant control for the purposes of Section 9-107 of the UCC (or any similar section under any equivalent UCC). Such Contractual Obligation shall also direct all payments thereunder to a Security Cash Collateral Account. The provisions of the Contractual Obligation shall be in form and substance reasonably satisfactory to the Administrative Agent.
(d) If any amount in excess of $100,000 payable under or in connection with any Collateral owned by such Grantor shall be or become evidenced by electronic chattel paper, such Grantor shall take all steps necessary to grant the Administrative Agent control of all such electronic chattel paper for the purposes of Section 9-105 of the UCC (or any similar section under any equivalent UCC) and all "transferable records" as defined in each of the Uniform Electronic Transactions Act and the Electronic Signatures in Global and National Commerce Act.
Section 5.7 Intellectual Property . (a) Within 60 days after any change to Schedule 6 for such Grantor, such Grantor shall provide the Administrative Agent notification thereof and the short-form intellectual property agreements and assignments as described in this Section 5.7 and other documents that the Administrative Agent reasonably requests with respect thereto.
(b) Such Grantor shall (and shall cause all its licensees to) (i) (1) continue to use each Trademark included in the Material Intellectual Property in order to maintain such Trademark in full force and effect with respect to each class of goods for which such Trademark is currently used, free from any claim of abandonment for non-use, (2) maintain at least the same standards of quality of products and
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services offered under such Trademark as are currently maintained, (3) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (4) not adopt or use any other Trademark that is confusingly similar or a colorable imitation of such Trademark unless the Administrative Agent shall obtain a perfected security interest in such other Trademark pursuant to this Agreement and (ii) not do any act or omit to do any act whereby (w) such Trademark (or any goodwill associated therewith) may become destroyed, invalidated, impaired or harmed in any way, (x) any Patent included in the Material Intellectual Property may become forfeited, misused, unenforceable, abandoned or dedicated to the public, (y) any portion of the Copyrights included in the Material Intellectual Property may become invalidated, otherwise impaired or fall into the public domain or (z) any Trade Secret that is Material Intellectual Property may become publicly available or otherwise unprotectable.
(c) Such Grantor shall notify the Administrative Agent immediately if it knows, or has reason to know, that any application or registration relating to any Material Intellectual Property may become forfeited, misused, unenforceable, abandoned or dedicated to the public, or of any adverse determination or development regarding the validity or enforceability or such Grantor's ownership of, interest in, right to use, register, own or maintain any Material Intellectual Property (including the institution of, or any such determination or development in, any proceeding relating to the foregoing in any Applicable IP Office). Such Grantor shall take all actions that are necessary or reasonably requested by the Administrative Agent to maintain and pursue each application (and to obtain the relevant registration or recordation) and to maintain each registration and recordation included in the Material Intellectual Property.
(d) Such Grantor shall not knowingly do any act or omit to do any act to infringe, misappropriate, dilute, violate or otherwise impair the Intellectual Property of any other Person. In the event that any Material Intellectual Property of such Grantor is or has been, to such Grantor's knowledge, infringed, misappropriated, violated, diluted or otherwise impaired by a third party, such Grantor shall take such action as it reasonably deems appropriate under the circumstances in response thereto, including promptly bringing suit and recovering all damages therefor.
(e) Such Grantor shall execute and deliver to the Administrative Agent in form and substance reasonably acceptable to the Administrative Agent and suitable for (i) filing in the Applicable IP Office the short-form intellectual property security agreements in the form attached hereto as Annex 3 for all Copyrights, Trademarks, Patents and IP Licenses of such Grantor and (ii) recording with the appropriate Internet domain name registrar, a duly executed form of assignment for all Internet Domain Names of such Grantor (together with appropriate supporting documentation as may be requested by the Administrative Agent).
Section 5.8 Notices . Such Grantor shall promptly notify the Administrative Agent in writing of its acquisition of any interest hereafter in property that is of a type where a security interest or lien must be or may be registered, recorded or filed under, or notice thereof given under, any federal statute or regulation.
Section 5.9 Notice of Commercial Tort Claims . Such Grantor agrees that, if it shall acquire any interest in any commercial tort claim (whether from another Person or because such commercial tort claim shall have come into existence) in excess of $250,000, (i) such Grantor shall, immediately upon such acquisition, deliver to the Administrative Agent, in each case in form and substance satisfactory to the Administrative Agent, a notice of the existence and nature of such commercial tort claim and a supplement to Schedule 1 containing a specific description of such commercial tort claim, (ii) Section 3.1 shall apply to such commercial tort claim and (iii) such Grantor shall execute and deliver to the Administrative Agent, in each case in form and substance satisfactory to the Administrative Agent, any document, and take all other action, deemed by the Administrative Agent to be reasonably necessary or appropriate for the Administrative Agent to obtain, on behalf of the Lenders, a perfected security interest having at least the priority set forth in Section 4.2 in all such commercial tort claims. Any supplement to Schedule 1 delivered pursuant to this Section 5.9 shall, after the receipt thereof by the Administrative Agent, become part of Schedule 1 for all purposes hereunder other than in respect of representations and warranties made prior to the date of such receipt.
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Section 5.10 Compliance with Credit Agreement . Such Grantor agrees to comply with all covenants and other provisions applicable to it under the Credit Agreement, including Sections 2.17 ( Taxes ), 12.3 ( Costs and Expenses ) and 12.4 ( Indemnities ) of the Credit Agreement and agrees to the same submission to jurisdiction as that agreed to by the Borrower in the Credit Agreement.
