As filed with the Securities and Exchange Commission on December 9, 1998
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ALLAIRE CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7372 41-1830792
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
One Alewife Center
Cambridge, Massachusetts 02140
(617) 761-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
David J. Orfao
President and Chief Executive Officer
Allaire Corporation
One Alewife Center
Cambridge, Massachusetts 02140
(617) 761-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Robert L. Birnbaum, Esq. William J. Schnoor, Jr., Esq.
William R. Kolb, Esq. Testa, Hurwitz & Thibeault, LLP
Foley, Hoag & Eliot LLP 125 High Street
One Post Office Square Boston, Massachusetts 02110
Boston, Massachusetts 02109 (617) 248-7000
(617) 832-1000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ___________________
If 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.[ ] __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed
Title of Each Class of Securities Amount to Offering Price Maximum Aggregate Amount of
to be Registered be Registered (1) Per Share (2) Offering Price (2) Registration Fee
- ----------------------------------- ------------------- ------------------ -------------------- -----------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 2,530,000 shares $17.00 $43,010,000 $11,957
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 330,000 shares which the Underwriters have the option to purchase
solely to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 9, 1998
[RED_HERRING]
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.
[/RED_HERRING]
2,200,000 Shares
[LOGO] allaire
Common Stock
------------
All of the shares of Common Stock being sold are being offered by Allaire. Prior
to this offering, there has been no public market for the Common Stock. The
initial public offering price is expected to be between $15.00 and $17.00 per
share. Application has been made to list the Common Stock on The Nasdaq Stock
Market's National Market under the symbol "ALLR."
Investing in the Common Stock involves certain risks. See "Risk Factors"
beginning on page 5.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Allaire
---------- --------------- ------------
<S> <C> <C> <C>
Per Share ......... $ $ $
Total (1) ......... $ $ $
</TABLE>
(1) Allaire has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 330,000
additional shares of Common Stock to cover over-allotments of shares.
Delivery of the shares of Common Stock will be made on or about ,
1999, against payment in immediately available funds.
Credit Suisse First Boston
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
NationsBanc Montgomery Securities LLC
Prospectus dated , 1999.
<PAGE>
TABLE OF CONTENTS
------------
<TABLE>
<CAPTION>
Page
-----
<S> <C>
PROSPECTUS SUMMARY ....................................................... 3
RISK FACTORS ............................................................. 5
USE OF PROCEEDS .......................................................... 19
DIVIDEND POLICY .......................................................... 19
CAPITALIZATION ........................................................... 20
DILUTION ................................................................. 21
SELECTED FINANCIAL DATA .................................................. 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS ................................................... 23
BUSINESS ................................................................. 33
MANAGEMENT ............................................................... 47
CERTAIN TRANSACTIONS ..................................................... 53
PRINCIPAL STOCKHOLDERS ................................................... 55
DESCRIPTION OF CAPITAL STOCK ............................................. 57
SHARES ELIGIBLE FOR FUTURE SALE .......................................... 61
UNDERWRITING ............................................................. 63
NOTICE TO CANADIAN RESIDENTS ............................................. 65
LEGAL MATTERS ............................................................ 66
EXPERTS .................................................................. 66
ADDITIONAL INFORMATION ................................................... 66
INDEX TO FINANCIAL STATEMENTS ............................................ F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
------------
Until , 1999 (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
is in addition to the obligation of dealers to deliver a prospectus when acting
as Underwriters and with respect to their unsold allotments or subscriptions.
------------
"Cold Fusion" is a federally registered trademark of the Company. The
Company has applied for federal registration of the trademark "HomeSite."
"Allaire" and the Allaire logo are trademarks of the Company. Other trademarks
or service marks appearing in this Prospectus are the property of their
respective holders.
<PAGE>
[Left side of Fold-out]
Advanced Development Configuration
[Graphical depiction of how ColdFusion Studio and ColdFusion application
servers interoperate within a development environment. Three bi-directional
arrows connect a depiction of three computer terminals (each labeled "Studio")
to a rectangle above depicting a ColdFusion server. This left section of the
diagram is labeled "Develop." An arrow points from this ColdFusion server to a
second server in the center of the diagram. The second server is connected by a
bi-directional arrow to a computer terminal below it with the word "Testing" on
its screen. This center section of the diagram is labeled "Stage." An arrow
points from the center section's ColdFusion server to a set of three ColdFusion
servers on the right side of the diagram, each connected by bi-directional
arrows. This set of three servers is connected by a bi-directional arrow to a
circle labeled "The Internet" below it. This right section of the diagram is
labeled "Deliver."]
ColdFusion Studio and ColdFusion Server enable the creation, testing and
deployment of high-volume, interactive Web applications.
<PAGE>
[Right side of Fold-out]
How ColdFusion Works
[Graphical depiction of how ColdFusion application server processes
requests for information through a series of interconnecting arrows, rectangles
and circles, labeled clockwise from the left side of the diagram: "Web
Browser," "HTTP Request," "Internet or Intranet," "Web Server," "CF Page,"
"ColdFusion application server," "Databases," "E-mail," "Directories," "File
System," "COM/CORBA," "Other Enterprise Systems," "Web Page," "Web Server,"
"Internet or Intranet" and "Web Page." The sections of the diagram are labeled,
from left to right, "Client," "Network" and "Server." Various locations on the
diagram bear numbers 1-5.]
1. When a user clicks a "Submit" button on a form or a hypertext link on a
page, the user's Web browser sends an HTTP request to the Web server via
the Internet or an intranet.
2. The Web server passes the data submitted by the client and the appropriate
page to ColdFusion Server through a server API.
3. ColdFusion reads the data from the client and processes the CFML in the
page. Based on the CFML, the server interacts with database servers, the
file system, SMTP servers, and potentially other applications and
extensions through the ColdFusion API or through COM/DCOM.
4. ColdFusion dynamically generates an HTML Web page that is returned to the
Web server.
5. The Web server returns the HTML page to the user's browser.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
Prospectus. The summary is not complete and does not contain all of the
information that you should consider before investing in the Common Stock. You
should read the entire Prospectus carefully. Unless otherwise specified, all
information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option and (ii) reflects the mandatory conversion into Common
Stock of all outstanding shares of Preferred Stock upon the closing of this
offering. This Prospectus contains forward-looking statements which involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this
Prospectus.
The Company
We develop, market and support application development and server software
for a wide range of Web development, from building static Web pages to
developing high-volume, interactive Web applications. Our products and services
enable organizations to expand the reach of their information systems to the
Web, as well as to develop new Web-based business applications in areas such as
electronic commerce, content management and personalization. Our products
integrate key emerging Web client and Web server software platforms and
technologies and interoperate with key enterprise and client-server
technologies. Our flagship ColdFusion product line employs a comprehensive,
easy to learn software development language that allows Web developers to
quickly and efficiently create Web applications. More than 30,000 ColdFusion
application server licenses and more than 100,000 licenses for our HomeSite Web
design tool have been sold to date.
Most Web developers are proficient with Hypertext Markup Language, or
HTML, and many are familiar with extensible Markup Language, or XML, which are
both core technologies specifically designed for creating applications for the
Web. The ease of using markup languages such as HTML and XML, which use
declarative, English-like tags, has enabled a large number of nontraditional
programmers to develop complex Web sites and Web applications. We designed
ColdFusion to use the same easy to learn syntax as HTML and XML. By using
ColdFusion, Web developers avoid having to code simultaneously in scripting
languages and in tag-based markup languages. In addition, because ColdFusion
includes high-level building blocks that encapsulate complex programming
interfaces, developers are able to integrate a variety of information
technologies, such as databases and servers.
Our customers include:
o autobytel.com inc.
o The Boeing Company
o Booz, Allen & Hamilton Inc.
o Credit Suisse First Boston Corporation
o Hewlett-Packard Company
o Intel Corp.
o Internal Revenue Service
o JC Penney Company, Inc.
o Lockheed Martin Corporation
o Lucent Technologies Inc.
o MCI Worldcom, Inc.
o Microsoft Corporation
o SBC Communications Inc.
o United Parcel Service of America, Inc.
Allaire was incorporated in Minnesota on February 1, 1996 as the successor
to a Minnesota limited liability company and was reincorporated in Delaware on
April 25, 1997. Our principal executive offices are located at One Alewife
Center, Cambridge, Massachusetts 02140, and our telephone number at that
location is (617) 761-2000.
3
<PAGE>
The Offering
<TABLE>
<S> <C>
Common Stock offered ................................ 2,200,000 shares
Common Stock to be outstanding after the Offering(1) 10,158,260 shares
Use of proceeds ..................................... For general corporate purposes, including working
capital
Nasdaq National Market symbol ....................... ALLR
</TABLE>
- ------------
(1) Based on the number of shares outstanding as of September 30, 1998.
Excludes: (i) 1,676,864 shares of Common Stock issuable upon exercise of
stock options outstanding as of September 30, 1998 at a weighted average
exercise price of $1.86 per share, (ii) 131,667 shares of Common Stock
reserved for issuance as of September 30, 1998 under the Company's 1997
Stock Incentive Plan, and 1,733,150 shares of Common Stock reserved for
issuance as of September 30, 1998 under the Company's 1998 Stock Incentive
Plan, (iii) 50,297 shares of Common Stock issuable under exercise of
warrants outstanding at September 30, 1998 at a weighted average exercise
price of $2.44, (iv) 300,000 shares of Common Stock issuable under the
1998 Employee Stock Purchase Plan and (v) 31,250 shares of Common Stock
issuable upon conversion of Series A Preferred Stock sold after September
30, 1998. See "Capitalization," "Management -- Benefit Plans,"
"Description of Capital Stock" and Notes 7, 8, 9 and 14 of Notes to
Financial Statements.
Summary Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from
Inception Year Ended Nine Months Ended
(May 5, 1995) December 31, September 30,
through ------------------ ----------------------
December 31, 1995 1996 1997 1997 1998
----------------- -------- -------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Total revenue ..................................... $ -- $ 2,358 $ 7,650 $ 4,595 $ 13,903
Total cost of revenue ............................. -- 234 2,414 1,385 4,117
Gross profit ...................................... -- 2,124 5,236 3,210 9,786
Total operating expenses .......................... 188 3,836 12,848 7,883 17,803
Loss from operations .............................. (188) (1,712) (7,612) (4,673) (8,017)
Net loss .......................................... (188) (1,698) (7,425) (4,548) (7,988)
Basic and diluted net loss per share .............. $(0.09) $ (0.97) $ (4.40) $ (2.87) $ (2.84)
Shares used in computing basic and diluted
net loss per share ............................... 2,200 1,743 1,687 1,584 2,813
Unaudited pro forma basic and diluted net
loss per share(1) ................................ $ (1.38) $ (1.13)
Shares used in computing unaudited pro forma
basic and diluted net loss per share (1) ......... 5,378 7,054
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, 1998
------------------- ---------------------------
Pro Forma
1996 1997 Actual As Adjusted (2)
-------- -------- --------- ----------------
(unaudited)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ............................ $ 526 $ 5,521 $ 1,879 $33,615
Working capital (deficit) ............................ 224 1,492 (5,941) 25,795
Total assets ......................................... 2,038 9,697 8,330 40,066
Total long-term debt, net of current portion ......... -- 499 1,220 1,220
Total redeemable convertible preferred stock ......... 2,800 12,673 12,673 --
Total stockholders' equity (deficit) ................. (1,768) (9,153) (16,381) 28,028
</TABLE>
- ------------
(1) For an explanation of unaudited pro forma basic and diluted net loss per
share and the weighted average shares used in computing unaudited pro
forma basic and diluted net loss per share, see Note 2 of Notes to
Financial Statements.
(2) Pro forma to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock upon the closing of the Offering. As
adjusted to give effect to the sale by the Company of 2,200,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$16.00 per share, after deducting estimated underwriting discounts and
commissions and offering expenses.
4
<PAGE>
RISK FACTORS
This offering of Common Stock (the "Offering") involves a high degree of
risk. You should carefully consider the risks described below and the other
information in this Prospectus before you purchase any Common Stock. The risks
and uncertainties described below are not the only ones facing our Company.
Additional risks and uncertainties, including those not presently known to us or
that we currently deem immaterial, may also impair our business operations.
If any of the following risks actually occur, our business, financial
condition or future operating results could be materially adversely affected.
In such case, the trading price of the Common Stock could decline, and you may
lose all or part of your investment.
This Prospectus also contains certain forward-looking statements that
involve risks, uncertainties and assumptions. These statements relate to our
beliefs, intentions, plans and strategies regarding the future. These
statements may be identified by the use of words such as "intends," "plans,"
"anticipates," "expects" and similar expressions. Our actual results could
differ materially from those discussed in these forward-looking statements.
Important factors that could cause or contribute to these differences include
those discussed below and elsewhere in this Prospectus.
Limited Operating History; We commenced operations in May 1995 and we
Uncertain Future Profitability recorded our first revenue upon delivery of
ColdFusion 1.5 to customers in February
1996. Accordingly, we have only a limited
operating history on which you can base your
evaluation of our business and prospects. In
addition, our prospects must be considered
in light of the risks and uncertainties
encountered by companies in an early stage
of development in new and rapidly evolving
markets. Since we began operations, we have
incurred substantial net losses in every
fiscal period. For the nine months ended
September 30, 1998, we had a net loss of
$8.0 million. As a result of accumulated
operating losses, at September 30, 1998, we
had an accumulated deficit of $17.4 million.
We have generated relatively small amounts
of revenue until recent fiscal quarters,
while increasing expenditures in all areas,
particularly in research and development and
sales and marketing, in order to execute our
business plan. Although we have experienced
revenue growth in recent periods, the growth
has been off of a small base, and it is
unlikely that such growth rates are
sustainable. In order to increase revenue
and achieve profitability, we must, among
other things:
o increase market acceptance of ColdFusion
and HomeSite;
o develop new products and technologies
more rapidly than our competitors;
o offer high quality customer service and
support;
o attract, integrate, motivate and retain
qualified personnel;
o successfully implement our distribution
strategy;
o continue to build our financial and
operational infrastructure; and
o develop and maintain awareness of our
brands.
Our ability to increase revenue and achieve
profitability also depends on a number of
risks outside of our control, including the
extent to which:
o our competitors develop competing
products; and
o our distributors and other marketing
partners dedicate resources or otherwise
give priority to selling our products.
As a result, we may not be able to increase
revenue or achieve profitability on a
quarterly or an annual basis. For more
information, see "Management's Discussion
and Analysis of Financial Condition and
Results of Operations."
5
<PAGE>
Significant Fluctuations Our quarterly revenue and operating results
Quarterly Performance are difficult to predict and may in
fluctuate significantly from quarter to
quarter. If our quarterly revenue or
operating results fall below the
expectations of investors or public market
analysts, the price of the Common Stock
could fall substantially.
Our quarterly revenue is difficult to
forecast for several reasons, including the
following:
o the market for Web development products
is in an early stage of development and
it is therefore difficult to accurately
predict customer demand; and
o the sales cycle for our products and
services varies substantially from
customer to customer and, if our average
sales price increases as we expect, we
expect the sales cycle to lengthen. As a
result, we have difficulty determining
whether and when we will receive revenue
from a particular customer.
As a result of these and other factors, our
license revenue is difficult to predict
accurately. In addition, because our revenue
from training services is largely correlated
with our license revenue, a decline in
license revenue could also cause a decline
in our services revenue in the same quarter
or in subsequent quarters.
Other factors, many of which are outside our
control, could also cause variations in our
quarterly revenue and operating results.
Some of these other factors are:
o demand for our products and our
competitors' products;
o introductions of new products by us or
our competitors;
o customers' order deferrals in
anticipation of new products or
enhancements by us or our competitors;
o customers' budgeting and purchasing
cycles;
o changes in pricing and mix of license
revenue and services revenue;
o timing of hiring new employees and the
rate at which such employees become
productive;
o development and performance of our
distribution channels;
o timing of any acquisitions and related
costs; and
o identification of software quality
problems.
Most of our expenses, such as employee
compensation and rent, are relatively fixed.
Moreover, our expense levels are based, in
part, on our expectations regarding future
revenue increases. As a result, any
shortfall in revenue in relation to our
expectations could cause significant changes
in our operating results from quarter to
quarter and could result in quarterly
losses.
As a result of these factors, we believe
that period-to-period comparisons of our
revenue levels and operating results are not
necessarily meaningful. You should not rely
on our quarterly revenue and operating
results to predict our future performance.
For more information, see "Management's
Discussion and Analysis of Financial
Condition and Results of Operations."
Early Stage of Market Our products and services aid organizations
Development in building high-volume, interactive Web
sites and Web applications, including
applications for electronic commerce,
content management and personalization over
the Internet, private networks, and private
networks extended over the Internet. Web
technology has been used widely for only a
short time, and the market for Web
development products is new and rapidly
evolving. As is typical for
6
<PAGE>
new and rapidly evolving industries,
demand for recently introduced products is
highly uncertain. If the market for Web
development products does not continue to
grow at a significant rate, our business,
operating results and financial condition
will be materially adversely affected.
Dependence on the Growth and Our future success will depend substantially
Commercial Acceptance of the upon the widespread adoption of the Internet
Internet as a primary medium for commerce and
business applications. The Internet has
experienced, and is expected to continue to
experience, significant user and traffic
growth, which has, at times, caused user
frustration with slow access and download
times. The Internet infrastructure may not
be able to support the demands placed on it
by continued growth. Moreover, critical
issues concerning the commercial use of the
Internet (including security, reliability,
cost, accessibility and quality of service)
remain unresolved and may negatively affect
the growth of Internet use or the
attractiveness of commerce and business
communication on the Internet. In addition,
the Internet could lose its viability due to
delays in the development or adoption of new
standards and protocols to handle increased
activity or due to increased government
regulation and taxation of Internet
commerce. If, for these reasons or others,
the Internet does not become a viable and
substantial commercial medium, our business,
operating results and financial condition
will be materially adversely affected. For
more information, see "Business -- Industry
Background."
Relationship with Microsoft We currently compete with Microsoft
Corporation ("Microsoft") in the market for
Web development products. However, we
believe that we also must maintain a working
relationship with Microsoft in order to
achieve success. We currently utilize in our
products certain visual editing technology
that we license from Microsoft. In addition,
most of our customers use Microsoft-based
operating platforms. Therefore, it is
critical to our success that our products be
closely integrated with certain Microsoft
technologies and products.
We expect that Microsoft's commitment to and
presence in the Web development products
market will substantially increase
competitive pressure in the market. Such
pressures may result in price reductions in
our products and may also materially reduce
our market share. We believe that Microsoft
will continue to incorporate Web application
server technology into its operating system
software and certain of its server software
offerings, possibly at no additional cost to
its users. Notwithstanding our historical
and current support of the Microsoft
platform, Microsoft may in the future
promote technologies and standards more
directly competitive with or not compatible
with our technology.
Microsoft has a longer operating history, a
larger installed base of customers and
substantially greater financial,
distribution, marketing and technical
resources than Allaire. As a result, we may
not be able to compete effectively with
Microsoft now or in the future, and our
business, operating results and financial
condition may be materially adversely
affected by any of the foregoing factors.
For more information, see "-- Dependence on
Third Party Technology" and "Business --
Competition."
Competition The Web development products market is
intensely competitive, subject to rapid
change and significantly affected by new
product introductions and other activities
of market participants. In addition to
Microsoft, we compete with other large Web
and database platform companies that offer a
variety of software products, such as:
o International Business Machines
Corporation ("IBM");
7
<PAGE>
o Netscape Communications Corporation;
o Sun Microsystems, Inc.;
o Oracle Corporation;
o Sybase, Inc.;
o Symantec Corporation;
o Informix Software; and
o Inprise Corporation (formerly
Borland International, Inc.).
We also compete with a number of
medium-sized and start-up companies that
have introduced or that are developing Web
development products, such as:
o NetDynamics, Inc., which was recently
acquired by Sun Microsystems, Inc.;
o Vignette Corporation;
o HAHT Software, Inc.;
o GoLive Systems Inc.;
o WebLogic, Inc., which was recently
acquired by BEA Systems, Inc.;
o BroadVision, Inc.; and
o SilverStream Software, Inc.
In addition, we have strategic relationships
with NetObjects, Inc., a majority-owned
subsidiary of IBM, and Macromedia
Corporation. In some cases, these vendors
compete with us, and there can be no
assurance that these strategic relationships
will continue.
We expect that additional competitors will
enter the market with competing products as
the size and visibility of the market
opportunity increases. Increased competition
could result in pricing pressures, reduced
margins or the failure of our products to
achieve or maintain market acceptance. Many
of our current and potential competitors
have longer operating histories and
substantially greater financial, technical,
marketing and other resources than we do and
therefore may be able to respond more
quickly than we can to new or changing
opportunities, technologies, standards or
customer requirements. Many of these
competitors also have broader and more
established distribution channels that may
be used to deliver competing products
directly to customers through bundling or
other means. If, in the future, a competitor
chooses to bundle a competing Web
development product with other products, the
demand for our products might be
substantially reduced.
New technologies and the expansion of
existing technologies will likely increase
the competitive pressures that we face. The
development of competing technologies by
market participants or the emergence of new
industry standards may adversely affect our
competitive position or render our products
or technologies noncompetitive or obsolete.
As a result of these and other factors, we
may not be able to compete effectively with
current or future competitors, which would
have a material adverse effect on our
business, operating results and financial
condition.
Need to Expand Sales Force and In order to increase our revenue, we must
Channels increase the size of our sales force and the
number of our indirect channel partners,
including original equipment manufacturers,
value-added resellers and systems
integrators. There is intense competition
for sales personnel in our business, and
there can be no assurance that we will be
successful in attracting, integrating,
8
<PAGE>
motivating and retaining new sales
personnel. Moreover, even if we are able to
recruit sufficient numbers of sales persons,
there will be a delay between the time
persons are hired and the time they become
effective and fully productive, if at all,
as they become familiar with our products,
customers and markets. Likewise, we may not
be able to market our products effectively
and our existing or future channel partners
may choose to devote greater resources to
marketing and supporting the products of
other companies. In addition, we will need
to resolve potential conflicts among our
sales force and channel partners. Any of
these factors could have a material adverse
effect on our business, operating results
and financial condition. For more
information, see "-- Dependence on Limited
Number of Distributors," "Business --
Allaire Strategy" and "-- Sales, Marketing
and Distribution."
Dependence on Limited Number We derive a substantial portion of our
of Distributors revenue from our indirect distribution
channel. For the nine months ended September
30, 1998, revenue from our indirect
distribution channel accounted for
approximately 41% of our total revenue. We
rely upon a limited number of distributors
for much of this revenue. For example, for
the nine months ended September 30, 1998,
Ingram Micro, Inc. accounted for
approximately 22% of our total revenue. The
loss of, or a reduction in orders from,
Ingram Micro, Inc. or any other significant
distributor could have a material adverse
effect on our business, operating results
and financial condition. In addition, our
revenue per unit from sales of licenses
through distributors is generally less than
our revenue per unit from direct sales of
licenses to end users. Because we do not
deal directly with end users when selling
through distributors, we are dependent upon
the ability of distributors to accurately
forecast demand and maintain appropriate
levels of inventory. If a distributor
purchases excess product, we may be
obligated to accept the return of some
products. Any of these factors could have a
material adverse effect on our business,
operating results and financial condition.
For more information, see "Business --
Allaire Strategy" and "-- Sales, Marketing
and Distribution."
Lengthening Sales Cycle As we increase our marketing focus on larger
purchases by larger customers, we expect
that larger purchases will require increased
executive-level involvement of information
technology officers and other senior
managers of our customers. Potential large
sales may be delayed, or lost altogether,
because we will have to provide a more
comprehensive education to prospective
customers regarding the use and benefits of
our products. Accordingly, we expect the
sales cycle associated with larger purchases
of our products to lengthen, and that
customers' purchase decisions will be
subject to delays over which we may have
little or no control, including budgeting
constraints, internal purchase approval
review procedures and the inclusion or
exclusion of our products on customers'
approved standards list. Any delay in sales
of our products could have a material
adverse effect on our business, operating
results and financial condition, and could
cause our operating results to vary
significantly from quarter to quarter. For
more information, see "-- Significant
Fluctuations in Quarterly Performance,"
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations," "Business -- Allaire Strategy"
and "-- Sales, Marketing and Distribution."
Risks Associated with Revenue from customers outside North America
International Operations accounted for approximately 14% of our total
revenue for the nine months ended September
30, 1998. We anticipate that revenue from
customers outside
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<PAGE>
North America will continue to account for a
significant portion of our total revenue for
the foreseeable future. Expansion of our
international operations has required and
will continue to require significant
management attention and resources. Future
expansion may require that we develop
localized versions of our products for a
particular market, and, to date, we have
limited experience in developing localized
products. In addition, we remain heavily
dependent on distributors to market, sell
and support our products internationally.
Our international operations are subject to
additional risks, including the following:
o difficulties in staffing and managing
foreign operations;
o legal uncertainties regarding liability,
export and import restrictions, tariffs
and other trade barriers;
o longer customer payment cycles and
greater difficulties in collecting
accounts receivable;
o unexpected changes in trading policies,
regulatory requirements, exchange rates,
tariffs and other barriers;
o uncertainties of laws and enforcement
relating to the protection of
intellectual property;
o language barriers;
o seasonal reductions in business activity;
o potentially adverse tax consequences; and
o political and economic instability.
In addition, we are unable to determine the
effect that recent economic downturns in
Asia, particularly Japan, or the adoption
and use of the euro, the single European
currency expected to be introduced in
January 1999, will have on our business. Any
of these factors could have a material
adverse effect on our business, operating
results and financial condition.
Similarly, we cannot accurately predict the
impact that future fluctuations in foreign
currency exchange rates may have on our
operating results and financial condition.
Although we have historically conducted
transactions with customers outside the
United States in U.S. dollars, to the extent
future revenue is denominated in foreign
currencies, we would be subject to increased
risks relating to foreign currency exchange
rate fluctuations. To date, we have not
engaged in any hedging transactions in
connection with our international
operations. Although we may attempt to hedge
currency rate exposure in the future, any
hedging policies that we might implement
could be unsuccessful.
No Assurance of Continued We believe that a significant contributing
Market Acceptance of Products factor to our initial growth has been our
ability to create and maintain strong
relationships with the community of Web
developers that initially adopted our
products. This community of early adopters
demands rapid improvements in the
performance, features and reliability of our
products, as well as a high level of
customer service. If our products do not
continue to satisfy the Web developer
community or otherwise fail to sustain
sufficient market acceptance, our business,
operating results and financial condition
would be materially adversely affected. Due
in part to the emerging nature of the Web
development products market and the
substantial resources available to many
market participants, we believe there is a
time-limited opportunity to achieve and
maintain market share in the Web development
products market. For more information, see
"Business -- Industry Background," "--
Allaire Strategy" and "-- Competition."
10
<PAGE>
Risks Associated with Uncertain We believe that developing and maintaining
Brand Development awareness of the "Allaire," "ColdFusion" and
"HomeSite" brand names is critical to
achieving widespread acceptance of our
products. The importance of brand
recognition will increase as competition in
the market for Web development products
increases. In order to promote our brands,
we may find it necessary to increase our
marketing budget or otherwise increase our
financial commitment to creating and
maintaining brand awareness among potential
customers. Although we have obtained a
United States registration of the trademark
"Cold Fusion," we are aware of other
companies, including competitors, that use
the word "Fusion" in their marks alone or in
combination with other words, and we do not
expect to be able to prevent third party
uses of the word "Fusion" for competing
goods and services. For example, NetObjects,
Inc. markets its principal products for
designing, building and updating Web sites
under the names "NetObjects Fusion" and
"NetObjects Team Fusion." Competitors or
others that use marks that are similar to
our brand names may cause confusion among
actual and potential customers, which could
prevent us from achieving significant brand
recognition. If we fail to promote and
maintain our brands or incur significant
related expenses, our business, operating
results and financial condition could be
materially adversely affected.
Dependence on Principal We derive almost all of our revenue from
Product licenses of our ColdFusion and HomeSite
software and related services. As a result,
any competitive pressures or other factors
that adversely affect the Web development
products market in general, or inhibit sales
of ColdFusion or HomeSite software in
particular, would have a material adverse
effect on our business, operating results
and financial condition. For more
information, see "Business -- Products."
New Product Development In addition to developing new versions of
current products, we intend to devote
substantial resources to develop and
introduce new products which enhance our
customers' ability to build and deploy Web
applications. The success of new product
offerings is dependent on several factors,
including our awareness of, and response to,
new industry standards and customer needs,
timely completion and introduction of new
products and enhancements, differentiation
of new offerings from those of our
competitors and, ultimately, market
acceptance of our new offerings. The
emerging nature of the Web development
products market and its rapid evolution will
require that we continually improve the
performance, features and reliability of our
products, particularly in response to
competitive offerings and evolving customer
needs, and that we introduce enhancements to
existing products as quickly as possible and
prior to the introduction of competing
products. Our failure to develop and
introduce new products and enhancements
successfully on a timely basis could have a
material adverse effect on our business,
operating results and financial condition.
For more information, see "Business --
Allaire Strategy," "-- Products" and "--
Research and Development."
Dependence on Third Party We license technology that is incorporated
Technology into our products from certain third
parties. Examples include licenses from
Microsoft for certain visual editing
technology, from Bright Tiger Technologies,
Inc. for certain load balancing and failover
technology, from Netegrity, Inc. for certain
security technology and from Verity, Inc.
for full-text indexing and searching
technology. In light of the rapidly evolving
nature of Web technology and our strategy to
pursue industry partnerships, we will
increasingly need to rely on technology from
other vendors. Microsoft and other
technology partners
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<PAGE>
are also significant competitors in the Web
development products market. There can be no
assurance that technology from others will
continue to be available to us on
commercially reasonable terms, if at all.
The loss or inability to access such
technology could result in delays in our
development and introduction of new products
or enhancements until equivalent or
replacement technology could be accessed, if
available, or developed internally, if
feasible, which could have a material
adverse effect on our business, operating
results and financial condition. For more
information, see "Business -- Allaire
Strategy" and "-- Intellectual Property."
Management of Growth We have been experiencing a period of rapid
growth that has been placing a significant
strain on all of our resources. Our revenue
more than doubled in the quarter ended
September 30, 1998 from the same period the
year earlier. From October 1, 1997 to
September 30, 1998, the number of our
employees increased from 85 to 153. Our
future success will depend, in part, upon
the ability of our senior management to
manage growth effectively, which will
require that we successfully implement and
maintain our administrative operations and
financial and accounting systems and
controls and coordinate our accounting,
finance, sales and marketing, and research
and development organizations.
Any failure on our part to integrate new
personnel, manage expanded operations,
maintain and improve our information systems
or otherwise manage any future growth
successfully could have a material adverse
effect on the quality of our products, our
ability to retain key personnel and our
business, operating results and financial
condition. For more information, see
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations."
Dependence on Key Executive Our future success depends to a significant
Officers degree on the skills, experience and efforts
of our key executive officers and employees.
We depend heavily on Joseph J. Allaire, our
founder, Chairman of the Board, Chief
Technology Officer and Executive Vice
President, and David J. Orfao, our President
and Chief Executive Officer. We also depend
on a number of other executive officers and
members of our senior management team. Our
future success will depend on the ability of
our executive officers and other members of
senior management to work effectively as a
team.
We do not have employment agreements with
any of our executive officers, and we do not
have any key person life insurance other
than for Messrs. Allaire and Orfao. In
addition, our right to repurchase Mr.
Allaire's unvested Common Stock will
terminate upon consummation of the Offering.
The loss of the services of any executive
officer could have a material adverse effect
on our business, operating results and
financial condition. For more information,
see "Management."
Attraction and Retention of Our success depends in large part upon our
Skilled Personnel ability to attract, train, motivate and
retain highly skilled employees,
particularly sales and marketing personnel,
software engineers and other senior
personnel. Qualified personnel are in great
demand throughout the software industry. Our
failure to attract and retain the highly
trained technical personnel that are
integral to our direct sales, product
development, service and support teams may
limit the rate at which we can generate
sales and develop new products or product
enhancements. Our failure to attract, train,
motivate
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<PAGE>
or retain personnel could have a material
adverse effect on our business, operating
results and financial condition. For more
information, see "Business -- Employees" and
"Management."
Limited Protection of Our success depends to a significant degree
Proprietary Technology; upon the development and protection of our
Potential Litigation software and other proprietary technology.
The software industry has experienced
widespread unauthorized reproduction of
software products. The unauthorized
reproduction or other misappropriation of
our proprietary technology could enable
third parties to benefit from our technology
without paying us for it.
We attempt to protect our proprietary
technology primarily through:
o trade secret, copyright and trademark
laws;
o license agreements;
o employee and third party non-disclosure
agreements; and
o limiting access to and distribution of
our documentation and other proprietary
information.
The steps we have taken to protect our
proprietary technology may be inadequate.
Existing trade secret, copyright and
trademark laws offer only limited
protection. In addition, we rely in part on
"shrinkwrap" and "clickwrap" licenses that
are not signed by the end user and,
therefore, may be unenforceable under the
laws of certain jurisdictions. Moreover, the
laws of other countries in which we market
our products may afford little or no
effective protection of our intellectual
property. Other companies could
independently develop similar or superior
technology without violating our proprietary
rights. Any misappropriation of our
technology or the development of competitive
technology could have a material adverse
effect on our business, operating results
and financial condition. If we resort to
legal proceedings to enforce our
intellectual property rights, the
proceedings could be burdensome and
expensive and could involve a high degree of
risk.
We attempt to avoid infringing known
proprietary rights of third parties in our
product development efforts. However, we do
not conduct comprehensive patent searches to
determine whether the technology used in our
products infringes patents held by third
parties. In addition, it is difficult to
proceed with certainty in a rapidly evolving
technological environment in which there may
be numerous patent applications pending,
many of which are confidential when filed,
with regard to similar technologies. If we
were to discover that one of our products
violated third party proprietary rights,
there can be no assurance that we would be
able to obtain licenses on commercially
reasonable terms to continue offering the
product without substantial reengineering or
that any effort to undertake such
reengineering would be successful.
From time to time, third parties may claim
that our products or technology infringe
their patents or other proprietary rights.
Any such claim could cause us to incur
substantial costs defending against the
claim, even if the claim is invalid, and
could distract our management from our
business. Furthermore, a party making such a
claim could secure a judgment that requires
us to pay substantial damages. A judgment
could also include an injunction or other
court order that could prevent us from
selling our products.
13
<PAGE>
Any of these events could have a material
adverse effect on our business, operating
results and financial condition. For more
information, see "Business -- Intellectual
Property."
Risk of Product Defects and Software products as complex as ours may
Product Liability contain undetected errors or result in
failures when first introduced or when new
versions are released. These errors are
frequently discovered shortly after
introduction of a new product or a new
release of an existing product, but could be
discovered at any point in a product's life
cycle. Despite testing by Allaire and our
customers, errors may occur in our product
offerings after commencement of commercial
shipments. The occurrence of these errors
could result in loss of or delay in revenue,
loss of market share, failure to achieve
market acceptance, diversion of development
resources, injury to our reputation, or
damage to our efforts to build brand
awareness, any of which could have a
material adverse effect on our business,
operating results and financial condition.
The occurrence of errors might also result
in potential liability to customers. Many of
the applications developed and deployed with
our products are critical to the operations
of customers' businesses and provide
benefits that may be difficult to quantify.
Any failure in a customer's application
could result in a claim for substantial
damages against us, regardless of our
responsibility for such failure. Although we
maintain general liability insurance,
including coverage for errors and omissions,
there can be no assurance that such coverage
will continue to be available on reasonable
terms or will be available in amounts
sufficient to cover one or more large
claims, or that the insurer will not
disclaim coverage as to any future claim.
The successful assertion of claims against
us that exceed available insurance coverage
or changes in our insurance policies,
including premium increases or the
imposition of large deductible or
coinsurance requirements, could materially
adversely affect our business, operating
results and financial condition.
Risks Associated with Possible In the future, we may pursue strategic
Acquisitions acquisitions to obtain complementary
products, services and technologies. At
present, we have no agreements or other
arrangements with respect to any
acquisition. If we pursue any acquisition,
our management could spend a significant
amount of time and effort in identifying and
completing the acquisition. If we complete
an acquisition, we would probably have to
devote a significant amount of management
resources to integrating the acquired
business with our existing business. Our
acquisition efforts may not succeed, and an
acquisition that failed to meet our
expectations could have a material adverse
effect on our business, operating results
and financial condition. From an accounting
perspective, an acquisition might involve
non-recurring charges that could adversely
affect our operating results.
