Exhibit 10.12
XLCONNECT MICROSOFT SERVICES PRACTICE AGREEMENT
THIS MICROSOFT SERVICES PRACTICE AGREEMENT (the "Agreement"),
dated as of February 28, 1997 ("Effective Date"), is executed by and
between XLConnect Solutions, Inc., a Pennsylvania corporation
("XLConnect"), and Microsoft Corporation, a Washington corporation
("Microsoft"). XLConnect and Microsoft are referred to herein collectively
as the "parties" and individually as a "party."
WHEREAS, Microsoft has agreed, subject to certain conditions, to
loan XLConnect funds to develop and support a deployed systems integration
and services business providing consulting, integration and support
services for Microsoft BackOffice products and other Microsoft server
software products (the "Business"), for the purpose of making such services
available to customers in the United States.
WHEREAS, Microsoft has required, as a condition to loaning such
funds to XLConnect, that XLConnect execute and deliver this Agreement and
the other documents and instruments contemplated hereby.
NOW, THEREFORE, for and in consideration of the foregoing and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, XLConnect and Microsoft hereby agree as follows:
1. Funding by Microsoft
(a) Loan Commitment. Subject to the terms and conditions of this
Agreement, Microsoft agrees to loan XLConnect up to * less the Warrant
Purchase Price (as defined in Section 1(d)) (the " Loan"). The Loan may be
drawn by XLConnect in up to four installments. Up to * (the "First
Traunch") shall be available to be drawn on or after the Effective Date and
prior to the date which is six (6) months after the Effective Date. Up to
an additional * plus any amount not drawn under the First Traunch (the
"Second Traunch") shall be available to be drawn after the date which is
six (6) months after the Effective Date and on or prior to the date which
is one year after the Effective Date (the "Final Draw Date") if, and only
if, XLConnect shall deliver to Microsoft financial statements of XLConnect
for the period ended June 30, 1997 (the "June Financials") which shall be
prepared in accordance with generally accepted accounting principles
consistently applied (other than the omission of footnotes and routine year
end adjustments) and which, in the reasonable opinion of Microsoft shall
reflect no material adverse change in the business of XLConnect from the
Effective Date and shall indicate income from operations for both the six
months and quarter ended June 30, 1997. Within ten (10) business days of
receipt of the June Financials, Microsoft shall notify XLConnect whether
the conditions for funding the Second Traunch have been satisfied.
Notwithstanding the foregoing, in the event the conditions for funding the
Second Traunch have not been satisfied with respect to the period ended
June 30, 1997, XLConnect shall be entitled to draw under the Second Traunch
up to the Final Draw Date if XLConnect delivers to Microsoft financial
statements of XLConnect for the period ended September 30, 1997 (the
"September Financials") which shall be prepared in accordance with
generally accepted accounting principles consistently applied (other than
the omission of footnotes and routine year end adjustments) and which, in
the reasonable opinion of Microsoft shall reflect no material adverse
change in the business of XLConnect from the Effective Date and shall
indicate income from operations for both the nine months and quarter ended
September 30, 1997. Within ten (10) business days of receipt of the
September Financials, Microsoft shall notify XLConnect whether the
conditions for funding the Second Traunch have been satisfied. In order to
draw funds under the Loan, and as a condition to receipt of such funding,
XLConnect will deliver to Microsoft a duly executed promissory note (each a
"Note" and collectively the "Notes") in the form attached hereto as
Schedule 1(a) representing the full principal amount to be received on such
draw. In the case of the first draw by XLConnect, the Note shall be in a
principal amount equal to the full principal amount to be received on such
draw plus the Warrant Purchase Price. The parties agree that the proceeds
of the Loan (the "Proceeds") shall be used exclusively as set forth in
Section 2.