Section 5.11 UCC Article 8 . Such Grantor agrees and covenants that (a) any Pledged Uncertificated Stock pledged hereunder are not and shall not at any time hereafter be (absent the Administrative Agent's prior written consent, which consent may be withheld in the Administrative Agent's sole and absolute discretion) (1) governed by Article 8 of the UCC, (2) represented by a security certificate either in bearer or registered form, (3) of a type dealt in or traded on securities exchanges or securities markets, and/or (4) an investment company security under Article 8 of the UCC; and (b) such Grantor shall not amend or otherwise modify such Grantor's operating agreement or other equivalent agreement in violation of subsection (a) of this Section.
ARTICLE
VI
REMEDIAL PROVISIONS
Section 6.1 Code and Other Remedies . (a) UCC Remedies . During the continuance of an Event of Default, the Administrative Agent may exercise, in addition to all other rights and remedies granted to it in this Agreement and in any other instrument or agreement securing, evidencing or relating to any Secured Obligation, all rights and remedies of a secured party under the UCC or any other applicable law.
(b) Disposition of Collateral. Without limiting the generality of the foregoing, the Administrative Agent may, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), during the continuance of any Event of Default (personally or through its agents or attorneys), (i) enter upon the premises where any Collateral is located, without any obligation to pay rent, through self-help, without judicial process, without first obtaining a final judgment or giving any Grantor or any other Person notice or opportunity for a hearing on the Administrative Agent's claim or action, (ii) collect, receive, appropriate and realize upon any Collateral and (iii) Sell, grant option or options to purchase and deliver any Collateral (enter into Contractual Obligations to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker's board or office of any Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. The Administrative Agent shall have the right, upon any such public sale or sales and, to the extent permitted by the UCC and other applicable Requirements of Law, upon any such private sale, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption of any Grantor, which right or equity is hereby waived and released.
(c) Management of the Collateral. Each Grantor further agrees that, during the continuance of any Event of Default, (i) at the Administrative Agent's request, it shall assemble the Collateral and make it available to the Administrative Agent at places that the Administrative Agent shall reasonably select, whether at such Grantor's premises or elsewhere, (ii) without limiting the foregoing, the Administrative Agent also has the right to require that each Grantor store and keep any Collateral pending further action by the Administrative Agent and, while any such Collateral is so stored or kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain such Collateral in good condition, (iii) until the Administrative Agent is able to Sell any Collateral, the Administrative Agent shall have the right to hold or use such Collateral to the extent that it reasonably deems appropriate for the purpose of preserving the Collateral or its value or for any other purpose deemed appropriate by the Administrative Agent and (iv) the Administrative Agent may, if it so elects, seek the appointment of a receiver or keeper to take possession of any Collateral and to
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enforce any of the Administrative Agent's remedies (for the benefit of the Secured Parties), with respect to such appointment without prior notice or hearing as to such appointment. The Administrative Agent shall not have any obligation to any Grantor to maintain or preserve the rights of any Grantor as against third parties with respect to any Collateral while such Collateral is in the possession of the Administrative Agent.
(d) Application of Proceeds. The Administrative Agent shall apply the cash proceeds of any action taken by it pursuant to this Section 6.1 , after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and any other Secured Party hereunder, including reasonable attorneys' fees and disbursements, to the payment in whole or in part of the Secured Obligations, as set forth in the Credit Agreement, and only after such application and after the payment by the Administrative Agent of any other amount required by any Requirement of Law, need the Administrative Agent account for the surplus, if any, to any Grantor.
(e) Direct Obligation . Neither the Administrative Agent nor any other Secured Party shall be required to make any demand upon, or pursue or exhaust any right or remedy against, any Grantor, any other Loan Party or any other Person with respect to the payment of the Obligations or to pursue or exhaust any right or remedy with respect to any Collateral therefor or any direct or indirect guaranty thereof. All of the rights and remedies of the Administrative Agent and any other Secured Party under any Loan Document shall be cumulative, may be exercised individually or concurrently and not exclusive of any other rights or remedies provided by any Requirement of Law. To the extent it may lawfully do so, each Grantor absolutely and irrevocably waives and relinquishes the benefit and advantage of, and covenants not to assert against the Administrative Agent or any Lender, any valuation, stay, appraisement, extension, redemption or similar laws and any and all rights or defenses it may have as a surety, now or hereafter existing, arising out of the exercise by them of any rights hereunder. If any notice of a proposed sale or other disposition of any Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least 10 days before such sale or other disposition.
(f) Commercially Reasonable . To the extent that applicable Requirements of Law impose duties on the Administrative Agent to exercise remedies in a commercially reasonable manner, each Grantor acknowledges and agrees that it is not commercially unreasonable for the Administrative Agent to do any of the following:
(i) fail to incur significant costs, expenses or other Liabilities reasonably deemed as such by the Administrative Agent to prepare any Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition;
(ii) fail to obtain Permits, or other consents, for access to any Collateral to Sell or for the collection or Sale of any Collateral, or, if not required by other Requirements of Law, fail to obtain Permits or other consents for the collection or disposition of any Collateral;
(iii) fail to exercise remedies against account debtors or other Persons obligated on any Collateral or to remove Liens on any Collateral or to remove any adverse claims against any Collateral;
(iv) advertise dispositions of any Collateral through publications or media of general circulation, whether or not such Collateral is of a specialized nature or to contact other Persons, whether or not in the same business as any Grantor, for expressions of interest in acquiring any such Collateral;
(v) exercise collection remedies against account debtors and other Persons obligated on any Collateral, directly or through the use of collection agencies or other collection specialists, hire one or more professional auctioneers to assist in the disposition of any Collateral, whether or not such
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Collateral is of a specialized nature or, to the extent deemed appropriate by the Administrative Agent, obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Administrative Agent in the collection or disposition of any Collateral, or utilize Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capacity of doing so, or that match buyers and sellers of assets to dispose of any Collateral;
(vi) dispose of assets in wholesale rather than retail markets;
(vii) disclaim disposition warranties, such as title, possession or quiet enjoyment; or
(viii) purchase insurance or credit enhancements to insure the Administrative Agent against risks of loss, collection or disposition of any Collateral or to provide to the Administrative Agent a guaranteed return from the collection or disposition of any Collateral.