Acquisitions also pose additional risks,
including:
o failure to retain or assimilate acquired
personnel;
o inability to incorporate acquired
technologies successfully into our
products and services;
o interruptions of the sales efforts of
the acquired business;
o failure to successfully integrate
financial and accounting systems;
o significant acquisition and integration
expenses;
o amortization of goodwill and other
acquired intangible assets; and
14
<PAGE>
o potential impairment of our
relationships with employees, customers
and distribution partners.
An acquisition may not produce the revenues,
earnings or business synergies that we
anticipated, and an acquired product,
service or technology might not perform as
we expected. Any such poor performance could
cause customer dissatisfaction and damage
our reputation. Any of these factors could
have a material adverse effect on our
business, operating results and financial
condition.
To pay for an acquisition, we might use
capital stock or cash, including proceeds of
the Offering. Alternatively, we might borrow
money from a bank or other lender. If we use
capital stock, our stockholders would
experience dilution of their ownership
interests. If we use cash or debt financing,
our financial liquidity will be reduced. For
more information, see "-- Management of
Growth," "-- Broad Management Discretion in
Use of Proceeds" and "Business -- Allaire
Strategy."
Year 2000 Compliance Many existing computer systems and software
products do not properly recognize dates
after December 31, 1999. This "Year 2000"
problem could result in miscalculations,
data corruption, system failures or
disruptions of operations. These disruptions
could include an inability to process
transactions, send invoices or engage in
similar normal business activities. The Year
2000 problem could also affect embedded
systems such as building security systems,
machine controllers, telephone switches and
other equipment. As a result, many companies
may need to upgrade or replace their
computer systems, software and other
equipment.
Because ColdFusion does not involve data
storage, the ability of a Web application
built with ColdFusion to comply with Year
2000 requirements is largely dependent on
whether the database underlying the
application is Year 2000 compliant. If
ColdFusion is connected to a database that
is not Year 2000 compliant, the information
received by a ColdFusion application may be
incorrect. Therefore, although we believe
our products are Year 2000 compliant, there
can be no assurance that Web applications
developed using our products will comply
with Year 2000 requirements.
Furthermore, the purchasing patterns of
customers or potential customers may be
affected by Year 2000 issues as companies
expend significant resources to correct
their current systems for Year 2000
compliance. These expenditures may result in
reduced funds available for Web development
activities, which could have a material
adverse effect on our business, operating
results and financial condition. Year 2000
complications also may disrupt the
operations, viability or commercial
acceptance of the Internet. For more
information, see "-- Dependence on the
Growth and Commercial Acceptance of the
Internet."
In connection with our installation of new
internal software systems in October 1998,
we received verbal confirmations from our
vendors that the installed software is Year
2000 compliant, and we are in the process of
obtaining written certifications from such
vendors to the same effect. Based on the
foregoing, we believe that our internal
software systems are Year 2000 compliant. To
date, we have not incurred significant
incremental costs in order to comply with
Year 2000 requirements, and we do not expect
to do so in the future. However, there can
be no assurance that Year 2000 errors or
defects will not be discovered in our
internal software systems and, if such
errors or defects are discovered,
15
<PAGE>
there can be no assurance that the costs of
making such systems Year 2000 compliant will
not have a material adverse effect on our
business, operating results and financial
condition.
We also rely on third party vendors, which
may not be Year 2000 compliant, for certain
equipment and services. In addition, many of
our distributors are dependent on
commercially available operating systems,
which may be impacted by Year 2000
complications. To date, we have not
conducted a Year 2000 review of our vendors
or distributors. Failure of systems
maintained by vendors or distributors to
operate properly with regard to the Year
2000 and thereafter could require us to
incur significant unanticipated expenses to
remedy any problems or replace affected
vendors, could reduce our revenue from our
indirect distribution channel and could have
a material adverse effect on our business,
operating results and financial condition.
For more information, see "-- Dependence on
Limited Number of Distributors," "--
Dependence on Third Party Technology" and
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations."
Control by Existing After the Offering, Allaire's officers,
Stockholders directors and existing stockholders will
together control approximately 78% of the
outstanding Common Stock. As a result, these
stockholders, if they act together, will be
able to influence the management and affairs
of Allaire and all matters requiring
stockholder approval, including the election
of directors and approval of significant
corporate transactions. This concentration
of ownership may have the effect of delaying
or preventing a change in control of Allaire
and might affect the market price of the
Common Stock.
Future Capital Needs We may require additional capital to finance
our growth or to fund acquisitions or
investments in complementary businesses,
technologies or product lines. Our capital
requirements will depend on many factors
such as:
o demand for our products;
o the timing of and extent to which we
invest in new technology;
o the level and timing of revenue;
o the expenses of sales and marketing and
new product development;
o the success and related expense of
increasing our brand awareness;
o the extent to which competitors are
successful in developing their own
products and increasing their own market
share; and
o the costs involved in maintaining and
enforcing intellectual property rights.
To the extent that our resources are
insufficient to fund our future activities,
we may need to raise additional funds
through public or private financing.
However, additional funding, if needed, may
not be available on terms attractive to us,
or at all. Our inability to raise capital
when needed could have a material adverse
effect on our business, operating results
and financial condition. If additional funds
are raised through the issuance of equity
securities, the percentage ownership of
Allaire by our stockholders would be
diluted. For more information, see
"Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Liquidity and Capital
Resources."
Certain Anti-Takeover Our basic corporate documents and Delaware
Provisions law contain provisions that might enable our
management to resist a takeover of Allaire.
These
16
<PAGE>
provisions might discourage, delay or
prevent a change in the control of Allaire
or a change in our management. These
provisions could also discourage proxy
contests and make it more difficult for you
and other stockholders to elect directors
and take other corporate actions. The
existence of these provisions could limit
the price that investors might be willing to
pay in the future for shares of the Common
Stock. For more information, see
"Description of Capital Stock."
Potential Price Decline upon Immediately after the Offering, the public
Sales of Outstanding Shares of market for the Common Stock will include
Common Stock only the 2,200,000 shares that we are
selling in the Offering. At that time, there
will be an additional 7,958,260 shares of
Common Stock outstanding. As described
below, the persons that hold these shares
will be able to sell some of them in the
public market following the Offering. If
these stockholders sell a large number of
shares, the market price of the Common Stock
could decline dramatically. Moreover, the
perception in the public market that these
stockholders might sell shares of Common
Stock could depress the market price of the
Common Stock.
Of the 7,958,260 additional shares held by
our existing stockholders, 7,859,868 shares
are subject to "lock-up" agreements with the
representatives of the Underwriters. These
agreements prohibit sales of shares of
Common Stock in the public market until 180
days after the date of this Prospectus (or
earlier with the consent of Credit Suisse
First Boston Corporation, which may grant
such consent in its sole discretion and at
any time without notice). When this 180-day
"lock-up" period expires and under
Securities and Exchange Commission Rules
144, 144(k) and 701, our existing
stockholders will be able to sell
approximately 7,736,870 shares of Common
Stock in the public market.
Some of our existing stockholders have the
right to force us to register their shares
of Common Stock with the Securities and
Exchange Commission. If we register their
shares of Common Stock, they can sell those
shares in the public market. For more
information, see "Description of Capital
Stock -- Registration Rights."
After the Offering, we intend to register
approximately 3,840,000 shares of Common
Stock that we may issue under our stock
plans. Once we register these shares, they
can be sold in the public market as soon as
we issue them.
Sales of large numbers of shares of Common
Stock could cause the price of the Common
Stock to decline. For more information, see
"Management -- Benefit Plans," "Shares
Eligible for Future Sale" and
"Underwriting."
Broad Management Discretion We expect to use the net proceeds from the
in Use of Proceeds Offering for general corporate purposes,
including working capital, product
development and expansion of our
international operations and sales and
marketing capabilities. We also may use a
portion of the proceeds to acquire or invest
in complementary businesses, technologies
and product lines. We will have broad
discretion in how we use the net proceeds
from the Offering. You will not have the
opportunity to evaluate the economic,
financial or other information on which we
base our decisions on how to use the net
proceeds.
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<PAGE>
Absence of Public Market; Prior to the Offering, there has been no
Possible Volatility of Stock Price public market for the Common Stock. After
the Offering, an active trading market might
not develop or continue. If you purchase
shares of Common Stock in the Offering, you
will pay a price that was not established in
a competitive market. Rather, you will pay a
price that we negotiated with the
representatives of the Underwriters. The
price of the Common Stock that will prevail
in the market after the Offering may be
higher or lower than the price you pay. For
a description of the factors we will
consider in negotiating the public offering
price, see "Underwriting."
Many factors could cause the market price of
the Common Stock to rise and fall. Some of
these factors are:
o variations in our quarterly operating
results;
o announcements of technological
innovations;
o introduction of new products or new
pricing policies by us or competitors;
o acquisitions or strategic alliances by
us or competitors;
o hiring or departure of key personnel;
o changes in accounting principles;
o changes in estimates of our performance
or changes in recommendations by
securities analysts; and
o market conditions in the industry and
the economy as a whole.
The stock market in general has recently
experienced extreme price and volume
fluctuations. In addition, the market prices
of securities of technology companies,
particularly Internet-related companies,
have been extremely volatile, and have
experienced fluctuations that have often
been unrelated or disproportionate to the
operating performance of such companies.
These broad market fluctuations could
adversely affect the market price of the
Common Stock.
Recently, when the market price of a stock
has been volatile, holders of that stock
have often instituted securities class
action litigation against the company that
issued the stock. If any of our stockholders
brought such a lawsuit against us, we could
incur substantial costs defending the
lawsuit. The lawsuit could also divert the
time and attention of our management.
Any of these events could have a material
adverse effect on our business, operating
results and financial condition.
Immediate and Substantial If you purchase shares of the Common Stock
Dilution in the Offering, you will experience
immediate and substantial dilution, in that
the price you pay will be substantially
greater than the net tangible book value per
share of the shares you acquire. This
dilution is due in large part to the fact
that earlier investors in Allaire paid
substantially less than the public offering
price when they purchased their shares of
Common Stock. You will experience additional
dilution upon the exercise of outstanding
stock options or warrants to purchase Common
Stock. For more information, see "Dilution"
and "Management -- Benefit Plans."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the issuance and sale of the
2,200,000 shares of Common Stock offered hereby are estimated to be
approximately $31.7 million (approximately $36.6 million if the Underwriters'
over-allotment option is exercised in full), at an assumed initial public
offering price of $16.00 per share, after deducting estimated underwriting
discounts and commissions and offering expenses. The Company intends to use the
net proceeds for general corporate purposes, including working capital, product
development and expansion of its international operations and sales and
marketing capabilities. A portion of the net proceeds may also be used to
acquire or invest in complementary businesses or products or to obtain the
right to use complementary technologies. The Company has no specific
understandings, commitments or agreements with respect to any such acquisition
or investment. Pending such uses, the net proceeds of the Offering will be
invested in short-term, interest-bearing, investment-grade securities,
certificates of deposit or direct or guaranteed obligations of the United
States.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying cash dividends in the foreseeable future.
The Company currently intends to retain future earnings, if any, to fund the
expansion and growth of its business. Payment of future dividends, if any, will
be at the discretion of the Company's Board of Directors after taking into
account various factors, including the Company's financial condition, operating
results, current and anticipated cash needs and plans for expansion. Under the
terms of the Company's line of credit, there are certain restrictions on the
Company's ability to declare and pay dividends. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and Note 6 of Notes to Financial Statements.
19
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1998 (i) on an actual basis; (ii) on a pro forma basis giving
effect to the conversion of all outstanding shares of Preferred Stock into
Common Stock upon the closing of the Offering and the amendment of the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to 35,000,000; and (iii) on a pro forma as adjusted basis to
reflect the sale by the Company of 2,200,000 shares of Common Stock offered
hereby at an assumed initial public offering price of $16.00 per share, and
after deducting estimated underwriting discounts and commissions and offering
expenses. This information should be read in conjunction with the Company's
Financial Statements and Notes thereto appearing elsewhere in this Prospectus:
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------
Pro Forma
Actual Pro Forma As Adjusted(1)
------------ ------------- ---------------
(In thousands, except share and per share data)
(unaudited) (unaudited)
<S> <C> <C> <C>
Capital lease obligations, net of current portion ........... $ 247 $ 247 $ 247
Notes payable, net of current portion ....................... 973 973 973
-------- -------- --------
Total long term debt ........................................ 1,220 1,220 1,220
-------- -------- --------
Redeemable convertible preferred stock, $.01 par value:
Series B--514,306 shares authorized, issued and
outstanding actual; none issued and outstanding
pro forma and pro forma as adjusted ...................... 2,325 -- --
Series C--169,200 shares authorized, issued and
outstanding actual; none issued and outstanding
pro forma and pro forma as adjusted ...................... 1,000 -- --
Series D--2,500,000 shares authorized, 2,336,909 shares
issued and outstanding actual; none issued and outstanding
pro forma and pro forma as adjusted ...................... 9,348 -- --
-------- -------- --------
Total redeemable convertible preferred stock ................ 12,673 -- --
-------- -------- --------
Stockholders' equity (deficit):
Series A convertible preferred stock, $.01 par value;
200,000 shares authorized, 57,213 shares issued and
outstanding actual; none issued and outstanding
pro forma and pro forma as adjusted ...................... 260 -- --
Common stock, $.01 par value; 10,000,000 shares
authorized actual and 35,000,000 shares authorized pro
forma and pro forma as adjusted; 4,143,986 shares
issued and 4,140,569 outstanding actual; 7,961,677
shares issued and 7,958,260 outstanding pro forma;
10,161,677 shares issued and 10,158,260 outstanding
pro forma as adjusted .................................... 41 79 101
Additional paid-in capital ................................. 1,140 14,035 45,749
Accumulated deficit ........................................ (17,423) (17,423) (17,423)
Deferred compensation ...................................... (383) (383) (383)
Stock subscriptions receivable ............................. (16) (16) (16)
-------- -------- --------
Total stockholders' equity (deficit) ........................ (16,381) (3,708) 28,028
-------- -------- --------
Total capitalization ........................................ $ (2,488) $ (2,488) $ 29,248
======== ======== ========
</TABLE>
- ------------
(1) Excludes: (i) 1,676,864 shares of Common Stock issuable upon exercise of
stock options outstanding as of September 30, 1998 at a weighted average
exercise price of $1.86 per share, (ii) 131,667 shares of Common Stock
reserved for issuance as of September 30, 1998 under the Company's 1997
Stock Incentive Plan, and 1,733,150 shares of Common Stock reserved for
issuance under the Company's 1998 Stock Incentive Plan, (iii) 50,297
shares of Common Stock issuable under exercise of warrants outstanding at
September 30, 1998 at a weighted average exercise price of $2.44, (iv)
300,000 shares of Common Stock issuable under the 1998 Employee Stock
Purchase Plan and (v) 31,250 shares of Common Stock issuable upon
conversion of Series A Preferred Stock sold after September 30, 1998. See
"Management -- Benefit Plans," "Description of Capital Stock" and Notes 7,
8, 9 and 14 of Notes to Financial Statements.
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company at September 30, 1998
was $(3,856,000), or $(0.48) per share of Common Stock. Pro forma net tangible
book value per share represents the amount of total tangible assets less total
liabilities, divided by the number of shares of Common Stock outstanding after
giving effect to the conversion of all shares of Preferred Stock. After giving
effect to the sale of 2,200,000 shares of Common Stock offered hereby by the
Company at an assumed initial public offering price of $16.00 per share and
after deducting estimated underwriting discounts and commissions and offering
expenses, the Company's pro forma net tangible book value as of September 30,
1998 would have been approximately $27,880,000, or $2.74 per share. This
represents an immediate increase in pro forma net tangible book value of $3.22
per share to existing stockholders and an immediate dilution of $13.26 per
share to new investors purchasing shares of Common Stock in the Offering. The
following table illustrates this dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share ................................. $16.00
Pro forma net tangible book value per share at September 30, 1998 .............. $(0.48)
Increase attributable to the Offering .......................................... 3.22
------
Pro forma net tangible book value per share after the Offering .................. 2.74
------
Net tangible book value dilution per share to new investors in the Offering ..... $13.26
======
</TABLE>
The following table summarizes, as of September 30, 1998, on the pro forma
basis described above, the total number of shares and consideration paid to the
Company and the average price per share paid by the existing stockholders and
by new investors purchasing shares of Common Stock in the Offering at an
assumed initial public offering price of $16.00 per share (before deducting the
estimated underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
Shares Purchased (1) Total Consideration
--------------------- ----------------------
Average Price
Number Percent Amount Percent Per Share
---------- --------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 7,958,260 78.3% $14,114,000 28.6% $ 1.77
New investors ................. 2,200,000 21.7% 35,200,000 71.4% 16.00
--------- ----- ----------- -----
Totals ...................... 10,158,260 100.0% $49,314,000 100.0%
========== ===== =========== =====
</TABLE>
- ------------
(1) The foregoing computations are based on the number of shares of Common
Stock outstanding as of September 30, 1998 and exclude: (i) 1,676,864
shares of Common Stock issuable upon exercise of stock options outstanding
as of September 30, 1998 at a weighted average exercise price of $1.86 per
share, (ii) 131,667 shares of Common Stock reserved for issuance as of
September 30, 1998 under the Company's 1997 Stock Incentive Plan, and
1,733,150 shares of Common Stock reserved for issuance under the Company's
1998 Stock Incentive Plan, (iii) 50,297 shares of Common Stock issuable
under exercise of warrants outstanding at September 30, 1998 at a weighted
average exercise price of $2.44, (iv) 300,000 shares of Common Stock
issuable under the 1998 Employee Stock Purchase Plan and (v) 31,250 shares
of Common Stock issuable upon conversion of Series A Preferred Stock sold
after September 30, 1998. See "Capitalization," "Management -- Benefit
Plans," "Description of Capital Stock" and Notes 7, 8, 9 and 14 of Notes
to Financial Statements.
21
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with the Company's Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
appearing elsewhere in this Prospectus. The statement of operations data for
the period from the Company's inception (May 5, 1995) through December 31,
1995, for the years ended December 31, 1996 and 1997 and for the nine months
ended September 30, 1998, and the balance sheet data as of December 31, 1996
and 1997 and as of September 30, 1998, are derived from, and are qualified by
reference to, audited financial statements included elsewhere in this
Prospectus. The balance sheet data as of December 31, 1995 are derived from
audited financial statements of the Company that do not appear in this
Prospectus. The statement of operations data for the nine months ended
September 30, 1997 are derived from unaudited financial statements of the
Company appearing elsewhere in this Prospectus. The unaudited financial
statements have been prepared on the same basis as the audited financial
statements and, in the opinion of the Company's management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. The historical results
are not necessarily indicative of the operating results to be expected in the
future.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
Period from Inception December 31, September 30,
(May 5, 1995) through ------------------ -----------------
December 31, 1995 1996 1997 1997 1998
--------------------- -------- -------- ------- --------
(In thousands, except per share data)
unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Software license fees ............................ $ -- $ 2,358 $ 7,116 $ 4,335 $11,716
Services ......................................... -- -- 534 260 2,187
------- ------- ------- ------- -------
Total revenue .................................. -- 2,358 7,650 4,595 13,903
------- ------- ------- ------- -------
Cost of revenue:
Software license fees ............................ -- 234 961 540 1,262
Services ......................................... -- -- 1,453 845 2,855
------- ------- ------- ------- -------
Total cost of revenue .......................... -- 234 2,414 1,385 4,117
------- ------- ------- ------- -------
Gross profit ...................................... -- 2,124 5,236 3,210 9,786
------- ------- ------- ------- -------
Operating expenses:
Research and development ......................... 65 873 2,702 1,801 3,371
Sales and marketing .............................. 49 1,576 7,272 4,216 11,561
General and administrative ....................... 74 1,387 2,874 1,866 2,871
------- ------- ------- ------- -------
Total operating expenses .................... 188 3,836 12,848 7,883 17,803
------- ------- ------- ------- -------
Loss from operations .............................. (188) (1,712) (7,612) (4,673) (8,017)
Interest income, net .............................. -- 14 187 125 29
------- ------- ------- ------- -------
Net loss .......................................... $ (188) $(1,698) $(7,425) $(4,548) $(7,988)
======= ======= ======= ======= =======
Basic and diluted net loss per share .............. $ (0.09) $ (0.97) $ (4.40) $ (2.87) $ (2.84)
Shares used in computing basic and diluted net loss
per share ........................................ 2,200 1,743 1,687 1,584 2,813
Unaudited pro forma basic and diluted net loss per
share(1) ......................................... $ (1.38) $ (1.13)
Shares used in computing unaudited pro forma
basic and diluted net loss per share(1) .......... 5,378 7,054
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30, 1998
------------------------- -------------------------
Pro Forma
1995 1996 1997 Actual As Adjusted(2)
------- -------- ------- -------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ............................ $ 17 $ 526 $ 5,521 $ 1,879 $33,615
Working capital (deficit) ............................ (231) 224 1,492 (5,941) 25,795
Total assets ......................................... 119 2,038 9,697 8,330 40,066
Total long-term debt, net of current portion ......... -- -- 499 1,220 1,220
Total redeemable convertible preferred stock ......... -- 2,800 12,673 12,673 --
Total stockholders' equity (deficit) ................. (181) (1,768) (9,153) (16,381) 28,028
</TABLE>
- ------------
(1) For an explanation of unaudited pro forma basic and diluted net loss per
share and the weighted average shares used in computing unaudited pro
forma basic and diluted net loss per share, see Note 2 of Notes to
Financial Statements.
(2) Pro forma to give effect to the conversion of all outstanding shares of
Preferred Stock into Common Stock upon the closing of the Offering. As
adjusted to give effect to the sale by the Company of 2,200,000 shares of
Common Stock offered hereby at an initial public offering price of $16.00
per share after deducting estimated underwriting discounts and commissions
and offering expenses.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with
"Selected Financial Data" and the Company's Financial Statements and Notes
thereto appearing elsewhere in this Prospectus. This discussion and analysis
contains forward-looking statements that involve risks and uncertainties. The
Company's actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under "Risk Factors" and elsewhere in this
Prospectus.
Overview
The Company develops, markets and supports application development and
server software for a wide range of Web development, from building static Web
pages to developing high-volume, interactive Web applications. The Company was
established in May 1995 and recorded its first revenue upon delivery of
ColdFusion 1.5 to its customers in February 1996. Also in 1996, the Company
moved its headquarters from Minnesota to Cambridge, Massachusetts. In March
1997, the Company expanded its product offerings by acquiring the HomeSite HTML
design tool through the purchase of substantially all of the assets of Bradbury
Software L.L.C. ("Bradbury"). In November 1998, the Company introduced versions
4.0 of its ColdFusion and HomeSite software products.
The Company's revenue is derived principally from license fees for
software products and, to a lesser extent, fees for a range of services
complementing these products, primarily training and technical support.
Software license fees include sales of licenses for the then-current version of
the Company's products, product upgrades and subscriptions. Subscriptions
entitle the customer to all new releases for a specific product during the
subscription period, generally 12 months.
Revenue from sales of licenses to use the Company's software products and
product upgrades is recognized upon delivery to customers, provided no
significant post-delivery obligations or uncertainties remain and collection of
the related receivable is probable. Revenue under arrangements where multiple
products or services are sold together under one contract is allocated to each
element based on their relative fair values, with these fair values being
determined using the price charged when that element is sold separately. For
agreements with specified upgrade rights, the revenue related to such upgrade
rights is deferred until the specified upgrade is delivered. The Company
provides most of its distributors with rights of return. An allowance for
estimated future returns is recorded at the time revenue is recognized based on
the Company's historical experience. Revenue from subscription sales is
recognized ratably over the term of the subscription period. Services revenue is
recognized as services are rendered or ratably over the term of the service
agreement.
In October 1997, the Accounting Standards Executive Committee ("AcSEC") of
the American Institute of Certified Public Accountants ("AICPA") issued
Statement of Position ("SoP") 97-2, Software Revenue Recognition, which provides
guidance on the timing and amount of revenue recognition when licensing,
selling, leasing or otherwise marketing computer software and related services.
The Company adopted SoP 97-2 for all transactions entered into after December
31, 1997. Subsequently, in March 1998, the Financial Accounting Standards Board
("FASB") approved SoP 98-4, Deferral of the Effective Date of a Provision of SoP
97-2, Software Revenue Recognition. SoP 98-4 provides for the one-year deferral
of certain provisions of SoP 97-2 pertaining to its requirements for what
constitutes vendor specific objective evidence of the fair value of multiple
elements included in an arrangement. In November 1998, the FASB cleared for
issuance SoP 98-9, Modification of SoP 97-2, Software Revenue Recognition, With
Respect to Certain Transactions, which will retain the limitations of SoP 97-2
on what constitutes vendor specific objective evidence of fair value. SoP 98-9
will be effective for transactions entered into in fiscal years beginning after
March 15, 1999. Based upon its interpretation of SoP 97-2, 98-4 and 98-9, the
Company believes that its current revenue recognition policies and practices are
consistent with the provisions of the new guidance. Adoption of SoP 97-2 and SoP
98-4 did not have a material impact on the Company's financial condition or
results of operation.
In accordance with Statement of Financial Accounting Standards ("SFAS")
No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased or
Otherwise Marketed, costs associated with the development of computer software
are expensed prior to the establishment of technological feasibility and
capitalized thereafter when material. No software development costs have been
capitalized since costs eligible for capitalization have not been material to
the Company's financial condition or results of operations.
23
<PAGE>
The Company generates its revenue through direct sales of licenses to end
users and through its indirect distribution channel. Direct revenue is
generated by the Company's direct sales force and via the Company's Web site.
The indirect distribution channel includes distributors, direct and OEM
resellers, system integrators and Allaire Alliance members. During the second
half of 1997, the Company established relationships with its primary
distribution partners in North America, Europe and Asia Pacific. Revenue
generated by the indirect distribution channel accounted for 13%, 28% and 41%
of total revenue for 1996, 1997 and the nine months ended September 30, 1998,
respectively. The Company anticipates that revenue derived from the indirect
distribution channel will continue to represent a significant percentage of
total revenue.
The Company primarily derives its international revenue through its
indirect distribution channel. International revenue accounted for 17%, 20% and
14% of total revenue for 1996, 1997 and the nine months ended September 30,
1998, respectively.
The Company has only a limited operating history on which to base an
evaluation of its business and prospects. The Company's prospects must be
considered in light of the risks and uncertainties encountered by companies in
an early stage of development in new and rapidly evolving markets. To address
these risks, the Company must, among other things, develop new products and
technologies more rapidly than its competitors; attract, integrate, motivate
and retain qualified personnel; successfully implement its distribution
strategy; continue to build its financial and operational infrastructure; and
develop and maintain awareness of its brands. There can be no assurance that
the Company will succeed in addressing any or all of these risks, and the
failure to do so would have a material adverse effect on the Company's
business, operating results and financial condition.
The Company has experienced substantial net losses in each fiscal period
since its inception and, as of September 30, 1998, had an accumulated deficit
of $17.4 million. Such net losses and accumulated deficit resulted from the
Company's lack of substantial revenue and the significant costs incurred in the
development of the Company's products and in the preliminary establishment of
the Company's infrastructure. The Company expects to increase its expenditures
in all areas in order to execute its business plan, particularly in research
and development and sales and marketing. The planned increase in sales and
marketing expense will primarily result from the hiring of additional sales
force personnel to focus on major account sales, and marketing programs to
increase brand awareness.
Although the Company has experienced revenue growth in recent periods,
there can be no assurance that such growth rates are sustainable, and therefore
such growth rates should not be considered indicative of future operating
results. There can also be no assurance that the Company will be able to
continue to increase its revenue or attain profitability or, if increases in
revenue and profitability are achieved, that they can be sustained. The Company
believes that period-to-period comparisons of its historical operating results
are not meaningful and should not be relied upon as an indication of future
performance.
24
<PAGE>
Results of Operations
The following table sets forth for the periods indicated the percentage of
total revenue of certain line items included in the Company's statement of
operations. The Company generated no revenue and incurred operating expenses
totaling $188,000 during the period from inception (May 5, 1995) through
December 31, 1995. Consequently, operating results for that period have been
omitted from the table below.
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
December 31, September 30,
------------------- ------------------
1996 1997 1997 1998
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Revenue:
Software license fees ................. 100.0% 93.0% 94.3% 84.3%
Services .............................. 0.0 7.0 5.7 15.7
----- ----- ------ -----
Total revenue .................... 100.0 100.0 100.0 100.0
----- ----- ------ -----
Cost of revenue:
Cost of software license fees ......... 9.9 12.6 11.8 9.1
Cost of services ...................... 0.0 19.0 18.4 20.5
----- ----- ------ -----
Total cost of revenue ............ 9.9 31.6 30.2 29.6
----- ----- ------ -----
Gross profit ........................... 90.1 68.4 69.8 70.4
----- ----- ------ -----
Operating expenses:
Research and development .............. 37.1 35.3 39.2 24.2
Sales and marketing ................... 66.8 95.1 91.7 83.2
General and administrative ............ 58.8 37.5 40.6 20.7
----- ----- ------ -----
Total operating expenses ......... 162.7 167.9 171.5 128.1
----- ----- ------ -----
Loss from operations ................... (72.6) (99.5) (101.7) (57.7)
Interest income, net ................... 0.6 2.4 2.7 0.2
----- ----- ------ -----
Net loss ............................... (72.0)% (97.1)% ( 99.0)% (57.5)%
===== ===== ====== =====
</TABLE>
Nine Months Ended September 30, 1997 and 1998
Revenue
Total revenue increased 203% from $4.6 million for the nine months ended
September 30, 1997 to $13.9 million for the nine months ended September 30,
1998.
Software License Fees. Revenue from software license fees increased 170%
from $4.3 million for the nine months ended September 30, 1997 to $11.7 million
for the nine months ended September 30, 1998. This increase was primarily due
to an increase in the number of licenses sold to use the Company's software
products including HomeSite, which the Company began selling in March 1997, and
ColdFusion Studio, which was released in November 1997. The growth in unit
sales was also attributable to the establishment of relationships with key
domestic and international distribution partners during the second half of
1997. To a lesser degree, the increase in revenue from software license fees
resulted from an increase in product price associated with the release of new
versions of the Company's products during the second half of 1997.
Services. Revenue from services increased 741% from $260,000 for the nine
months ended September 30, 1997 to $2.2 million for the nine months ended
September 30, 1998. The increase was primarily attributable to growth in
training revenue resulting from an increase in the Company's installed customer
base.
Cost of Revenue
Cost of Software License Fees. Cost of software license fees includes
costs of product media duplication, manuals, packaging materials, licensed
technology and fees paid to third-party vendors and agents for order
fulfillment. Cost of software license fees increased 134% from $540,000 for the
nine months ended September 30, 1997 to $1.3 million for the nine months ended
September 30, 1998. The increase in absolute dollars was due to higher unit
sales volume. The improvement in software license fees gross margins from 88%
for the nine months ended September 30, 1997 to 89% for the nine months ended
September 30, 1998 was primarily attributable to economies of scale achieved
with the Company's higher sales volume. In the future, the Company expects that
additional economies of scale may be offset by increased licensed technology
costs related to new versions of ColdFusion.
Cost of Services. Cost of services consists primarily of personnel costs.
Cost of services increased 238% from $845,000 for the nine months ended
September 30, 1997 to $2.9 million for the nine months ended September 30,
25
<PAGE>
1998. The increase in absolute dollars resulted primarily from the hiring of
additional employees and the use of contract trainers to support increased
customer demand for training classes and technical support. The improvement in
services gross margins from (225)% for the nine months ended September 30, 1997
to (31)% for the nine months ended September 30, 1998 was primarily
attributable to the substantial growth in training revenue. The continued
improvement in services gross margins is contingent upon the future demand for
the services offered by the Company.
Overall gross margins are primarily affected by the mix of products
licensed, sales through direct versus indirect distribution channels, software
license fees revenue versus services revenue, and international versus domestic
revenue. The Company typically realizes higher gross margins on direct sales
relative to indirect distribution channel sales and higher gross margins on
software license fees relative to services revenue. As services revenue or
revenue derived through indirect distribution channels increase as a percentage
of total revenue, the Company's gross margins may be adversely affected.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of employee salaries, fees for outside consultants and related costs
associated with the development of new products, the enhancement and
localization of existing products, quality assurance and testing. Research and
development expenses increased 87% from $1.8 million for the nine months ended
September 30, 1997 to $3.4 million for the nine months ended September 30,
1998. The increase primarily resulted from salaries associated with newly hired
development personnel and consulting costs related to product localization. The
Company anticipates that research and development expenses will continue to
increase in absolute dollars.
Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, commissions, and costs associated with marketing programs
such as trade shows, seminars, advertising and new product launch activities.
Sales and marketing expenses increased 174% from $4.2 million for the nine
months ended September 30, 1997 to $11.6 million for the nine months ended
September 30, 1998. The increase was primarily attributable to costs associated
with additional direct sales, pre-sales support and marketing personnel, and,
to a lesser extent, an increase in marketing programs, including trade shows,
seminars and product launch activities. The Company anticipates that sales and
marketing expenses will continue to increase in absolute dollars as it
continues to expand its marketing programs and sales force to support its brand
awareness, product launches, international expansion and increased focus on
major account sales.
General and Administrative. General and administrative expenses consist
primarily of employee salaries and other personnel related costs for executive
and financial personnel, as well as legal, accounting and insurance costs.
General and administrative expenses increased 54% from $1.9 million for the
nine months ended September 30, 1997 to $2.9 million for the nine months ended
September 30, 1998. Substantially all of the increase was due to salaries
associated with newly hired personnel and related costs required to manage the
Company's growth and facilities expansion. The Company expects that its general
and administrative expenses will increase in absolute dollars as it continues
to expand its staffing to support expanded operations and facilities, and
incurs expenses relating to its new responsibilities as a public company.
Interest Income, Net. Interest income, net of interest expense, decreased
77% from $125,000 for the nine months ended September 30, 1997 to $29,000 for
the nine months ended September 30, 1998. The decrease was primarily due to an
increase in interest expense attributable to the Company's capital lease and
notes payable obligations.
Provision for Income Taxes. The Company incurred significant operating
losses for all periods from inception through September 30, 1998. The Company
has recorded a valuation allowance for the full amount of its net deferred tax
assets as the future realization of the tax benefit is not sufficiently
assured.
Years Ended December 31, 1996 and 1997
Revenue
The Company's total revenue increased 224% from $2.4 million for 1996 to
$7.7 million for 1997.
Software License Fees. Revenue from software license fees increased 202%
from $2.4 million for 1996 to $7.1 million for 1997. This increase was
primarily due to an increase in the number of licenses sold to use the
Company's software products including HomeSite, which the Company began selling
in March 1997. The growth in unit sales was also attributable to the
establishment of relationships with key domestic and international
26
<PAGE>
distribution partners during the second half of 1997. To a lesser degree, the
increase in revenue from software license fees resulted from an increase in
product price associated with the release of new versions of the Company's
products during the second half of 1997 and the introduction of subscription
sales in the fourth quarter of 1996.
Services. Prior to 1997, the Company provided minimal technical support to
its customers and recognized no revenue from such services during 1996. During
1997, the Company introduced training and fee-based technical support to its
customers.
Cost of Revenue
Cost of Software License Fees. Cost of software license fees increased
311% from $234,000 for 1996 to $961,000 for 1997. The increase in absolute
dollars was due to higher unit sales volume. The decrease in software license
fee gross margins from 90% for 1996 to 86% for 1997 was primarily attributable
to an increase in licensed technology costs and fees paid to third-party agents
for order fulfillment.
Cost of Services. The Company recognized no revenue from services during
1996. The cost of services incurred during 1997 related to the establishment of
the Company's training organization and the hiring of additional technical
support personnel.
Operating Expenses
Research and Development. Research and development expenses increased 210%
from $873,000 for 1996 to $2.7 million for 1997. The increase primarily
resulted from salaries associated with newly hired development personnel and
consulting costs related to product localization.
Sales and Marketing. Sales and marketing expenses increased 361% from $1.6
million for 1996 to $7.3 million for 1997. The increase was primarily
attributable to costs associated with additional direct sales, pre-sales
support and marketing personnel, and, to a lesser extent, an increase in
marketing programs, including trade shows, seminars and product launch and
brand awareness activities.