(b) Principal and Interest Payments on the Loans. Interest on
the aggregate outstanding principal amount under the Notes (the
"Outstanding Principal Amount") shall be paid in arrears on each date for
payment of interest set forth in the next paragraph, and shall be computed
at the Applicable Rate (as defined below), compounded quarterly on the
basis of the actual days elapsed and a year consisting of four quarterly
periods each consisting of 90 days. The "Applicable Rate" shall mean * per
annum for the periods up to and including the eighth Quarterly Date (as
defined below); * per annum for the periods after the eighth Quarterly Date
up to and including the sixteenth Quarterly Date, and * per annum for all
periods following the sixteenth Quarterly Date. The "Quarterly Date" shall
mean each quarterly anniversary of the Effective Date (i.e., each May 28,
August 28, November 28, and February 28).
Interest on the Notes shall be payable in accordance with the
following schedule: on each Quarterly Date up to and including the *
Quarterly Date (*), XLConnect agrees to pay Microsoft all accrued but
unpaid interest through and including such date on the Outstanding
Principal Amount; in addition, on the * Quarterly Date and each Quarterly
Date thereafter up to and including the * Quarterly Date, XLConnect shall
pay Microsoft principal in an amount amortized at the rate of * per
Quarterly Date (not to exceed the Outstanding Principal Amount at any such
date) and on the * Quarterly Date XLConnect shall pay Microsoft any
remaining Outstanding Principal Amount. In addition, the entire
Outstanding Principal Amount and all accrued but unpaid interest thereunder
shall become immediately due and payable in accordance with the provisions
of Sections 2(j) and (k) hereof and as otherwise specified in the Notes.
(c) Cap on Secured Debt; Priority of Loan. As an inducement for
Microsoft to provide the Loan, XLConnect hereby agrees that at all times
while any Outstanding Principal Amount remains unpaid, it will limit its
outstanding debt to Secured Lenders (as defined below) in an amount not to
exceed * of XLConnect's tangible net worth (defined as shareholders' equity
less intangible assets) as reported on XLConnect's balance sheet for the
fiscal quarter (prepared in accordance with generally accepted accounting
principles consistently applied (other than, in the case of interim balance
sheets, the omission of footnotes and normal routine year end adjustments))
completed most recently to the date such determination is made. Microsoft
agrees to consider in good faith any request by XLConnect to exceed the
limitation set forth in the previous sentence but Microsoft shall be under
no obligation to consent to any such excess debt to Secured Lenders.
"Secured Lenders" shall mean all creditors and lenders, other than trade
creditors, which have rights to repayment which are secured by rights to or
a pledge of any assets of XLConnect (including, but not limited to,
tangible and intangible assets and rights to future assets or revenues),
and shall also include commercial lenders who agree to provide unsecured
financing to XLConnect. Subject to the compliance by XLConnect with the
foregoing cap on debt due to Secured Lenders, Microsoft agrees that the
Outstanding Principal Amount shall be subordinate to repayment of any
outstanding debt to Secured Lenders. XLConnect covenants and agrees that
all debt for borrowed money other than debt to Secured Lenders, whether now
in existence or hereafter incurred (collectively, "Subordinated Debt") is
and shall be subordinated in right to repayment to the Loan. Prior to the
incurrence of any Subordinated Debt on or after the Effective Date,
XLConnect shall provide evidence of compliance with the preceding sentence
reasonably satisfactory in form and substance to Microsoft.
(d) Warrant. In connection with the execution of this Agreement,
XLConnect is simultaneously issuing to Microsoft a Common Stock Purchase
Warrant (the "Warrant") for a purchase price of * (the "Warrant Purchase
Price") in accordance with the terms of the Warrant Purchase Agreement
dated the date hereof between Microsoft and XLConnect (the "Warrant
Purchase Agreement," and collectively with the Warrant, the "Warrant
Documents").
2. Agreements of XLConnect and Funding Conditions. For the
term of this Agreement, XLConnect hereby covenants and agrees with
Microsoft:
(a) Use of Proceeds. XLConnect will use the Proceeds
exclusively to (i) recruit and hire employees of the Business (the
"Employees"), (ii) train and equip the Employees, (iii) promote and market
the Business, and (iv) pay direct expenses of the Business.