Each Grantor acknowledges that the purpose of this Section 6.1 is to provide a non-exhaustive list of actions or omissions that are commercially reasonable when exercising remedies against any Collateral and that other actions or omissions by the Secured Parties shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 6.1 . Without limitation upon the foregoing, nothing contained in this Section 6.1 shall be construed to grant any rights to any Grantor or to impose any duties on the Administrative Agent that would not have been granted or imposed by this Agreement or by applicable Requirements of Law in the absence of this Section 6.1 .
(g) IP Licenses . For the purpose of enabling the Administrative Agent to exercise rights and remedies under this Section 6.1 during the continuance of an Event of Default (including in order to take possession of, collect, receive, assemble, process, appropriate, remove, realize upon, Sell or grant options to purchase any Collateral) at such time as the Administrative Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Administrative Agent, for the benefit of the Secured Parties, (i) a nonexclusive, worldwide license (exercisable without payment of royalty or other compensation to such Grantor), including in such license the right to sublicense, use and practice any Intellectual Property now owned or hereafter acquired by such Grantor and access to all media in which any of the licensed items may be recorded or stored and to all Software and programs used for the compilation or printout thereof and (ii) a license (without payment of rent or other compensation to such Grantor) to use, operate and occupy all Real Property owned, operated, leased, subleased or otherwise occupied by such Grantor, which licenses shall expire only upon the cure or waiver of such Event of Default.
Section 6.2 Accounts and Payments in Respect of General Intangibles . (a) In addition to, and not in substitution for, any similar requirement in the Credit Agreement, if required by the Administrative Agent at any time during the continuance of an Event of Default, any payment of accounts or payment in respect of general intangibles, when collected by any Grantor, shall be promptly (and, in any event, within 2 Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Administrative Agent, in a Security Cash Collateral Account, subject to withdrawal by the Administrative Agent as provided in Section 6.4 . Until so turned over, such payment shall be held by such Grantor in trust for the Administrative Agent, segregated from other funds of such Grantor. Each such deposit of proceeds of accounts and payments in respect of general intangibles shall be accompanied by a report identifying in reasonable detail the nature and source of the payments included in the deposit.
(b) At any time during the continuance of an Event of Default:
(i) each Grantor shall, upon the Administrative Agent's request, deliver to the Administrative Agent all original and other documents evidencing, and relating to, the Contractual Obligations and transactions that gave rise to any account or any payment in respect of general intangibles, including all original orders, invoices and shipping receipts and notify account debtors
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that the accounts or general intangibles have been collaterally assigned to the Administrative Agent and that payments in respect thereof shall be made directly to the Administrative Agent;
(ii) the Administrative Agent may, without notice, at any time during the continuance of an Event of Default, limit or terminate the authority of a Grantor to collect its accounts or amounts due under general intangibles or any thereof and, in its own name or in the name of others, communicate with account debtors to verify with them to the Administrative Agent's satisfaction the existence, amount and terms of any account or amounts due under any general intangible. In addition, the Administrative Agent may at any time enforce such Grantor's rights against such account debtors and obligors of general intangibles; and
(iii) each Grantor shall take all actions, deliver all documents and provide all information necessary or reasonably requested by the Administrative Agent to ensure any Internet Domain Name is registered.
(c) Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each account and each payment in respect of general intangibles to observe and perform all the conditions and obligations to be observed and performed by it thereunder, all in accordance with the terms of any agreement giving rise thereto. No Secured Party shall have any obligation or liability under any agreement giving rise to an account or a payment in respect of a general intangible by reason of or arising out of any Loan Document or the receipt by any Secured Party of any payment relating thereto, nor shall any Secured Party be obligated in any manner to perform any obligation of any Grantor under or pursuant to any agreement giving rise to an account or a payment in respect of a general intangible, to make any payment, to make any inquiry as to the nature or the sufficiency of any payment received by it or as to the sufficiency of any performance by any party thereunder, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts that may have been assigned to it or to which it may be entitled at any time or times.
Section 6.3 Pledged Collateral . (a) Voting Rights . During the continuance of an Event of Default, upon notice by the Administrative Agent to the relevant Grantor or Grantors, the Administrative Agent or its nominee may exercise (A) any voting, consent, corporate and other right pertaining to the Pledged Collateral at any meeting of shareholders, partners or members, as the case may be, of the relevant issuer or issuers of Pledged Collateral or otherwise and (B) any right of conversion, exchange and subscription and any other right, privilege or option pertaining to the Pledged Collateral as if it were the absolute owner thereof (including the right to exchange at its discretion any Pledged Collateral upon the merger, amalgamation, consolidation, reorganization, recapitalization or other fundamental change in the corporate or equivalent structure of any issuer of Pledged Stock, the right to deposit and deliver any Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except to account for property actually received by it; provided , however , that the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and shall not be responsible for any failure to do so or delay in so doing.