General and Administrative. General and administrative expenses increased
107% from $1.4 million for 1996 to $2.9 million for 1997. The increase was
primarily due to employee salaries associated with the hiring of executive and
financial personnel to help manage the Company's growth. The Company also
settled a wrongful termination action with a former employee and agreed to pay
the plaintiff a one-time cash settlement of $285,000.
Interest Income, Net. Interest income, net of interest expense, increased
from $14,000 for 1996 to $187,000 for 1997. The increase was primarily
attributable to interest earned on cash received from financing activities
during 1997, partially offset by interest expense attributable to the Company's
capital lease obligations.
Period from Inception (May 5, 1995) through December 31, 1995
During the period from inception (May 5, 1995) through December 31, 1995,
the Company was in the development stage and its operating activities consisted
primarily of recruiting of personnel, research and development of the Company's
ColdFusion product line, and distribution of the Company's initial version of
ColdFusion. The Company generated no revenue and incurred operating expenses
totaling $188,000 during this period. Accordingly, a comparison of the
operating results for that period and 1996 is not meaningful and has been
omitted.
27
<PAGE>
Quarterly Results of Operations
The following tables set forth a summary of the Company's unaudited
quarterly operating results for each of the seven quarters in the period ended
September 30, 1998. This information has been derived from unaudited interim
financial statements that, in the opinion of management, have been prepared on
a basis consistent with the financial statements contained elsewhere in this
Prospectus and include all adjustments, consisting of only normal recurring
adjustments, necessary for a fair statement of such information when read in
conjunction with the Company's Financial Statements and Notes thereto. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30
1997 1997 1997 1997 1998 1998 1998
-------- ----------- ----------- ------------ ---------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue:
Software license fees ................. $1,143 $ 1,304 $ 1,888 $ 2,781 $ 3,568 $ 4,017 $ 4,131
Services .............................. 68 76 116 274 464 582 1,141
------ ------- ------- ------- ------- ------- -------
Total revenue .................... 1,211 1,380 2,004 3,055 4,032 4,599 5,272
------ ------- ------- ------- ------- ------- -------
Cost of revenue:
Cost of software license fees ......... 157 186 197 421 421 399 442
Cost of services ...................... 146 303 396 608 701 909 1,245
------ ------- ------- ------- ------- ------- -------
Total cost of revenue ............ 303 489 593 1,029 1,122 1,308 1,687
------ ------- ------- ------- ------- ------- -------
Gross profit ........................... 908 891 1,411 2,026 2,910 3,291 3,585
------ ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development .............. 352 581 868 901 1,025 1,003 1,343
Sales and marketing ................... 1,006 1,184 2,026 3,056 3,120 3,824 4,617
General and administrative ............ 377 499 990 1,008 1,021 888 962
------ ------- ------- ------- ------- ------- -------
Total operating expenses ......... 1,735 2,264 3,884 4,965 5,166 5,715 6,922
------ ------- ------- ------- ------- ------- -------
Loss from operations ................... (827) (1,373) (2,473) (2,939) (2,256) (2,424) (3,337)
Interest income (expense), net ......... (9) 40 94 62 45 20 (36)
--------- ------- ------- ------- ------- ------- -------
Net loss ............................... $ (836) $(1,333) $(2,379) $(2,877) $(2,211) $(2,404) $(3,373)
======== ======= ======= ======= ======= ======= =======
As a Percentage of Total Revenue:
Revenue:
Software license fees ................. 94.4% 94.5% 94.2% 91.0% 88.5% 87.3% 78.4%
Services .............................. 5.6 5.5 5.8 9.0 11.5 12.7 21.6
-------- ------- ------- ------- ------- ------- -------
Total revenue .................... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- ------- ------- ------- ------- ------- -------
Cost of revenue:
Cost of software license fees ......... 13.0 13.5 9.8 13.8 10.4 8.7 8.4
Cost of services ...................... 12.0 21.9 19.8 19.9 17.4 19.7 23.6
-------- ------- ------- ------- ------- ------- -------
Total cost of revenue ............ 25.0 35.4 29.6 33.7 27.8 28.4 32.0
-------- ------- ------- ------- ------- ------- -------
Gross profit ........................... 75.0 64.6 70.4 66.3 72.2 71.6 68.0
-------- ------- ------- ------- ------- ------- -------
Operating expenses:
Research and development .............. 29.1 42.1 43.3 29.5 25.4 21.9 25.5
Sales and marketing ................... 83.1 85.8 101.1 100.0 77.4 83.1 87.6
General and administrative ............ 31.1 36.2 49.4 33.0 25.3 19.3 18.2
-------- ------- ------- ------- ------- ------- -------
Total operating expenses ......... 143.3 164.1 193.8 162.5 128.1 124.3 131.3
-------- ------- ------- ------- ------- ------- -------
Loss from operations ................... (68.3) (99.5) (123.4) (96.2) (55.9) (52.7) (63.3)
Interest income (expense), net ......... ( 0.7) 2.9 4.7 2.0 1.1 0.4 ( 0.7)
-------- ------- ------- ------- ------- ------- -------
Net loss ............................... (69.0)% (96.6)% (118.7)% (94.2)% (54.8)% (52.3)% (64.0)%
======== ======= ======= ======= ======= ======= =======
</TABLE>
The Company's total revenue has increased each consecutive quarter during
the seven fiscal quarters ending September 30, 1998, as a result of market
acceptance of the Company's products and diversification of the Company's sales
channels, including expansion of the Company's direct sales force and
relationships with domestic
28
<PAGE>
and international distributors. Services revenue has generally increased along
with increases in the Company's installed customer base. Cost of revenue from
software license fees has fluctuated as a percentage of revenue from software
license fees primarily due to growth in the indirect distribution channel, use
of licensed technology and economies of scale gained from increased license
volume. Cost of services revenue increased quarter to quarter in absolute
dollars primarily due to increases in personnel and related costs for customer
support and training.
Operating expenses increased in each quarter, reflecting increased
spending on developing, selling, marketing and supporting the Company's
products, as well as building the Company's market presence. Research and
development costs have increased as a result of higher personnel and consulting
costs associated with enhancing existing products and developing new products.
Sales and marketing expenses increased as a result of hiring additional sales
and marketing personnel and an increase in marketing program costs. General and
administrative expenses increased throughout 1997 primarily due to the hiring
of the Company's executive and financial staff and support personnel, increased
use of outside services during the second half of 1997 and a legal settlement.
The decrease in the second quarter of 1998 primarily was the result of a
decline in the use of outside services and a reduction in bad debt expense.
The Company's operating results have varied on a quarterly basis during
its short operating history and are expected to fluctuate significantly in the
future. A variety of factors, many of which are outside of the Company's
control, may affect the Company's quarterly operating results. These factors
include, among others, the following: the evolution of the market for Web
development products; market acceptance of the Company's products; the
Company's success and timing in developing and introducing new products and
enhancements to existing products; market acceptance of products developed by
competitors; changes in pricing policies by the Company or its competitors; an
increase in the length of the Company's sales cycle; changes in customer buying
patterns; customer order deferrals in anticipation of new products or
enhancements by the Company or competitors; market entry by new competitors;
development and performance of the Company's distribution channels; general
economic conditions and economic conditions specific to Internet-related
industries. Any one of these factors could cause the Company's revenue and
operating results to vary significantly in the future.
The Company's limited operating history and the undeveloped nature of the
market for Web development products make predicting future revenue difficult.
The Company's expense levels are based, in part, on its expectations regarding
future revenue increases, and to a large extent such expenses are fixed,
particularly in the short term. There can be no assurance that the Company's
expectations regarding future revenue are accurate. Moreover, the Company may
be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall of revenue
in relation to the Company's expectations would likely cause significant
declines in the Company's quarterly operating results.
The Company is also increasing its sales and marketing efforts focused on
larger purchases by larger customers. Such transactions are generally more
complex and may increase the length of the Company's average sales cycle. The
Company anticipates that an increasing portion of its revenue could be derived
from larger orders, in which case the timing of receipt and fulfillment of any
such orders could cause fluctuations in the Company's operating results,
particularly on a quarterly basis.
Due to the foregoing factors, the Company's operating results are
difficult to forecast. The Company believes that period-to-period comparisons
of its historical operating results are not meaningful and should not be relied
upon as an indication of future performance. Also, the Company's operating
results may fall below the expectations of the Company, securities analysts or
investors in some future quarter. In such event, the market price of the
Company's Common Stock would likely be materially adversely affected.
Liquidity and Capital Resources
Since its inception, the Company has funded operations primarily through
net cash proceeds from private placements of preferred stock totaling $12.3
million through September 30, 1998. At September 30, 1998, the Company had cash
and cash equivalents totaling $1.9 million. In December 1998, the Company
received gross proceeds of $500,000 from the sale of 31,250 shares of Series A
Preferred Stock.
Cash used for operating activities for 1997 was $3.3 million, primarily
due to a net loss of $7.4 million, partially offset by increases in accounts
payable, accrued expenses and deferred revenue. Cash used for operating
activities for the nine months ended September 30, 1998 was $3.6 million,
primarily due to a net loss of $8.0 million, partially offset by increases in
accrued expenses and deferred revenue.
29
<PAGE>
Cash used for investing activities for 1997 and the nine months ended
September 30, 1998 was $1.8 million and $1.7 million, respectively. Investing
activities for the periods were primarily purchases of equipment, consisting
largely of computer servers, workstations and networking equipment.
Cash provided by financing activities for 1997 was $10.0 million,
primarily due to the issuance of preferred stock for net proceeds totaling $9.6
million. Cash provided by financing activities for the nine months ended
September 30, 1998 was $1.6 million, primarily due to the issuance of notes
payable of $1.4 million and the proceeds from the exercise of common stock
options of $537,000.
During 1997, the Company had established a high level of allowance for
doubtful accounts and sales returns as a percentage of accounts receivable. The
high reserve levels were established in 1997 due to a large balance of
delinquent accounts and a lack of sufficient controls and financial systems. The
Company implemented controls and improved systems in 1997 and 1998 which
resulted in substantial improvements in accounts receivable collections. The
Company expects the level of the allowance for doubtful accounts and sales
returns will decrease as a percentage of accounts receivable.
In March 1997, the Company acquired substantially all of the assets of
Bradbury, including all rights to the HomeSite HTML design tool in exchange for
$252,000 in cash and 13,000 shares of the Company's Series A Convertible
Preferred Stock. In order to finance the acquisition, the Company issued 10%
convertible notes payable totaling $252,000 and warrants to purchase 6,300
shares of the Company's Common Stock at a price of $4.00 per share to two
stockholders of the Company. In addition, as part of the acquisition agreement,
the Company paid Bradbury's former owner $165,000 in October 1998, based on the
length of time he has been employed by the Company.
In March 1998, the Company entered into a new line of credit with a bank
which allows the Company to borrow up to $2.0 million for working capital
purposes and for the issuance of letters of credit. The line of credit expires
on the earlier of the closing of an initial public offering or March 26, 1999.
Amounts available under the line of credit are a function of eligible accounts
receivable and bear interest at the bank's prime rate (8.25% at September 30,
1998) plus 1%. At September 30, 1998, there were letters of credit outstanding
under the line of $487,000 and an additional $1.5 million was available for
borrowing. In August 1998, the Company received a covenant waiver from the bank
for the months of May and June 1998, and the bank amended the terms of the line
of credit to waive certain financial covenants through October 1998. In December
1998, the bank extended the terms of the arrangement to waive certain financial
covenants from November 1998 through the earlier of the closing of an initial
public offering or March 26, 1999.
In May 1998, the Company entered into an equipment loan line agreement
that allows the Company to borrow up to $2.0 million for the purchase of fixed
assets through December 1998. The initial term of each loan is 36 months from
the borrowing date. Monthly payments are equal to 3.155% of the original amount
borrowed, for an effective interest rate of approximately 15%. At the end of
the term, the Company may choose to make one additional payment of 15% of the
original amount funded or, if no default has occurred, the term may be extended
for an additional six months at the original monthly payment rate. At September
30, 1998, the Company had $1.3 million outstanding under the line, which was
collateralized by previous purchases of furniture and equipment. In December
1998, the Company borrowed an additional $214,000.
As of September 30, 1998, the Company's primary commitments consisted of
obligations outstanding under operating leases, $581,000 of capital lease
obligations and $1.3 million of notes payable under the equipment loan line.
As of September 30, 1998, the Company had net operating loss ("NOL")
carryforwards of approximately $15.0 million available for federal purposes to
reduce future taxable income expiring at various dates through 2018. Under the
provisions of the Internal Revenue Code, certain substantial changes in the
Company's ownership may have limited, or may limit in the future, the amount of
NOL carryforwards which could be utilized annually to offset future taxable
income.
The Company expects to experience significant growth in its operating
expenses for the foreseeable future in order to execute its business plan,
particularly research and development and sales and marketing expenses. As a
result, the Company anticipates that such operating expenses, as well as planned
capital expenditures, will constitute a material use of its cash resources. In
addition, the Company may utilize cash resources to fund acquisitions or
investments in complementary businesses, technologies or product lines. The
Company believes
30
<PAGE>
that the net proceeds from the Offering, together with its current cash and cash
equivalents will be sufficient to meet its anticipated cash requirements for
working capital and capital expenditures for at least 12 months. However, in the
event that the Offering is not completed on a timely basis, the Company would
seek additional funding through a private financing. There can be no assurance
that such additional funding would be available on terms attractive to the
Company, or at all. In the event that the Company has not completed the Offering
or obtained other financing in excess of $3.0 million by February 28, 1999, the
Company has a commitment from existing investors to provide a $3.0 million
working capital line of credit. Any borrowings under this arrangement would be
payable at the earlier of the closing of an initial public offering or February
28, 2000. Thereafter, if cash generated from operations is insufficient to
satisfy the Company's liquidity requirements, the Company may seek to sell
additional equity or debt securities, or obtain additional credit facilities.
Year 2000 Compliance
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. The use of software and computer systems that are not Year
2000 compliant could result in system failures or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities. As a result, many companies' software and computer systems may need
to be upgraded or replaced in order to comply with Year 2000 requirements.
Because ColdFusion does not involve data storage, the ability of a Web
application built with ColdFusion to comply with Year 2000 requirements is
largely dependent on whether the database underlying the application is Year
2000 compliant. If ColdFusion is connected to a database that is not Year 2000
compliant, the information received by a ColdFusion application may be
incorrect. Therefore, although the Company believes its products are Year 2000
compliant, there can be no assurance that Web applications developed using its
products will comply with Year 2000 requirements. Furthermore, the purchasing
patterns of customers or potential customers may be affected by Year 2000
issues as companies expend significant resources to correct their current
systems for Year 2000 compliance. These expenditures may result in reduced
funds available for Web development activities, which could have a material
adverse effect on the Company's business, operating results and financial
condition. Year 2000 complications may disrupt the operations, viability or
commercial acceptance of the Internet, which could have a material adverse
impact on the Company's business, operating results and financial condition.
In connection with the Company's installation of new internal software
systems in October 1998, the Company has received verbal confirmations from
software vendors that the software the Company has purchased and is installing
is Year 2000 compliant, and it is in the process of obtaining written
certifications from such vendors to the same effect. Based on the foregoing,
the Company currently has no reason to believe that its internal software
systems are not Year 2000 compliant. To date, the Company has not incurred
significant incremental costs in order to comply with Year 2000 requirements
and does not believe it will incur significant incremental costs in the
foreseeable future. However, there can be no assurance that Year 2000 errors or
defects will not be discovered in the Company's internal software systems and,
if such errors or defects are discovered, there can be no assurance that the
costs of making such systems Year 2000 compliant will not have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company relies on third party vendors which may not be Year 2000
compliant for certain equipment and services. In addition, many of the
Company's distributors are dependent on commercially available operating
systems, which may be impacted by Year 2000 complications. To date, the Company
has not conducted a Year 2000 review of its vendors or distributors. Failure of
systems maintained by the Company's vendors or distributors to operate properly
with regard to the Year 2000 and thereafter could require the Company to incur
significant unanticipated expenses to remedy any problems or replace affected
vendors, could reduce the Company's revenue from its indirect distribution
channel and could have a material adverse effect on the Company's business,
operating results and financial condition.
31
<PAGE>
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for the reporting and display of
comprehensive income and its components. SFAS No. 130 is effective beginning in
1998. Adoption of SFAS No. 130 is for presentation only and did not affect the
Company's financial condition or results of operations.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which supersedes SFAS No. 14, Financial
Reporting for Segments of a Business Enterprise. This statement changes the way
that public business enterprises report segment information, including
financial and descriptive information about their selected segment information.
Under SFAS No. 131, operating segments are defined as revenue-producing
components of the enterprise which are generally used internally for evaluating
segment performance. SFAS No. 131 is effective for the Company's fiscal year
ending December 31, 1998 and is not expected to have a material impact on the
Company's existing disclosures.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits. SFAS No. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits and is
effective for the Company's fiscal year ending December 31, 1998. SFAS No. 132
relates to disclosure only and will not affect the Company's financial
condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. The new standard establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company does
not expect SFAS No. 133 to have a material effect on its financial condition or
results of operations.
In February 1998, the AcSEC issued SoP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SoP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. The Company does
not expect SOP 98-1, which is effective for the Company beginning January 1,
1999, to have a material effect on the Company's financial condition or results
of operations.
In April 1998, the AcSEC issued SoP 98-5, Reporting on the Costs of
Start-Up Activities. Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SoP 98-5, the cost of start-up activities should be expensed as incurred.
SoP 98-5 is effective for the Company's fiscal 1999 financial statements and
the Company does not expect its adoption to have a material effect on the
Company's financial condition or results of operations.
32
<PAGE>
BUSINESS
The Company
Allaire develops, markets and supports application development and server
software for a wide range of Web development, from building static Web pages to
developing high-volume, interactive Web applications. The Company's products
and services enable organizations to expand the reach of their information
systems to the Web, as well as to develop new Web-based business applications
in areas such as electronic commerce, content management and personalization.
The Company specifically designs its products to integrate key emerging Web
client and Web server software platforms and technologies and to interoperate
with key enterprise and client-server technologies. The Company's flagship
ColdFusion product line employs a comprehensive, easy to learn, tag-based
markup language that allows Web developers to quickly and efficiently create
Web applications. More than 30,000 ColdFusion application server licenses and
more than 100,000 licenses for the Company's HomeSite HTML design tool have
been sold to date.
Industry Background
The Internet has experienced dramatic growth, both in terms of the number
of users and as a means of conducting commercial transactions, and is expected
to continue to grow rapidly. According to a report prepared by International
Data Corporation, or IDC, the number of Internet users has increased from
approximately 14 million in 1995 to approximately 97 million in 1998, and is
expected to more than double over the next three years. The software technology
that has engendered the openness, ubiquity and usability of the Internet and
the World Wide Web provides a powerful business software platform. Web
technology provides an alternative to existing mainstream computing platforms,
creates new opportunities for commerce and information exchange, and represents
potential replacement technology to existing forms of media and communications.
Businesses are adopting Web technology rapidly to upgrade enterprise and
client-server applications. An IDC report estimates that, by mid-1997, 12% of
U.S. companies had implemented an Internet-based online transaction processing
application and 37% had an Internet-based online transaction processing project
in some stage of planning or evaluation. There are a number of reasons for
businesses to adopt Web technology. Among them, Web browsers provide a uniform
and intuitive graphical user interface, which significantly reduces remote
access and training costs. Web application server architecture is compatible
with legacy mainframe and client-server architectures, and server deployment
permits immediate availability of applications and upgrades throughout the
organization, reducing deployment and maintenance costs.
In addition to providing a means to upgrade legacy applications, Web
technology has enabled new online business models and the development and
deployment of software to facilitate an assortment of business interactions
that were not practical to address with traditional enterprise computing
systems. The Internet has created a public infrastructure for delivering
information and applications. This infrastructure has enabled businesses to
conduct transactions over secure extranets and has allowed businesses to reach
customers through electronic commerce applications. An IDC report estimates
that the volume of commerce over the Internet will increase from approximately
$12 billion in 1997 to over $230 billion by 2001.
Web technology also represents a potential replacement technology for
traditional print and broadcast media and telephone, mail delivery and other
communications services. The target hardware platforms for Web applications
extend beyond personal computers to encompass a variety of devices such as
televisions, telephones, hand-held computers and pagers. Communications service
providers, media vendors and other major participants in industries facing
encroachment by Web technology have made substantial investments in Web
technology and service providers. Recent examples include National Broadcasting
Co., Inc.'s MSNBC joint venture with Microsoft Corporation, MCI WorldCom,
Inc.'s strategic relationship with Earthlink Network, Inc., and The Walt Disney
Company's investment in Infoseek Corporation.
Demand from existing businesses and new Web-based enterprises for Web
application software has created a sizable market experiencing strong growth.
According to an IDC report, the total business application software market
accounted for $50.7 billion in revenue in 1997. According to a Gartner Group
survey of selected U.S. corporate information technology users, approximately
92% of all respondents plan to increase spending on intranet and Internet
applications in 1998, as corporations migrate applications from legacy
platforms to Web technology. An IDC report estimates that Internet-centric
software specifically designed for Web technology, which accounted
33
<PAGE>
for less than $1 billion in revenue in 1996, will approach $10 billion in
revenue by 2000 due to aggressive corporate adoption of Web technology.
In response to this growth, the number of Web developers is growing
quickly. An IDC report estimates that there were 7 million software developers
worldwide at the end of 1996. Of these, 3 million were rapid application
development ("RAD"), 4GL and analysis modeling and design developers, who used
tools such as Visual Basic and PowerBuilder. The Company believes that many of
these developers are converting from enterprise and client-server application
development products to Internet-centric products. In addition to the migration
of these traditional developers, many other Web developers have emerged from
non-traditional application development backgrounds such as page layout,
graphic design, and desktop database and spreadsheet programming. IDC estimates
that professional Web development tools, including Web page design and Web
application development tools, will account for $548 million in license and
associated services revenue in 1998 and will grow to more than $1.5 billion in
license and associated services revenue by 2002.
The Company believes that most existing Web-enabled RAD tools fail to
address the unique requirements and challenges faced by Web application
developers. Most Web developers are proficient with Hypertext Markup Language,
or HTML, and many are familiar with eXtensible Markup Language, or XML, core
technologies that are specifically designed for the Web platform. The ease of
using markup languages such as HTML and XML, which use declarative,
English-like tags consisting of a bracketed word with attributes, has enabled a
large number of non-traditional programmers to develop complex Web sites. These
technologies enable Web applications to unite rich content, traditional
business transactions, interactivity and personalization. Because the Web
platform is a hybrid between a communications medium and a traditional
application environment, the background of many developers drawn to Web
development is different from the background of traditional programmers. Web
developers rely more heavily on declarative, tag-based development languages
than on traditional scripting languages.
A number of the programming languages that have migrated from
client-server development or have emerged for developing Web applications, such
as Perl and JavaScript, however, use a non-declarative scripting syntax. As a
result, Web application developers are faced with the prospect of having to
code simultaneously in unfamiliar scripting languages and declarative,
tag-based languages. At the same time, developers creating Web applications are
often required to integrate a variety of enterprise technologies, such as
databases, directories, messaging servers, transaction monitors and object
middleware. Many of these technologies require the use of complex programming
interfaces that are difficult to learn.
Adding to the technological challenges facing Web developers is the time
challenge created by business demands for compressed development schedules.
Cutter Information Corporation estimates that 72% of Web application
development projects have a schedule of six months or less, and 14% have a
schedule of less than a month. Faced with a shortage of programmers familiar
with scripting languages, businesses are increasingly turning to HTML
developers who do not have a traditional programming background in order to
meet these compressed schedules, producing a new breed of Web application
developers and development teams.
The Company believes that in order to successfully address Web development
requirements, a Web application development environment must provide Web
developers with a familiar, easy to use tag-based programming language similar
to HTML and XML. Such a language, when used in conjunction with HTML and XML,
should allow developers to develop Web applications without requiring them to
change programming syntax. The language should also include high-level building
blocks that encapsulate complex programming interfaces, reducing the amount of
code and development time required for links to enterprise technologies.
The Company believes that the successful deployment of Web applications
requires a scalable platform, or Web application server. A Web application
server is a software program that hosts applications to be accessed by Web
browsers and other client devices and that enables applications to access
enterprise servers and legacy systems. To meet the demands of customers that
applications handle increasing transaction volumes 24 hours a day, the
application server should also provide advanced load-balancing and fail-over
capabilities.
Furthermore, the Company believes that application frameworks which
provide pre-built components for electronic commerce, content management and
personalization will be in demand as organizations look to develop new
Web-based business applications.
34
<PAGE>
The Allaire Solution
Allaire is a leading provider of application development and server
software for a wide range of Web development, from building static Web pages to
developing high-volume, interactive Web applications. The Company designed
ColdFusion Markup Language, or CFML, to use the same easy to learn tag and
attribute syntax used in HTML and XML. When used in conjunction with HTML and
XML, CFML allows developers to develop Web applications without requiring them
to change programming syntax. Using the Company's ColdFusion and HomeSite
products and services, Web developers can:
o Rapidly create complex Web sites and sophisticated Web applications
through the use of CFML;
o Efficiently build high-volume, interactive Web applications, including
applications for electronic commerce, content management and
personalization;
o Readily integrate leading Internet and enterprise technologies;
o Securely deploy scalable, platform-independent applications over the
Internet, across extranets and within intranets; and
o Obtain high-quality education, training and support from the Company
and its partners.
Allaire Strategy
The Company's goal is to be the leading provider of Web development tools,
application servers and application frameworks for organizations seeking to
develop new online business operations. Key elements of the Company's strategy
to attain this goal are:
Maximize Market Share. The Company has established significant market
presence for its Web development and application server products by providing
high-quality products and services at competitive prices and by working to
ensure the continuing adoption of its products and the ongoing success of its
developer community. The Company plans to continue to seed its HomeSite product
broadly throughout the market of Web developers through the Company's "HomeSite
Everywhere" marketing program. This program consists of wide electronic
distribution of a non-expiring evaluation version of HomeSite and the active
pursuit of original equipment manufacturer, or OEM, partnerships. By providing
ready access to HomeSite, the Company seeks to establish broad association of
the Allaire brand with high quality and highly productive Web development
products. As Web developers upgrade from static pages and Web sites to
interactive Web sites and applications, the Company will continue to migrate
them from HomeSite to ColdFusion, which uses the same productive development
environment and a similar tag-based development approach as HomeSite. To help
ensure rapid adoption of its products and ongoing successful use by developers
at all skill levels, the Company plans to continue to enhance its Allaire
Alliance partner program and to continue to provide rich online information
resources, an online gallery of readily available third-party custom CFML tags,
and education and training.
Support an Open Web Application Architecture. The Company specifically
architected its products to be open by supporting development for key Web
client and Web server platforms, technologies and protocols, as well as key
enterprise and client-server standards. The Company intends to continue to
support emerging Web technologies and additional enterprise and client-server
technologies, and to continue to provide products with an open and extensible
architecture. By enabling the Company's customers to choose among the platforms
and technologies that best meet their needs without compromising functionality
or performance, the Company believes its products are well positioned as large
enterprises and other organizations upgrade legacy mainframe and client-server
applications to Web applications. In addition, by enabling customers to
preserve investments in legacy technologies, the Company expects to be able to
remove many of the potential technological barriers to purchase as it moves
from purchases by individual developers to larger standards-based purchases by
major corporate customers.
Focus on Major Account Sales. The Company believes that successful
department-level installations of its products will provide the foundation for
more complex and business-critical projects to be deployed across an
organization. As major accounts increase their investment in application
development technologies, the purchasing decision more often includes input
from senior managers who base their decisions on business criteria and
enterprise standards as well as by developers principally using technical
criteria. In order to win larger sales within major accounts, the Company
intends to expand the support and coverage of such accounts within its domestic
sales force, and to work with systems integrators and other high-profile Web
development organizations to more effectively present the business advantages
of adopting the Company's Web development and application server technology. As
part of the Company's
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HomeSite Everywhere marketing program, the Company seeks to convert broad
adoption within organizations of the non-expiring evaluation version into
standards-based volume licenses and site licenses.
Expand Channel Distribution. In order to better capitalize on
opportunities created by domestic and international markets, the Company
intends to expand its channel distribution through distributors, direct and OEM
resellers and systems integrators. The Company believes that selling its
products through these channel partners gives the Company an opportunity to
gain a greater share of emerging markets, enabling more rapid entry and a
larger effective presence in such markets, while containing its sales,
marketing and distribution costs. In each market, the Company will work to
optimize the balance of direct presence and presence through channel partners.
Expand Availability of Consulting and Training. The Company intends to
enhance and expand the delivery of consulting and training, both directly and
through training partners. Making such services widely available allows the
Company to benefit from the increasing demand for trained Web developers. Such
services also are often required for sales to major accounts that intend to
develop and deploy complex, large-scale and business-critical Web applications.
By offering high-quality consulting and training services, the Company expects
to better ensure and enhance its customers' productive and successful use of
its products.
Maintain Technological Leadership. The Company intends to continue to
devote substantial resources to the development and acquisition of new and
innovative products for the development and deployment of Web applications. The
products developed or acquired by the Company to date are among the earliest
and most recognized entrants into the emerging markets for Web application
server technology and Web development software. From its earliest days, the
Company believes it has been able to leverage its understanding of the market
opportunity for Web development products, its innovation, and the active
support of its developer base into productive and successful application server
products. The Company intends to continue to use these core strengths to
introduce additional innovative products for the development and deployment of
open, scalable and secure Web applications, including the development of
application frameworks to accelerate the creation of new Web-based business
applications.
Products
The Company has two product brands, HomeSite, an HTML design tool, and
ColdFusion, an integrated Web development environment and Web application
server product line. The Company's products enable Web developers to build
high-volume, interactive Web sites and Web applications, including applications
for electronic commerce, content management and personalization. The Company
introduced versions 4.0 of ColdFusion and HomeSite in November 1998. The
discussion and chart below describe the Company's products.
HomeSite
HomeSite is a leading HTML design tool, which is principally used for the
creation of static Web sites. More than 100,000 licenses of HomeSite 4.0 and
earlier versions have been sold to date. HomeSite 4.0 and earlier versions have
won the 1998 Web Techniques Editors' Choice Award; the 1998 Win 100 Award from
Windows Magazine; PC Magazine's Editors' Choice Award; Internet Computing
Magazine's 'Net Best' Award; Webdeveloper.com's Product Award; CNET's
builder.com Editor's Choice Award; CNET's builder.com 1998 Product Award and
CNET's Internet Excellence Award. HomeSite 4.0 runs on Microsoft Windows NT,
Windows 95 and Windows 98.
ColdFusion
ColdFusion is a leading cross-platform Web application development system.
ColdFusion includes an integrated development environment, ColdFusion Studio,
and a Web application server, ColdFusion Server. More than 30,000 application
server licenses of ColdFusion 4.0 and earlier versions have been sold to date.
ColdFusion 4.0 and earlier versions have won a 1998 Codie Award for software
excellence from the Software Publishers Association; a "Best of the Show Award"
at the 1998 Fall Internet World; CNET's builder.com 1998 Product Award and the
Network World Blue Ribbon Award.
ColdFusion Studio 4.0. ColdFusion Studio is the integrated development
environment for ColdFusion. Based on HomeSite, ColdFusion Studio allows
developers to preserve development skills as well as individual projects as
they move from developing static Web pages and sites to interactive Web sites
and Web applications. ColdFusion Studio 4.0 runs on Microsoft Windows NT,
Windows 95 and Windows 98.
ColdFusion Server 4.0. ColdFusion Server 4.0 is an open, scalable and
secure Web application server. A Web application server is a software program
that hosts applications to be accessed by Web browsers and other client
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devices and that enables applications to access enterprise servers and legacy
systems. Web applications built with ColdFusion range from simple
database-driven pages to full electronic commerce solutions deployed on
intranets, extranets and the Internet. ColdFusion Server 4.0 is available in
two editions, Professional and Enterprise, and runs on Windows NT. In addition,
the Enterprise edition runs on Sun Solaris.
<TABLE>
<CAPTION>
Product
(Suggested List Price) Description Typical Applications Target Users
- ------------------------ ------------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C>
HomeSite 4.0 HTML page design and High-quality static Web site developers
(Electronic Version Web site development tool corporate Web sites Web development
$89; Packaged Version Features an intuitive team managers
$99) graphical interface
- -----------------------------------------------------------------------------------------------------------------
ColdFusion An integrated development Business systems (HR, Web application
Studio 4.0 environment with a financial, customer developers
($395) number of visual tools for support) Enterprise and client-
creating Web applications Electronic commerce server programmers
Includes the award- (stores, business to HTML and desktop
winning HomeSite HTML business) database developers
design tool Dynamic content Development team
Features include publishing (document managers
interactive debugging, management, dynamic
remote development news and personalized
capabilities and one-step information)
deployment Collaboration (discussion,
Team development support project and workflow
management)
- -----------------------------------------------------------------------------------------------------------------
ColdFusion Server Supports up to four Business intranets and Large enterprises
Professional 4.0 processors and allows an extranets Large systems integrators
($1,295) unlimited number of Field office extranets
concurrent users New Web-based
Single server applications businesses
Features include open using a relational database Internet service providers
state repository and shared
server security
Access to any ODBC and
OLE-DB data source
- -----------------------------------------------------------------------------------------------------------------
ColdFusion Server Supports up to eight High-volume, business- Large enterprises
Enterprise 4.0 processors and allows an critical commerce sites Large systems integrators
($3,495) unlimited number of and applications
concurrent users New Web-based
Includes all Professional 4.0 Enterprise intranet businesses
features, plus features applications
required for large scale Internet service providers
applications, including Enterprise applications
clustering, load balancing requiring native database
and automatic fail over and drivers or CORBA
CORBA support
Sybase, Oracle and
Microsoft SQL Server
native database drivers
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
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Technology
The Company's products and services enable Web developers to build
high-volume, interactive Web sites and Web applications, including applications
for electronic commerce, content management and personalization. The Company's
technology enables organizations to overcome Web development challenges by
making Web developers more productive in developing Web sites and applications,
by enabling Web sites and applications to readily incorporate key emerging Web
platforms and technologies, and by enabling these sites and applications, once
deployed, to be scalable and secure.
Productive Development
The Company's technology is focused on increasing the productivity of Web
developers and development teams. ColdFusion includes a number of innovative
features to enhance individual and team development productivity, including the
easy to use, tag-based CFML, an integrated development environment and team
development capabilities.
CFML is the Company's tag-based server programming language. CFML uses the
same tag and attribute syntax as HTML and XML. HTML is the tag-based markup
language used for creating the majority of static Web pages and interfaces for
interactive Web applications. HTML is easy to learn and use, consisting of a
limited number of descriptive tags, each with a limited number of possible
attributes. As a result, a large number of people have been able to learn and
use HTML professionally to develop static Web pages and Web sites. XML is a
rapidly emerging markup language which uses the same tag and attribute syntax
as HTML for structuring and manipulating data on the Web platform.
Web developers rely more heavily on declarative tag-based development
languages than on traditional scripting languages. A number of the programming
languages that have migrated from client-server development or have emerged for
developing Web applications, such as Perl and JavaScript, however, use a
non-declarative scripting syntax. As a result, Web application developers are
faced with the prospect of having to code simultaneously in unfamiliar
scripting languages and declarative, tag-based languages. At the same time,
developers creating Web applications are often required to integrate a variety
of enterprise technologies, such as databases, directories, messaging servers,
transaction monitors and object middleware. Many of these technologies require
the use of complex programming interfaces that are difficult to learn.
CFML's similarity to HTML and XML makes it easy to learn and use,
particularly for Web developers who are familiar with HTML and are driving the
adoption of XML. When used in conjunction with HTML for creating user
interfaces and XML for data manipulation, CFML provides developers with a
complete application programming environment without requiring them to change
programming syntax. CFML tags also include high-level building blocks that
encapsulate complex processes to reduce programming effort and the amount of
code and development time required for advanced interactions with enterprise
servers, such as database, messaging, directory, Web and file servers.
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Code Example
The example below illustrates the declarative nature of CFML syntax and
the encapsulation of interaction with a database server. It compares the CFML
code required with the code required to accomplish the same result using a
scripting language, in this case JavaScript. This database retrieval example
demonstrates the code required to connect to a database, retrieve a list of
employees and output the list ordered by department, displaying the first name
and last name with one record per line.