(b) Business Plan. XLConnect will operate, manage, promote and
market the Business in a manner consistent with the business plan attached
as Schedule 2(b)(i) (the "Business Plan"). XLConnect will use the Proceeds
in accordance with the objectives of the Business Plan. Schedule 2(b)(ii)
lists the specific Microsoft BackOffice products that the Business will
support, such list to be updated periodically by Microsoft.
(c) Hiring. XLConnect will hire no fewer than * Employees. Of
the Employees no fewer than * shall be XLConnect SE's The timing of such
hires is set forth in Schedule 2(c).
(d) SE Retention. As of * and until all Outstanding Principal
Amount and accrued interest under the Notes is fully repaid, XLConnect
will continuously employ in the Business no fewer than * Employees, of
which * are SE's. An Employee shall be counted as an SE from his/her date
of hire; provided however, that he/she shall cease to count as an SE if
he/she fails to acquire the requisite certifications within the time
periods set forth in the following subsection (e). Further, without the
prior written consent of Microsoft (which consent will not be unreasonably
withheld), an Employee shall be counted as an SE only if the Employee is
exclusively dedicated to the Business.
(e) SE Training and Certification. *.
(f) Status Reports. XLConnect shall provide Microsoft within
thirty (30) days following the end of each month a detailed report in an
electronic format mutually acceptable to the parties (a "Status Report"),
consisting of a statement of revenues for the Business and information
relating to the hiring and certification of SEs, including names, date of
hire, salaries, prior certifications, new certifications, area of
deployment, and turnover rates.
(g) Access to XLConnect Information. In addition to the Status
Reports to be provided hereunder, XLConnect will provide Microsoft with
reasonable access to all necessary supporting and other materials relating
to the Business as Microsoft shall reasonably request.
(h) Hiring and Sourcing. *.
(i) Business Product Standardization. All Employees must * in
all activities of the Business, according to the following schedule: *.
(j) Performance. Should XLConnect fail to attain or maintain
the committed levels of Employees or SE's in any quarter, XLConnect shall
submit to Microsoft within fifteen (15) days after the end of such quarter
a written explanation and a detailed plan to rectify such failure. If the
failure is corrected within thirty (30) days after the rectification plan
has been submitted to Microsoft that quarter shall not be considered a
failed quarter. Should XLConnect fail to attain or maintain the committed
levels of Employees, for either (i) two (2) consecutive quarters or (ii)
any three (3) quarters during the term of the Agreement, exclusive in
either case of any rectified quarters, Microsoft's obligation to disburse
additional funding under Section 1(a) shall immediately terminate and the
Outstanding Principal Amount and all accrued but unpaid interest under the
Notes shall become immediately due and payable.
(k) Funding Limitations. Except as otherwise provided by
Section 2(j), if XLConnect does not comply in all material respects with
the covenants and agreements in this Section 2 (subject to any applicable
cure periods set forth in paragraph (l) below), or if XLConnect is in
Default (as defined in the Notes) under the Notes, Microsoft's obligation
to disburse additional funding under Section 1(a) shall immediately
terminate and the Outstanding Principal Amount and all accrued but unpaid
interest under the Notes shall become immediately due and payable. The
covenants and agreements of XLConnect in this Section 2 are for the benefit
of Microsoft, any of which may be waived or modified by Microsoft without
affecting the validity of any other covenant or agreement in this Section 2
or under the Agreement.
(l) Cure Period. Notwithstanding anything to the contrary
herein, in the event Microsoft shall notify XLConnect that XLConnect is not
in compliance in all material respects with any covenant or agreement in
this Section 2 (a "Deficiency") and such Deficiency is subject to cure
within a reasonable period by XLConnect, XLConnect shall not be deemed to
be in default for purposes of paragraph (k) above if XLConnect shall
promptly take steps to cure such Deficiency reasonably acceptable to
Microsoft and shall cure such Deficiency within thirty days (or such longer
period as mutually agreed to by the parties) after receipt of notice
thereof.