(b) Proxies . In order to permit the Administrative Agent to exercise the voting and other consensual rights that it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions that it may be entitled to receive hereunder, (i) each Grantor shall within five business days execute and deliver (or cause to be executed and delivered) to the Administrative Agent all such proxies, dividend payment orders and other instruments as the Administrative Agent may from time to time reasonably request and (ii) without limiting the effect of clause (i) above, such Grantor hereby grants to the Administrative Agent an irrevocable proxy to vote all or any part of the Pledged Collateral and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Collateral would be entitled (including giving or withholding written consents of shareholders, partners or members, as the case may be, calling special meetings of shareholders, partners or
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members, as the case may be, and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Collateral on the record books of the issuer thereof) by any other person (including the issuer of such Pledged Collateral or any officer or agent thereof) during the continuance of an Event of Default and which proxy shall only terminate upon the payment in full of the Secured Obligations.
(c) Authorization of Issuers . Each Grantor hereby expressly irrevocably authorizes and instructs, without any further instructions from such Grantor, each issuer of any Pledged Collateral pledged hereunder by such Grantor to (i) comply with any instruction received by it from the Administrative Agent in writing that states that an Event of Default is continuing and is otherwise in accordance with the terms of this Agreement and each Grantor agrees that such issuer shall be fully protected from Liabilities to such Grantor in so complying and (ii) unless otherwise expressly permitted hereby, pay any dividend or make any other payment with respect to the Pledged Collateral directly to the Administrative Agent.
Section 6.4 Proceeds to be Turned over to and Held by Administrative Agent . Unless otherwise expressly provided in the Credit Agreement or this Security Agreement, all proceeds of any Collateral received by any Grantor hereunder in cash or Cash Equivalents shall, upon the request of the Administrative Agent, be turned over to the Administrative Agent in the exact form received (with any necessary endorsement) within five Business Days of such request. All such proceeds of Collateral and any other proceeds of any Collateral received by the Administrative Agent in cash or Cash Equivalents shall be held by the Administrative Agent in a Security Cash Collateral Account. All proceeds being held by the Administrative Agent in a Security Cash Collateral Account (or by such Grantor in trust for the Administrative Agent) shall continue to be held as collateral security for the Secured Obligations and shall not constitute payment thereof until applied as provided in the Credit Agreement.
Section 6.5 Registration Rights . (a) If, in the commercially reasonable opinion of the Administrative Agent, it is necessary or advisable to Sell any portion of the Pledged Collateral by registering such Pledged Collateral under the provisions of the Securities Act of 1933 (the " Securities Act "), each relevant Grantor shall cause the issuer thereof to do or cause to be done all acts as may be, in the commercially reasonable opinion of the Administrative Agent, necessary or advisable to register such Pledged Collateral or that portion thereof to be Sold under the provisions of the Securities Act, all as directed by the Administrative Agent in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto and in compliance with the securities or " Blue Sky " laws of any jurisdiction that the Administrative Agent shall designate.
(b) Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any Pledged Collateral by reason of certain prohibitions contained in the Securities Act and applicable state or foreign securities laws or otherwise or may determine that a public sale is impracticable, not desirable or not commercially reasonable and, accordingly, may resort to one or more private sales thereof to a restricted group of purchasers that shall be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner. The Administrative Agent shall be under no obligation to delay a sale of any Pledged Collateral for the period of time necessary to permit the issuer thereof to register such securities for public sale under the Securities Act or under applicable state securities laws even if such issuer would agree to do so.
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(c) Each Grantor agrees to use its commercially reasonable efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of any portion of the Pledged Collateral pursuant to this Section 6.5 valid and binding and in compliance with all applicable Requirements of Law. Each Grantor further agrees that a breach of any covenant contained in this Section 6.5 will cause irreparable injury to the Administrative Agent and other Secured Parties, that the Administrative Agent and the other Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 6.5 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defense against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement.
Section 6.6 Deficiency . Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of any Collateral are insufficient to pay the Secured Obligations and the fees and disbursements of any attorney employed by the Administrative Agent or any other Secured Party to collect such deficiency.
ARTICLE
VII
THE ADMINISTRATIVE AGENT
Section 7.1 Administrative Agent's Appointment as Attorney-in-Fact . (a) Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any Related Person thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of the Loan Documents, to take any appropriate action and to execute any document or instrument that may be necessary or desirable to accomplish the purposes of the Loan Documents, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent and its Related Persons the power and right, on behalf of such Grantor, without notice to or assent by such Grantor (provided that the Administrative Agent shall endeavor to give notice to such Grantor but, provided further, that the failure to give such notice shall not in any way limit the rights of the Administrative Agent under this Section), to do any of the following when an Event of Default shall be continuing:
(i) in the name of such Grantor, in its own name or otherwise, take possession of and indorse and collect any check, draft, note, acceptance or other instrument for the payment of moneys due under any account or general intangible or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any such moneys due under any account or general intangible or with respect to any other Collateral whenever payable;
(ii) in the case of any Intellectual Property owned by or licensed to the Grantors, execute, deliver and have recorded any document that the Administrative Agent may request to evidence, effect, publicize or record the Administrative Agent's security interest in such Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby;
(iii) pay or discharge taxes and Liens levied or placed on or threatened against any Collateral, effect any repair or pay any insurance called for by the terms of the Credit Agreement (including all or any part of the premiums therefor and the costs thereof);
(iv) execute, in connection with any sale provided for in Section 6.1 or Section 6.5 , any document to effect or otherwise necessary or appropriate in relation to evidence the Sale of any Collateral; or
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(v) (A) direct any party liable for any payment under any Collateral to make payment of any moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct, (B) ask or demand for, and collect and receive payment of and receipt for, any moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral, (C) sign and indorse any invoice, freight or express bill, bill of lading, storage or warehouse receipt, draft against debtors, assignment, verification, notice and other document in connection with any Collateral, (D) commence and prosecute any suit, action or proceeding at law or in equity in any court of competent jurisdiction to collect any Collateral and to enforce any other right in respect of any Collateral, (E) defend any actions, suits, proceedings, audits, claims, demands, orders or disputes brought against such Grantor with respect to any Collateral, (F) settle, compromise or adjust any such actions, suits, proceedings, audits, claims, demands, orders or disputes and, in connection therewith, give such discharges or releases as the Administrative Agent may deem appropriate, (G) assign any Intellectual Property owned by the Grantors or any IP Licenses of the Grantors throughout the world on such terms and conditions and in such manner as the Administrative Agent shall in its sole discretion determine, including the execution and filing of any document necessary to effectuate or record such assignment and (H) generally, Sell, grant a Lien on, make any Contractual Obligation with respect to and otherwise deal with, any Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes and do, at the Administrative Agent's option, at any time or from time to time, all acts and things that the Administrative Agent deems necessary to protect, preserve or realize upon any Collateral and the Secured Parties' security interests therein and to effect the intent of the Loan Documents, all as fully and effectively as such Grantor might do.