[CODE EXAMPLES]
CFML Code
[Descriptive Computer Directives -- CFML Code]
JavaScript Code
[Descriptive Computer Directives -- JavaScript Code]
[/CODE EXAMPLES]
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The Company's HomeSite 4.0 and ColdFusion 4.0 products provide a visual
editing environment to enable Web developers to quickly build state-of-the-art
static Web sites and interactive Web applications. Both tools provide two-way
visual programming, which enables Web developers to prototype and modify pages
from within a visual representation of the page itself. In addition, ColdFusion
Studio includes visual debugging capabilities. However, unlike the
"what-you-see-is-what-you-get," or WYSIWYG, tools, HomeSite and ColdFusion
Studio include graphical support only where it is likely to enhance
productivity, and focus on code development and maintaining the integrity of
code generated in the graphical editing mode. HomeSite and ColdFusion Studio
both include a number of additional productivity enhancements, and support
emerging Web technologies, including JavaScript, cascading style sheets,
dynamic HTML, or DHTML, and XML. ColdFusion team development features permit
geographically dispersed Web development teams to work together productively
and securely on large projects across servers distributed throughout multiple
locations.
Open Integration
The Company specifically designs its products to be open by supporting key
Web client and Web server software platforms, technologies and protocols, as
well as key enterprise and client-server standards. ColdFusion is fully
integrated with a broad range of Internet protocols and technologies, enabling
developers to incorporate these technologies in ColdFusion applications through
the use of straightforward CFML tags. The CFML tag for XML supports automatic
parsing of XML data into CFML variables and the translation of query record
sets into XML.
ColdFusion 4.0 enables interaction with any open database connectivity, or
ODBC, compliant relational database with a single CFQUERY tag. ColdFusion also
contains native database drivers for Oracle, Sybase or Microsoft SQL servers
and support for object linking and embedding database, or OLE-DB, which permits
ColdFusion applications to utilize additional datasource types such as Lotus
Notes and Microsoft Exchange. Additional tags enable interaction with other
servers, such as mail servers, for groupware and workflow applications.
ColdFusion supports a number of methods for extending ColdFusion
applications to interoperate with legacy systems and other enterprise
technologies. ColdFusion natively supports application components built using
cross-platform enterprise component object standards. CFML is also extensible
through ColdFusion extensions, or CFXs. CFXs can be used to extend the
functionality provided by the Company's core set of tags or to create a
multi-tier component application architecture in which advanced programmers can
encapsulate complex logic or database interaction into component building
blocks to be used by other developers.
Scalable, Secure Deployment
To successfully support large volume sites and transaction-intensive
applications, a Web application development system requires performance,
availability and scalability from the application server. ColdFusion 4.0
provides a high degree of cross-platform performance and fault-tolerance from
individual servers and multiple server clusters. ColdFusion runs as a 32-bit
multithreaded system service, which permits applications to experience an
increase in processing performance as processors are added to the server.
Clusters of multiple ColdFusion servers significantly enhance an application's
availability and scalability. ColdFusion automatically balances load among
servers deployed in a cluster, so that performance is optimized. ColdFusion
permits a cluster deployment to store client state information in a shared
repository, so it will not be lost when a server fails. If any machine in the
cluster fails or is heavily loaded, ColdFusion automatically transfers its
responsibilities to one of the remaining servers. Because ColdFusion clusters
use a software-based system for load balancing and fail-over, there is no
single point of failure.
ColdFusion provides a complete set of features for securely deploying
applications. Principal among these is the ability of ColdFusion to restrict
access to specific resources needed to run an application, including
directories, files, databases and components. Therefore, multiple applications
on the same server cannot access another application's resources. Other
security features include authentication and encryption for commercial Web
applications.
Applications Built Using ColdFusion
The Company believes that ColdFusion is well suited for a wide range of
Web application development projects. ColdFusion is particularly appropriate
for projects that have a short development cycle, mix rich content with
transactions, require interactivity and personalization and require deployment
to a variety of Web browsers from multiple server platforms. Although
ColdFusion is used to build a wide range of applications, the majority of
ColdFusion applications fall into three basic categories: electronic commerce,
content management and personalization. The following are examples of
applications built by the Company's customers using ColdFusion:
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autobytel.com inc.
autobytel.com is the leading automobile Internet electronic commerce Web
site. autobytel.com enables consumers to research car and truck model
specifications, incentives, dealer invoice prices and promotions and to apply
for financing, purchase automobiles and obtain insurance online. According to
autobytel.com, its site has aided more than 1.5 million car buyers in their
search for a vehicle. autobytel.com also includes a dealer extranet that
enables more than 2,700 accredited dealer franchises to access autobytel.com to
check the status of sales and financing, receive news and upload inventory
information and pictures.
In 1996, autobytel.com sought to migrate its static Web pages to dynamic,
transaction-oriented content. After evaluating several products based on their
ability to provide a rapid application development environment, scalability and
database integration capabilities, autobytel.com selected ColdFusion. During
development, autobytel.com used a team development approach, using a dedicated
database team to write SQL statement components which were then incorporated
into the Web site by a separate Web team.
autobytel.com employs more than 20 clustered ColdFusion 3.1 servers. In
January 1998, during Super Bowl XXXII, autobytel.com ran a television ad
promoting its online service. The clustered ColdFusion servers enabled
autobytel.com to handle loads many times greater than normal in response to the
ad and, as a result, to complete a greater number of purchase transactions.
Internal Revenue Service
The IRS Compliance Division uses ColdFusion for an information delivery
extranet serving field offices agency-wide. The application, built and deployed
for the IRS by Booz, Allen & Hamilton Inc., enables employees to search and
retrieve research materials, which include more than 200,000 pages of reports
dating back 30 years, without traveling to the main IRS library in Washington,
D.C. The application also includes online project management, time reporting,
meetings and help desk. Through the applications, agents can create content,
publish news and information, assign tasks, share documents, schedule events
and communicate regarding various projects.
SmartMoney Interactive
SmartMoney Interactive, a joint venture of Dow Jones & Company, Inc. and
Hearst Publishing Corporation, is an online publication that provides financial
data services and personalized online financial tools. SmartMoney Interactive
uses ColdFusion to generate personalized portfolio and investment information
and for site management. It integrates content from a number of financial data
sources, including quotes from a quote server, news from a wire feed and data
from a stock and mutual fund database.
Using ColdFusion, SmartMoney completed development within five months. As
part of the development process, SmartMoney created a number of ColdFusion
extensions, including a single CFX tag to retrieve live, 20-minute delayed
quotes from a PC Quote quote server system. This custom tag encapsulated the
complexity of accessing and retrieving data from the PC Quote system,
simplifying and accelerating the development process.
Anticipating more than 100,000 site visits and nearly 1 million page
requests per day, SmartMoney also required the publication to be highly
scalable. ColdFusion has scaled as the site's traffic has increased, both on
average and during periods of high demand, such as during significant market
fluctuations which occurred during the Fall of 1998. As deployed, SmartMoney
uses a front-end cluster of four Web servers running ColdFusion for dynamic
content, which interfaces with two back-end database servers, one serving as a
data warehouse and one for managing personalized content for more than 60,000
SmartMoney users.
Research and Development
The Company devotes a substantial portion of its resources to developing
new products and product features, extending and improving its products and
technology, and strengthening its technological expertise. During 1997 and the
nine months ended September 30, 1998, the Company spent approximately $2.7
million and $3.4 million, respectively, on research and development. The
Company intends to continue to devote substantial resources toward research and
development. As of September 30, 1998, the Company had 29 employees engaged in
research and development activities. The Company must hire additional skilled
software engineers to further its research and development efforts. The
Company's business, operating results and financial condition could be
adversely affected if it is not able to hire and retain the required number of
engineers.
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Sales, Marketing and Distribution
The Company markets and sells its products and services to Web developers
using a combination of direct and indirect distribution channels, including a
corporate sales force, domestic and international distribution, electronic
commerce and sales through partners. During 1997 and the nine months ended
September 30, 1998, 28% and 41%, respectively, of the Company's total revenue
was generated through the indirect distribution channel. As of September 30,
1998, the Company had 65 sales and marketing employees worldwide.
Corporate Sales Force. The Company's corporate account sales force focuses
on sales to corporate customers worldwide. Corporate account sales can be
filled either directly from the Company or through the Company's distribution
partners. The corporate account sales force is comprised of field
representatives and telesales representatives. The field representatives market
and sell to corporate customers primarily interested in server products for
commercial Internet Web sites or intranets. The telesales representatives
develop and pursue leads generated from inquiries on the Company's Web sites
and from downloads of its application server products.
Indirect Distribution. The Company has a number of domestic and
international distributors and resellers that market and sell the Company's
products. As of September 30, 1998, the Company had 19 distributors in North
America, Europe and Asia Pacific, including Ingram Micro, Inc. and Mitsubishi
Corporation. In addition, as of September 30, 1998, the Company had over 500
corporate and catalog resellers, OEMs and value-added resellers. The Company
has an OEM agreement with Macromedia Corporation pursuant to which HomeSite is
bundled with Macromedia's Dreamweaver and an OEM agreement with NetObjects,
Inc. pursuant to which HomeSite is bundled with NetObjects Fusion. None of the
Company's distribution partners have exclusive distribution rights.
Electronic Commerce. The Company's Web site allows users to download,
evaluate and purchase the Company's products. A number of third-party
electronic commerce sites, including CNET's Buydirect.com, Beyond.com,
RealStore.com and JapanMarket.com, distribute commercial copies of the
Company's products for delivery by direct download. Electronic distribution
provides the Company with a low-cost, globally accessible, 24-hour sales
channel.
Allaire Alliance. The Company believes that establishing a large community
of active users of its products and technology representing key segments of the
Web platform is critical to its success. To further the development of this
community, the Company has established the Allaire Alliance program. Allaire
Alliance members include solution developers, application developers and
Internet service providers, as well as the distributors, corporate and catalog
resellers, OEMs and value-added resellers referenced above. The Company
typically enters into written agreements with its Allaire Alliance members.
These agreements typically do not provide for firm financial commitments from
the member, but are intended to establish the basis upon which the parties will
work together to achieve mutually beneficial objectives. As of September 30,
1998, the Allaire Alliance had over 1,000 members.
Marketing Programs. The Company engages in a broad range of marketing
activities, including sponsoring seminars for potential customers, participating
in trade shows and conferences, providing product information through the
Company's Web site, promoting special events and advertising the Company's
products and services in print and electronic media. During the nine months
ended September 30, 1998, the Company held 81 seminars in 43 cities. The
Company's marketing programs are aimed at informing customers of the
capabilities and benefits of the Company's products and services, increasing
brand name awareness, stimulating demand across all market segments and
encouraging independent software developers to develop products and applications
that are compatible with the Company's products and technology.
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Customers
The Company's products are marketed and distributed to a diverse group of
customers, ranging from small, independent consultants and Internet presence
providers to Web developers and information technology departments of large
organizations. Many of the Company's customers are global organizations that use
the Company's products to create Web sites and Web applications in areas such as
electronic commerce, content management and personalization for Internet,
intranet and extranet use. From January 1, 1997 through September 30, 1998, the
Company recognized revenue from sales to more than 20% of the Fortune 500
companies (based on 1997 revenue). End user customers from which the Company has
recognized in excess of $25,000 in revenue include the following:
AT&T Corporation
Australian Trade Commission
The Boeing Company
Booz, Allen & Hamilton, Inc.
Credit Suisse First Boston Corporation
Hewlett-Packard Company
Intel Corp.
JC Penney Company, Inc.
Lockheed Martin Corporation
Lucent Technologies, Inc.
MCI Worldcom, Inc.
Microsoft Corporation
PSINet, Inc.
SBC Communications Inc.
State Street Global Advisors United Kingdom Ltd.
United Parcel Service of America, Inc.
United Space Alliance
UUNet Technologies, Inc.
Visa International Service Association
Revenue from customers outside North America, primarily Asia and Europe,
were approximately 17%, 20% and 14% of total revenue in 1996 and 1997 and the
nine months ended September 30, 1998, respectively. Sales by the Company to
Ingram Micro, Inc. accounted for approximately 22% of the Company's total
revenue for the nine months ended September 30, 1998. No single customer
accounted for 10% or more of the Company's total revenue for 1996 or 1997.
Support and Professional Services
The Company offers a broad range of support and training services to its
customers. The Company believes that providing a high level of customer service
and technical support is necessary to achieve rapid product implementation
which, in turn, is essential to customer satisfaction and continued license
sales and revenue growth. The Company's customers have a choice of support
options depending on the level of service desired. The Company maintains a
technical support hotline staffed by engineers from 8:00 a.m. to 8:00 p.m.,
Eastern time, Monday through Friday, from the Company's corporate office in
Cambridge, Massachusetts. Internationally, the Company's distribution partners
provide telephone support to customers with technical assistance from the
Company. The Company's support staff also responds to e-mail inquiries. The
Company tracks support requests through a series of customer databases,
including current status reports and historical customer interaction logs. The
Company uses customer feedback as a source of ideas for product improvements
and enhancements.
The Company provides training in the use of its products through classroom
instruction at its Cambridge facility and at authorized training centers
throughout North America and in Japan and Europe. The Company also provides
free multimedia online training.
As of September 30, 1998, the Company had 23 technical support engineers
and professional services employees.
Competition
The Web development products market is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
activities of market participants. Primary competitors include large Web and
database platform companies that offer a variety of software products, such as
Microsoft Corporation, IBM, Netscape Communications Corporation, Sun
Microsystems, Inc., Oracle Corporation, Sybase, Inc., Symantec Corporation,
Informix Software and Inprise Corporation (formerly Borland International
Inc.). In addition, the Company experiences competition from a number of
medium-sized and start-up companies that have introduced or are developing Web
development products, such as NetDynamics, Inc., which was recently acquired by
Sun Microsystems, Inc., Vignette Corporation, HAHT Software, Inc., GoLive
Systems Inc., WebLogic, Inc., which was recently acquired by BEA Systems,
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Inc., BroadVision, Inc. and SilverStream Software, Inc. In addition, the
Company has strategic relationships with NetObjects, Inc. and Macromedia
Corporation. In some cases, these Web development products vendors compete with
the Company, and there can be no assurance that these strategic relationships
will continue.
The Company believes that additional competitors may enter the market with
competing products as the size and visibility of the market opportunity
increases. Increased competition could result in pricing pressures, reduced
margins or the failure of the Company's products to achieve or maintain market
acceptance, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. Many of the Company's
current and potential competitors have longer operating histories and
substantially greater financial, technical, marketing and other resources than
the Company and therefore may be able to respond more quickly than the Company
to new or changing opportunities, technologies, standards or customer
requirements. Many of these competitors also have broader and more established
distribution channels that may be used to deliver competing products directly
to customers through bundling or other means. If such competitors were to
bundle competing products with their products, the demand for the Company's
products might be substantially reduced and the ability of the Company to
distribute its products successfully would be substantially diminished.
New technologies and the expansion of existing technologies will likely
increase the competitive pressures on the Company. There can be no assurance
that competing technologies developed by market participants or the emergence
of new industry standards will not adversely affect the Company's competitive
position or render its products or technologies noncompetitive or obsolete. As
a result of the foregoing and other factors, there can be no assurance that the
Company will compete effectively with current or future competitors or that
competitive pressures faced by the Company will not have a material adverse
effect on the Company's business, operating results and financial condition.
Competitive factors in the Web development products market include the
quality and reliability of software; features for creating, editing and
adapting content; ease of use and interactive user features; application server
scalability, availability and performance; cost per user; and compatibility
with the user's existing network components and software systems. To expand its
user base and further enhance the user experience, the Company must continue to
innovate and improve the performance of its products. The Company anticipates
that consolidation will continue in the Web development products industry and
related industries such as computer software, media and communications.
Consequently, competitors may be acquired by, receive investments from or enter
into other commercial relationships with, larger, well-established and
well-financed companies. There can be no assurance that the Company can
establish or sustain a leadership position in this market segment.
Intellectual Property
The Company's success and competitiveness are dependent to a significant
degree on the development and protection of its proprietary technology. The
Company relies primarily on a combination of copyrights, trademarks, licenses,
trade secret laws and restrictions on disclosure to protect its intellectual
property and trade secrets. The Company also enters into confidentiality
agreements with its employees and consultants, and generally controls access to
and distribution of its documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise attain and use the Company's intellectual property or trade secrets
without authorization. In addition, the Company relies in part on "shrinkwrap"
and "clickwrap" licenses that are not signed by the end user and, therefore,
may be unenforceable under the laws of certain jurisdictions. Moreover, the
laws of other countries in which the Company markets its products may afford
the Company little or no effective protection of its intellectual property.
There can be no assurance that the precautions taken by the Company will
prevent misappropriation or infringement of its technology. In addition, there
can be no assurance that others will not independently develop substantially
equivalent intellectual property. A failure by the Company to protect its
intellectual property in a meaningful manner could have a material adverse
effect on the Company's business, operating results and financial condition.
Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversion of management and technical resources, either of which
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company attempts to avoid infringing known proprietary rights of third
parties in its product development efforts. However, the Company has not
conducted and does not conduct comprehensive patent searches to determine
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whether the technology used in its products infringes patents held by third
parties. In addition, it is difficult to proceed with certainty in a rapidly
evolving technological environment in which there may be numerous patent
applications pending, many of them which are confidential when filed, with
regard to similar technologies. If the Company were to discover that its
products violated third party proprietary rights, there can be no assurance
that it would be able to obtain licenses to continue offering such products
without substantial reengineering or that any effort to undertake such
reengineering would be successful, or that any licenses would be available on
commercially reasonable terms.
The Company pursues the registration of certain of its trademarks and
service marks in the United States and in certain other countries, although it
has not secured registration of all its marks. The Company has registered
United States trademarks for "Cold Fusion" and a related design, and has an
application pending for a United States trademark for "HomeSite." A significant
portion of the Company's marks contain the word "Fusion" (such as ColdFusion).
The Company is aware of other companies that use "Fusion" in their marks alone
or in combination with other words, and the Company does not expect to be able
to prevent third party uses of the word "Fusion" for competing goods and
services. For example, NetObjects, Inc. markets its principal products for
designing, building and updating Web sites under the names "NetObjects Fusion"
and "NetObjects Team Fusion." In addition, the laws of some foreign countries
do not protect the Company's proprietary rights to the same extent as do the
laws of the United States, and effective patent, copyright, trademark and trade
secret protection may not be available in such jurisdictions. The Company
licenses certain of its proprietary rights to third parties, and there can be
no assurance that such licensees will not fail to abide by compliance and
quality control guidelines with respect to such proprietary rights or take
actions that would materially adversely affect the Company's business,
financial condition and results of operations.
The Company currently licenses technology from third parties that it
incorporates into its products. Examples include licenses from Microsoft for
certain visual editing technology, from Bright Tiger Technologies, Inc. for
certain load balancing and failover technology, from Netegrity, Inc. for
certain security technology and from Verity, Inc. for full-text indexing and
searching technology. In light of the rapidly evolving nature of the Web
platform and the Company's strategy to pursue industry partnerships to ensure
its support of and by the emerging platform, the Company will increasingly need
to rely on technology that it licenses from other vendors which is integrated
with internally developed software and used in the Company's products to
perform key functions. Microsoft and other such technology partners are also
significant competitors in the Web development products market. There can be no
assurance that technology from others will continue to be available to the
Company on commercially reasonable terms, if at all. The loss or inability to
access such technology could result in delays in development and introduction
of new products or enhancements by the Company until equivalent or replacement
technology could be accessed, if available, or developed, if feasible, by the
Company, which could have a material adverse effect on the Company's business,
operating results and financial condition. Moreover, although the Company is
generally indemnified against claims that such third party technology infringes
the proprietary rights of others, such indemnification is not always available
for all types of intellectual property rights (for example, patents may be
excluded) and in some cases the scope of such indemnification is limited. Even
if the Company receives broad indemnification, third party indemnitors are not
always well capitalized and may not be able to indemnify the Company in the
event of infringement, resulting in substantial exposure to the Company. There
can be no assurance that infringement or invalidity claims arising from the
incorporation of third party technology, and claims for indemnification from
the Company's customers resulting from such claims, will not be asserted or
prosecuted against the Company. Such claims, even if not meritorious, could
result in the expenditure of significant financial and managerial resources in
addition to potential product redevelopment costs and delays, all of which
could materially adversely affect the Company's business, financial condition
or results of operations.
Employees
As of September 30, 1998, the Company had 153 employees, 136 of whom were
based at the Company's headquarters in Cambridge, Massachusetts. None of the
Company's employees is subject to a collective bargaining agreement, and the
Company believes that its relations with its employees are good.
45
<PAGE>
Facilities
The Company's headquarters is located in Cambridge, Massachusetts. The
Company has two leases for approximately 87,000 square feet of space in
separate office buildings in Cambridge. The first lease, which covers
approximately 54,000 square feet of space, expires in March 2003. The second
lease, which covers approximately 33,000 square feet of space, expires in
December 2003. The Company has an option to extend the second lease for an
additional five year term. The Company also leases office space in other cities
for its sales personnel. The Company believes that these existing facilities
are adequate to meet its current foreseeable requirements or that suitable
additional or substitute space will be available on commercially reasonable
terms.
Legal Proceedings
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
including claims of alleged infringement of third party trademarks and other
intellectual property rights by the Company and its licensees. Such claims,
even if not meritorious, could result in the expenditure of significant
financial and managerial resources. The Company is not aware of any legal
proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on its business, financial condition or
results of operations.
46
<PAGE>
MANAGEMENT
Executive Officers and Directors
The executive officers and directors of the Company, and their ages and
positions, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------- ----- -----------------------------------------------------
<S> <C> <C>
David J. Orfao ............. 39 President, Chief Executive Officer and Director
Joseph J. Allaire .......... 29 Chairman of the Board of Directors, Chief Technology
Officer and Executive Vice President, Products
David A. Gerth ............. 46 Vice President, Finance and Operations, Chief
Financial Officer and Treasurer
Amy E. Lewis ............... 41 Vice President, Worldwide Sales
Stephen F. Clark ........... 33 Vice President, Marketing
Jack P. Lull ............... 40 Vice President, Engineering and Development
Maria Morrissey ............ 41 Vice President, Worldwide Services and Support
Jonathan A. Flint .......... 47 Director
John J. Gannon ............. 44 Director
Thomas A. Herring .......... 48 Director
Mitchell Kapor ............. 48 Director
Peter R. Roberts ........... 43 Director
</TABLE>
David J. Orfao has served the Company as President and Chief Executive
Officer and as a director since February 1997. From November 1995 until
December 1996, Mr. Orfao served as Senior Vice President, Worldwide Sales,
Marketing and Service for SQA, Inc. From August 1993 until October 1995, he
served as Senior Vice President, Worldwide Sales, Support and Channel Marketing
for Claris Corporation. Prior to that, Mr. Orfao held a series of sales and
operational positions of increasing responsibility at Frame Technology
Corporation since 1988.
Joseph J. Allaire founded the Company in May 1995 and served as Chairman
of the Board of Directors, Chief Executive Officer and President from inception
to January 1997. Since January 1997, Mr. Allaire has continued to serve as
Chairman of the Board of Directors, as well as Chief Technology Officer and
Executive Vice President, Products. From September 1993 to June 1995, Mr.
Allaire performed software engineering services for several private companies.
David A. Gerth has served the Company as Vice President, Finance and
Operations, Chief Financial Officer and Treasurer since April 1997. From
November 1995 to April 1997, Mr. Gerth served as Chief Financial Officer for
Visibility Software, Inc., a software company. From July 1995 to November 1995,
he served as Chief Financial Officer for Computron Software, Inc., a software
company. From April 1994 to July 1995, Mr. Gerth served as Director of Finance
for Powersoft Corporation. Prior to that, Mr. Gerth served in a number of
financial roles of increasing responsibility for Computervision Corporation
since 1981.
Amy E. Lewis has served the Company as Vice President, Worldwide Sales
since April 1997. From June 1995 to March 1997, Ms. Lewis served as Director,
North America Field Sales for Claris Corporation. Prior to that, Ms. Lewis
served as Manager, North America Channel Sales for Apple Computer since April
1994. From February 1987 to December 1993, she was Director of Sales for
Farallon Communications, Inc., a networking hardware and software company.
Stephen F. Clark has served the Company as Vice President, Marketing since
September 1998. From January 1996 through September 1998, Mr. Clark held a
number of marketing positions of increasing responsibility at Sybase, Inc., a
computer software company, including Vice President, Tools and Application
Servers and Vice President and General Manager, Design Tools. From June 1993 to
December 1995, Mr. Clark was a Product Marketing Manager for Powersoft
Corporation.
Jack P. Lull has served the Company as Vice President, Engineering and
Development since December 1996. From January 1996 to August 1996, Mr. Lull
served as Director of Development for Integrated Industrial Information, Inc.,
a computer consulting company. From January 1993 to December 1995, Mr. Lull
served as Director of Development for Powersoft Corporation.
47
<PAGE>
Maria Morrissey has served the Company as Vice President, Worldwide
Services and Support since September 1996. From February 1996 to July 1996, Ms.
Morrissey served as Vice President, Product Development for Computer Channel,
Inc., an education software company. From December 1992 to January 1996, she
served as Director, Professional Services for Powersoft Corporation.
Jonathan A. Flint has served as a director of the Company since June 1996.
Since May 1995, Mr. Flint has been a founder and a General Partner of Polaris
Venture Partners, a management company affiliated with the Polaris entities.
Prior to that, Mr. Flint was a General Partner of certain funds managed by Burr,
Egan, Deleage & Co., a venture capital firm and the lead venture investor in
Powersoft Corporation, a leading provider of application development tools. Mr.
Flint served as a director of Powersoft Corporation from 1991 to 1995.
John J. Gannon has served as a director of the Company since December
1996. Since June 1998, Mr. Gannon has served as a General Partner and Chief
Financial Officer of Polaris Venture Partners, a management company affiliated
with the Polaris entities. From June 1996 to April 1998, Mr. Gannon served as
the Chief Financial Officer for Firefly Network, Inc., an Internet software
company. From October 1992 to June 1996, Mr. Gannon worked for Powersoft
Corporation, where he held several positions including Chief Financial Officer
and Vice President of Finance and Administration.
Thomas A. Herring has served as a director of the Company since June 1997.
In October 1998, Mr. Herring joined Polaris Venture Partners, a management
company affiliated with the Polaris entities, as a Venture Partner. From
December 1997 until October 1998, Mr. Herring served as Senior Vice President
of Compuware Corporation, which acquired Nu-Mega Technologies, Inc. ("Nu-Mega")
in December 1997. From May 1996 to December 1997, Mr. Herring was the President
and Chief Executive Officer of Nu-Mega. From July 1995 to June 1996, Mr.
Herring was Vice President of Corporate Marketing for Sybase, Inc. Prior to
that, he was Vice President, Worldwide Marketing and Business Development for
Powersoft Corporation since June 1990. Mr. Herring also serves as a director of
PSW Technologies, Inc.
Mitchell Kapor has served as a director of the Company since March 1997.
Mr. Kapor co-founded the Electronic Frontier Foundation, a nonprofit Internet
organization, in 1990, and served as its Chairman from 1993 to 1995 and as a
director from 1995 to 1996. Mr. Kapor designed Lotus 1-2-3, and founded Lotus
Development Corporation in 1982 and served as its President and Chief Executive
Officer from 1982 to 1986. Mr. Kapor also serves as a director of RealNetworks,
Inc.
Peter R. Roberts has served as a director of the Company since June 1997.
Since January 1993, Mr. Roberts has been a managing director of BancBoston
Ventures Inc., a private equity investment company.
Executive officers of the Company are appointed by and serve at the
discretion of the Board of Directors. There are no family relationships among
any of the executive officers or directors of the Company.
Committees of the Board of Directors
The Board of Directors has a Compensation Committee, which sets objectives
and policies for the Company's compensation programs for executives and key
employees. Such objectives and policies include, but are not limited to,
attracting and retaining superior talent, rewarding individual performance and
achieving the Company's financial goals. The Compensation Committee also
administers the Company's 1997 Stock Incentive Plan, 1998 Stock Incentive Plan
and 1998 Employee Stock Purchase Plan and approves the compensation of all
officers and key employees of the Company. The Compensation Committee currently
consists of Messrs. Flint and Gannon.
The Board of Directors also has an Audit Committee, which reviews the
scope and results of the audit and other services provided by the independent
auditors. The Audit Committee currently consists of Messrs. Flint and Gannon.
Director Compensation
Directors of the Company are reimbursed for expenses incurred in attending
meetings of the Board of Directors. Directors of the Company generally are not
paid any separate fees for serving as directors. On December 31, 1996, the
Company granted to Mr. Gannon an option to purchase 25,000 shares of Common
Stock at an exercise price of $.50 per share. On March 21, 1997, the Company
granted to Mr. Kapor an option to purchase 35,000 shares of Common Stock at an
exercise price of $.50 per share. On June 18, 1997, the Company granted to Mr.
Herring an option to purchase 25,000 shares of Common Stock at an exercise
price of $.50 per share. These options become exercisable for shares of Common
Stock not subject to repurchase by the Company according to the following
48
<PAGE>
schedule: 25% of the option shares one year from the grant date, and 1/36 of
the remaining shares on the first of each month thereafter for 36 months. These
options have maximum terms of 10 years measured from the grant date, subject to
earlier termination following the cessation of the respective director's Board
service.
Executive Compensation
The following table sets forth the total compensation paid or accrued for
1997 for the Company's Chief Executive Officer and the four other most highly
compensated executive officers who were employed by the Company at December 31,
1997 (collectively, the "Named Executive Officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
---------------------------- --------------------
Number of Securities
Name and Principal Position Salary Bonus Underlying Options
- ------------------------------------------------ --------------- ---------- --------------------
<S> <C> <C> <C>
David J. Orfao ................................. $134,155(1) $149,500(2) 560,000(3)
President, Chief Executive Officer and Director
Joseph J. Allaire (4) .......................... $155,251 $ 15,500 0
Chairman of the Board of Directors,
Chief Technology Officer and
Executive Vice President, Products
Amy E. Lewis ................................... $ 83,771(5) $ 59,700(6) 105,000
Vice President, Worldwide Sales
Jack P. Lull ................................... $119,824 $ 13,200 0
Vice President, Engineering and Development
Maria Morrissey ................................ $120,152 $ 18,200 0
Vice President, Worldwide Services and Support
</TABLE>
- ------------
(1) David J. Orfao joined the Company as President and Chief Executive Officer
in February 1997. Mr. Orfao's annualized 1997 salary was $160,000.
(2) Represents the intrinsic value of a below-market option granted to Mr. Orfao
in 1998 in lieu of a cash bonus for services rendered in 1997.
(3) Includes 50,000 shares of Common Stock underlying a below-market option
granted in 1998 in lieu of a cash bonus for services rendered in 1997.
(4) Joseph J. Allaire served as President and Chief Executive Officer until
February 1997.
(5) Amy E. Lewis joined the Company as Vice President, Worldwide Sales in April
1997. Ms. Lewis' annualized 1997 salary was $110,000. (6) Represents bonuses
and commissions.
Option Grants in Last Fiscal Year
The following table sets forth grants of stock options to each of the
Named Executive Officers during 1997. No stock appreciation rights were granted
during 1997.
<TABLE>
<CAPTION>
Individual Grants
------------------------------------------------- Potential Realizable
Number of Percent of Value at Assumed
Securities Total Options Exercise Annual Rates of
Underlying Granted to or Base Stock Price
Options Employees in Price Expiration Appreciation for
Granted Fiscal Year Per Share Date Option Term (1)
---------- ------------- --------- ---------- --------------------
5% 10%
--------- --------
<S> <C> <C> <C> <C> <C> <C>
David J. Orfao ............ 510,000 34.6% $ 0.50 2/07/07 $160,368 $406,404
Joseph J. Allaire ......... 0 -- -- -- -- --
Amy E. Lewis .............. 105,000 7.1% $ 0.50 4/18/07 $ 33,017 $ 83,671
Jack P. Lull .............. 0 -- -- -- -- --
Maria Morrissey ........... 0 -- -- -- -- --
</TABLE>
- ------------
(1) Amounts reported in these columns represent hypothetical values that may be
realized upon exercise of the options immediately prior to the expiration
of their term assuming the specified compound rates of appreciation (5%
and 10%) compounded annually over the term of the option. These numbers
are calculated based on rules promulgated by the Securities and Exchange
Commission. Actual gains, if any, on stock option exercises and Common
Stock holdings are dependent on the timing of such exercise and the future
performance of the Common Stock. There can be no assurance that the rates
of appreciation assumed in this table can be achieved or that the amounts
reflected will be received by the individuals.
49
<PAGE>
Option Exercises and Fiscal Year-End Values
The following table sets forth certain information regarding exercisable
and unexercisable stock options held as of December 31, 1997 by each of the
Named Executive Officers. There were no options exercised by the Named
Executive Officers in 1997.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Year-End at Fiscal Year-End (1)
------------------------------- ------------------------------
Exercisable Unexercisable (2) Exercisable Unexercisable (2)
----------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C>
David J. Orfao ............ -- 510,000 $ -- $127,500
Joseph J. Allaire ......... --- -- $ -- $ --
Amy E. Lewis .............. -- 105,000 $ -- $ 26,250
Jack P. Lull .............. 71,875 158,125 $17,969 $ 39,531
Maria Morrissey ........... 35,625 78,375 $ 8,906 $ 19,594
</TABLE>
- ------------
(1) There was no public trading market for the Common Stock as of December 31,
1997. Accordingly, these values have been calculated by determining the
difference between the estimated fair market value of the Company's Common
Stock, as set by the Board of Directors, underlying the option as of
December 31, 1997 ($0.75 per share) and the exercise price per share
payable upon exercise of such options.
(2) These options were exercisable at December 31, 1997. However, shares of
Common Stock issuable upon exercise of these options would be subject to
the Company's right to repurchase at the option exercise price. Such right
of repurchase would expire according to the original option vesting
schedule.
Severance Arrangement; Change in Control Arrangements
Mr. Orfao is entitled to continue to receive his base salary and benefits
for 12 months in the event he is involuntarily terminated for reasons other
than cause. Additionally, Mr. Orfao is entitled to accelerated vesting of his
unvested options to purchase Common Stock in the event there is a change in
control, as defined in Mr. Orfao's option agreement, of the Company and (i) he
is terminated without cause within six months of the change in control, (ii) he
is not offered a position with the successor comparable to his current position
with the Company after the change in control, or (iii) he is removed from a
comparable position within six months of the change in control.
The 1997 Stock Incentive Plan and the underlying option agreements provide
for the accelerated vesting of all unvested options and other rights granted
pursuant to the plan in the event there is a merger or consolidation involving
the Company, unless appropriate provision shall be made for outstanding options
and other rights by the substitution of options, stock appreciation rights and
appropriate voting common stock of the corporation surviving any such merger or
consolidation (or the parent of such surviving corporation).
Benefit Plans
1997 Stock Incentive Plan
In 1997, the Board of Directors of the Company adopted and the Company's
stockholders approved the 1997 Stock Incentive Plan (as amended, the "1997
Option Plan"). A total of 1,726,000 shares of Common Stock have been reserved
for issuance under the 1997 Option Plan. The 1997 Option Plan authorizes (i)
the grant of options to purchase Common Stock intended to qualify as incentive
stock options ("Incentive Options"), as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and (ii) the grant of options
that do not so qualify ("Nonqualified Options"). The exercise price of
Incentive Options granted under the 1997 Option Plan must be at least equal to
the fair market value of the Common Stock of the Company on the date of grant.
The exercise price of Incentive Options granted to an optionee who owns stock
possessing more than 10% of the voting power of the Company's outstanding
capital stock must be at least equal to 110% of the fair market value of the
Common Stock on the date of grant, and such optionee must exercise his or her
Option within five years from the date of the grant of such Option. The
exercise price of Nonqualified Options granted under the 1997 Option Plan must
be at least equal to 50% of the fair market value of the Common Stock on the
date of grant. The 1997 Option Plan provides, that, upon a merger or
consolidation of the Company, all outstanding Plan options and other awards
must be substituted for with similar options or awards of the corporation
surviving any such merger or consolidation, or such options or awards shall
become immediately exercisable in full. The 1997 Option Plan also provides for
awards of stock appreciation rights, performance shares, restricted stock and
other stock-based awards.
50
<PAGE>
The 1997 Option Plan is administered by the Compensation Committee. The
Compensation Committee selects the individuals to whom options will be granted
and determines the option exercise price and other terms of each award, subject
to the provisions of the 1997 Option Plan. Incentive Options may be granted
under the 1997 Option Plan to key employees of the Company and its affiliates
within the meaning of the Code, including officers and directors of the Company
and its affiliates who are also employees. Nonqualified Options may be granted
under the 1997 Option Plan to officers and other employees and to directors and
other individuals providing services to the Company, whether or not they are
employees of the Company.