3. Representations of XLConnect. XLConnect represents as
follows as of the date of this Agreement and on and as of the date of
delivery of the Note hereunder:
(a) XLConnect has full corporate authority to enter into this
Agreement and to deliver the Notes, the Warrant Documents and each of this
Agreement, the Note and the Warrant Documents does not conflict with or
constitute a breach of the Articles of Incorporation or Bylaws of XLConnect
or any agreement, instrument or document to which XLConnect is a party or
by which XLConnect is bound;
(b) no authorization, approval, or other action by, and no
notice to or filing with, any governmental authority, regulatory body or
third-party is required for the execution, delivery or performance of this
Agreement, the Notes and the Warrant Documents by XLConnect; and
(c) each of this Agreement, the Note and the Warrant Documents is
the legal, valid and binding obligation of XLConnect enforceable against
XLConnect in accordance with its terms, except as rights to indemnity and
contribution may be limited by applicable law and except as the enforcement
hereof or thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles.
4. Representations of Microsoft. Microsoft represents as follows
as of the date of this Agreement:
(a) Microsoft has full corporate authority to enter into this
Agreement and this Agreement does not conflict with or constitute a breach
of the Articles of Incorporation or Bylaws of Microsoft or any agreement,
instrument or document to which Microsoft is a party or by which Microsoft
is bound;
(b) no authorization, approval, or other action by, and no notice
to or filing with, any governmental authority, regulatory body or third-
party is required for the execution, delivery or performance of this
Agreement by Microsoft; and
(c) each of this Agreement and the Warrant Documents are the
legal, valid and binding obligation of Microsoft enforceable against
Microsoft in accordance with its terms, except as rights to indemnity and
contribution may be limited by applicable law and except as the enforcement
hereof or thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally or by general equitable principles.
5. Indemnification. (a) XLConnect agrees to defend, indemnify
and hold harmless Microsoft and its directors, officers, employees and
agents, and any person deemed to control or be under common control with
any such person, from and against all liabilities, costs, damages and
expenses, including reasonable attorneys' fees and court costs, with
respect to any claim arising out of (i) any material breach of this
Agreement by XLConnect or (ii) the Business or any act or omission of an
Employee; provided, that, XLConnect's obligation under this Section 5(a)
shall be relieved if and to the extent that it is determined by a court of
competent jurisdiction that the action or conduct giving rise to such
obligation was attributable to (a) the negligence of Microsoft or any
officer, director or employee of Microsoft or (b) any Microsoft product
infringing any patent, copyright, trade secret, trademark or other third
party intellectual property right.
(b) Microsoft agrees to defend, indemnify and hold harmless
XLConnect and its directors, officers, employees and agents, and any person
deemed to control or be under common control with any such person, from and
against all liabilities, costs, damages and expenses, including reasonable
attorneys' fees and court costs, with respect to any claim arising out of
any material breach of this Agreement by Microsoft; provided, that,
Microsoft's obligation under this Section 5(b) shall be relieved if and to
the extent that it is determined by a court of competent jurisdiction that
the action or conduct giving rise to such obligation was attributable to
(a) the negligence of XLConnect or any officer, director or employee of
XLConnect or (b) any XLConnect product infringing any patent, copyright,
trade secret, trademark or other third party intellectual property right.
(c) Each party shall indemnify the other party with respect to
third-party claims as set forth above provided that: (i) the indemnified
party promptly notifies the other party in writing of the claim; (ii) the
indemnifying party has sole control of the defense and all related
settlement negotiations with respect to the claim, provided, however, that
the indemnified party has the right, but not the obligation, to participate
in the defense of any such claim or action through counsel of its own
choosing; (iii) the indemnified party cooperates fully to the extent
necessary, and executes all documents necessary for the defense of such
claim, and (iv) the indemnified party has the right to approve settlement
of any claim, such approval not to be unreasonably withheld.