(b) If any Grantor materially fails to perform or comply with any Contractual Obligation contained herein, the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such Contractual Obligation.
(c) The expenses of the Administrative Agent incurred in connection with actions undertaken as provided in this Section 7.1 , together with interest thereon at a rate set forth in Section 2.9 ( Interest ) of the Credit Agreement, from the date of payment by the Administrative Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Administrative Agent on demand.
(d) Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue of this Section 7.1 . All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the security interests created hereby are released.
Section 7.2 Authorization to File Financing Statements . Each Grantor authorizes the Administrative Agent and its Related Persons, at any time and from time to time, to file or record financing statements, amendments thereto, and other filing or recording documents or instruments with respect to any Collateral in such form and in such offices as the Administrative Agent reasonably determines appropriate to perfect the security interests of the Administrative Agent under this Agreement, and such financing statements and amendments may described the Collateral covered thereby as "all assets of the debtor". A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. Such Grantor also hereby ratifies its authorization for the Administrative Agent to have filed any initial financing statement or amendment thereto under the UCC (or other similar laws) in effect in any jurisdiction if filed prior to the date hereof.
Section 7.3 Authority of Administrative Agent . Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option,
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voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the other Secured Parties, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation or entitlement to make any inquiry respecting such authority.
Section 7.4 Duty; Obligations and Liabilities . (a) Duty of Administrative Agent . The Administrative Agent's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account. The powers conferred on the Administrative Agent hereunder are solely to protect the Administrative Agent's interest in the Collateral and shall not impose any duty upon the Administrative Agent to exercise any such powers. The Administrative Agent shall be accountable only for amounts that it receives as a result of the exercise of such powers, and neither it nor any of its Related Persons shall be responsible to any Grantor for any act or failure to act hereunder, except in connection with their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. In addition, except in connection with the Administrative Agent's gross negligence or willful misconduct, the Administrative Agent shall not be liable or responsible for any loss or damage to any Collateral, or for any diminution in the value thereof, by reason of the act or omission of any warehousemen, carrier, forwarding agency, consignee or other bailee if such Person has been selected by the Administrative Agent in good faith.
(b) Obligations and Liabilities with respect to Collateral . No Secured Party and no Related Person thereof shall be liable for failure to demand, collect or realize upon any Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to any Collateral. The powers conferred on the Administrative Agent hereunder shall not impose any duty upon any other Secured Party to exercise any such powers. The other Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their respective officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except in connection with their own gross negligence or willful misconduct as finally determined by a court of competent jurisdiction.
ARTICLE
VIII
MISCELLANEOUS
Section 8.1 Reinstatement . Each Grantor agrees that, if any payment made by any Loan Party or other Person and applied to the Secured Obligations is at any time annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent or preferential or otherwise required to be refunded or repaid, or the proceeds of any Collateral are required to be returned by any Secured Party to such Loan Party, its estate, trustee, receiver or any other party, including any Grantor, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, any Lien or other Collateral securing such liability shall be and remain in full force and effect, as fully as if such payment had never been made. If, prior to any of the foregoing, (a) any Lien or other Collateral securing such Grantor's liability hereunder shall have been released or terminated by virtue of the foregoing or (b) any provision of the Guaranty hereunder shall have been terminated, cancelled or surrendered, such Lien, other Collateral or provision shall be reinstated in full force and effect and such prior release, termination, cancellation or surrender shall not diminish, release, discharge, impair or otherwise affect the obligations of any such Grantor in respect of any Lien or other Collateral securing such obligation or the amount of such payment.
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Section 8.2 Release of Collateral . (a) At the time provided in clause (b)(iii) of Section 11.10 ( Release of Collateral or Guarantors ) of the Credit Agreement, the Collateral shall be released from the Lien created hereby and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors. Each Grantor is hereby authorized to file UCC amendments at such time evidencing the termination of the Liens so released. Following any such termination, the Administrative Agent shall promptly deliver to such Grantor any Collateral of such Grantor held by the Administrative Agent hereunder and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination.
(b) If the Administrative Agent shall be directed or permitted pursuant to clause (i) or (ii) of Section 11.10(b) of the Credit Agreement to release any Lien or any Collateral, such Collateral shall be released from the Lien created hereby to the extent provided under, and subject to the terms and conditions set forth in, such clauses (i) and (ii) . In connection therewith, the Administrative Agent shall promptly execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such release.
(c) At the time provided in Section 11.10(a) of the Credit Agreement and at the request of any Grantor, a Grantor shall be released from its obligations hereunder in the event that all the Securities of such Grantor shall be Sold to any Person that is not an Affiliate of Holdings, Borrower and the Subsidiaries of such Borrower in a transaction permitted by the Loan Documents.