1998 Stock Incentive Plan
The Company expects that, before the consummation of the Offering, the
Company's stockholders will approve the 1998 Stock Incentive Plan (the "1998
Option Plan"), which has been approved by the Board of Directors. A total of
1,900,000 shares of Common Stock have been reserved for issuance under the 1998
Option Plan. The 1998 Option Plan authorizes the grant of Incentive Options and
Nonqualified Options. The exercise price of Incentive Options granted under the
1998 Option Plan must be at least equal to the fair market value of the Common
Stock of the Company on the date of grant. The exercise price of Incentive
Options granted to an optionee who owns stock possessing more than 10% of the
voting power of the Company's outstanding capital stock must be at least equal
to 110% of the fair market value of the Common Stock on the date of grant, and
such optionee must exercise his or her Option within five years from the date
of the grant of such Option. There are no limits on the exercise price of
Nonqualified Options granted under the 1998 Option Plan. The 1998 Option Plan
provides, that, upon a change in control of the Company, all outstanding Plan
options and other awards (i) may be substituted for similar options or awards
of the corporation surviving any such change in control, (ii) may become
immediately exercisable in full or (iii) terminate as of the effective date of
such change in control, provided that the holders of such options or awards
have the right to exercise such options or awards to the extent the same are
then exercisable. The 1998 Option Plan also provides for awards of stock
appreciation rights, performance shares, restricted stock and other stock-based
awards.
The 1998 Option Plan is administered by the Compensation Committee. The
Compensation Committee selects the individuals to whom options will be granted
and determines the option exercise price and other terms of each award, subject
to the provisions of the 1998 Option Plan. Incentive Options may be granted
under the 1998 Option Plan to key employees of the Company and its affiliates
within the meaning of the Code, including officers and directors of the Company
and its affiliates who are also employees. Nonqualified Options may be granted
under the 1998 Option Plan to directors, officers and employees of the Company
and other individuals providing services to the Company.
1998 Employee Stock Purchase Plan
The Company expects that, before the consummation of the Offering, the
Company's stockholders will approve the 1998 Employee Stock Purchase Plan (the
"Stock Purchase Plan"), which has been approved by the Board of Directors. The
Stock Purchase Plan will authorize the issuance of up to an aggregate of
300,000 shares of Common Stock to participating employees. The Stock Purchase
Plan will be administered by the Compensation Committee.
Under the terms of the Stock Purchase Plan, all employees of the Company
(other than seasonal employees) who have completed three months of employment
with the Company and whose customary employment is more than part-time (i.e.
more than 20 hours per week and more than five months in the calendar year)
will be eligible to participate in the Stock Purchase Plan. Employees who own
stock, and/or hold outstanding options to purchase stock, representing 5% or
more of the total combined voting power or value of all classes of stock of the
Company will not be eligible to participate in the Stock Purchase Plan.
The right to purchase Common Stock under the Stock Purchase Plan will be
made available through a series of offerings (each, an "Offering Period"). On
the first day of an Offering Period, the Company will grant to each eligible
employee who has elected in writing to participate in the Stock Purchase Plan
an option to purchase shares of Common Stock. The employee will be required to
authorize an amount (between 1% and 10% of the employee's compensation) to be
deducted by the Company from the employee's pay during the Offering Period. On
the last day of the Offering Period, the employee will be deemed to have
exercised the option, at the option exercise price, to the extent of
accumulated payroll deductions. Under the terms of the Stock Purchase Plan, the
option exercise price is an amount equal to 85% of the fair market value of one
share of Common Stock on either the first or last day of the Offering Period,
whichever is lower.
51
<PAGE>
No employee may be granted an option that would permit the employee's
rights to purchase Common Stock to accrue at a rate in excess of $25,000 of the
fair market value of the Common Stock, determined as of the date the option is
granted, in any calendar year.
The Company has made no determination as to when the first Offering Period
under the Stock Purchase Plan will commence.
Allaire Corporation 401(k) Plan
The Company maintains the Allaire Corporation 401(k) plan (the "401(k)
Plan"), qualified under Section 401(k) of the Code. All employees of the
Company who are at least 21 years of age are eligible to make salary reduction
contributions pursuant to the 401(k) Plan. A participant may contribute a
maximum of 15% of his or her pre-tax salary, commissions and bonuses through
payroll deductions (up to the statutorily prescribed annual limit of $10,000 in
1998) to the 401(k) Plan. The percentage elected by more highly compensated
participants may be required to be lower. The Company may also make
discretionary profit-sharing contributions on behalf of participants (i) who
are at least 21 years of age and (ii) who either have completed at least 500
hours of service during the fiscal year or are employed by the Company on the
last day of the fiscal year. Any profit-sharing contribution is allocated to
eligible participants as a percentage of their total compensation (up to the
statutorily prescribed maximum of $160,000 in 1998). While a participant's
contribution amount is always 100% vested, the amount attributable to Company
profit sharing contributions is not fully vested until the participant has
three full years of service with the Company. The Company determines the level
of the discretionary contributions on an annual basis. Through September 30,
1998, the Company made no profit-sharing contributions to the 401(k) Plan.
Compensation Committee Interlocks and Insider Participation
The Compensation Committee takes recommendations concerning salaries and
incentive compensation for employees of and consultants to the Company and
administers and grants stock options pursuant to the Company's stock option
plan. No executive officer of the Company has served as a director or member of
the compensation committee (or other committee serving an equivalent function)
of any other entity, whose executive officers served as a director of or member
of the Compensation Committee of the Company.
52
<PAGE>
CERTAIN TRANSACTIONS
Organization of the Company
In connection with the formation of the Company, the Company issued
2,040,000 shares of Common Stock to founder Joseph J. Allaire for cash
consideration of $51,000, and 40,000 shares to Jeremy D. Allaire, the brother
of Joseph J. Allaire, for cash consideration of $1,000. Prior to the closing of
the Offering, Joseph J. Allaire's shares were subject to a stock restriction
agreement.
Sales of Stock
Beginning in June 1996, the Company issued an aggregate of 514,306 shares
of the Company's Series B Redeemable Convertible Preferred Stock ("Series B
Preferred Stock") to private investors for aggregate consideration of
$2,324,664. The Company issued 364,684 shares of Series B Preferred Stock to
Polaris Venture Partners Limited Partnership ("Polaris Venture Partners L.P.")
for $1,648,372, and 22,484 shares of Series B Preferred Stock to Polaris
Venture Partners Founders' Fund Limited Partnership ("Polaris Founders' Fund";
and together with Polaris Venture Partners L.P., the "Polaris entities") for
$101,628. The Polaris entities own beneficially more than 5% of the outstanding
shares of stock of the Company. In addition, Jonathan A. Flint, John Gannon and
Thomas Herring, who are directors of the Company, are affiliated with the
Polaris entities. Pursuant to the Company's Certificate of Incorporation, each
share of Series B Preferred Stock will automatically convert into two shares of
Common Stock upon the closing of the Offering.
Beginning in June 1996, the Company issued an aggregate of 169,200 shares
of the Company's Series C Redeemable Convertible Preferred Stock ("Series C
Preferred Stock") to private investors for aggregate consideration of $999,972.
The Company issued 79,687 shares of Series C Preferred Stock for $470,950 to
Polaris Venture Partners L.P. and 4,913 shares of Series C Preferred Stock for
$29,036 to Polaris Founders' Fund. The Company also issued 84,600 shares of
Series C Preferred Stock in April 1997 for $499,986 to Mitchell Kapor, a
director of the Company. Pursuant to the Company's Certificate of
Incorporation, each share of Series C Preferred Stock will automatically
convert into two shares of Common Stock upon the closing of the Offering.
In May and June 1997, the Company issued an aggregate of 2,336,909 shares
of the Company's Series D Redeemable Convertible Preferred Stock ("Series D
Preferred Stock") to private investors for aggregate consideration of
$9,347,636. In this transaction, the Company issued 57,894 shares of Series D
Preferred Stock for $231,576 to Mitchell Kapor, 413,910 shares of Series D
Preferred Stock for $1,655,640 to Polaris Venture Partners L.P., 23,590 shares
of Series D Preferred Stock for $94,360 to Polaris Founders' Fund, and
1,000,000 shares of Series D Preferred Stock for $4,000,000 to BancBoston
Ventures Inc. ("BancBoston"). BancBoston owns beneficially more than 5% of the
outstanding shares of stock of the Company, and Peter R. Roberts, a director of
the Company, is a managing director of BancBoston. Pursuant to the Company's
Certificate of Incorporation, each share of Series D Preferred Stock will
automatically convert into one share of Common Stock upon the closing of the
Offering. Two months prior to the issuance of the Series D Preferred Stock,
Polaris Venture Partners L.P. lent the Company $238,412 pursuant to a
Promissory Note at an interest rate of 10%, and Polaris Founders' Fund lent the
Company $13,588 pursuant to a Promissory Note at an interest rate of 10%
(collectively, the "Polaris Notes"). The Polaris Notes were converted in
connection with the issuance of Series D Preferred Stock to the Polaris
entities.
Issuance of Warrants
In connection with the issuance of the Polaris Notes, in March 1997 the
Company issued a warrant to Polaris Venture Partners L.P. (the "Polaris Venture
Partners Warrant") to purchase 5,960 shares of Common Stock at an exercise
price of $4.00 per share, and a warrant to Polaris Founders' Fund (the "Polaris
Founders' Warrant") to purchase 340 shares of Common Stock at an exercise price
of $4.00 per share. Both the Polaris Venture Partners Warrant and the Polaris
Founders' Fund Warrant are currently exercisable in whole or in part, at any
time or from time to time, until March 7, 2002, and both contain certain
protections against dilution resulting from stock splits, stock dividends and
similar events.
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Stock Restriction Agreement
In May 1997, the Polaris entities, BancBoston and certain other
stockholders (collectively, the "Holders"), Joseph J. Allaire and the Company
entered into an amended and restated stock restriction agreement (the "Stock
Restriction Agreement"). Pursuant to the Stock Restriction Agreement, the
Company and the Holders have a right of participation in and a right of first
refusal with respect to certain sales of shares of Common Stock by Mr. Allaire.
The agreement also grants the Company the right to purchase a certain number of
Mr. Allaire's shares, at a price of $2.26 per share, in the event he ceases to
be affiliated with the Company. In addition, the parties agreed to fix the
number of directors of the Company at seven and to elect to the Board of
Directors the following individuals: (i) Mr. Allaire, for as long as he is
affiliated with the Company; (ii) one member designated by Polaris Venture
Partners L.P.; (iii) one member designated by BancBoston; (iv) the Company's
Chief Executive Officer; (v) John J. Gannon; and (vi) Mitchell Kapor. The
directors designated pursuant to this agreement were Joseph J. Allaire,
Jonathan A. Flint, Peter R. Roberts, David J. Orfao, John J. Gannon and
Mitchell Kapor. The Stock Restriction Agreement will automatically terminate
upon the closing of the Offering. This termination will eliminate the Company's
right to purchase any of Mr. Allaire's remaining 255,000 unvested shares of
Common Stock.
Working Capital Line of Credit
In December 1998, the Polaris entities provided the Company with a
commitment to provide a working capital line of credit in the event the Company
has not completed the Offering or obtained other financing in excess of $3.0
million by February 28, 1999. The line of credit would allow the Company to
borrow up to $3.0 million, would bear interest at a mutually agreed upon rate
between 5.0% and 20%, and would expire on the earlier of the closing of an
initial public offering or February 28, 2000.
Yesler Software, Inc.
The Company is a party to certain agreements with Yesler Software, Inc.
("Yesler"). Initially capitalized in July 1998, Yesler was created to develop,
market and sell a commercial software application, conceived by the Company,
and designed for use by end-users to create multimedia web-based presentations
(the "Yesler Software"). The principal stockholders of Yesler are the Company,
Weld, Brown LLC ("Weld Brown") and the Polaris entities.
The Company acquired its ownership interest in Yesler pursuant to a
Contribution and Restricted Stock Purchase Agreement dated July 14, 1998,
between the Company and Yesler (the "Yesler Agreement"). Pursuant to the Yesler
Agreement, the Company acquired 907,591 shares of Yesler common stock,
representing on that date approximately 34% of the outstanding shares of
capital stock of Yesler. The stock acquired by the Company is subject to
vesting requirements, a right of repurchase by Yesler and certain transfer
restrictions. In exchange for the shares of Yesler common stock, the Company
assigned its rights to the Yesler Software source code to Yesler, agreed to
provide Yesler with technical, sales and marketing support and agreed not to
compete with Yesler. Also in connection with its acquisition of the Yesler
common stock, the Company entered into an OEM Agreement with Yesler whereby the
Company granted Yesler the right to obtain, at a 95% discount, certain of the
Company's commercial software products for distribution together with the
Yesler Software as a single commercial unit. In addition, the Company entered
into a Voting Agreement with Weld Brown and the Polaris entities which grants
the Company the right to designate one member of Yesler's four-person board of
directors. The Company's designee to the Yesler board is Joseph J. Allaire.
Yesler also granted the Company registration, information and certain other
rights pursuant to an Investor Rights Agreement among Yesler, the Company, Weld
Brown and the Polaris entities. In August 1998, the Company transferred 76,903
shares of Yesler common stock owned by the Company to three of its employees,
including 38,451 shares of Yesler common stock to Maria Morrissey, Vice
President, Worldwide Services and Support. The fair value of the shares
transferred was not material at the time of transfer.
On the date the Company entered into the Yesler Agreement, the Polaris
entities purchased for $750,000 preferred stock of Yesler representing
approximately 33% of the outstanding shares of capital stock of Yesler on that
date. Jonathan A. Flint, a director of the Company, is a director of Yesler.
See Note 4 of Notes to Financial Statements.
The Company believes that all transactions set forth above were made on
terms no less favorable to the Company than would have been obtained from
unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of November 30, 1998, and as
adjusted to reflect the sale of the shares of Common Stock offered hereby, by:
(i) each person known by the Company to be the beneficial owner of more than 5%
of the Company's Common Stock; (ii) each Named Executive Officer; (iii) each of
the Company's directors; and (iv) all executive officers and directors as a
group.
<TABLE>
<CAPTION>
Percentage of Common
Stock Outstanding (3)
----------------------
Number of Shares Before After
Name of Beneficial Owner (1) Beneficially Owned (2) Offering Offering
- ----------------------------------------------- ------------------------ ---------- ---------
<S> <C> <C> <C>
Joseph J. Allaire (4) ......................... 2,005,000 25.2% 19.7%
Entities affiliated with Polaris Venture
Management Co., LLC (5) ...................... 1,387,336 17.4% 13.6%
Jonathan A. Flint (6) ......................... 1,387,336 17.4% 13.6%
BancBoston Ventures Inc. (7) .................. 1,000,000 12.6% 9.8%
Peter R. Roberts (8) .......................... 1,000,000 12.6% 9.8%
David J. Orfao (9) ............................ 305,000 3.8% 3.0%
Amy E. Lewis (10) ............................. 105,000 1.3% 1.0%
Jack P. Lull (11) ............................. 135,917 1.7% 1.3%
Maria Morrissey (12) .......................... 66,500 * *
John J. Gannon (13) ........................... 16,146 * *
Thomas A. Herring (14) ........................ 25,000 * *
Mitchell Kapor (15) ........................... 262,094 3.3% 2.6%
All executive officers and directors as a group
(12 persons)(16) ............................. 5,412,993 66.6% 52.4%
</TABLE>
- ------------
* Represents beneficial ownership of less than 1%.
(1) Unless otherwise noted below, the address of each person listed on the
table is c/o Allaire Corporation, One Alewife Center, Cambridge, MA 02140.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock issuable by the Company pursuant to options
held by the person which may be exercised within 60 days after November
30, 1998 for shares of Common Stock not subject to repurchase by the
Company ("Presently Exercisable Options") or pursuant to warrants held by
the person which may be exercised within 60 days after November 30, 1998
("Presently Exercisable Warrants") are deemed to be outstanding and to be
beneficially owned by the person holding such options or warrants for
purposes of computing the number of shares beneficially owned and the
percentage of such person or entity holding such securities but are not
outstanding for the purpose of computing the percentage of any other
person or entity. Except as otherwise indicated, each stockholder named in
the table has sole voting and investment power with respect to the shares
set forth opposite such stockholder's name.
(3) For purposes of calculating the percentage beneficially owned, the number
of shares deemed outstanding before the Offering includes: (i) 4,145,169
shares of Common Stock outstanding as of November 30, 1998; and (ii)
3,817,691 shares of Common Stock issuable upon the conversion of Preferred
Stock; and (iii) the Presently Exercisable Options and Presently
Exercisable Warrants held by that person.
(4) Includes 140,000 shares of Common Stock held by Mr. Allaire that are
subject to options held by Jeremy Allaire, Adam Berrey and Simeon
Simeonov, each of whom are employees of the Company.
(5) Polaris Venture Management Co., LLC manages Polaris Venture Partners L.P.
and Polaris Founders' Fund. Includes 1,302,652 shares of Common Stock
issuable upon the conversion of Preferred Stock owned by Polaris Venture
Partners L.P. and 5,960 shares of Common Stock issuable upon the exercise
of Presently Exercisable Warrants owned by Polaris Venture Partners L.P.,
as well as 78,384 shares issuable upon the conversion of Preferred Stock
owned by Polaris Founders' Fund and 340 shares of Common Stock issuable
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<PAGE>
upon the exercise of Presently Exercisable Warrants owned by Polaris
Founders' Fund. Mr. Flint, a director of the Company, is a General Partner
of Polaris Venture Management Co., LLC and has shared voting and investment
power with respect to the shares held by the Polaris entities. However, Mr.
Flint disclaims his beneficial ownership of all such shares, except to the
extent of his pecuniary interest therein. The address of Polaris Venture
Management Co., LLC is 1000 Winter Street, Suite 3350, Waltham, MA 02154.
(6) Includes shares owned beneficially by Polaris Venture Management Co., LLC
(see note 5). Mr. Flint's address is 1000 Winter Street, Suite 3350,
Waltham, MA 02154.
(7) Includes 1,000,000 shares of Common Stock issuable upon the conversion of
Preferred Stock owned by BancBoston. Mr. Roberts, a director of the
Company, is a managing director of BancBoston and has shared voting and
investment power with respect to the shares held by BancBoston. However,
Mr. Roberts disclaims beneficial ownership of all such shares, except to
the extent of his pecuniary interest therein. The address of BancBoston is
175 Federal Street, Boston, MA 02110.
(8) Includes shares owned beneficially by BancBoston (see note 7). Mr.
Roberts' address is 175 Federal Street, Boston, MA 02110.
(9) Includes 31,875 shares of Common Stock which are subject to the Company's
right of repurchase as of November 30, 1998.
(10) Includes 63,438 shares of Common Stock which are subject to the Company's
right of repurchase as of November 30, 1998.
(11) Includes 135,917 shares of Common Stock issuable upon the exercise of
Presently Exercisable Options. Also includes 1,750 shares of Common Stock
issuable upon the exercise of Presently Exercisable Options held by Mr.
Lull's wife.
(12) Includes 9,500 shares of Common Stock issuable upon the exercise of
Presently Exercisable Options.
(13) Includes 16,146 shares of Common Stock issuable upon the exercise of
Presently Exercisable Options. Mr. Gannon's address is 1000 Winter Street,
Suite 3350, Waltham, MA 02154.
(14) Includes 16,146 shares of Common Stock which are subject to the Company's
right of repurchase as of November 30, 1998. Mr. Herring's address is 1000
Winter Street, Suite 3350, Waltham, MA 02154.
(15) Includes 35,000 shares of Common Stock, of which 20,417 are subject to the
Company's right of repurchase as of November 30, 1998, and 227,094 shares
of Common Stock issuable upon the conversion of Preferred Stock. Mr.
Kapor's address is 238 Main Street, Suite 400, Cambridge, MA 02142.
(16) Includes 2,637,000 shares of Common Stock, of which 195,314 are subject to
the Company's right of repurchase as of November 30, 1998, 2,608,130
shares of Common Stock issuable upon conversion of Preferred Stock,
161,563 shares of Common Stock issuable upon the exercise of Presently
Exercisable Options and 6,300 shares of Common Stock issuable upon the
exercise of Presently Exercisable Warrants.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 shares
of common stock, with a par value of $.01 ("Common Stock"), and 5,000,000
shares of preferred stock, with a par value of $.01 per share ("Preferred
Stock"). Of the 5,000,000 shares of authorized Preferred Stock, 1,616,494
shares are undesignated and available for issuance.
Common Stock
As of September 30, 1998, there were 7,958,260 shares of Common Stock
outstanding and held of record by 83 stockholders, after giving effect to the
conversion of all outstanding shares of Preferred Stock upon the closing of the
Offering. Based upon the number of shares outstanding as of that date and
giving effect to the issuance of the shares of Common Stock offered by the
Company hereby, there will be 10,158,260 shares of Common Stock outstanding
upon the closing of the Offering.
Holders of Common Stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to the holders of Preferred Stock that may
be issued, the holders of Common Stock are entitled to receive such lawful
dividends as may be declared by the Board of Directors. In the event of a
liquidation, dissolution or winding up of the affairs of the Company, whether
voluntary or involuntary, and subject to the rights of the holders of
outstanding Preferred Stock, if any, the holders of Common Stock will be
entitled to receive pro rata all of the remaining assets of the Company
available for distribution to its stockholders. The Common Stock has no
preemptive, redemption, conversion or subscription rights. All outstanding
shares of Common Stock are fully paid and non-assessable. The shares of Common
Stock to be issued by the Company in the Offering will be fully paid and
non-assessable.
Preferred Stock
The Company has authorized four series of Preferred Stock, consisting of
200,000 shares of Series A Preferred Stock, 514,306 shares of Series B Preferred
Stock, 169,200 shares of Series C Preferred Stock and 2,500,000 shares of Series
D Preferred Stock. All outstanding shares of Series A, B, C and D Preferred
Stock (including 31,250 shares of Series A Preferred Stock sold on December 7,
1998) will be automatically converted into an aggregate of 3,848,941 shares of
Common Stock upon the closing of the Offering.
The Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of Preferred Stock in
one or more series, to establish from time to time the number of shares to be
included in each series and to fix the voting powers, preferences,
qualifications and special or relative rights or privileges thereof. The Board
of Directors is authorized to issue Preferred Stock with voting, conversion and
other rights and preferences that could adversely affect the voting power or
other rights of the holders of Common Stock. Although the Company has no
current plans to issue any Preferred Stock, the issuance of Preferred Stock or
of rights to purchase Preferred Stock could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, a majority of the outstanding voting stock of the
Company.
Warrants
As of September 30, 1998, the Company had outstanding two warrants to
purchase an aggregate of 17,699 shares of Series A Preferred Stock at an
exercise price of $4.52 per share. The warrants are currently exercisable in
whole or in part, at any time or from time to time until five years from the
effective date of the Offering. Upon the closing of the Offering, these
outstanding warrants will automatically convert into warrants to purchase an
aggregate of 35,398 shares of Common Stock at an exercise price of $2.26 per
share. The warrants contain certain protections against dilution resulting from
stock splits, stock dividends and similar events. The warrants may be exercised
for cash or pursuant to certain cashless exercise provisions.
As of September 30, 1998, the Company also had outstanding four warrants to
purchase an aggregate of 14,899 shares of Common Stock. Two warrants are to
purchase an aggregate of 8,599 shares of Common Stock at an exercise price of
$2.03 per share, and are currently exercisable in whole or in part, at any time
or from time to time, until December 31, 2001. Two warrants are to purchase an
aggregate of 6,300 shares of Common Stock at an exercise price of $4.00 per
share, and are currently exercisable in whole or in part, at any time or from
time to time, until March 7, 2002, and contain certain protections against
dilution resulting from stock splits, stock dividends and similar events.
57
<PAGE>
Registration Rights
Pursuant to a registration rights agreement among the Company and the
holders of an aggregate of 3,108,878 shares of Preferred Stock which will
automatically convert in the aggregate to 3,848,941 shares of Common Stock upon
consummation of the Offering, the holders of warrants exercisable for 14,899
shares of Common Stock, and the holders of warrants exercisable for 17,699
shares of Series A Preferred Stock which will automatically convert to warrants
to purchase an aggregate of 35,398 shares of Common Stock upon the consummation
of the Offering (together the "Registration Rights Holders"), such holders are
entitled to certain rights with respect to the registration of such shares
under the Securities Act.
If the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders, the Registration Rights Holders are entitled to notice of such
registration and to include their shares of Common Stock in such registration.
However, in the event of a registration pursuant to an underwritten public
offering of Common Stock, the underwriters shall have the right, subject to
certain conditions, to limit the number of shares included in such
registration.
The holders of more than 50% of the then-outstanding shares of Common
Stock held by all of the Registration Rights Holders are entitled, at any time
beginning at the earlier of 180 days after the Company's initial underwritten
public offering or June 30, 2000, to request that the Company file a
registration statement under the Securities Act covering the sale of some or
all of the shares held by the requesting holder or holders, provided, however,
that no such request may be made within 120 days of the filing of a
registration statement by the Company in which such requesting stockholders
were permitted to include their shares. Upon the receipt of such a request, the
Company is required to use commercially reasonable efforts to effect such
registration. The Company is not required to effect more than two such demand
registrations.
Once the Company has qualified to use Form S-3 to register securities
under the Securities Act, the Registration Rights Holders shall have the right
to request that the Company file a registration statement on Form S-3 or any
successor thereto for a public offering of all or any portion of their shares,
provided that the reasonably anticipated aggregate price to the public of such
offering would exceed $1,000,000. The Company shall not be required to effect a
registration in this manner more than once in any 12-month period.
In general, all fees, costs and expenses of such registrations (other than
insurance costs and fees and disbursements of counsel to the selling
stockholders) will be borne by the Company. The Company has agreed to indemnify
the Registration Rights Holders against, and provide contribution with respect
to, certain liabilities relating to any registration in which any shares of
Registration Rights Holders are sold under the Securities Act.
Anti-Takeover Effects of Provisions of the Company's Amended and Restated
Certificate of Incorporation and Amended and Restated By-Laws and Delaware Law
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") and the Company's Amended and Restated By-Laws (the "By-Laws")
and Delaware Law contain certain provisions that could be deemed to have
anti-takeover effects and that could discourage, delay, or prevent a change in
control of the Company or an acquisition of the Company at a price which many
stockholders may find attractive. The existence of these provisions could limit
the price that investors might be willing to pay in the future for shares of
Common Stock.
Amended and Restated Certificate of Incorporation and By-Laws
The By-Laws provide that, except as otherwise provided by law or the
Certificate, newly created directorships resulting from an increase in the
authorized number of directors or vacancies on the Board resulting from death,
resignation, disqualification or removal of directors or any other cause may be
filled only by the Board (and not by the stockholders unless there are no
directors in office), provided that a quorum is then in office and present, or
by a majority of the directors then in office, if less than a quorum is then in
office, or by the sole remaining director. These provisions prevent a
stockholder from enlarging the Board and filling the new directorships with
such stockholder's own nominees without Board approval.
The provisions of the By-Laws governing the removal of directors and the
filling of vacancies may have the effect of discouraging a third party from
initiating a proxy contest, making a tender offer or otherwise attempting to
gain control of the Company, or of attempting to change the composition or
policies of the Board, even though such attempts might be beneficial to the
Company or its stockholders.
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<PAGE>
The Certificate and the By-Laws provide that, unless otherwise prescribed
by law or the Certificate, (i) only a majority of the Board, or the Chairman of
the Board or the President is able to call a special meeting of stockholders;
and (ii) stockholder action may be taken only at a duly called and convened
annual or special meeting of stockholders and may not be taken by written
consent. These provisions, taken together, prevent stockholders from forcing
consideration by the stockholders of stockholder proposals over the opposition
of the Board, except at an annual meeting.
The By-Laws also establish an advance notice procedure for stockholders to
make nominations of candidates for election as director, or to bring other
business before an annual meeting of stockholders of the Company (the "Notice
Procedure"). The Notice Procedure provides that, unless otherwise prescribed by
law or the Certificate, only persons who are nominated by or at the direction
of the Board or by a stockholder who has given timely written notice to the
Secretary of the Company prior to the meeting at which directors are to be
elected will be eligible for election as directors of the Company. The Notice
Procedure provides that at an annual meeting only such business may be
conducted as has been brought before the meeting by, or at the direction of,
the Board, or by a stockholder who has given timely written notice to the
Secretary of the Company of such stockholder's intention to bring such business
before such meeting. Under the Notice Procedure, notice of stockholder
nominations or proposals to be made (a) at an annual or special meeting in lieu
of an annual meeting must be received by the Company not less than 60 days nor
more than 90 days prior to the scheduled date of the meeting (or, if less than
70 days notice or prior public disclosure of the date of the meeting is given,
then not later than the 10th day following the earlier of (i) the day such
notice was mailed or (ii) the day such public disclosure was made) or (b) at a
special meeting (other than a special meeting in lieu of an annual meeting),
not later than the 10th day following the earlier of (i) the day such notice
was mailed or (ii) the day such public disclosure was made. These notices must
contain certain prescribed information.
The Notice Procedure affords the Board an opportunity to consider the
qualifications of proposed director nominees or the merit of stockholder
proposals, and, to the extent deemed appropriate by the Board, to inform
stockholders about such matters, and also provides a more orderly procedure for
conducting annual meetings of stockholders. Although the By-Laws do not give
the Board any power to approve or disapprove stockholder nominations for the
election of directors or proposals for action, the foregoing provisions may
have the effect of precluding a contest for the election of directors or the
consideration of stockholder proposals and of deterring a third party from
conducting a solicitation of proxies to elect its own slate of directors or to
approve its own proposal if the proper advance notice procedures are not
followed, without regard to whether consideration of such nominees or proposals
might be harmful or beneficial to the Company and its stockholders.
Delaware Law
The Company is subject to Section 203 of the Delaware General Corporation
Law which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that such stockholder became an
interested stockholder, unless (i) prior to such date, the board of directors
of the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder; (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors
and authorized at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock which is not owned by the interested stockholder. The
application of Section 203 may limit the ability of stockholders to approve a
transaction that they may deem to be in their best interests.
Section 203 defines "business combination" to include (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii)
any sale, transfer, pledge or other disposition of 10% or more of the assets of
the corporation to or with the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing
the proportionate share
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<PAGE>
of the stock of any class or series of the corporation beneficially owned by
the interested stockholder; or (v) the receipt by the interested stockholder of
the benefit of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation. In general, Section 203
defines an "interested stockholder" as any entity or person beneficially owning
15% or more of the outstanding voting stock of the corporation and any entity
or person associated with, affiliated with or controlling or controlled by such
entity or person.
Limitation of Liability
The Certificate provides that no director of the Company shall be
personally liable to the Company or to its stockholders for monetary damages
for breach of fiduciary duty as a director, except that the limitation shall
not eliminate or limit liability to the extent that the elimination or
limitation of such liability is not permitted by the Delaware General
Corporation Law as the same exists or may hereafter be amended.
The Certificate further provides for the indemnification of the Company's
directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary. A principal effect of these
provisions is to limit or eliminate the potential liability of the Company's
directors for monetary damages arising from breaches of their duty of care,
subject to certain exceptions. These provisions may also shield directors from
liability under federal and state securities laws.
Stock Transfer Agent
The transfer agent and registrar for the Common Stock is Boston EquiServe
L.P.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect prevailing market prices from time to time.
Furthermore, since only a limited number of shares will be available for sale
shortly after the Offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of the Offering (based on shares outstanding at September
30, 1998), the Company will have outstanding an aggregate of 10,158,260 shares
of Common Stock, assuming no exercise of the Underwriters' over-allotment
option and no exercise of outstanding options or warrants. Of these shares, the
2,200,000 shares sold in the Offering will be freely tradable without
restrictions or further registration under the Securities Act, unless such
shares are purchased by an existing "affiliate" of the Company as that term is
defined in Rule 144 under the Securities Act (an "Affiliate"). On the date of
this Prospectus, no shares in addition to the shares offered hereby will be
eligible for sale. The remaining 7,958,260 shares of Common Stock held by
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act ("Restricted Shares") or are subject to the
contractual restrictions described below. Restricted Shares may be sold in the
public market only if registered or if they qualify for an exception from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act, which are summarized below. As a result of the contractual restrictions
described below and the provisions of Rules 144, 144(k) and 701, 7,736,870
shares will be eligible for sale (and not subject to repurchase by the Company)
upon expiration of the lock-up agreements 180 days after the date of this
Prospectus.
All of the officers and directors and certain stockholders and
optionholders of the Company have agreed not to offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or publicly disclose the intention to make any such offer, sale,
pledge or disposal for a period of 180 days after the date of this Prospectus,
without the prior written consent of Credit Suisse First Boston Corporation.
Credit Suisse First Boston Corporation currently has no plans to release any
portion of the securities subject to lock-up agreements. When determining
whether or not to release shares from the lock-up agreements, Credit Suisse
First Boston Corporation will consider, among other factors, the stockholder's
reasons for requesting the release, the number of shares for which the release
is being requested and market conditions at the time.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of (i) one percent of the number of shares of Common Stock then
outstanding (which will equal approximately 101,583 shares immediately after
the Offering); or (ii) the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. Sales under Rule 144 are
also subject to certain manner of sale provisions, notice requirements and the
availability of current public information about the Company. Under rule
144(k), a person who is not deemed to have been an Affiliate of the Company at
any time during the 90 days preceding a sale, and who has beneficially owned
the shares proposed to be sold for at least two years (including the holding
period of any prior owner except an Affiliate), is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Accordingly, unless otherwise
restricted, "144(k) shares" may therefore be sold immediately upon the
completion of the Offering.
Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its
employees, directors, officers, consultants or advisors prior to the date the
issuer becomes subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") pursuant to written compensatory
benefit plans or written contracts relating to the compensation of such
persons. In addition, the Commission has indicated that Rule 701 will apply to
typical stock options granted by an issuer before it becomes subject to the
reporting requirements of the Exchange Act, along with the shares acquired upon
exercise of such options (including exercises after the date of the Offering).
Securities issued in reliance on Rule 701 are restricted securities and,
subject to the contractual restrictions described above, beginning 90 days
after the date of this Prospectus, may be sold (i) by
61
<PAGE>
persons other than Affiliates, subject only to the manner of sale provisions of
Rule 144 and (ii) by Affiliates, under Rule 144 without compliance with its
one-year minimum holding period requirements.
The Company has agreed not to offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Securities Act relating to, any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock, or publicly disclose the intention to make any such offer,
sale, pledge, disposition or filing, for a period of 180 days after the date of
this Prospectus, without the prior written consent of Credit Suisse First
Boston Corporation, subject to certain limited exceptions.
Following the Offering, the Company intends to file registration
statements under the Securities Act covering approximately 3,840,000 shares of
Common Stock subject to outstanding options or reserved for issuance under the
Company's 1997 Stock Incentive Plan, 1998 Stock Incentive Plan and 1998
Employee Stock Purchase Plan. Accordingly, shares registered under such
registration statements will, subject to Rule 144 volume limitations applicable
to Affiliates, be available for sale in the open market, except to the extent
that such shares are subject to vesting restrictions with the Company or the
contractual restrictions described above. See "Management -- Benefit Plans."
62
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1999 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, Dain Rauscher Wessels, a division of Dain Rauscher Incorporated
("Dain Rauscher Wessels"), and NationsBanc Montgomery Securities LLC are acting
as representatives (the "Representatives"), have severally but not jointly
agreed to purchase from the Company the following respective number of shares
of Common Stock:
<TABLE>
<CAPTION>
Number of
Underwriters Shares
- ------------------------------------------------------ ----------
<S> <C>
Credit Suisse First Boston Corporation .........
Dain Rauscher Wessels ..........................
NationsBanc Montgomery Securities LLC ..........
---------
Total ........................................ 2,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to approval of certain conditions precedent and that
the Underwriters will be obligated to purchase all of the shares of the Common
Stock offered hereby (other than those shares covered by the over-allotment
option described below) if any are purchased. The Underwriting Agreement
provides that, in the event of a default by an Underwriter, in certain
circumstances the purchase commitments of non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option expiring on the 30th
day after the date of this Prospectus to purchase up to 330,000 additional
shares of Common Stock at the initial public offering price, less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of shares of Common Stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers (who may include the
Underwriters) at such price less a concession of $ per share, and the
Underwriters and such dealers may allow a discount of $ per share on sales
to certain other dealers. After the Offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The following table summarizes the compensation to be paid to the
Underwriters by Allaire and the expenses payable by Allaire.