(d) XLConnect covenants and agrees to maintain suitable errors
and omissions and general liability insurance providing a reasonably
adequate amount of coverage relating to the Business and the acts and
omissions of the Employees and will name Microsoft as an additional insured
under all such coverage.
6. Confidentiality. Each of Microsoft and XLConnect agrees to
hold in confidence all information disclosed by each party to the other
that the disclosing party considers confidential or proprietary, including
all information regarding the Business and the terms of this Agreement,
other than information which is required by law to be disclosed or which is
or becomes publicly available other than through the other party's
disclosure. The parties agree to use any and all such confidential
information only in accordance with the purposes and intent of this
Agreement. This duty shall survive until three years after the later of (i)
termination or expiration of this Agreement and (ii) repayment of the Loan.
XLConnect shall execute appropriate written agreements with Employees
sufficient to enable it to comply with all the provisions of this
Agreement.
7. Term and Termination. Except as expressly set forth herein,
this Agreement shall terminate upon the earlier to occur of (i) the close
of business on * and (ii) the written agreement of the parties.
Notwithstanding the foregoing, this Agreement may be terminated by one
party in the event that the other party (i) materially breaches this
Agreement and shall not have cured such breach within 60 days of receipt of
a written notice of breach provided by the non-breaching party or (ii)
voluntarily or involuntarily is placed in bankruptcy or receivership,
becomes insolvent, files an assignment for the benefit of creditors or
undertakes any similar action for the benefit of creditors or is otherwise
unable to perform its obligations hereunder. Any termination pursuant to
clause (ii) of the preceding sentence shall be effective upon the
terminating party giving 15 days prior written notice of termination to the
other party. Except as expressly set forth herein, the termination of this
Agreement will not affect the obligations of any party under the Notes or
the Warrant. Upon the termination of this Agreement, each party agrees to
promptly return all confidential information and other materials of the
other party received during the term of or in connection with this
Agreement. Any terms of this Agreement which by their nature extend beyond
termination of the Agreement shall remain in effect until fulfilled and
apply to respective successors and assignees.
8. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns. A party's successors and assigns shall include, without
limitation, a receiver, trustee or debtor in possession of or for such
party. Notwithstanding the foregoing, this Agreement may not be assigned
nor duties delegated, by operation of law or otherwise, by either party
without the express prior written consent of the other party, which shall
not be unreasonably withheld.
9. Applicable Law; Severability. This Agreement shall be
governed by, and construed in accordance with, the internal laws (as
opposed to the conflict of laws provisions) and decisions of the State of
Washington. XLConnect further consents to jurisdiction by the state and
federal courts sitting in the King County, Washington. Process may be
served on either party by U.S. Mail, postage prepaid, certified or
registered, return receipt requested, or by such other method as is
authorized by the long arm statute provisions contained in the Revised Code
of Washington. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable
law, but, if any provision of this Agreement shall be held to be prohibited
or invalid under applicable law, such provision shall be ineffective only
to the extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this Agreement.
10. Notices. All notices and other communications required or
desired to be served, given or delivered hereunder shall be made in writing
and shall be addressed to the party to be notified as follows:
If to Microsoft: Microsoft Corporation
Xxx Xxxxxxxxx Xxx
Xxxxxxx, XX 00000-0000
Attn: Xxxxxxx Xxxxxxxxxx
Vice President, Enterprise Customer Unit
Tel: (000) 000-0000
Fax: (000) 000-0000
Copy to: Microsoft Corporation
Xxx Xxxxxxxxx Xxx
Xxxxxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxxxxx
Law & Corporate Affairs
Tel: (000) 000-0000
Fax: (000) 000-0000
If to XLConnect XLConnect Solutions Inc.
000 Xxxxxxxxx Xxxx.
Xxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxx
President and Chief Operating Officer
Tel: (000) 000-0000
Fax: (000) 000-0000
Copy to: XLConnect Solutions Inc.