Section 8.3 Independent Obligations . The obligations of each Grantor hereunder are independent of and separate from the Secured Obligations and the Guaranteed Obligations. If any Secured Obligation or Guaranteed Obligation is not paid when due, or upon any Event of Default, the Administrative Agent may, at its sole election, proceed directly and at once, without notice (provided that the Administrative Agent shall endeavor to give notice to such Grantor but, provided further, that the failure to give such notice shall not in any way limit the rights of the Administrative Agent under this Section), against any Grantor and any Collateral to collect and recover the full amount of any Secured Obligation or Guaranteed Obligation then due, without first proceeding against any other Grantor, any other Loan Party or any other Collateral and without first joining any other Grantor or any other Loan Party in any proceeding.
Section 8.4 No Waiver by Course of Conduct . No Secured Party shall by any act (except by a written instrument pursuant to Section 8.6 ), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default. No failure to exercise, nor any delay in exercising, on the part of any Secured Party, any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by any Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy that such Secured Party would otherwise have on any future occasion.
Section 8.5 Amendments in Writing . None of the terms or provisions of this Agreement may be waived, amended, supplemented or otherwise modified except in accordance with Section 12.1 of the Credit Agreement; provided , however , that annexes to this Agreement may be supplemented (but no existing provisions may be modified and no Collateral may be released) through Pledge Amendments and Joinder Agreements, in substantially the form of Annex 1 and Annex 2 , respectively, in each case duly executed by the Administrative Agent and each Grantor directly affected thereby.
Section 8.6 Additional Grantors; Additional Pledged Collateral . (a) Joinder Agreements . If, at the option of Borrower or as required pursuant to Section 7.10 of the Credit Agreement, such Borrower shall cause any Subsidiary that is not a Grantor to become a Grantor hereunder, such Subsidiary shall
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execute and deliver to the Administrative Agent a Joinder Agreement substantially in the form of Annex 2 and shall thereafter for all purposes be a party hereto and have the same rights, benefits and obligations as a Grantor party hereto on the Closing Date.
(b) Pledge Amendments . To the extent any Pledged Collateral has not been delivered as of the Closing Date, such Grantor shall deliver a pledge amendment duly executed by the Grantor in substantially the form of Annex 1 (each, a " Pledge Amendment "). Such Grantor authorizes the Administrative Agent to attach each Pledge Amendment to this Agreement.
Section 8.7 Notices . All notices, requests and demands to or upon the Administrative Agent or any Grantor hereunder shall be effected in the manner provided for in Section 12.11 of the Credit Agreement; provided , however , that any such notice, request or demand to or upon any Grantor shall be addressed to the Borrower's notice address set forth in such Section 12.11 .
Section 8.8 Successors and Assigns . This Agreement shall be binding upon the successors and assigns of each Grantor and shall inure to the benefit of each Secured Party and their successors and assigns; provided , however , that no Grantor may assign, transfer or delegate any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent.
Section 8.9 Counterparts . This Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart. Delivery of an executed signature page of this Agreement by facsimile transmission or by Electronic Transmission shall be as effective as delivery of a manually executed counterpart hereof.
Section 8.10 Severability . Any provision of this Agreement being held illegal, invalid or unenforceable in any jurisdiction shall not affect any part of such provision not held illegal, invalid or unenforceable, any other provision of this Agreement or any part of such provision in any other jurisdiction.
Section 8.11 Governing Law . This Agreement and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.
Section 8.12 WAIVER OF JURY TRIAL . EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO, OR DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH, ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREIN OR RELATED THERETO (WHETHER FOUNDED IN CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO OTHER PARTY AND NO RELATED PERSON OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 8.12 .
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, each of the undersigned has caused this Guaranty, Pledge and Security Agreement to be duly executed and delivered as of the date first above written.
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PROS REVENUE MANAGEMENT, L.P., as a Grantor |
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By |
/s/ CHARLES H. MURPHY Name: Charles H. Murphy Title: Executive V.P. and C.F.O. |
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PROS HOLDINGS, INC., as a Grantor |
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By |
/s/ CHARLES H. MURPHY Name: Charles H. Murphy Title: Executive V.P. and C.F.O. |
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PROS REVENUE I, LLC, as a Grantor |
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By |
/s/ CHARLES H. MURPHY Name: Charles H. Murphy Title: Executive V.P. and C.F.O. |
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PROS REVENUE II, LLC, as a Grantor |
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By |
/s/ CHARLES H. MURPHY Name: Charles H. Murphy Title: Executive V.P. and C.F.O. |
ACCEPTED AND AGREED as of the date first above written: CHURCHILL FINANCIAL LLC, as Administrative Agent |
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By |
/s/ CHRIS COX |
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Name: Chris Cox
Title: MD |
ANNEX 1
TO
GUARANTY, PLEDGE AND SECURITY AGREEMENT
FORM OF PLEDGE AMENDMENT
This PLEDGE AMENDMENT, dated as of [ , 20 ], is delivered pursuant to Section 8.6 of the Guaranty, Pledge and Security Agreement, dated as of March 23, 2007 (the " Guaranty, Pledge and Security Agreement "), by PROS Revenue Management, L.P., a Delaware limited partnership (the " Borrower "), the undersigned Grantor and the other Affiliates of the Borrower from time to time party thereto as Grantors in favor of Churchill Financial LLC, as administrative agent and collateral agent for the Secured Parties referred to therein. Capitalized terms used herein without definition are used as defined in the Guaranty, Pledge and Security Agreement.
The undersigned hereby agrees that this Pledge Amendment may be attached to the Guaranty, Pledge and Security Agreement and that the Pledged Collateral listed on Annex 1-A to this Pledge Amendment shall be and become part of the Collateral referred to in the Guaranty, Pledge and Security Agreement and shall secure all Obligations of the undersigned.