<TABLE>
<CAPTION>
Total
------------------------------
Without With
Per Share Over-allotment Over-allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions paid by
Allaire ..................................... $ $ $
Expenses payable by Allaire .................. $ $ $
</TABLE>
The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the shares being
offered hereby.
The Company, its officers and directors, and certain other existing
stockholders and optionholders of the Company have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or, in the case of the Company, file with the Securities and
Exchange Commission a registration statement relating to, any shares of Common
Stock or securities exchangeable or exercisable for or convertible into shares
of Common Stock or publicly disclose the intention to do any of the foregoing
without the prior written consent
63
<PAGE>
of Credit Suisse First Boston Corporation for a period of 180 days after the
date of this Prospectus, except under certain circumstances.
The Underwriters have reserved for sale, at the initial public offering
price, up to shares of the Common Stock for employees, directors and
certain other persons associated with the Company who have expressed an
interest in purchasing such shares of Common Stock in the Offering. The number
of shares available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters to the general public on the same
basis as other shares offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or
contribute to payments which the Underwriters may be required to make in
respect thereof.
WA&H Investments, LLC ("WA&H"), a stockholder of the Company, is
affiliated with Dain Rauscher Wessels, one of the Representatives of the
Underwriters. In June 1996 WA&H purchased 54,204 shares of Series B Preferred
Stock at a purchase price of $4.52 per share, which will automatically convert
into 108,408 shares of Common Stock upon the closing of the Offering, and in
May 1997 WA&H purchased 62,500 shares of Series D Preferred Stock at a purchase
price of $4.00 per share, which will automatically convert into the same number
of shares of Common Stock upon the closing of the Offering.
Credit Suisse First Boston Corporation has purchased approximately $90,000
of the Company's software products and related services since the Company's
inception. Credit Suisse First Boston Corporation obtained such products and
services through arms-length negotiations on terms substantially similar to
terms obtained by other customers of the Company for similar products and
services.
Application has been made to list the shares of Common Stock on The Nasdaq
Stock Market's National Market under the symbol "ALLR."
Prior to the Offering, there has been no public market for the Common
Stock. The initial public offering price will be determined by negotiation
between the Company and the Representatives. Among the principal factors to be
considered in determining the public offering price include the information set
forth in this Prospectus and otherwise available to the Representatives; the
history of, and the prospects for, the Company and the industry in which it
competes; an assessment of the Company's management; the prospects for, and the
timing of, future earnings of the Company; the present state of the Company's
development and its current financial condition; the general condition of the
securities markets at the time of the Offering; the recent market prices of,
and the demand for, publicly-traded common stock of companies in businesses
similar to those of the Company; market conditions for initial public
offerings; and other relevant factors. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the market subsequent to the Offering at or above the initial public
offering price.
The Representatives, on behalf of the Underwriters, may engage in
over-allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange Act
of 1934 (the "Exchange Act"). Over-allotment involves syndicate sales in excess
of the offering size, which creates a syndicate short position. Stabilizing
transactions permit bids to purchase the underlying security so long as the
stabilizing bids do not exceed a specified maximum. Syndicate covering
transactions involve purchases of shares of the Common Stock in the open market
after the distribution has been completed in order to cover syndicate short
positions. Penalty bids permit the Representatives to reclaim a selling
concession from a syndicate when shares of the Common Stock originally sold by
such syndicate member are purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.
64
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the Common Stock in Canada is being made only on a
private placement basis exempt from the requirement that the Company prepare
and file a prospectus with the securities regulatory authorities in each
province where trades of Common Stock are effected. Accordingly, any resale of
the Common Stock in Canada must be made in accordance with applicable
securities laws which will vary depending on the relevant jurisdiction, and
which may require resales to be made in accordance with available statutory
exemptions or pursuant to a discretionary exemption granted by the applicable
Canadian securities regulatory authority. Purchasers are advised to seek legal
advice prior to any resale of the Common Stock.
Representations of Purchasers
Each purchaser of Common Stock in Canada who receives a purchase
confirmation will be deemed to represent to the Company and the dealer from
whom such purchase confirmation is received that (i) such purchaser is entitled
under applicable provincial securities laws to purchase such Common Stock
without the benefit of a prospectus qualified under such securities laws, (ii)
where required by law, that such purchaser is purchasing as principal and not
as agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of Common Stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
Common Stock acquired by such purchaser pursuant to the Offering. Such a report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Common Stock acquired on the same date
and under the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of Common Stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the Common
Stock in their particular circumstances and with respect to the eligibility of
the Common Stock for investment by the purchaser under relevant Canadian
Legislation.
65
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Foley, Hoag & Eliot LLP, Boston, Massachusetts. Certain
legal matters will be passed upon for the Underwriters by Testa, Hurwitz &
Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Allaire Corporation as of December 31, 1996 and
1997 and as of September 30, 1998 and for the period from inception (May 5,
1995) through December 31, 1995, for each of the two years in the period ended
December 31, 1997 and for the nine months ended September 30, 1998, all of which
are included in this Prospectus, have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (including all amendments,
exhibits, schedules and supplements thereto, the "Registration Statement")
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement. For further information with respect to the Company and
the Common Stock, reference is made to the Registration Statement. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance,
reference is made to the copy of the contract or document filed as an exhibit
to the Registration Statement, and each such statement is qualified in all
respects by reference to such exhibit. Copies of the Registration Statement may
be examined without charge at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the Regional Offices of the Commission at Suite 1400, 500
West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center,
Thirteenth Floor, New York, New York 10048. Copies of all or any portion of the
Registration Statement may be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington
D.C. 20549, or by calling the Commission at 1-800-SEC-0330, at prescribed
rates. The Commission also maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding registrants, such as the Company, that make electronic filings with
the Commission.
The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent public accounting
firm.
66
<PAGE>
ALLAIRE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Report of Independent Accountants ................................................... F-2
Balance Sheet as of December 31, 1996 and 1997 and September 30, 1998 ............... F-3
Statement of Operations for the period from inception (May 5, 1995)
through December 31, 1995, the years ended December 31, 1996
and 1997 and the nine months ended September 30, 1997 (unaudited) and 1998 ......... F-4
Statement of Redeemable Convertible Preferred Stock and Stockholders' Deficit for the
period from inception (May 5, 1995) through December 31, 1995, the years ended
December 31, 1996 and 1997 and the nine months ended September 30, 1998 ............ F-5
Statement of Cash Flows for the period from inception (May 5, 1995) through
December 31, 1995, the years ended December 31, 1996 and 1997 and the
nine months ended September 30, 1997 (unaudited) and 1998 .......................... F-6
Notes to Financial Statements ....................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Allaire Corporation
In our opinion, the accompanying balance sheet and the related statements of
operations, of redeemable convertible preferred stock and stockholders' deficit
and of cash flows present fairly, in all material respects, the financial
position of Allaire Corporation at December 31, 1996 and 1997 and September 30,
1998, and the results of its operations and its cash flows for the period from
inception (May 5, 1995) through December 31, 1995, the two years in the period
ended December 31, 1997 and the nine months ended September 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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 the
opinion expressed above.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 9, 1998
F-2
<PAGE>
ALLAIRE CORPORATION
BALANCE SHEET
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ....................................................... $ 526 $ 5,521
Accounts receivable, net of allowance for doubtful accounts and sales returns
of $220, $487, and $480 at December 31, 1996 and 1997 and September 30,
1998, respectively ............................................................. 617 1,413
Prepaid expenses and other current assets ....................................... 87 236
--------- ---------
Total current assets ....................................................... 1,230 7,170
Property and equipment, net ...................................................... 568 2,209
Other assets, net ................................................................ 240 318
--------- ---------
Total assets ............................................................... $ 2,038 $ 9,697
========= =========
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Deficit
Current liabilities:
Current portion of capital lease obligations .................................... $ -- $ 315
Current portion of notes payable ................................................ 33 --
Accounts payable ................................................................ 486 1,601
Accrued expenses ................................................................ 120 1,320
Accrued employee compensation and benefits ...................................... 259 1,130
Deferred revenue ................................................................ 108 1,312
--------- ---------
Total current liabilities .................................................. 1,006 5,678
Capital lease obligations ........................................................ -- 499
Notes payable .................................................................... -- --
--------- ---------
Total liabilities .......................................................... 1,006 6,177
--------- ---------
Redeemable convertible preferred stock:
Series B, $.01 par value;
Authorized: 508,849 shares at December 31, 1996; 514,306
at December 31, 1997 and September 30, 1998 actual and pro forma
Issued and outstanding: 508,849 shares at December 31, 1996; 514,306 at
December 31, 1997 and September 30, 1998 actual; none at September 30, 1998
pro forma .................................................................... 2,300 2,325
Series C, $.01 par value;
Authorized: 84,600 shares at December 31, 1996; 169,200 at December 31, 1997
and September 30, 1998 actual and pro forma
Issued and outstanding: 84,600 shares at December 31, 1996; 169,200 at December
31, 1997 and September 30, 1998 actual; none at September 30, 1998 pro forma 500 1,000
Series D, $.01 par value;
Authorized: no shares at December 31, 1996; 2,500,000 at December 31, 1997 and
September 30, 1998 actual and pro forma
Issued and outstanding: no shares at December 31, 1996; 2,336,909 at
December 31, 1997 and September 30, 1998 actual; none at September 30, 1998
pro forma .................................................................... -- 9,348
--------- ---------
Total redeemable convertible preferred stock ..................................... 2,800 12,673
--------- ---------
Stockholders' deficit:
Series A convertible preferred stock, $.01 par value;
Authorized: 200,000 shares at December 31, 1996, December 31, 1997 and
September 30, 1998 actual and pro forma
Issued and outstanding: 43,557 shares at December 31, 1996; 56,557 at December
31, 1997; 57,213 at September 30, 1998 actual; none at September 30, 1998 pro
forma ........................................................................ 177 255
Common stock, $.01 par value;
Authorized: 10,000,000 shares at December 31, 1996, December 31, 1997 and
September 30, 1998 actual; 35,000,000 at September 30, 1998 pro forma
Issued and outstanding: 3,002,500 shares at December 31, 1996 and 1997;
4,143,986 issued and 4,140,569 outstanding at September 30, 1998 actual;
7,961,677 issued and 7,958,260 outstanding at September 30, 1998 pro forma 30 30
Additional paid-in capital ...................................................... 13 13
Accumulated deficit ............................................................. (1,968) (9,435)
Deferred compensation ........................................................... -- --
Stock subscriptions receivable .................................................. (20) (16)
--------- ---------
Total stockholders' deficit ...................................................... (1,768) (9,153)
--------- ---------
Commitments and contingencies (Note 13)
Total liabilities, redeemable convertible preferred stock and
stockholders' deficit ..................................................... $ 2,038 $ 9,697
========= =========
<CAPTION>
Pro Forma
Sept. 30, Sept. 30,
1998 1998
------------ ----------------
(Notes 2 and 7)
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ....................................................... $ 1,879 $ 1,879
Accounts receivable, net of allowance for doubtful accounts and sales returns
of $220, $487, and $480 at December 31, 1996 and 1997 and September 30,
1998, respectively ............................................................. 2,388 2,388
Prepaid expenses and other current assets ....................................... 610 610
---------- ----------
Total current assets ....................................................... 4,877 4,877
Property and equipment, net ...................................................... 3,072 3,072
Other assets, net ................................................................ 381 381
---------- ----------
Total assets ............................................................... $ 8,330 $ 8,330
========== ==========
Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Deficit
Current liabilities:
Current portion of capital lease obligations .................................... $ 334 $ 334
Current portion of notes payable ................................................ 352 352
Accounts payable ................................................................ 1,842 1,842
Accrued expenses ................................................................ 3,055 3,055
Accrued employee compensation and benefits ...................................... 2,302 2,302
Deferred revenue ................................................................ 2,933 2,933
---------- ----------
Total current liabilities .................................................. 10,818 10,818
Capital lease obligations ........................................................ 247 247
Notes payable .................................................................... 973 973
---------- ----------
Total liabilities .......................................................... 12,038 12,038
---------- ----------
Redeemable convertible preferred stock:
Series B, $.01 par value;
Authorized: 508,849 shares at December 31, 1996; 514,306
at December 31, 1997 and September 30, 1998 actual and pro forma
Issued and outstanding: 508,849 shares at December 31, 1996; 514,306 at
December 31, 1997 and September 30, 1998 actual; none at September 30, 1998
pro forma .................................................................... 2,325 --
Series C, $.01 par value;
Authorized: 84,600 shares at December 31, 1996; 169,200 at December 31, 1997
and September 30, 1998 actual and pro forma
Issued and outstanding: 84,600 shares at December 31, 1996; 169,200 at December
31, 1997 and September 30, 1998 actual; none at September 30, 1998 pro forma 1,000 --
Series D, $.01 par value;
Authorized: no shares at December 31, 1996; 2,500,000 at December 31, 1997 and
September 30, 1998 actual and pro forma
Issued and outstanding: no shares at December 31, 1996; 2,336,909 at
December 31, 1997 and September 30, 1998 actual; none at September 30, 1998
pro forma .................................................................... 9,348 --
---------- ----------
Total redeemable convertible preferred stock ..................................... 12,673 --
---------- ----------
Stockholders' deficit:
Series A convertible preferred stock, $.01 par value;
Authorized: 200,000 shares at December 31, 1996, December 31, 1997 and
September 30, 1998 actual and pro forma
Issued and outstanding: 43,557 shares at December 31, 1996; 56,557 at December
31, 1997; 57,213 at September 30, 1998 actual; none at September 30, 1998 pro
forma ........................................................................ 260 --
Common stock, $.01 par value;
Authorized: 10,000,000 shares at December 31, 1996, December 31, 1997 and
September 30, 1998 actual; 35,000,000 at September 30, 1998 pro forma
Issued and outstanding: 3,002,500 shares at December 31, 1996 and 1997;
4,143,986 issued and 4,140,569 outstanding at September 30, 1998 actual;
7,961,677 issued and 7,958,260 outstanding at September 30, 1998 pro forma 41 79
Additional paid-in capital ...................................................... 1,140 14,035
Accumulated deficit ............................................................. (17,423) (17,423)
Deferred compensation ........................................................... (383) (383)
Stock subscriptions receivable .................................................. (16) (16)
---------- ----------
Total stockholders' deficit ...................................................... (16,381) (3,708)
---------- ----------
Commitments and contingencies (Note 13)
Total liabilities, redeemable convertible preferred stock and
stockholders' deficit ..................................................... $ 8,330 $ 8,330
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ALLAIRE CORPORATION
STATEMENT OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Period from
inception
(May 5, 1995) Year ended Nine months ended
through December 31, September 30,
December 31, ----------------------- ---------------------------
1995 1996 1997 1997 1998
-------------- ----------- ----------- ------------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license fees .............................. $ -- $ 2,358 $ 7,116 $ 4,335 $ 11,716
Services ........................................... -- -- 534 260 2,187
------- -------- -------- -------- ---------
Total revenue ................................... -- 2,358 7,650 4,595 13,903
------- -------- -------- -------- ---------
Cost of revenue:
Software license fees .............................. -- 234 961 540 1,262
Services ........................................... -- -- 1,453 845 2,855
------- -------- -------- -------- ---------
Total cost of revenue ........................... -- 234 2,414 1,385 4,117
------- -------- -------- -------- ---------
Gross profit ........................................ -- 2,124 5,236 3,210 9,786
------- -------- -------- -------- ---------
Operating expenses:
Research and development ........................... 65 873 2,702 1,801 3,371
Sales and marketing ................................ 49 1,576 7,272 4,216 11,561
General and administrative ......................... 74 1,387 2,874 1,866 2,871
------- -------- -------- -------- ---------
Total operating expenses ........................ 188 3,836 12,848 7,883 17,803
------- -------- -------- -------- ---------
Loss from operations ................................ (188) (1,712) (7,612) (4,673) (8,017)
Interest income, net ................................ -- 14 187 125 29
------- -------- -------- -------- ---------
Net loss ............................................ $ (188) $ (1,698) $ (7,425) $ (4,548) $ (7,988)
======= ======== ======== ======== =========
Basic and diluted net loss per share ................ $ (0.09) $ (0.97) $ (4.40) $ (2.87) $ (2.84)
Shares used in computing basic and diluted
net loss per share ................................. 2,200 1,743 1,687 1,584 2,813
Unaudited pro forma basic and diluted net
loss per share ..................................... $ (1.38) $ (1.13)
Shares used in computing unaudited pro
forma basic and diluted net loss per share ......... 5,378 7,054
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ALLAIRE CORPORATION
STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(In thousands, except share data)
<TABLE>
<CAPTION>
Redeemable
convertible
preferred Convertible
stock preferred stock Common stock
----------------------- ----------------- -------------------------
Shares Amount Shares Amount Shares Par value
------------ ---------- -------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial capital contribution by founders ..... $ $ 2,200,000 $22
Net loss ....................................
--------- ------- ------ ---- --------- -----
Balance, December 31, 1995 ................... -- -- -- -- 2,200,000 22
Issuance of common stock in
exchange for stock subscriptions
receivable ................................. 1,800,000 18
Issuance of Series A convertible
preferred stock upon conversion of
notes payable and accrued interest ......... 43,557 177
Issuance of Series B redeemable
convertible preferred stock, net of
issuance costs of $55 ...................... 508,849 2,300
Forgiveness of stock subscriptions
receivable in exchange for cancel-
lation of shares of common stock ........... (920,000) (9)
Repurchase and cancellation of shares
of common stock ............................ (80,000) (1)
Issuance of Series C redeemable
convertible preferred stock, net of
issuance costs of $12 ...................... 84,600 500
Exercise of employee stock options .......... 2,500 --
Net loss ....................................
--------- ------- ------ ---- --------- -----
Balance, December 31, 1996 ................... 593,449 2,800 43,557 177 3,002,500 30
Issuance of Series A convertible
preferred stock in acquisition of
Bradbury Software L.L.C. ................... 13,000 78
Issuance of Series C redeemable
convertible preferred stock ................ 84,600 500
Issuance of Series B redeemable
convertible preferred stock ................ 5,457 25
Issuance of Series D redeemable
convertible preferred stock, net of
issuance costs of $42 ...................... 2,272,719 9,091
Issuance of Series D redeemable
convertible preferred stock upon
conversion of notes payable and
accrued interest ........................... 64,190 257
Repayment of stock subscription
receivable .................................
Net loss ....................................
--------- ------- ------ ---- --------- -----
Balance, December 31, 1997 ................... 3,020,415 12,673 56,557 255 3,002,500 30
Issuance of Series A convertible
preferred stock ............................ 656 5
Exercise of employee stock options .......... 1,141,486 11
Repurchase of common stock held
in treasury ................................
Deferred compensation relating to
grants of stock options ....................
Compensation relating to grants of
stock options ..............................
Net loss ....................................
--------- ------- ------ ---- --------- -----
Balance, September 30, 1998 .................. 3,020,415 $12,673 57,213 $260 4,143,986 $41
========= ======= ====== ==== ========= =====
<CAPTION>
Additional Stock Total
paid-in Accumulated Deferred subscriptions stockholders'
capital deficit compensation receivable deficit
------------ ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Initial capital contribution by founders ..... $ -- $ (15) $ -- $ -- $ 7
Net loss .................................... (188) (188)
------- --------- ------ ----- ----------
Balance, December 31, 1995 ................... -- (203) -- -- (181)
Issuance of common stock in
exchange for stock subscriptions
receivable ................................. 27 (45) --
Issuance of Series A convertible
preferred stock upon conversion of
notes payable and accrued interest ......... 177
Issuance of Series B redeemable
convertible preferred stock, net of
issuance costs of $55 ...................... (55) (55)
Forgiveness of stock subscriptions
receivable in exchange for cancel-
lation of shares of common stock ........... (14) 23 --
Repurchase and cancellation of shares
of common stock ............................ (1) 2 --
Issuance of Series C redeemable
convertible preferred stock, net of
issuance costs of $12 ...................... (12) (12)
Exercise of employee stock options .......... 1 1
Net loss .................................... (1,698) (1,698)
------- --------- ------ ----- ----------
Balance, December 31, 1996 ................... 13 (1,968) -- (20) (1,768)
Issuance of Series A convertible
preferred stock in acquisition of
Bradbury Software L.L.C. ................... 78
Issuance of Series C redeemable
convertible preferred stock ................
Issuance of Series B redeemable
convertible preferred stock ................
Issuance of Series D redeemable
convertible preferred stock, net of
issuance costs of $42 ...................... (42) (42)
Issuance of Series D redeemable
convertible preferred stock upon
conversion of notes payable and
accrued interest ...........................
Repayment of stock subscription
receivable ................................. 4 4
Net loss .................................... (7,425) (7,425)
------- --------- ------ ----- ----------
Balance, December 31, 1997 ................... 13 (9,435) -- (16) (9,153)
Issuance of Series A convertible
preferred stock ............................ 5
Exercise of employee stock options .......... 526 537
Repurchase of common stock held
in treasury ................................ (2) (2)
Deferred compensation relating to
grants of stock options .................... 454 (454) --
Compensation relating to grants of
stock options .............................. 149 71 220
Net loss .................................... (7,988) (7,988)
------- --------- ------ ----- ----------
Balance, September 30, 1998 .................. $1,140 $ (17,423) $ (383) $ (16) $(16,381)
======= ========= ====== ===== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ALLAIRE CORPORATION
STATEMENT OF CASH FLOWS
(In thousands, except share data)
<TABLE>
<CAPTION>
Period from
inception
(May 5, 1995) Year ended
through December 31,
December 31, -------------------------
1995 1996 1997
-------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ......................................................... $ (188) $ (1,698) $ (7,425)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization .................................. 1 94 726
Interest converted into shares of preferred stock .............. -- 2 5
Compensation expense relating to issuance of note payable
under severance agreement ..................................... -- 90 --
Compensation expense relating to issuance of equity
instruments ................................................... -- -- --
Changes in assets and liabilities:
Accounts receivable ........................................... (40) (577) (796)
Prepaid expenses and other current assets ..................... (11) (76) (149)
Other assets .................................................. -- (254) (55)
Accounts payable .............................................. 27 459 1,115
Accrued expenses .............................................. 11 368 2,071
Deferred revenue .............................................. 211 (103) 1,204
------ -------- --------
Total adjustments ........................................... 199 3 4,121
------ -------- --------
Net cash provided by (used for) operating activities ........ 11 (1,695) (3,304)
------ -------- --------
Cash flows from investing activities:
Purchases of property and equipment .............................. (47) (598) (1,502)
Payment for acquisition of Bradbury Software L.L.C. .............. -- -- (252)
------ -------- --------
Net cash used for investing activities ...................... (47) (598) (1,754)
------ -------- --------
Cash flows from financing activities:
Proceeds from sale leaseback transaction ......................... -- -- 421
Principal payments on capital lease obligations .................. -- -- (165)
Proceeds from issuance of convertible notes payable .............. -- 175 252
Proceeds from issuance of notes payable .......................... 60 88 --
Principal payments on notes payable .............................. (10) (195) (33)
Proceeds from sale of common stock ............................... 3 1 --
Proceeds from sale of redeemable convertible preferred stock,
net of issuance costs ........................................... -- 2,733 9,574
Payments to acquire treasury stock ............................... -- -- --
Payment received on stock subscription receivable ................ -- -- 4
------ -------- --------
Net cash provided by financing activities ................... 53 2,802 10,053
------ -------- --------
Net increase (decrease) in cash and cash equivalents .............. 17 509 4,995
Cash and cash equivalents, beginning of period .................... -- 17 526
------ -------- --------
Cash and cash equivalents, end of period .......................... $ 17 $ 526 $ 5,521
====== ======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest ........................................... $ -- $ 4 $ 46
Supplemental disclosure of non-cash investing and financing
activities:
Conversion of notes payable and related accrued interest of $2
into 43,557 shares of Series A convertible preferred stock ...... $ -- $ 175 $ --
Issuance of Series A convertible preferred stock for acquisition
of Bradbury Software L.L.C. ..................................... $ -- $ -- $ 78
Conversion of note payable and related accrued interest of $5
into 64,190 shares of Series D redeemable convertible
preferred stock ................................................. $ -- $ -- $ 252
Capital lease obligations ........................................ $ -- $ -- $ 979
<CAPTION>
Nine months ended
September 30,
----------------------------
1997 1998
------------ --------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss ......................................................... $ (4,548) $(7,988)
Adjustments to reconcile net loss to net cash provided by
(used for) operating activities:
Depreciation and amortization .................................. 432 1,030
Interest converted into shares of preferred stock .............. 5 --
Compensation expense relating to issuance of note payable
under severance agreement ..................................... -- --
Compensation expense relating to issuance of equity
instruments ................................................... -- 220
Changes in assets and liabilities:
Accounts receivable ........................................... (243) (975)
Prepaid expenses and other current assets ..................... (158) (374)
Other assets .................................................. (35) (270)
Accounts payable .............................................. 506 241
Accrued expenses .............................................. 1,358 2,907
Deferred revenue .............................................. 856 1,621
-------- -------
Total adjustments ........................................... 2,721 4,400
-------- -------
Net cash provided by (used for) operating activities ........ (1,827) (3,588)
-------- -------
Cash flows from investing activities:
Purchases of property and equipment .............................. (794) (1,686)
Payment for acquisition of Bradbury Software L.L.C. .............. (252) --
-------- -------
Net cash used for investing activities ...................... (1,046) (1,686)
-------- -------
Cash flows from financing activities:
Proceeds from sale leaseback transaction ......................... 421 --
Principal payments on capital lease obligations .................. (90) (233)
Proceeds from issuance of convertible notes payable .............. 252 --
Proceeds from issuance of notes payable .......................... -- 1,406
Principal payments on notes payable .............................. (33) (81)
Proceeds from sale of common stock ............................... -- 537
Proceeds from sale of redeemable convertible preferred stock,
net of issuance costs ........................................... 9,574 5
Payments to acquire treasury stock ............................... -- (2)
Payment received on stock subscription receivable ................ -- --
-------- ---------
Net cash provided by financing activities ................... 10,124 1,632
-------- ---------
Net increase (decrease) in cash and cash equivalents .............. 7,251 (3,642)
Cash and cash equivalents, beginning of period .................... 526 5,521
-------- ---------
Cash and cash equivalents, end of period .......................... $ 7,777 $ 1,879
======== =========
Supplemental disclosure of cash flow information:
Cash paid for interest ........................................... $ 30 $ 93
Supplemental disclosure of non-cash investing and financing
activities:
Conversion of notes payable and related accrued interest of $2
into 43,557 shares of Series A convertible preferred stock ...... $ -- $ --
Issuance of Series A convertible preferred stock for acquisition
of Bradbury Software L.L.C. ..................................... $ 78 $ --
Conversion of note payable and related accrued interest of $5
into 64,190 shares of Series D redeemable convertible
preferred stock ................................................. $ 252 $ --
Capital lease obligations ........................................ $ 979 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
Allaire Corporation (the "Company") develops, markets and supports
application development and server software for a wide range of Web development,
from static Web pages to high-volume, interactive Web applications. The
Company's products and services enable organizations to expand the reach of
their information systems to the Web, as well as to develop new Web-based
business applications in areas such as electronic commerce, content management
and personalization. The Company's products integrate key emerging Web client
and Web server software platforms and technologies and interoperate with key
enterprise and client-server technologies.
The Company was incorporated in the state of Minnesota in February 1996 as
the surviving entity of a reorganization of Allaire, L.L.C., a Minnesota
limited liability company originally formed in May 1995. At the time of the
reorganization, the members of Allaire, L.L.C. exchanged their existing
ownership interests for a proportionate number of shares of the Company's
common stock and substantially all assets and liabilities of Allaire, L.L.C.
were transferred to the Company at historical cost. In April 1997, the Company
was reorganized as a Delaware corporation.
The Company is subject to risks and uncertainties common to growing
technology-based companies, including rapid technological change, growth and
commercial acceptance of the Internet, dependence on principal products and
third party technology, new product development, new product introductions and
other activities of competitors, dependence on key personnel, reliance on a
limited number of distributors, international expansion, lengthening sales
cycle and limited operating history.
The Company has also experienced substantial net losses in each fiscal
period since its inception and, as of September 30, 1998, had an accumulated
deficit of $17.4 million. Such losses and accumulated deficit resulted from the
Company's lack of substantial revenue and significantly increased costs
incurred in the development of the Company's products and in the preliminary
establishment of the Company's infrastructure. For the foreseeable future, the
Company expects to continue to experience significant growth in its operating
expenses in order to execute its current business plan, particularly research
and development and sales and marketing expenses. As a result, the Company's
business plan indicates that additional financing would be required to support
its planned expenditures. In the event that an initial public offering is not
completed on a timely basis, the Company would seek such funding through a
private financing. In the event that the Company has not completed an initial
public offering or obtained other financing in excess of $3.0 million by
February 28, 1999, the Company has a commitment from existing investors to
provide a $3.0 million working capital line of credit. Any borrowings under
this arrangement would be payable at the earlier of the closing of an initial
public offering or February 28, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The Company
invests its excess cash in money market funds, commercial paper and U.S.
Treasury securities which are subject to minimal credit and market risk. The
Company's cash equivalents are classified as available-for-sale and recorded at
amortized cost which approximates fair value.
Revenue Recognition
The Company recognizes revenue from software license fees upon delivery to
customers provided no significant post-delivery obligations or uncertainties
remain and collection of the related receivable is probable. The Company
accrues insignificant support costs associated with these licenses when revenue
is recognized. Revenue under arrangements where multiple products or services
are sold together under one contract is allocated to each element based on
their relative fair values, with these fair values being determined using the
price charged when that element is sold separately. For arrangements which
include specified upgrade rights, the fair value of such upgrade rights is
deferred until the specified upgrade is delivered. The Company provides most of
its distributors with certain rights of return. An allowance for estimated
future returns is recorded at the time revenue is recognized based on the
Company's return
F-7
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
policies and historical experience. The Company offers subscriptions which
entitle customers to all new releases for a specific product during the term of
the subscription agreement. Revenue from subscription sales is recognized
ratably over the term of the subscription agreement. Training and consulting
services revenue is recognized as services are rendered, and revenue under
support agreements is recognized ratably over the term of the support
agreement.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include
cash equivalents, accounts receivable, accounts payable, accrued expenses,
notes payable and redeemable convertible preferred stock, approximate their
fair values at September 30, 1998.
Concentrations of Credit Risk and Significant Customers
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts receivable.
To minimize this risk, ongoing credit evaluations of customers' financial
condition are performed, although collateral generally is not required. No
single customer accounted for more than 10% of gross accounts receivable at
December 31, 1996, while one customer accounted for 22% and 28% of gross
accounts receivable at December 31, 1997 and September 30, 1998, respectively.
In addition, this same customer accounted for 22% of total revenue for the nine
months ended September 30, 1998. No single customer accounted for 10% of total
revenue for the years ended December 31, 1996 and 1997. The Company maintains
reserves for potential credit losses and such losses, in the aggregate,
historically have not exceeded existing reserves.
Research and Development and Software Development Costs
Costs incurred in the research and development of the Company's products
are expensed as incurred, except for certain software development costs. Costs
associated with the development of computer software are expensed prior to the
establishment of technological feasibility (as defined by Statement of
Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed") and capitalized
thereafter when material to the Company's financial position or results of
operations. No software development costs have been capitalized by the Company
since costs eligible for capitalization under SFAS No. 86 have been
insignificant.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives, generally three to five years, using the straight-line
method. Equipment held under capital leases are stated at the lower of fair
market value of the related asset or the present value of the minimum lease
payments at the inception of the lease and are amortized on a straight-line
basis over the shorter of the life of the related asset or the lease term.
Repair and maintenance costs are expensed as incurred.
Accounting for Stock-Based Compensation
The Company accounts for stock-based awards to employees using the
intrinsic value method as prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Accordingly, no compensation expense is recorded for options
issued to employees in fixed amounts and with fixed exercise prices at least
equal to the fair market value of the Company's common stock at the date of
grant. The Company has adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (Note 9). All stock-based
awards to non-employees are accounted for at their fair value in accordance
with SFAS No. 123.
Income Taxes
Prior to its reorganization as a C Corporation in February 1996 (Note 1),
the Company was treated as a partnership for federal and state income tax
purposes. Accordingly, no provision for corporate income taxes was recorded
during this period and all losses were passed through to the Company's members.
At the time of its reorganization, the Company adopted the liability method of
accounting for income taxes as set forth in SFAS No. 109, "Accounting for
Income Taxes."
F-8
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising Expense
The Company recognizes advertising expense as incurred. Advertising
expense was approximately $6,000, $152,000, $643,000, and $553,000 for the
period from inception (May 5, 1995) through December 31, 1995, the years ended
December 31, 1996 and 1997 and the nine months ended September 30, 1998,
respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Unaudited Interim Financial Statements
In the opinion of the Company's management, the September 30, 1997
unaudited interim financial statements include all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for that period. The results of
operations for the nine month period ended September 30, 1998 are not
necessarily indicative of the results of operations for the full year of 1998.
Unaudited Pro Forma Balance Sheet
Upon the closing of the Company's initial public offering, all of the
outstanding shares of Preferred Stock will automatically convert into 3,817,691
shares of common stock. These conversions have been reflected in the unaudited
pro forma balance sheet as of September 30, 1998, and exclude 31,250 shares of
Common Stock issuable upon the conversion of Series A Preferred Stock sold
after September 30, 1998.
Net Loss Per Share
Net loss per share is computed under SFAS No. 128, "Earnings Per Share."
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding, excluding shares of common stock subject to
repurchase. Diluted loss per share does not differ from basic loss per share
since potential common shares from conversion of preferred stock, stock options
and warrants and outstanding shares of common stock subject to repurchase are
anti-dilutive for all periods presented. Pro forma basic and diluted net loss
per share have been calculated assuming the conversion of all outstanding
shares of preferred stock into common shares, as if the shares had converted
immediately upon their issuance.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." This statement establishes
standards for the reporting and display of comprehensive income and its
components. SFAS No. 130 was effective for the Company's fiscal year ending
December 31, 1998. Adoption of SFAS No. 130 is for presentation purposes only
and had no effect on the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." This statement changes the
way that public business enterprises report segment information, including
financial and descriptive information about their selected segment information.
Under SFAS No. 131, operating segments are defined as revenue-producing
components of the enterprise which are generally used internally for evaluating
segment performance. SFAS No. 131 is effective for the Company's fiscal year
ending December 31, 1998 and will not affect the Company's financial position
or results of operations.
F-9
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS No. 132 standardizes
the disclosure requirements for pensions and other postretirement benefits and
is effective for the Company's fiscal year ending December 31, 1998. SFAS No.
132 relates to disclosure only and will not affect the Company's financial
position or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company does
not expect SFAS No. 133 to have a material affect on its financial position or
results of operations.
In February 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SoP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." SoP 98-1 establishes
the accounting for costs of software products developed or purchased for
internal use, including when such costs should be capitalized. The Company does
not expect SoP 98-1, which is effective for the Company beginning January 1,
1999, to have a material affect its financial position or results of
operations.
In April 1998, the AcSEC issued SoP 98-5, "Reporting on the Costs of
Start-Up Activities." Start-up activities are defined broadly as those one-time
activities related to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SoP 98-5, the cost of start-up activities should be expensed as incurred.
SoP 98-5 is effective for the Company's fiscal 1999 financial statements and
the Company does not expect its adoption to have a material affect on its
financial position or results of operations.
3. ACQUISITION
In March 1997, the Company acquired the business and substantially all of
the assets of Bradbury Software L.L.C. ("Bradbury"), including all rights to
Bradbury's HomeSite software product, in exchange for $252,000 in cash and
13,000 shares of the Company's Series A convertible preferred stock valued at
$78,000. The Bradbury acquisition has been accounted for under the purchase
method of accounting. Accordingly, the purchase price was allocated based upon
the fair value of assets acquired and liabilities assumed. The excess of the
purchase price over the fair value of the net assets acquired totaled $315,000.
This amount has been included in other assets and is being amortized using the
straight-line method over a three-year period. Amortization expense relating to
this excess purchase price totaled $88,000 during the year ended December 31,
1997 and $79,000 during the nine months ended September 30, 1998. The operating
results of Bradbury have been included in the financial statements since the
date of the acquisition. Pro forma presentations have not been included as the
acquisition was not material to the results of operations of the Company.