000 Xxxxxxxxx Xxxx.
Xxxxx, XX 00000
Attn: Xxxx Xxxxx
Vice President and General Counsel
Tel: (000) 000-0000
Fax: (000) 000-0000
or, as to each party, at such other address as designated by such party in
a written notice to the other party. All such notices and communications
shall be deemed to be validly served, given or delivered (i) three (3) days
following deposit in the United States mails, with proper postage prepaid;
(ii) upon delivery thereof if delivered by hand to the party to be
notified; or (iii) one (1) day (or the next business day) following
delivery to a reputable overnight delivery service for delivery the next
day (or the next business day, as the case may be).
11. Amendments, Waivers and Consents. Except as expressly set
forth herein, no amendment or waiver of any provision of this Agreement nor
consent to any departure by any party here from, shall in any event be
effective unless the same shall be in writing and signed by the other
party, and then such amendment, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
12. Section Headings. The section headings herein are for
convenience of reference only, and shall not affect in any way the
iterpretation of any of the provisions hereof.
13. Complete Agreement. This Agreement, including the Schedules
referred to herein, the Notes and the Warrant Documents constitute the
complete and sole agreement between the parties hereto with respect to the
matters covered herein, and supersede and replace all prior
representations, understandings and agreements between the parties.
14. Relationship. The relationship between the parties shall be
solely that of independent contractors, and neither party shall be
authorized to commit the other to any expense or liability, or make any
representation on behalf of the other, and the officers, employees,
servants, agents or other representatives of the parties shall not be
deemed, expressly or by implication, to be the officers, employees,
servants, agents or other representatives of the other party. Under no
circumstances shall the arrangements hereunder result in any partnership,
joint venture or franchise relationship between the parties. XLConnect
shall be solely responsible for the Business and all acts or omissions of
the Employees and for compliance with all laws and regulations applicable
to the Business and employment of the Employees. Microsoft makes no
representations or warranties relating to the Business or the acts or
omissions of the Employees beyond those contained in the product(s)
licenses supplied by Microsoft.
15. Public Announcements. The contents of all press releases or
other public announcements or disclosures (whether voluntary or required by
law, if any) regarding this Agreement and the relationship between the
parties shall be approved in writing by both parties prior to the release
thereof.
16. No Third Party Rights. This Agreement is intended for the
exclusive benefit of the parties and, except as provided in Section 5
hereof, no third party shall have any rights hereunder or be entitled to
enforce any provision hereof.
17. Execution in Counterparts. This Agreement may be executed
in two counterparts, each of which shall be an original, but all of which
shall together shall be deemed to constitute one and the same agreement.
18. Limitation on Liability. Except for breaches of Section 6
and indemnification obligations under Section 5 of this Agreement, to the
maximum extent permitted by applicable law, in no event will either party
be liable to the other party for special, incidental, indirect, punitive or
consequential damages (including, without limitation, damages for loss of
business profits, business interruption, loss of business information, or
any other pecuniary loss), even if a party has been advised of the
possibility of such damages.
19. Removing Employees. XLConnect acknowledges Microsoft's
right to require immediate removal and prompt replacement from the Business
of any Employee, or other XLConnect employee or agent performing
XLConnect's obligations under this Agreement who is convicted of a crime
(other than a misdemeanor or traffic or parking violation) or who engages
in conduct Microsoft reasonably deems to have an adverse impact on either
XLConnect or Microsoft.
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IN WITNESS WHEREOF, XLConnect and Microsoft have executed this
Services Practice Agreement as of the date first above written.
XLCONNECT SOLUTIONS, INC.
By: /s/ Xxxxxxx Xxxxxxx
-------------------------------------
Xxxxxxx Xxxxxxx
President and Chief Operating Officer
MICROSOFT CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
-------------------------------------
Xxxxxxx X. Xxxxxx
Vice President, Corporate Development
and Treasurer
* Information omitted and filed separately with the SEC pursuant to
request for confidential treatment under Rule 24b-2 under the Securities
Exchange Act of 1934, as amended.