The undersigned hereby represents and warrants that each of the representations and warranties contained in Sections 4.1 , 4.2 , 4.5 and 4.10 of the Guaranty, Pledge and Security Agreement is true and correct and as of the date hereof as if made on and as of such date.
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[GRANTOR] |
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By: |
Name: Charles H. Murphy Title: Executive V.P. and C.F.O. |
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Annex 1-A
PLEDGED STOCK
ISSUER
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CLASS
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CERTIFICATE NO(S).
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PAR VALUE
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NUMBER OF SHARES, UNITS OR INTERESTS
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PLEDGED DEBT INSTRUMENTS
ISSUER
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DESCRIPTION OF DEBT
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CERTIFICATE NO(S).
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FINAL MATURITY
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PRINCIPAL AMOUNT
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ACKNOWLEDGED AND AGREED
as of the date first above written: |
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CHURCHILL FINANCIAL LLC, as Administrative Agent |
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By: |
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Name: | ||
Title: |
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ANNEX 2
TO
GUARANTY, PLEDGE AND SECURITY AGREEMENT
FORM OF JOINDER AGREEMENT
This JOINDER AGREEMENT, dated as of [ , 20 ], is delivered pursuant to Section 8.6 of the Guaranty, Pledge and Security Agreement, dated as of March 23, 2007 (the " Guaranty, Pledge and Security Agreement "), by PROS Revenue Management, L.P., a Delaware limited partnership (the " Borrower ") and the Affiliates of the Borrower from time to time party thereto as Grantors in favor of Churchill Financial LLC, as administrative agent and collateral agent for the Secured Parties referred to therein. Capitalized terms used herein without definition are used as defined in the Guaranty, Pledge and Security Agreement.
By executing and delivering this Joinder Agreement, the undersigned, as provided in Section 8.6 of the Guaranty, Pledge and Security Agreement, hereby becomes a party to the Guaranty, Pledge and Security Agreement as a Grantor thereunder with the same force and effect as if originally named as a Grantor therein and, without limiting the generality of the foregoing, as collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations of the undersigned, hereby mortgages, pledges and hypothecates to the Administrative Agent for the benefit of the Secured Parties, and grants to the Administrative Agent for the benefit of the Secured Parties a lien on and security interest in, all of its right, title and interest in, to and under the Collateral of the undersigned and expressly assumes all obligations and liabilities of a Grantor thereunder. The undersigned hereby agrees to be bound as a Grantor for the purposes of the Guaranty, Pledge and Security Agreement.
The information set forth in Annex 1-A is hereby added to the information set forth in Schedules 1 through 6 to the Guaranty, Pledge and Security Agreement. By acknowledging and agreeing to this Joinder Agreement, the undersigned hereby agree that this Joinder Agreement may be attached to the Guaranty, Pledge and Security Agreement and that the Pledged Collateral listed on Annex 1-A to this Joinder Amendment shall be and become part of the Collateral referred to in the Guaranty, Pledge and Security Agreement and shall secure all Secured Obligations of the undersigned.
The undersigned hereby represents and warrants that each of the representations and warranties contained in Article IV of the Guaranty, Pledge and Security Agreement applicable to it is true and correct on and as the date hereof as if made on and as of such date.
IN WITNESS WHEREOF, the undersigned has caused this Joinder Agreement to be duly executed and delivered as of the date first above written.
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[ADDITIONAL GRANTOR] |
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By: |
Name: Title: |
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ACKNOWLEDGED AND AGREED
as of the date first above written: |
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[EACH GRANTOR PLEDGING ADDITIONAL COLLATERAL] |
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By: |
Name: Title: |
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CHURCHILL FINANCIAL LLC, as Administrative Agent |
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By: |
Name: Title: |
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ANNEX 3
TO
GUARANTY, PLEDGE AND SECURITY AGREEMENT
FORM OF INTELLECTUAL PROPERTY SECURITY AGREEMENT(1)
THIS [ COPYRIGHT ] [ PATENT ] [ TRADEMARK ] SECURITY AGREEMENT, dated as of [ , 20 ], is made by each of the entities listed on the signature pages hereof (each a " Grantor " and, collectively, the " Grantors "), in favor of Churchill Financial LLC (" Churchill "), as administrative agent and collateral agent (in such capacity, together with its successors and permitted assigns, the " Administrative Agent ") for the Lenders and the L/C Issuers (as defined in the Credit Agreement referred to below).
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, dated as of March 23, 2007 (as the same may be amended, restated, supplemented or otherwise modified from time to time, the " Credit Agreement "), among PROS Revenue Management, L.P. (the "Borrower") the Lenders and the L/C Issuers from time to time party thereto and Churchill, as Administrative Agent for the Lenders and the L/C Issuers, the Lenders and the L/C Issuers have severally agreed to make extensions of credit to the Borrower upon the terms and subject to the conditions set forth therein;
WHEREAS, each Grantor (other than the Borrower) has agreed, pursuant to a Guaranty, Pledge and Security Agreement of even date herewith in favor of the Administrative Agent (the " Guaranty, Pledge and Security Agreement "), to guarantee the Obligations (as defined in the Credit Agreement) of the Borrower; and
WHEREAS, all of the Grantors are party to the Guaranty, Pledge and Security Agreement pursuant to which the Grantors are required to execute and deliver this [ Copyright ] [ Patent ] [ Trademark ] Security Agreement;
NOW, THEREFORE, in consideration of the premises and to induce the Lenders, the L/C Issuers and the Administrative Agent to enter into the Credit Agreement and to induce the Lenders and the L/C Issuers to make their respective extensions of credit to the Borrower thereunder, each Grantor hereby agrees with the Administrative Agent as follows:
Section 1. Defined Terms . Capitalized terms used herein without definition are used as defined in the Guaranty, Pledge and Security Agreement.