The former owner of Bradbury is entitled to additional cash payments of up
to $165,000, depending on the length of time he remains employed by the
Company. During the year ended December 31, 1997 and the nine months ended
September 30, 1998, a total of $82,000 and $83,000, respectively, was earned
and recorded as compensation expense under this arrangement.
In order to finance the Bradbury acquisition, the Company issued 10%
convertible notes payable totaling $252,000 and warrants to purchase 6,300
shares of the Company's common stock at a price of $4.00 per share to a
stockholder (Note 8). All principal and accrued interest of $5,000 on these
notes was converted into 64,190 shares of Series D preferred stock in May 1997.
4. INVESTMENT IN YESLER SOFTWARE, INC.
In July 1998, the Company entered into an agreement under which it
contributed certain non-core technology and agreed to provide certain services
to Yesler Software, Inc. ("Yesler") in exchange for 907,591 shares of Yesler's
voting common stock, representing approximately 34% of the outstanding capital
stock of Yesler at that time.
F-10
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
4. INVESTMENT IN YESLER SOFTWARE, INC. (Continued)
Subsequently, the Company transferred 76,903 shares of Yesler common stock to
three of its employees. The value of the shares transferred was not material at
the date transferred. Of the shares acquired, an aggregate of 605,060 shares
are subject to repurchase at a price of $0.10 per share under certain
circumstances. The number of shares subject to this repurchase right will be
reduced quarterly over a three-year period. The Company has no obligation to
fund the future operations of Yesler and plans to account for its investment
under the equity method.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------- September 30,
1996 1997 1998
----------- ------------- --------------
<S> <C> <C> <C>
Furniture and fixtures .................................. $ 106,000 $ 574,000 $ 835,000
Furniture and fixtures under capital lease .............. -- 127,000 78,000
Equipment ............................................... 502,000 638,000 1,857,000
Equipment under capital lease ........................... -- 852,000 843,000
Software ................................................ -- 316,000 420,000
Leasehold improvements .................................. 38,000 148,000 296,000
--------- ---------- ------------
646,000 2,655,000 4,329,000
Less: Accumulated depreciation and amortization ......... (78,000) (446,000) (1,257,000)
--------- ---------- ------------
$ 568,000 $2,209,000 $ 3,072,000
========= ========== ============
</TABLE>
Depreciation and amortization expense for the period from inception (May
5, 1995) through December 31, 1995, the years ended December 31, 1996 and 1997
and the nine months ended September 30, 1998 was $1,000, $80,000, $434,000, and
$822,000, respectively.
Capital Lease
In December 1996, the Company entered into an agreement with a leasing
company to establish a line of credit which enabled the Company to finance up
to $1,000,000 in purchases of property and equipment under capital leases (the
"Lease Line"). Each borrowing under the Lease Line is payable in equal monthly
installments over a period of 36 months. In connection with this agreement, the
Company issued warrants to purchase shares of its Series A convertible
preferred stock (Note 7). The Lease Line expired in December 1997.
During 1997, the Company sold and immediately leased back certain
equipment under the Lease Line. The loss on this sale leaseback transaction was
recorded in 1997 and was not material to the Company's results of operations.
Amortization of property and equipment under capital leases totaled $181,000
and $220,000 during the year ended December 31, 1997 and the nine months ended
September 30, 1998, respectively. Accumulated amortization on property and
equipment under capital lease totaled $181,000 at December 31, 1997 and
$401,000 at September 30, 1998. Interest expense relating to capital lease
obligations totaled $38,000 and $40,000 for the year ended December 31, 1997
and the nine months ended September 30, 1998, respectively.
6. LINES OF CREDIT
Equipment and Working Capital Line
In December 1996, the Company entered into an agreement with a bank to
establish a line of credit which enabled the Company to borrow up to $400,000
for the acquisition of fixed assets and for working capital purposes through
June 1997. In March 1998, this line of credit agreement was canceled and
replaced with a new line of credit which provides for borrowings up to
$2,000,000 for working capital purposes and for the issuance of letters of
credit through the earlier of an initial public offering or March 26, 1999.
Amounts available under the line are determined based upon eligible accounts
receivable. All borrowings and letters of credit are collateralized by
substantially all of the Company's assets and all borrowings bear interest at
the bank's prime rate (8.25% as of September 30, 1998) plus 1%. As of
September 30,
F-11
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
6. LINES OF CREDIT (Continued)
1998, letters of credit totaling $487,000 had been issued against the line and
$1,513,000 was available for additional borrowings. The terms of the line of
credit require the maintenance of certain minimum financial ratios and
conditions and include other covenants similar to those in the initial
agreement. In August 1998, the Company received a covenant waiver from the bank
for the months of May and June 1998, and the bank amended the terms of the
arrangement to waive certain financial covenants through October 1998. In
December 1998, the bank extended the terms of the arrangement to waive certain
financial covenants from November 1998 through the earlier of the closing of an
initial public offering or March 26, 1999.
Equipment Loan Line
In May 1998, the Company entered into an equipment loan line agreement
(the "Equipment Loan Line") under which the Company may borrow up to $2,000,000
to finance fixed asset purchases through December 1998. The initial term of
each loan is 36 months from the borrowing date. Monthly payments are equal to
3.155% of the original amount borrowed, for an effective interest rate of
approximately 15%. At the end of term, the Company may choose to make one
additional payment of 15% of the original amount funded or, if no default has
occurred, the term may be extended for an additional 6 months at the original
monthly payment rate. The Equipment Loan Line contains no financial covenants
and there are no cross-default provisions in connection with the equipment and
working capital line described above. All borrowings are collateralized by the
purchased assets. In June 1998, the Company borrowed $1,406,000 under the
Equipment Loan Line, which was collateralized by previously purchased
equipment. At September 30, 1998, annual cash payments on the borrowings under
the Equipment Loan Line are as follows:
<TABLE>
<S> <C>
1998 (three months ended December 31, 1998) ......... $ 133,000
1999 ................................................ 532,000
2000 ................................................ 532,000
2001 ................................................ 477,000
----------
Total cash payments ................................. 1,674,000
Less--amount representing interest .................. 349,000
----------
Present value of notes payable ...................... $1,325,000
==========
</TABLE>
In December 1998, the Company borrowed an additional $214,000 under the
Equipment Loan Line.
7. PREFERRED STOCK
The holders of the Series A, Series B, Series C and Series D preferred
stock (the "Preferred Stock") are hereinafter referred to collectively as the
"Preferred Stockholders" and the holders of the Series B, Series C and Series D
preferred stock (the "Redeemable Preferred Stock") are hereinafter referred to
collectively as the "Redeemable Preferred Stockholders." The Preferred
Stockholders have the following rights and privileges:
Voting Rights
The Preferred Stockholders generally vote together with all other classes
and series of stock as a single class on all matters and are entitled to a
number of votes equal to the number of shares of common stock into which each
share of such stock is convertible. With respect to the number of directors,
only the Redeemable Preferred Stockholders, voting as a single class, may vote
on any increase of the maximum number of directors constituting the Board of
Directors to a number in excess of five. With respect to the election of
directors, (i) the Redeemable Preferred Stockholders, voting as a single class,
may elect one director and (ii) the common stockholders and Preferred
Stockholders, voting as a single class, may elect two directors. The remaining
two directors shall be elected by a combined vote of both (i) the common
stockholders and the Series A preferred stockholders, voting as a single class,
and (ii) the Redeemable Preferred Stockholders, voting as a single class.
Conversion
Each share of Series A, Series B and Series C preferred stock is
convertible, at the option of the holder, into two shares of common stock,
except for 656 shares of Series A preferred stock, each of which converts into
one
F-12
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
7. PREFERRED STOCK (Continued)
share of common stock, subject to certain anti-dilution adjustments. Each share
of Series D preferred stock is convertible, at the option of the holder, into
one share of common stock, subject to certain anti-dilution adjustments. The
Series A preferred stock will automatically convert into shares of common stock
upon the closing of an underwritten public offering of the Company's common
stock involving aggregate proceeds to the Company of at least $2,000,000. The
Series B, Series C and Series D preferred stock will automatically convert into
shares of common stock upon the closing of an underwritten public offering of
the Company's common stock involving aggregate proceeds to the Company of at
least $15,000,000 and a per share price of not less than $11.30.
Dividend Rights
The Preferred Stockholders are not entitled to receive any dividends
unless declared by the Company's Board of Directors. In the event that
dividends are paid on the common stock, the Preferred Stockholders are entitled
to receive dividends at the same rate and at the same time as the common
stockholders, with each share of Preferred Stock being treated as equal to the
number of shares of common stock into which each share of such stock is
convertible.
Liquidation Preferences
In the event of any liquidation, dissolution or winding up of the Company,
the Preferred Stockholders shall be entitled to receive, in preference to the
holders of the common stock, an amount equal to the greater of (i) the original
purchase price per share, respectively, subject to certain anti-dilution
adjustments, or (ii) such amount as would have been payable had such shares
been converted to common stock just prior to liquidation. The original purchase
price per share of the Series B, Series C and Series D preferred stock was
$4.52, $5.91 and $4.00, respectively. The original purchase price per share of
the Series A preferred stock was $4.07, except for 656 shares which had an
original purchase price per share of $8.00. Any assets remaining following the
initial distribution to the Preferred Stockholders shall be available for
distribution ratably among the common stockholders only.
Redemption
At the request of at least 50% of the holders of the Redeemable Preferred
Stock at any time beginning in June 2002, the Company shall redeem one-third of
the then outstanding shares of each series of Redeemable Preferred Stock.
Subsequently, on the first and third anniversaries of the initial redemption
date, the Company shall redeem 50% and 100%, respectively, of the remaining
outstanding shares of each series. Upon redemption, each holder of the Series
B, Series C and Series D preferred stock will be entitled to receive a cash
payment equal to $4.52 per share, $5.91 per share and $4.00 per share,
respectively, plus any declared but unpaid dividends.
Convertible Notes Payable
During 1996, the Company issued 10% convertible notes payable totaling
$175,000 to two of the Company's stockholders. All principal and accrued
interest of $2,000 on these notes was subsequently converted into 43,557 shares
of Series A preferred stock prior to December 31, 1996.
Preferred Stock Warrants
Pursuant to the terms of a capital lease line of credit (Note 5), the
Company issued warrants to purchase 17,699 shares of Series A preferred stock
at a price of $4.52 per share, subject to certain anti-dilution adjustments.
These warrants are fully vested, exercisable at the option of the holder, in
whole or in part, and expire upon the earlier of (i) ten years from the date of
grant or (ii) five years from the effective date of an initial public offering
of the Company's common stock. The value ascribed to these warrants was not
significant.
At September 30, 1998, the Company has reserved 17,699 shares of its
Series A preferred stock for issuance upon exercise of outstanding warrants.
Undesignated Preferred Stock
At September 30, 1998, the Company has authorized the issuance of up to
1,616,494 shares of undesignated preferred stock. Issuances of the undesignated
preferred stock may be made at the discretion of the Board of Directors of the
Company (without stockholder approval) in one or more series and with such
designations, rights
F-13
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
7. PREFERRED STOCK (Continued)
and preferences as determined by the Board. As a result, the undesignated
preferred stock may have dividend, liquidation, conversion, redemption, voting
or other rights which may be more expansive than the rights of the holders of
the Preferred Stock and the common stock.
8. COMMON STOCK
Treasury Shares
Of the common stock issued, an aggregate of 3,417 shares with a cost of
$2,000 were held by the Company as treasury shares and were included as a
reduction to additional paid-in capital at September 30, 1998.
Stock Restriction Agreements
The Company has executed stock restriction agreements with its founder and
certain of its employees. Under the terms of the founder's stock restriction
agreement, the Company has the right to repurchase, at a price of $2.26 per
share, any unvested common shares in the event of the founder's voluntary
resignation. All other restriction agreements give the Company the right to
repurchase, for an amount equal to the original consideration paid, any
unvested common shares in the event of voluntary resignation or termination of
employment with the Company for cause. The Company's repurchase rights lapse at
various dates through January 31, 2000 or, in the case of the founder, upon an
initial public offering of the Company's common stock, if earlier. At September
30, 1998, an aggregate of 255,000 and 180,000 shares of the Company's
outstanding common stock were subject to repurchase under the stock restriction
agreements, at prices of $2.26 and $.025 per share, respectively.
All employees who have been granted options by the Company under the 1997
Stock Incentive Plan are eligible to elect immediate exercise of all such
options. However, shares obtained by employees who elect to exercise prior to
the original option vesting schedule are subject to the Company's right of
repurchase, at the option exercise price, in the event of termination. The
Company's repurchase rights lapse at the same rate as the shares would have
become exercisable under the original vesting schedule. At September 30, 1998,
the Company had the right to repurchase 455,749 shares of common stock issued
under the 1997 Stock Incentive Plan.
Stock Subscriptions Receivable
The Company held notes receivable from certain stockholders at September
30, 1998 in consideration for the purchase of common stock of the Company. The
notes are due February 1, 2001 and accrue interest at a rate of 5.61% per
annum. These loans are secured by the underlying common stock and,
consequently, are reflected as an offset to stockholders' equity.
Common Stock Warrants
Pursuant to the issuance of convertible notes payable in 1996 (Note 7),
the Company issued warrants to purchase 8,599 shares of its common stock at a
price of $2.03 per share, subject to certain anti-dilution adjustments. These
warrants are fully vested, exercisable at the option of the holders, in whole
or in part, and expire in December 2001. The value ascribed to these warrants
was not significant.
Pursuant to the issuance of convertible notes payable in 1997 (Note 3),
the Company issued warrants to purchase 6,300 shares of its common stock at a
price of $4.00 per share, subject to certain anti-dilution adjustments. These
warrants are fully vested, exercisable at the option of the holder, in whole or
in part, and expire in March 2002. The value ascribed to these warrants was not
significant.
Reserved Shares
At September 30, 1998, the Company had 5,544,852 shares of common stock
reserved for issuance upon the exercise of common stock warrants and options
and the conversion of the Preferred Stock, including shares issuable upon the
conversion of preferred stock warrants.
F-14
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
8. COMMON STOCK (Continued)
Authorized Shares
On August 10, 1998, the Company's Board of Directors approved, subject to
stockholder approval, an increase in the authorized shares of common stock,
$.01 par value, to 35,000,000.
9. STOCK OPTIONS
No options were granted during 1995 and all options issued by the Company
during the year ended December 31, 1996 were non-qualified, non-plan stock
options issued to employees, advisors and consultants of the Company. All
options granted by the Company during this period of time were issued at fair
market value at the date of grant, vest either immediately or over a four-year
period and expire ten years from the date of grant.
1997 Stock Incentive Plan
During 1997, the Company's Board of Directors adopted the 1997 Stock
Incentive Plan (the "1997 Stock Plan"). The 1997 Stock Plan provides for the
granting of incentive and non-qualified stock options and stock bonus awards to
officers, directors, employees and consultants of the Company. The maximum
number of common shares that may be issued pursuant to the 1997 Stock Plan, as
amended, is 1,726,000.
The exercise price of each stock option issued under the 1997 Stock Plan
shall be specified by the Board of Directors at the time of grant. However,
incentive stock options may not be granted at less than the fair market value
of the Company's common stock as determined by the Board of Directors at the
date of grant or for a term in excess of ten years. All options granted under
the 1997 Stock Plan through September 30, 1998 vest either immediately or over
a four-year period for employees or over the service period for non-employees
and expire ten years from the date of grant.
1998 Stock Incentive Plan
On August 10, 1998, the Board of Directors authorized, subject to
stockholder approval, the 1998 Stock Incentive Plan (the "1998 Stock Plan").
The 1998 Stock Plan provides for the issuance of up to 1,900,000 shares of the
Company's common stock to eligible employees, officers, directors, consultants
and advisors of the Company. Under the 1998 Stock Plan, the Board of Directors
may award incentive and non-qualified stock options, stock appreciation rights,
performance shares and restricted and unrestricted stock. Incentive stock
options may not be granted at less than the fair market value of the Company's
common stock at the date of grant and for a term not to exceed ten years. The
exercise price under each non-qualified stock option shall be specified by the
Compensation Committee. Grants of stock appreciation rights, performance
shares, restricted stock and unrestricted stock may be made at the discretion
of the Compensation Committee with terms to be defined therein.
During the period from inception (May 5, 1995) through December 31, 1997,
compensation expense recognized for stock option grants made by the Company
under APB Opinion No. 25 was not significant. For the nine months ended
September 30, 1998, compensation expense recognized for stock option grants
totaled $220,000. Had compensation cost for the Company's option grants been
determined based on the fair value at the date of grant consistent with the
method prescribed by SFAS No. 123, the Company's net losses would not have
differed materially from the amounts reported for all periods presented.
However, because the determination of the fair value of all options granted
after the Company becomes a public entity will include an expected volatility
factor, because additional option grants are expected to be made subsequent to
September 30, 1998, and because most options vest over several years, the pro
forma effects of applying the fair value method may be material to reported net
income or loss in future years.
Under SFAS No. 123, the fair value of each employee option grant is
estimated on the date of grant using the Black-Scholes option pricing model to
apply the minimum value method with the following weighted-average assumptions
used for grants made during the years ended December 31, 1996 and 1997 and the
nine months ended September 30, 1998: no dividend yield; risk free interest
rates of 5.9%, 6.1% and 5.3%, respectively; no volatility; and an expected
option term of 5 years.
Stock option activity during the years ended December 31, 1996 and 1997
and the nine months ended September 30, 1998 was as follows:
F-15
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
9. STOCK OPTIONS (Continued)
<TABLE>
<CAPTION>
Outstanding options
-----------------------------------
Number of Weighted average
shares exercise price
--------------- -----------------
<S> <C> <C>
Outstanding--December 31, 1995 ........................... -- $ --
Granted (weighted average fair value of $.11) .......... 1,130,000 .44
Exercised .............................................. (2,500) .50
Canceled ............................................... (7,500) .50
---------
Outstanding--December 31, 1996 ........................... 1,120,000 .44
Granted (weighted average fair value of $.17) .......... 1,475,360 .54
Exercised .............................................. -- --
Canceled ............................................... (221,260) .51
---------
Outstanding--December 31, 1997 ........................... 2,374,100 .50
Granted (weighted average fair value of $2.53) ......... 466,000 5.41
Exercised .............................................. (1,141,486) .47
Canceled ............................................... (21,750) 2.01
----------
Outstanding--September 30, 1998 .......................... 1,676,864 $ 1.86
==========
</TABLE>
As of September 30, 1998, 131,667 and 1,733,150 shares were available for
grant under the 1997 Stock Plan and the 1998 Stock Plan, respectively.
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
Vested and exercisable
-----------------------------
Weighted-average Number Weighted-average
remaining contractual of exercise
Exercise price Number outstanding life (in years) shares price
- ---------------- -------------------- ----------------------- --------- -----------------
<S> <C> <C> <C> <C>
$ .25-.50 1,140,772 8.3 363,646 $ .44
.75-1.50 272,492 9.1 35,786 .75
4.00-7.00 89,050 9.6 3,125 4.00
9.00-11.05 174,550 9.9 -- --
--------- -------
$ .25-11.05 1,676,864 8.7 402,557 $ .50
========= =======
</TABLE>
Deferred Compensation
During the period January 1998 through August 1998, the Company granted
stock options to purchase 266,650 shares of its common stock with exercise
prices ranging from $.01 to $4.00. The Company recorded compensation expense
and deferred compensation relating to these options totaling $149,000 and
$454,000, respectively, representing the difference between the estimated fair
market value of the common stock on the date of grant and the exercise price.
Compensation relating to options which vested immediately upon grant was
expensed in full at the date of grant, while compensation related to options
which vest over time was recorded as a component of stockholders' deficit and
is being amortized over the vesting periods of the related options.
1998 Employee Stock Purchase Plan
On August 10, 1998, the Board of Directors authorized, subject to
stockholder approval, the 1998 Employee Stock Purchase Plan (the "Purchase
Plan"). The Purchase Plan provides for the issuance of up to 300,000 shares of
the Company's common stock to eligible employees. Under the Purchase Plan, the
Company is authorized to make one or more offerings during which employees may
purchase shares of common stock through payroll deductions made over the term
of the offering. The per-share purchase price at the end of each offering is
equal to 85% of the fair market value of the common stock at the beginning or
end of the offering period (as defined by the Purchase Plan), whichever is
lower. The Company has made no determination as to when the first offering
period under the Purchase Plan will commence.
F-16
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
10. INCOME TAXES
<TABLE>
<CAPTION>
Deferred tax assets are comprised of the following:
December 31,
------------------------------- Sept. 30,
1996 1997 1998
------------- --------------- ---------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards ...................... $ 583,000 $ 3,442,000 $ 6,176,000
Reserves not currently deductible ..................... 87,000 216,000 551,000
Research and development credit carryforwards ......... 17,000 95,000 208,000
Other ................................................. 29,000 85,000 167,000
---------- ------------ ------------
Total deferred tax assets ........................... 716,000 3,838,000 7,102,000
Deferred tax asset valuation allowance ................ (716,000) (3,838,000) (7,102,000)
---------- ------------ ------------
$ -- $ -- $ --
========== ============ ============
</TABLE>
Realization of total deferred tax assets is contingent upon the generation
of future taxable income. Due to the uncertainty of realization of these tax
benefits, the Company has provided a valuation allowance for the full amount of
its deferred tax assets.
Income taxes computed using the federal statutory income tax rate differs
from the Company's effective tax rate primarily due to the following:
<TABLE>
<CAPTION>
Year ended Nine months
December 31, ended
--------------------------------- September 30,
1996 1997 1998
-------------- ---------------- ----------------
<S> <C> <C> <C>
Income tax benefit at U.S. federal statutory tax rate ......... $ (594,000) $ (2,599,000) $ (2,796,000)
State taxes, net of federal tax impact ........................ (105,000) (455,000) (473,000)
Permanent differences ......................................... 2,000 18,000 117,000
Research and development credit carryforwards ................. (18,000) (91,000) (111,000)
Other ......................................................... (1,000) 5,000 (1,000)
Change in valuation allowance ................................. 716,000 3,122,000 3,264,000
---------- ------------ ------------
Provision for income taxes ................................... $ -- $ -- $ --
========== ============ ============
</TABLE>
At September 30, 1998, the Company had net operating losses and research
and development tax credit carryforwards of approximately $15.0 million and
$131,000 available for federal purposes to reduce future taxable income and
future tax liabilities, respectively. If not utilized, these carryforwards will
expire at various dates ranging from 2001 to 2018. Under the provisions of the
Internal Revenue Code, certain substantial changes in the Company's ownership
may have limited, or may limit in the future, the amount of net operating loss
and research and development tax credit carryforwards which could be utilized
annually to offset future taxable income and income tax liability. The amount
of any annual limitation is determined based upon the Company's value prior to
an ownership change.
11. GEOGRAPHIC INFORMATION
Revenue was distributed geographically as follows:
<TABLE>
<CAPTION>
Year ended Nine months
December 31, ended
----------------------------- September 30,
1996 1997 1998
------------- ------------- --------------
<S> <C> <C> <C>
North America ............... $1,953,000 $6,153,000 $12,002,000
Europe ...................... 197,000 822,000 1,269,000
Other international ......... 208,000 675,000 632,000
---------- ---------- -----------
$2,358,000 $7,650,000 $13,903,000
========== ========== ===========
</TABLE>
F-17
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
12. EMPLOYEE SAVINGS PLAN
During 1997, the Company adopted an employee retirement savings plan under
Section 401(k) of the Internal Revenue Code (the "401(k) Plan") which covers
substantially all employees. Under the terms of the 401(k) Plan, employees may
contribute a percentage of their salary, up to a maximum of 15%, which is then
invested in one or more of several mutual funds selected by each employee. The
Company did not make any contributions to the 401(k) Plan on behalf of its
employees for the year ended December 31, 1997 or for the nine months ended
September 30, 1998.
13. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain office equipment under
noncancelable operating lease agreements. Rent expense under these leases for
the years ended December 31, 1996 and 1997 and for the nine months ended
September 30, 1998, totaled approximately $163,000, $372,000, and $698,000,
respectively. In addition, the Company also leases certain fixed assets under
capital leases, which expire at various dates through October 2000.
In May 1998, the Company entered into a new facility lease for additional
office space. The lease commenced in September 1998 and has a term of five
years and four months.
Future minimum commitments under noncancelable operating and capital
leases at September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Operating Capital
leases leases
-------------- ----------
<S> <C> <C>
1998 (three months ended December 31, 1998) ......... $ 423,000 $ 92,000
1999 ................................................ 2,611,000 366,000
2000 ................................................ 2,606,000 163,000
2001 ................................................ 2,595,000 --
2002 ................................................ 2,593,000 --
Thereafter .......................................... 1,379,000 --
----------- --------
Total minimum lease payments ........................ $12,207,000 621,000
===========
Less--amount representing interest ................................. 40,000
--------
Present value of capital lease obligations ......................... $581,000
========
</TABLE>
Restricted Time Deposit
In connection with a facility lease entered into during 1997, the Company
is required to maintain, on behalf of the landlord, an irrevocable letter of
credit with a bank in the amount of $125,000 over the term of the lease. In
addition, the Company was required to maintain a certificate of deposit in an
equal amount as security for the letter of credit. This certificate of deposit
was restricted, was automatically renewed on a monthly basis as long as the
letter of credit was in effect and was included in cash and cash equivalents at
December 31, 1997. In June 1998, the aforementioned letter of credit was
replaced with a letter of credit issued under a new line of credit (Note 6) and
the restricted certificate of deposit was released.
Legal Proceedings
In April 1996, a wrongful termination action was brought against the
Company and its founder by a former employee under which the plaintiff sought
severance pay and the right to 400,000 shares of the Company's common stock
which were canceled upon termination. Although the Company continues to deny
any liability in this matter, the Company determined during 1997 that it was in
the best interest of its shareholders to settle this dispute out of court due
to the rising legal costs, distraction of management and uncertainty present in
this litigation. As a result, the Company agreed to pay the plaintiff a cash
settlement totaling $285,000 in exchange for the termination of all legal
action against the Company and its founder. This amount was fully accrued at
the time of the settlement.
F-18
<PAGE>
ALLAIRE CORPORATION
NOTES TO FINANCIAL STATEMENTS (Continued)
13. COMMITMENTS AND CONTINGENCIES (Continued)
In addition to the matter noted above, the Company is from time to time
subject to legal proceedings and claims which arise in the normal course of its
business. In the opinion of management, the amount of ultimate liability with
respect to these actions will not have a material adverse effect on the
Company's financial position or results of operations.
14. SUBSEQUENT EVENTS
Series A Preferred Stock Sale
On December 7, 1998, the Company sold 31,250 shares of Series A preferred
stock at a price of $16.00 per share to MC Silicon Valley, Inc., a subsidiary
of Mitsubishi Corporation, the Company's Japanese distributor. Each of these
shares has the same rights and privileges as all other shares of Series A
preferred stock (Note 7), each share is convertible into one share of common
stock, subject to certain anti-dilution adjustments, and the liquidation
preference for each share is $16.00.
F-19
<PAGE>
[LOGO] allaire
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses in connection with the
issuance and distribution of the securities being registered, other than the
underwriting discount. 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 National Market listing fee.
<TABLE>
<CAPTION>
Payable
by the
Company
-------------
<S> <C>
Securities and Exchange Commission registration fee .............. $ 11,957
National Association of Securities Dealers, Inc. filing fee ...... 4,801
Nasdaq National Market listing fee ............................... 78,875
Printing and engraving expenses .................................. 125,000
Transfer agent fees .............................................. 5,000
Accounting fees and expenses ..................................... 280,000
Legal fees and expenses .......................................... 375,000
Blue Sky fees and expenses (including related legal fees) ........ 10,000
Miscellaneous .................................................... 109,367
----------
Total ........................................................ $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law affords a Delaware
corporation the power to indemnify its present and former directors and
officers under certain conditions. Article Sixth of the Certificate provides
that the Company shall indemnify each person who at any time is, or shall have
been, a director or officer of the Company and 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,
by reason of the fact that he or she is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director,
officer, trustee of, or in a similar capacity with, another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
incurred in connection with any such action, suit or proceeding, to the maximum
extent permitted by the Delaware General Corporation Law, as the same exists or
may hereafter be amended. No amendment to or repeal of the provisions of
Article Sixth of the Certificate shall deprive a director or officer of the
benefit thereof with respect to any act or failure occurring prior to such
amendment or repeal.
Section 102(b)(7) of the Delaware General Corporation Law gives a Delaware
corporation the power to adopt a charter provision eliminating or limiting the
personal liability of directors to the corporation or its stockholders for
breach of fiduciary duty as directors, provided that such provision may not
eliminate or limit the liability of directors for (i) any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) any
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) any payment of a dividend or approval of a
stock purchase that is illegal under Section 174 of the Delaware General
Corporation Law or (iv) any transaction from which the director derived an
improper personal benefit. Article Seventh of the Certificate provides that to
the maximum extent permitted by the Delaware General Corporation Law, no
director of the Company shall be personally liable to the Company or to any of
its stockholders for monetary damages arising out of such director's breach of
fiduciary duty as a director of the Company. No amendment to or repeal of the
provisions of Article Seventh shall apply to or have any effect on the
liability or the alleged liability of any director of the Company with respect
to any act or failure to act of such director occurring prior to such amendment
or repeal. A principal effect of such Article Seventh is to limit or eliminate
the potential liability of the Company's directors for monetary damages arising
from breaches of their duty of care, unless the breach involves one of the four
exceptions described in (i) through (iv) above.
Section 145 of the Delaware General Corporation Law also affords a
Delaware corporation the power to obtain insurance on behalf of its directors
and officers against liabilities incurred by them in those capacities. The
Company
II-1
<PAGE>
has procured a directors' and officers' liability and company reimbursement
liability insurance policy that (a) insures directors and officers of the
Company against losses (above a deductible amount) arising from certain claims
made against them by reason of certain acts done or attempted by such directors
or officers and (b) insures the Company against losses (above a deductible
amount) arising from any such claims, but only if the Company is required or
permitted to indemnify such directors or officers for such losses under
statutory or common law or under provisions of its Amended and Restated
Certificate of Incorporation or its By-Laws.
Reference is also made to Section 7 of the Underwriting Agreement between
the Company and the Underwriters, filed as Exhibit 1.1 to this Registration
Statement, for a description of indemnification arrangements between the
Company and the Underwriters.
Item 15. Recent Sales of Unregistered Securities.
The following information is furnished with regard to all securities sold
by the Company within the past three years which were not registered under the
Securities Act.
(a) Issuances of Common Stock by Allaire Minnesota.
From February 1996 through January 1997, Allaire Corp., a Minnesota
corporation ("Allaire Minnesota"), issued and sold an aggregate of 2,000,000
shares of its Common Stock for consideration valued at $51,690.
(b) Issuances of Preferred Stock by Allaire Minnesota.
From June 1996 through March 1997, Allaire Minnesota issued and sold an
aggregate of 56,557 shares of its Series A Convertible Preferred Stock, for
aggregate consideration of $255,165. From June 1996 through March 1997, Allaire
Minnesota also issued and sold an aggregate of 514,306 shares of its Series B
Convertible Preferred Stock, for aggregate consideration of $2,324,664. In
December 1996, Allaire Minnesota issued and sold an aggregate of 84,600 shares
of its Series C Preferred Stock, for aggregate consideration of $499,986.
(c) Grants and Exercises of Allaire Minnesota's Stock Options.
From June 1996 through April 1997, Allaire Minnesota issued options to
purchase an aggregate of 1,086,800 shares of its Common Stock, and sold 1,250
shares of its Common Stock pursuant to the exercise of such options for
aggregate consideration of $1,250.
On April 25, 1997 Allaire Minnesota was reincorporated as a Delaware
corporation through the merger of Allaire Minnesota into the Company. Pursuant
to the reincorporation merger, each share of Common Stock of Allaire Minnesota
was automatically changed and converted into two shares of Common Stock of the
Company. Each share of Series A, B and C Convertible Preferred Stock of Allaire
Minnesota was automatically changed and converted into one share of the
corresponding series of the Company's Convertible Preferred Stock. Each share
of the Company's Series A, B and C Convertible Preferred Stock issued pursuant
to the reincorporation merger will automatically change and convert into two
shares of the Company's Common Stock upon the closing of the Offering. Also
pursuant to the reincorporation merger, each option to purchase one share of
Common Stock of Allaire Minnesota was automatically converted and changed into
an option to purchase two shares of the Company's Common Stock.
(d) Issuances of Common Stock by the Company.
From January 1998 through October 1998, the Company issued and so1d
1,146,086 shares of its Common Stock for aggregate consideration of $538,483.
(e) Issuances of Preferred Stock by the Company
On December 7, 1998, the Company issued and sold 31,250 shares of Series A
Convertible Preferred Stock for aggregate consideration of $500,000. Each of
these 31,250 shares of Series A Convertible Stock will automatically change and
convert into one share of the Company's Common Stock upon the closing of the
Offering.
In February 1998, the Company issued and sold 656 shares of Series A
Convertible Preferred Stock, for aggregate consideration of $5,250. Each of
these 656 shares of Series A Convertible Preferred Stock will automatically
change and convert into one share of the Company's Common Stock upon the
closing of the Offering. In May and June 1997, the Company issued and sold
2,336,909 shares of Series D Convertible Preferred Stock,
II-2
<PAGE>
for aggregate consideration of $9,347,636. Each share of Series D Convertible
Preferred Stock will automatically change and convert into one share of the
Company's Common Stock upon the closing of the Offering.
(f) Grants of the Company's Stock Options.
From April 1997 through October 1998, the Company granted options to
purchase an aggregate of 1,368,360 shares of its Common Stock, exercisable at a
weighted average exercise price of $2.46 per share.
The issuances described in this Item 15 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. None of the
foregoing transactions involved a distribution or public offering. No
underwriters were engaged in connection with the foregoing issuances of
securities, and no underwriting discounts or commissions were paid.
Item 16. Exhibits and Financial Schedules.
(a) Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company
3.2 Proposed form of Certificate of Amendment of Certificate of
Incorporation of the Company (to become effective prior to the Offering)
3.3 Proposed form of Amended and Restated Certificate of Incorporation of
the Company (to become effective immediately after the Offering)
3.4 By-Laws of the Company
3.5 Proposed form of Amended and Restated By-Laws of the Company (to become
effective immediately prior to the Offering)
*4.1 Specimen certificate for the Common Stock of the Company
*5.1 Opinion of Foley, Hoag & Eliot LLP
10.1 1997 Stock Incentive Plan as amended
10.2 1998 Stock Incentive Plan
10.3 1998 Employee Stock Purchase Plan
10.4 Option Agreement for David J. Orfao
10.5 Form of Option Agreement for other executive officers
10.6 Office Lease Agreement between the Company and One Alewife Center Realty
Trust, dated November 5, 1997
10.7 Lease Agreement between the Company and CambridgePark Two, L.P., dated
May 21, 1998
10.8 Loan and Security Agreement between the Company and Silicon Valley Bank,
dated March 26, 1998
10.9 Negative Pledge Agreement between the Company and Silicon Valley Bank,
dated March 26, 1998
10.10 Loan Modification Agreement between the Company and Silicon Valley Bank,
dated August 6, 1998
10.11 Loan Modification Agreement between the Company and Silicon Valley Bank,
dated December 9, 1998
10.12 Senior Loan and Security Agreement between the Company and Phoenix
Leasing Incorporated, dated May 1, 1998
10.13 Warrant Agreement between the Company and Comdisco, Inc., dated
August 21, 1998
10.14 Warrant Agreement between the Company and Gregory Stento, dated
August 21, 1998
10.15 Warrant Agreement between the Company and Polaris Venture Partners,
L.P., dated March 7, 1997
10.16 Warrant Agreement between the Company and Polaris Venture Partners
Founders' Fund, L.P., dated March 7, 1997
10.17 Amended and Restated Registration Rights Agreement, dated May 15, 1997
10.18 Waiver and Amendment No. 1 to Amended and Restated Registration Rights
Agreement, dated December 7, 1998
10.19 Letter of Offer of Employment from the Company to David J. Orfao, dated
December 23, 1996
10.20 Contribution and Restricted Stock Purchase Agreement between the Company
and Yesler Software, Inc., dated July 14, 1998
</TABLE>
II-3
<PAGE>
<TABLE>
<S> <C>
10.21 Working Capital Line of Credit Letter from Polaris Ventures Partners,
L.P., and Polaris Venture Partners Founders' Fund, L.P., dated December
4, 1998
11.1 Statement re computation of per share earnings
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-5 of this Registration
Statement)
27.1 Financial Data Schedule
</TABLE>
- ----------------
* To be filed by amendment.