Section 2. Grant of Security Interest in [ Copyright ] [ Trademark ] [ Patent ] Collateral . Each Grantor, as collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Secured Obligations of such Grantor, hereby mortgages, pledges and hypothecates to the Administrative Agent for the benefit of the Secured Parties, and grants to the Administrative Agent for the benefit of the Secured Parties a Lien on and security interest in, all of its right, title and interest in, to and under the following Collateral of such Grantor (the " [ Copyright ] [ Patent ] [ Trademark ] Collateral "):
(a) [all of its Copyrights and all IP Licenses providing for the grant by or to such Grantor of any right under any Copyright, including, without limitation, those referred to on Schedule 1 hereto;
(b) all renewals, reversions and extensions of the foregoing; and
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(c) all income, royalties, proceeds and Liabilities at any time due or payable or asserted under and with respect to any of the foregoing, including, without limitation, all rights to sue and recover at law or in equity for any past, present and future infringement, misappropriation, dilution, violation or other impairment thereof.]
or
(a) [all of its Patents and all IP Licenses providing for the grant by or to such Grantor of any right under any Patent, including, without limitation, those referred to on Schedule 1 hereto;
(b) all reissues, reexaminations, continuations, continuations-in-part, divisionals, renewals and extensions of the foregoing; and
(c) all income, royalties, proceeds and Liabilities at any time due or payable or asserted under and with respect to any of the foregoing, including, without limitation, all rights to sue and recover at law or in equity for any past, present and future infringement, misappropriation, dilution, violation or other impairment thereof.]
or
(d) [all of its Trademarks and all IP Licenses providing for the grant by or to such Grantor of any right under any Trademark, including, without limitation, those referred to on Schedule 1 hereto;
(e) all renewals and extensions of the foregoing;
(f) all goodwill of the business connected with the use of, and symbolized by, each such Trademark; and
(g) all income, royalties, proceeds and Liabilities at any time due or payable or asserted under and with respect to any of the foregoing, including, without limitation, all rights to sue and recover at law or in equity for any past, present and future infringement, misappropriation, dilution, violation or other impairment thereof.]
Section 3. Guaranty, Pledge and Security Agreement . The security interest granted pursuant to this [ Copyright ] [ Patent ] [ Trademark ] Security Agreement is granted in conjunction with the security interest granted to the Administrative Agent pursuant to the Guaranty, Pledge and Security Agreement and each Grantor hereby acknowledges and agrees that the rights and remedies of the Administrative Agent with respect to the security interest in the [ Copyright ] [ Patent ] [ Trademark ] Collateral made and granted hereby are more fully set forth in the Guaranty, Pledge and Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.
Section 4. Grantor Remains Liable . Each Grantor hereby agrees that, anything herein to the contrary notwithstanding, such Grantor shall assume full and complete responsibility for the prosecution, defense, enforcement or any other necessary or desirable actions in connection with their [ Copyrights ] [ Patents ] [ Trademarks ] and IP Licenses subject to a security interest hereunder.
Section 5. Counterparts . This [ Copyright ] [ Patent ] [ Trademark ] Security Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Signature pages may be detached from multiple separate counterparts and attached to a single counterpart.
Section 6. Governing Law . This [ Copyright ] [ Patent ] [ Trademark ] Security Agreement and the rights and obligations of the parties hereto shall be governed by, and construed and interpreted in accordance with, the law of the State of New York.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, each Grantor has caused this [ Copyright ] [ Patent ] [ Trademark ] Security Agreement to be executed and delivered by its duly authorized officer as of the date first set forth above.
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Very truly yours, |
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[GRANTOR] as Grantor |
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By: |
Name: Charles H. Murphy Title: Executive V.P. and C.F.O. |
ACCEPTED AND AGREED as of the date first above written: |
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CHURCHILL FINANCIAL LLC, as Administrative Agent |
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By: |
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Name: | ||
Title: |
[SIGNATURE PAGE TO [ COPYRIGHT ] [ PATENT ] [ TRADEMARK ] SECURITY AGREEMENT]
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ACKNOWLEDGMENT OF GRANTOR
STATE OF TEXAS | ) | |||
) | ss. | |||
COUNTY OF HARRIS | ) |
On this day of , 2007 before me personally appeared Charles H. Murphy, proved to me on the basis of satisfactory evidence to be the person who executed the foregoing instrument on behalf of PROS Revenue Management, L.P., who being by me duly sworn did depose and say that he is an authorized officer of said entity, that the said instrument was signed on behalf of said entity as authorized by its Board of Directors and that he acknowledged said instrument to be the free act and deed of said corporation.
Notary Public |
[ACKNOWLEDGEMENT OF GRANTOR FOR [ COPYRIGHT ] [ PATENT ] [ TRADEMARK ] SECURITY AGREEMENT]
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SCHEDULE I
TO
[
COPYRIGHT
] [
PATENT
]
[
TRADEMARK
] SECURITY AGREEMENT
[
Copyright
] [
Patent
]
[
Trademark
] Registrations
[ Include Registration Number and Date ]
[ Include Application Number and Date ]
[ Include complete legal description of agreement (name of agreement, parties and date) ]
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Exhibit 21.1
PROS Holdings, Inc.
List of Subsidiaries
PROS
Revenue I, LLCDelaware
PROS Revenue II, LLCDelaware
PROS Revenue Management, L.P.Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of our report dated January 26, 2007, except for Note 3 as to which the date is April 3, 2007, relating to the financial statements and financial statement schedule of PROS Holdings, Inc., which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Houston,
Texas
April 3, 2007