(b) Financial Statement Schedules
II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
Item 17. Undertakings.
The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Massachusetts,
on the 9th day of December, 1998.
ALLAIRE CORPORATION
By: /s/ David J. Orfao
------------------------------
David J. Orfao
President and Chief Executive
Officer
POWER OF ATTORNEY
We the undersigned officers and directors of Allaire Corporation hereby
severally constitute and appoint David J. Orfao, David A. Gerth and Joseph C.
Baker and each of them singly, our true and lawful attorneys-in- fact with full
power to them, to sign for us and in our names in the capacities indicated
below, any and all pre- or post-effective amendments to this Registration
Statement, any subsequent registration statement for the same offering which
may be filed under Rule 462(b) under the Securities Act ("a Rule 462(b)
Registration Statement") and any and all pre- or post-effective amendments
thereto, and to file the same, with all exhibits thereto, and all documents in
connection therewith, with the Securities and Exchange Commission, and
generally to do all such things in our names and on our behalf in our
capacities as officers and directors to enable Allaire Corporation to comply
with the provisions of the Securities Act of 1933 and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorneys-in-fact, or any of them,
to said Registration Statement and any and all amendments thereto or to any
subsequent Registration Statements for the same offering which may be filed
under said Rule 462(b).
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Joseph J. Allaire Chairman of the Board
- -------------------------
Joseph J. Allaire December 9, 1998
/s/ David J. Orfao President, Chief Executive Officer and
- ------------------------- Director (principal executive officer)
David J. Orfao December 9, 1998
/s/ David A. Gerth Vice President, Finance and Operations,
- ------------------------- Treasurer and Chief Financial Officer December 9, 1998
David A. Gerth (principal financial and accounting officer)
/s/ Jonathan A. Flint Director
- -------------------------
Jonathan A. Flint December 9, 1998
/s/ John J. Gannon Director
- -------------------------
John J. Gannon December 9, 1998
/s/ Thomas A. Herring Director
- -------------------------
Thomas A. Herring December 9, 1998
/s/ Mitchell Kapor Director
- -------------------------
Mitchell Kapor December 9, 1998
/s/ Peter R. Roberts Director December 9, 1998
- -------------------------
Peter R. Roberts
</TABLE>
II-5
<PAGE>
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Year ended Nine months
Period from inception December 31, ended
(May 5, 1995) through ----------------- September 30,
December 31, 1995 1996 1997 1998
Allowance for Doubtful Accounts and Sales Returns ----------------------- ------ -------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of period ................... $-- $ 10 $ 220 $ 487
Additions:
Charged to expense .............................. 10 165 164 53
Charged against other accounts .................. -- 45 165 30
Deductions:
Write-offs and returns .......................... -- -- (62) (90)
--- ---- ----- -----
Balance at end of period ......................... $10 $220 $ 487 $ 480
=== ==== ===== =====
</TABLE>
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
No. Description
- -------- -----------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company
3.2 Proposed form of Certificate of Amendment of Certificate of Incorporation of the Company
(to become effective prior to the Offering)
3.3 Proposed form of Amended and Restated Certificate of Incorporation of the Company (to
become effective immediately after the Offering)
3.4 By-Laws of the Company
3.5 Proposed form of Amended and Restated By-Laws of the Company (to become effective
immediately prior to the Offering)
*4.1 Specimen certificate for the Common Stock of the Company
*5.1 Opinion of Foley, Hoag & Eliot LLP
10.1 1997 Stock Incentive Plan as amended
10.2 1998 Stock Incentive Plan
10.3 1998 Employee Stock Purchase Plan
10.4 Option Agreement for David J. Orfao
10.5 Form of Option Agreement for other executive officers
10.6 Office Lease Agreement between the Company and One Alewife Center Realty Trust, dated
November 5, 1997
10.7 Lease Agreement between the Company and CambridgePark Two, L.P., dated May 21, 1998
10.8 Loan and Security Agreement between the Company and Silicon Valley Bank, dated
March 26, 1998
10.9 Negative Pledge Agreement between the Company and Silicon Valley Bank, dated
March 26, 1998
10.10 Loan Modification Agreement between the Company and Silicon Valley Bank, dated
August 6, 1998
10.11 Loan Modification Agreement between the Company and Silicon Valley Bank, dated
December 9, 1998
10.12 Senior Loan and Security Agreement between the Company and Phoenix Leasing Incorporated,
dated May 1, 1998
10.13 Warrant Agreement between the Company and Comdisco, Inc., dated August 21, 1998
10.14 Warrant Agreement between the Company and Gregory Stento, dated August 21, 1998
10.15 Warrant Agreement between the Company and Polaris Venture Partners, L.P., dated
March 7, 1997
10.16 Warrant Agreement between the Company and Polaris Venture Partners Founders' Fund, L.P.,
dated March 7, 1997
10.17 Amended and Restated Registration Rights Agreement, dated May 15, 1997
10.18 Waiver and Amendment No. 1 to Amended and Restated Registration Rights Agreement, dated
December 7, 1998
10.19 Letter of Offer of Employment from the Company to David J. Orfao, dated December 23, 1996
10.20 Contribution and Restricted Stock Purchase Agreement between the Company and Yesler
Software, Inc., dated July 14, 1998
10.21 Working Capital Line of Credit Letter from Polaris Venture Partners, L.P., and Polaris Venture
Partners Founders' Fund, L.P., dated December 4, 1998
11.1 Statement re computation of per share earnings
23.1 Consent of PricewaterhouseCoopers LLP
*23.2 Consent of Foley, Hoag & Eliot LLP (included in Exhibit 5.1)
24.1 Power of Attorney (contained on the page II-5 of this Registration Statement)
27.1 Financial Data Schedule
</TABLE>
- ----------------
* To be filed by amendment.
2,200,000 SHARES
ALLAIRE CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
______________, 1999
CREDIT SUISSE FIRST BOSTON CORPORATION
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated
NationsBanc Montgomery Securities LLC
As Representatives of the Several Underwriters,
c/o Credit Suisse First Boston Corporation,
Eleven Madison Avenue,
New York, N.Y. 10010-3629
Dear Sirs:
1. Introductory. Allaire Corporation, a Delaware corporation
("Company"), proposes to issue and sell 2,200,000 shares ("Firm Securities") of
its Common Stock, $.01 par value ("Securities"), and also proposes to issue and
sell to the Underwriters, at the option of the Underwriters, an aggregate of not
more than 330,000 additional shares ("Optional Securities") of its Securities as
set forth below. The Firm Securities and the Optional Securities are herein
collectively called the "Offered Securities". The Company hereby agrees with the
several Underwriters named in Schedule A hereto ("Underwriters") as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) A registration statement (No. 333- ) relating to the Offered
Securities, including a form of prospectus, has been filed with the
Securities and Exchange Commission ("Commission") and either (i) has
been declared effective under the Securities Act of 1933 ("Act") and is
not proposed to be amended or (ii) is proposed to be amended by
amendment or post-effective amendment. If such registration statement
("initial registration statement") has been declared effective, either
(i) an additional registration statement ("additional registration
statement") relating to the Offered Securities may have been filed with
the Commission pursuant to Rule 462(b) ("Rule 462(b)") under the Act
and, if so filed, has become effective upon filing pursuant to such
Rule and the Offered Securities all have been duly registered under the
Act pursuant to the initial registration statement and, if applicable,
the additional registration statement or (ii) such an additional
registration statement is proposed to be filed with the Commission
pursuant to Rule 462(b) and will become effective upon filing pursuant
to such Rule and upon such filing the Offered Securities will all have
been duly registered under the Act pursuant to the initial registration
statement and such additional registration statement. If the
<PAGE>
Company does not propose to amend the initial registration statement
or if an additional registration statement has been filed and the
Company does not propose to amend it, and if any post-effective
amendment to either such registration statement has been filed with
the Commission prior to the execution and delivery of this Agreement,
the most recent amendment (if any) to each such registration statement
has been declared effective by the Commission or has become effective
upon filing pursuant to Rule 462(c) ("Rule 462(c)") under the Act or,
in the case of the additional registration statement, Rule 462(b). For
purposes of this Agreement, "Effective Time" with respect to the
initial registration statement or, if filed prior to the execution and
delivery of this Agreement, the additional registration statement
means (i) if the Company has advised the Representatives that it does
not propose to amend such registration statement, the date and time as
of which such registration statement, or the most recent
post-effective amendment thereto (if any) filed prior to the execution
and delivery of this Agreement, was declared effective by the
Commission or has become effective upon filing pursuant to Rule
462(c), or (ii) if the Company has advised the Representatives that it
proposes to file an amendment or post-effective amendment to such
registration statement, the date and time as of which such
registration statement, as amended by such amendment or post-effective
amendment, as the case may be, is declared effective by the
Commission. If an additional registration statement has not been filed
prior to the execution and delivery of this Agreement but the Company
has advised the Representatives that it proposes to file one,
"Effective Time" with respect to such additional registration
statement means the date and time as of which such registration
statement is filed and becomes effective pursuant to Rule 462(b).
"Effective Date" with respect to the initial registration statement or
the additional registration statement (if any) means the date of the
Effective Time thereof. The initial registration statement, as amended
at its Effective Time, including all information contained in the
additional registration statement (if any) and deemed to be a part of
the initial registration statement as of the Effective Time of the
additional registration statement pursuant to the General Instructions
of the Form on which it is filed and including all information (if
any) deemed to be a part of the initial registration statement as of
its Effective Time pursuant to Rule 430A(b) ("Rule 430A(b)") under the
Act, is hereinafter referred to as the "Initial Registration
Statement". The additional registration statement, as amended at its
Effective Time, including the contents of the initial registration
statement incorporated by reference therein and including all
information (if any) deemed to be a part of the additional
registration statement as of its Effective Time pursuant to Rule
430A(b), is hereinafter referred to as the "Additional Registration
Statement". The Initial Registration Statement and the Additional
Registration Statement are herein referred to collectively as the
"Registration Statements" and individually as a "Registration
Statement". The form of prospectus relating to the Offered Securities,
as first filed with the Commission pursuant to and in accordance with
Rule 424(b) ("Rule 424(b)") under the Act or (if no such filing is
required) as included in a Registration Statement, is hereinafter
referred to as the "Prospectus". No document has been or will be
prepared or distributed in reliance on Rule 434 under the Act.
(b) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement: (i) on the
Effective Date of the Initial Registration Statement, the Initial
Registration Statement conformed in all material respects to the
requirements of the Act and the rules and regulations of the Commission
("Rules and Regulations") and did not include 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 not misleading,
(ii) on the Effective Date of the Additional Registration Statement (if
any), each Registration Statement conformed, or will conform, in all
material respects to the requirements of the Act and the Rules and
Regulations and did not include, or will not include, any untrue
statement of a material fact and did not omit, or will not omit, to
state any material fact required to be stated therein or necessary to
make the
-2-
<PAGE>
statements therein not misleading and (iii) on the date of this
Agreement, the Initial Registration Statement and, if the Effective
Time of the Additional Registration Statement is prior to the
execution and delivery of this Agreement, the Additional Registration
Statement each conforms, and at the time of filing of the Prospectus
pursuant to Rule 424(b) or (if no such filing is required) at the
Effective Date of the Additional Registration Statement in which the
Prospectus is included, each Registration Statement and the Prospectus
will conform, in all material respects to the requirements of the Act
and the Rules and Regulations, and neither of such documents includes,
or will include, any untrue statement of a material fact or omits, or
will omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. If the
Effective Time of the Initial Registration Statement is subsequent to
the execution and delivery of this Agreement: on the Effective Date of
the Initial Registration Statement, the Initial Registration Statement
and the Prospectus will conform in all material respects to the
requirements of the Act and the Rules and Regulations, neither of such
documents will include any untrue statement of a material fact or will
omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and no
Additional Registration Statement has been or will be filed. The two
preceding sentences do not apply to statements in or omissions from a
Registration Statement or the Prospectus based upon written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and
agreed that the only such information is that described as such in
Section 7(b) hereof.
(c) The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties
and conduct its business as described in the Prospectus; and the
Company is duly qualified to do business as a foreign corporation in
good standing in all other jurisdictions in which its ownership or
lease of property or the conduct of its business requires such
qualification and the failure to be so qualified would have a material
adverse effect on the condition (financial or other), business,
prospects, properties or results of operations of the Company and its
subsidiaries taken as whole.
(d) Each subsidiary of the Company has been duly incorporated and
is an existing corporation in good standing under the laws of the
jurisdiction of its incorporation, with power and authority (corporate
and other) to own its properties and conduct its business as described
in the Prospectus; and each subsidiary of the Company is duly qualified
to do business as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or the
conduct of its business requires such qualification and the failure to
be so qualified would have a material adverse effect on the condition
(financial or other), business, prospects, properties or results of
operations of the Company and its subsidiaries taken as whole; all of
the issued and outstanding capital stock of each subsidiary of the
Company has been duly authorized and validly issued and is fully paid
and nonassessable; and the capital stock of each subsidiary owned by
the Company, directly or through subsidiaries, is owned free from
liens, encumbrances and defects.
(e) The Offered Securities and all other outstanding shares of
capital stock of the Company have been duly authorized; all outstanding
shares of capital stock of the Company are, and, when the Offered
Securities have been delivered and paid for in accordance with this
Agreement on each Closing Date (as defined below), such Offered
Securities will have been, validly issued, fully paid and nonassessable
and will conform to the description thereof contained in the
Prospectus; and the stockholders of the Company have no preemptive
rights with respect to the Securities. The information set forth under
the caption "Capitalization" in the Prospectus is true
-3-
<PAGE>
and correct. There are no outstanding options, warrants or other rights
granted to or by the Company to purchase Securities or other securities
of the Company other than as described in the Prospectus.
(f) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person that
would give rise to a valid claim against the Company or any Underwriter
for a brokerage commission, finder's fee or other like payment in
connection with this offering.
(g) Except as disclosed in the Prospectus, there are no contracts,
agreements or understandings between the Company and any person
granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of
the Company owned or to be owned by such person or to require the
Company to include such securities in the securities registered
pursuant to a Registration Statement or in any securities being
registered pursuant to any other registration statement filed by the
Company under the Act.
(h) The Offered Securities have been approved for listing on
Nasdaq Stock Market's National Market.
(i) No consent, approval, authorization, or order of, or filing
with, any governmental agency or body or any court is required for the
consummation of the transactions contemplated by this Agreement in
connection with the issuance and sale of the Offered Securities by the
Company, except such as have been obtained and made under the Act and
such as may be required under state securities laws and by the National
Association of Securities Dealers, Inc. ("NASD").
(j) The execution, delivery and performance of this Agreement, and
the issuance and sale of the Offered Securities will not result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any rule, regulation or order
of any governmental agency or body or any court, domestic or foreign,
having jurisdiction over the Company or any subsidiary of the Company
or any of their properties, or any agreement or instrument to which the
Company or any such subsidiary is a party or by which the Company or
any such subsidiary is bound or to which any of the properties of the
Company or any such subsidiary is subject, or the charter or by-laws of
the Company or any such subsidiary, and the Company has full power and
authority to authorize, issue and sell the Offered Securities as
contemplated by this Agreement.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) Except as disclosed in the Prospectus, the Company and its
subsidiaries have good and marketable title to all real properties and
all other properties and assets owned by them, in each case free from
liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or to be made thereof
by them; and except as disclosed in the Prospectus, the Company and its
subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere
with the use made or to be made thereof by them.
(m) The Company and its subsidiaries possess adequate
certificates, authorities or permits issued by appropriate governmental
agencies or bodies necessary to conduct the business now operated by
them and have not received any notice of proceedings relating to the
revocation or modification of any such certificate, authority or permit
that, if determined adversely to the
-4-
<PAGE>
Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(n) No labor dispute with the employees of the Company or any
subsidiary exists or, to the knowledge of the Company, is imminent that
might have a material adverse effect on the Company and its
subsidiaries taken as a whole.
(o) Except as disclosed in the Prospectus, the Company and each of
its subsidiaries have the right to use all trademarks, trade names,
trade secrets, servicemarks, inventions, patent rights, mask works,
copyrights, licenses, software code, audiovisual works, formats,
algorithms and underlying data required to operate its business as
presently being conducted and proposed to be conducted as described in
the Prospectus, and the Company and each of its subsidiaries have all
required approvals and governmental authorizations now used in, or
which are necessary for fulfillment of their respective obligations or
the conduct of their respective businesses as now conducted or proposed
to be conducted as described in the Prospectus; and neither the Company
nor any of its subsidiaries is knowingly infringing any trademark,
trade name rights, patent rights, mask works, copyrights, licenses,
trade secret, servicemarks or other similar rights of others, and there
is no claim being made against the Company or any of its subsidiaries
regarding trademark, trade name, patent, mask work, copyright, license,
trade secret or other infringement or assertion of intellectual
property rights which could have a material adverse effect on the
earnings, properties, business affairs or business prospects,
stockholders' equity, net worth or results of operations of the Company
and its subsidiaries taken as a whole. The Company has agreements in
place with each employee, consultant or other person or party engaged
by the Company or any subsidiary providing for the assignment to the
Company or any of its subsidiaries, as the case may be, of all
intellectual property and exploitation rights in the work performed and
the protection of the trade secrets and confidential information of the
Company, each of its subsidiaries and of third parties which have been
developed by such person for or on behalf of the Company or any of its
subsidiaries. The Company's and its subsidiaries' computer software
(the "Software") is "Millennium Compliant". For the purposes of this
Agreement "Millennium Compliant" means: (i) the functions,
calculations, and other computing processes of the Software
(collectively, "Processes") perform in an accurate manner regardless of
the date in time on which the Processes are actually performed and
regardless of the date input to the Software, and whether or not the
dates are affected by leap years; (ii) the Software can accept, store,
sort, extract, sequence, and otherwise manipulate date inputs and date
values, and return and display date values, in a materially accurate
manner regardless of the dates used or format of the date input; (iii)
the Software will function without interruptions caused by the date in
time on which the Processes are actually performed or by the date input
to the Software; (iv) the Software accepts and responds to four (4)
digit year date input in a manner that resolves any material
ambiguities as to the century in an accurate manner; and (v) the
Software displays, prints and provides electronic output of date
information in ways that are unambiguous as to the determination of the
century.
(p) Except as disclosed in the Prospectus, neither the Company nor
any of its subsidiaries is in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or
restoration of the environment or human exposure to hazardous or toxic
substances (collectively, "environmental laws"), owns or operates any
real property contaminated with any substance that is subject to any
environmental laws, is liable for any off-site disposal or
contamination pursuant to any environmental laws, or is subject to any
claim relating to any environmental laws, which violation,
contamination,
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<PAGE>
liability or claim would individually or in the aggregate have a
material adverse effect on the Company and its subsidiaries taken as a
whole; and the Company is not aware of any pending investigation which
might lead to such a claim.
(q) Except as disclosed in the Prospectus, there are no pending
actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a material adverse effect on the
condition (financial or other), business, properties or results of
operations of the Company and its subsidiaries taken as a whole, or
would materially and adversely affect the ability of the Company to
perform its obligations under this Agreement, or which are otherwise
material in the context of the sale of the Offered Securities; and no
such actions, suits or proceedings have been threatened or, to the
Company's knowledge, contemplated.
(r) The financial statements included in each Registration
Statement and the Prospectus present fairly the financial position of
the Company and its consolidated subsidiaries as of the dates shown and
their results of operations and cash flows for the periods shown, and
such financial statements have been prepared in conformity with the
generally accepted accounting principles in the United States.
(s) Except as disclosed in the Prospectus, since the date of the
latest audited financial statements included in the Prospectus there
has been no material adverse change, nor any development or event
involving a prospective material adverse change, in the condition
(financial or other), business, properties or results of operations of
the Company and its subsidiaries taken as a whole, and, except as
disclosed in or contemplated by the Prospectus, there has been no
dividend or distribution of any kind declared, paid or made by the
Company on any class of its capital stock.
(t) The Company is not and, after giving effect to the offering
and sale of the Offered Securities and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as defined in the Investment Company Act of 1940.
(u) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in
Cuba within the meaning of Section 517.075, Florida Statutes and the
Company agrees to comply with such Section if prior to the completion
of the distribution of the Offered Securities it commences doing such
business.
(v) The Company and each of its subsidiaries has filed all
foreign, federal, state and local tax returns that are required to be
filed or has requested extensions thereof (except in any case in which
the failure so to file would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole) and the Company and
each of its subsidiaries has paid all material taxes required to be
paid by it and any other assessment, fine or penalty levied against it,
to the extent that any of the foregoing is due and payable, except for
any such assessment, fine or penalty that is currently being contested
in good faith or as described in or contemplated by the Registration
Statement or the Prospectus.
(w) PricewaterhouseCoopers LLP, who have certified the financial
statements filed with the Commission as part of each Registration
Statement, are independent public accountants as required by the Act
and the Rules and Regulations. The Company maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance
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with management's general or specific authorization; (ii) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets; and (iii) access to assets is
permitted only in accordance with management's general or specific
authorization.
(x) The Company and each of its subsidiaries carry, or are covered
by, insurance in such amounts and covering such risks as is adequate
for the conduct of their respective businesses and the value of their
respective properties and as is customary for companies engaged in
similar industries.
(y) The Company and each of its subsidiaries are in compliance in
all material respects with all presently applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended, including
the regulations and published interpretations thereunder ("ERISA"); no
"reportable event" (as defined in ERISA) has occurred with respect to
any "pension plan" (as defined in ERISA) for which the Company or any
of its subsidiaries would have any liability; the Company and each of
its subsidiaries have not incurred and do not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Section 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations
and published interpretations thereunder ("Code"); and each "pension
plan" for which the Company and each of its subsidiaries would have any
liability that is intended to be qualified under Section 401(a) of the
Code is so qualified in all material respect and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(z) Except as set forth in each Registration Statement and the
Prospectus, there are no agreements, claims, payments, issuances,
arrangements or understandings, whether oral or written, for services
in the nature of finder's, consulting or origination fees with respect
to the sale of the Offered Securities or any other arrangements,
agreements, understandings, payments or issuance with respect to the
Company or any of its officers, directors, shareholders, partners,
employees, subsidiaries or affiliates that may affect the Underwriters'
compensation as determined by the NASD.
(aa) Except as set forth in each Registration Statement (including
without limitation the documents incorporated by reference therein) and
the Prospectus, no officer, director or shareholder of the Company or
any "affiliate" or "associate" (as these terms are defined in Rule 405
under the Act) of any of the foregoing persons or entities has or has
had, either directly or indirectly (i) an interest in any person or
entity that (x) furnishes or sells services or products which are
furnished or sold or that are proposed to be furnished or sold by the
Company, or (y) purchases from or sells or furnishes to the Company any
goods or services, or (ii) a beneficial interest in any contract or
agreement to which the Company is a party or by which it may be bound
or affected. Except as set forth in each Registration Statement and the
Prospectus under the caption "Certain Transactions" and "Management",
there are no existing or proposed agreements, arrangements,
understandings or transactions, between or among the Company and any
officer, director, principal shareholder of the Company or any partner,
affiliate or associate of any of the foregoing persons or entities.
(bb) The minute books of the Company made available to the
Underwriters contain a complete summary of all meetings and actions of
the directors and shareholders of the Company since the time of its
incorporation and reflects accurately and fairly in all respects all
transactions referred to in such minutes.
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<PAGE>
3. Purchase, Sale and Delivery of Offered Securities. On the basis of
the representations, warranties and agreements herein contained, but subject to
the terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and the Underwriters agree, severally and not jointly, to purchase
from the Company, at a purchase price of $______ per share, the respective
numbers of shares of Firm Securities set forth opposite the names of the
Underwriters in Schedule A hereto.
The Company will deliver the Firm Securities to the Representatives for
the accounts of the Underwriters, at the offices of Foley, Hoag & Eliot LLP, One
Post Office Square, Boston, Massachusetts 02109, against payment of the purchase
price in Federal (same day) funds by official bank check or checks or wire
transfer to an account at a bank acceptable to Credit Suisse First Boston
Corporation ("CSFBC") at 10:00 A.M., New York time, on , 1999,
or at such other time not later than seven full business days thereafter as
CSFBC and the Company determine, such time being herein referred to as the
"First Closing Date". For purposes of Rule 15c6-1 under the Securities Exchange
Act of 1934, the First Closing Date (if later than the otherwise applicable
settlement date) shall be the settlement date for payment of funds and delivery
of securities for all the Offered Securities sold pursuant to the offering. The
certificates for the Firm Securities so to be delivered will be in definitive
form, in such denominations and registered in such names as CSFBC requests and
will be made available for checking and packaging at least 24 hours prior to the
First Closing Date.
In addition, upon written notice from CSFBC given to the Company from
time to time not more than 30 days subsequent to the date of the Prospectus, the
Underwriters may purchase all or less than all of the Optional Securities at the
purchase price to be paid for the Firm Securities. The Company agrees to sell to
the Underwriters the number of shares of Optional Securities specified in such
notice and the Underwriters agree, severally and not jointly, to purchase such
Optional Securities. Such Optional Securities shall be purchased for the account
of each Underwriter in the same proportion as the number of shares of Firm
Securities set forth opposite such Underwriter's name bears to the total number
of shares of Firm Securities (subject to adjustment by CSFBC to eliminate
fractions) and may be purchased by the Underwriters only for the purpose of
covering over-allotments made in connection with the sale of the Firm
Securities. No Optional Securities shall be sold or delivered unless the Firm
Securities previously have been, or simultaneously are, sold and delivered. The
right to purchase the Optional Securities or any portion thereof may be
exercised from time to time and to the extent not previously exercised may be
surrendered and terminated at any time upon notice by CSFBC to the Company.
Each time for the delivery of and payment for the Optional Securities,
being herein referred to as an "Optional Closing Date", which may be the First
Closing Date (the First Closing Date and each Optional Closing Date, if any,
being sometimes referred to as a "Closing Date"), shall be determined by CSFBC
but shall be not later than five full business days after written notice of
election to purchase Optional Securities is given. The Company will deliver the
Optional Securities being purchased on each Optional Closing Date to the
Representatives for the accounts of the several Underwriters, at the offices of
Foley, Hoag & Eliot LLP, One Post Office Square, Boston, Massachusetts 02109,
against payment of the purchase price therefor in Federal (same day) funds by
official bank check or checks or wire transfer to an account at a bank
acceptable to CSFBC. The certificates for the Optional Securities being
purchased on each Optional Closing Date will be in definitive form, in such
denominations and registered in such names as CSFBC requests upon reasonable
notice prior to such Optional Closing Date and will be made available for
checking and packaging at a reasonable time in advance of such Optional Closing
Date.
4. Offering by Underwriters. It is understood that the several
Underwriters propose to offer the Offered Securities for sale to the public as
set forth in the Prospectus.
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<PAGE>
5. Certain Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) If the Effective Time of the Initial Registration Statement is
prior to the execution and delivery of this Agreement, the Company will
file the Prospectus with the Commission pursuant to and in accordance
with subparagraph (1) (or, if applicable and if consented to by CSFBC,
subparagraph (4)) of Rule 424(b) not later than the earlier of (A) the
second business day following the execution and delivery of this
Agreement or (B) the fifteenth business day after the Effective Date of
the Initial Registration Statement.
The Company will advise CSFBC promptly of any such filing pursuant to
Rule 424(b). If the Effective Time of the Initial Registration
Statement is prior to the execution and delivery of this Agreement and
an additional registration statement is necessary to register a portion
of the Offered Securities under the Act but the Effective Time thereof
has not occurred as of such execution and delivery, the Company will
file the additional registration statement or, if filed, will file a
post-effective amendment thereto with the Commission pursuant to and in
accordance with Rule 462(b) on or prior to 10:00 P.M., New York time,
on the date of this Agreement or, if earlier, on or prior to the time
the Prospectus is printed and distributed to any Underwriter, or will
make such filing at such later date as shall have been consented to by
CSFBC.
(b) The Company will advise CSFBC promptly of any proposal to
amend or supplement the initial or any additional registration
statement as filed or the related prospectus or the Initial
Registration Statement, the Additional Registration Statement (if any)
or the Prospectus and will not effect such amendment or supplementation
without CSFBC's consent, which consent shall not be unreasonably
withheld; and the Company will also advise CSFBC promptly of the
effectiveness of each Registration Statement (if its Effective Time is
subsequent to the execution and delivery of this Agreement) and of any
amendment or supplementation of a Registration Statement or the
Prospectus and of the institution by the Commission of any stop order
proceedings in respect of a Registration Statement and will use its
best efforts to prevent the issuance of any such stop order and to
obtain as soon as possible its lifting, if issued.
(c) If, at any time when a prospectus relating to the Offered
Securities is required to be delivered under the Act in connection with
sales by any Underwriter or dealer, any event occurs as a result of
which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at any time to amend the Prospectus to comply with the Act,
the Company will promptly notify CSFBC of such event and will promptly
prepare and file with the Commission, at its own expense, an amendment
or supplement which will correct such statement or omission or an
amendment which will effect such compliance. Neither CSFBC's consent
to, nor the Underwriters' delivery of, any such amendment or supplement
shall constitute a waiver of any of the conditions set forth in Section
6.
(d) As soon as practicable, but not later than the Availability
Date (as defined below), the Company will make generally available to
its securityholders an earnings statement covering a period of at least
12 months beginning after the Effective Date of the Initial
Registration Statement (or, if later, the Effective Date of the
Additional Registration Statement) which will satisfy the provisions of
Section 11(a) of the Act. For the purpose of the preceding sentence,
"Availability Date" means the 45th day after the end of the fourth
fiscal quarter following the fiscal quarter that includes such
Effective Date, except that, if such fourth fiscal quarter is the
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<PAGE>
last quarter of the Company's fiscal year, "Availability Date" means
the 90th day after the end of such fourth fiscal quarter.
(e) The Company will furnish to the Representatives copies of each
Registration Statement (four of which will be signed and will include
all exhibits), each related preliminary prospectus, and, so long as a
prospectus relating to the Offered Securities is required to be
delivered under the Act in connection with sales by any Underwriter or
dealer, the Prospectus and all amendments and supplements to such
documents, in each case in such quantities as CSFBC requests. The
Prospectus shall be so furnished on or prior to 3:00 P.M., New York
time, on the business day following the later of the execution and
delivery of this Agreement or the Effective Time of the Initial
Registration Statement. All other documents shall be so furnished as
soon as available. The Company will pay the expenses of printing and
distributing to the Underwriters all such documents.
(f) The Company will arrange for the qualification of the Offered
Securities for sale under the laws of such jurisdictions as CSFBC
designates and will continue such qualifications in effect so long as
required for the distribution; provided, however, that the Company
shall not be obliged to file any general consent to service of process
or to qualify as a foreign corporation or as a securities dealer in any
jurisdiction or to subject itself to taxation in respect of doing
business in any jurisdiction in which it is not otherwise so subject.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request, to each of the other
Underwriters, as soon as practicable after the end of each fiscal year,
a copy of its annual report to stockholders for such year; and the
Company will furnish to the Representatives (i) as soon as available, a
copy of each report and any definitive proxy statement of the Company
filed with the Commission under the Securities Exchange Act of 1934 or
mailed to stockholders, and (ii) from time to time, such other publicly
available information concerning the Company as CSFBC may reasonably
request.
(h) The Company will pay all expenses incident to the performance
of its obligations under this Agreement including, without limitation,
(i) any filing fees and other expenses (including fees and
disbursements of counsel) incurred in connection with qualification of
the Offered Securities for sale under the laws of such jurisdictions as
CSFBC designates and the printing of memoranda relating thereto, (ii)
the filing fees incident to, and the reasonable fees and disbursements
of counsel to the Underwriters in connection with, the review by the
National Association of Securities Dealers, Inc. of the Offered
Securities, (iii) any travel expenses of the Company's officers and
employees and any other expenses of the Company in connection with
attending or hosting meetings with prospective purchasers of the
Offered Securities and (iv) expenses incurred in distributing
preliminary prospectuses and the Prospectus (including any amendments
and supplements thereto) to the Underwriters.
(i) For a period of 180 days after the date of the initial public
offering of the Offered Securities, the Company will not offer, sell,
contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Commission a registration statement under
the Act relating to, any additional shares of its Securities or
securities convertible into or exchangeable or exercisable for any
shares of its Securities, or publicly disclose the intention to make
any such offer, sale, pledge, disposition or filing, without the prior
written consent of CSFBC, except for issuances of Securities pursuant
to the conversion or exchange of convertible or exchangeable securities
or the exercise of warrants or options, in each case outstanding on the
date hereof,
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<PAGE>
grants of employee stock options pursuant to the terms of a plan in
effect on the date hereof, or issuances of Securities pursuant to the
exercise of such options.
6. Conditions of the Obligations of the Underwriters. The obligations
of the several Underwriters to purchase and pay for the Firm Securities on the
First Closing Date and Optional Securities to be purchased on each Optional
Closing Date will be subject to the accuracy of the representations and
warranties on the part of the Company herein, to the accuracy of the statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions precedent:
(a) The Representatives shall have received from
PricewaterhouseCoopers LLP a letter dated the date hereof and each
Closing Date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such
letter for each of the Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain information contained in each Registration Statement and the
Prospectus.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further condition
to the obligations of the Underwriters that (i) such letters shall be
accompanied by a written explanation of the Company as to the
significance thereof, unless the Representatives deem such explanation
unnecessary, and (ii) such changes, decreases or increases do not, in
the sole judgment of the Representatives, make it impractical or
inadvisable to proceed with the purchase and delivery of the Offered
Securities as contemplated by such Registration Statement, as amended
as of the date hereof.
(b) If the Effective Time of the Initial Registration
Statement is not prior to the execution and delivery of this Agreement,
such Effective Time shall have occurred not later than 10:00 P.M., New
York time, on the date of this Agreement or such later date as shall
have been consented to by CSFBC. If the Effective Time of the
Additional Registration Statement (if any) is not prior to the
execution and delivery of this Agreement, such Effective Time shall
have occurred not later than 10:00 P.M., New York time, on the date of
this Agreement or, if earlier, the time the Prospectus is printed and
distributed to any Underwriter, or shall have occurred at such later
date as shall have been consented to by CSFBC. If the Effective Time of
the Initial Registration Statement is prior to the execution and
delivery of this Agreement, the Prospectus shall have been filed with
the Commission in accordance with the Rules and Regulations and Section
5(a) of this Agreement. Prior to such Closing Date, no stop order
suspending the effectiveness of a Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or, to the knowledge of the Company or the Representatives,
shall be contemplated by the Commission.
(c) Subsequent to the execution and delivery of this
Agreement, there shall not have occurred (i) any change, or any
development or event involving a prospective change, in the condition
(financial or other), business, properties or results of operations of
the Company or its subsidiaries which, in the judgment of a majority in
interest of the Underwriters including the Representatives, is material
and adverse and makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities; (ii) any downgrading in the rating of any debt
securities of the Company by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the
Act), or any public announcement that any such organization has under
surveillance or review its rating of any debt securities of the Company
(other than an announcement with positive implications of a
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<PAGE>
possible upgrading, and no implication of a possible downgrading, of
such rating); (iii) any suspension or limitation of trading in
securities generally on the New York Stock Exchange, or any setting of
minimum prices for trading on such exchange, or any suspension of
trading of any securities of the Company on any exchange or in the
over-the-counter market; (iv) any banking moratorium declared by U.S.
Federal or New York authorities; or (v) any outbreak or escalation of
major hostilities in which the United States is involved, any
declaration of war by Congress or any other substantial national or
international calamity or emergency if, in the judgment of a majority
in interest of the Underwriters including the Representatives, the
effect of any such outbreak, escalation, declaration, calamity or
emergency makes it impractical or inadvisable to proceed with
completion of the public offering or the sale of and payment for the
Offered Securities.
(d) The Representatives shall have received an opinion, dated
such Closing Date, of Foley, Hoag & Eliot LLP, counsel for the Company,
to the effect that:
(i) The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus; and the Company is duly qualified to do business
as a foreign corporation in good standing in all other
jurisdictions in which its ownership or lease of property or
the conduct of its business requires such qualification and
the failure to be so qualified would have a material adverse
effect on the Company and its subsidiaries taken as whole;
(ii) The Offered Securities delivered on such Closing
Date and all other outstanding shares of the Common Stock of
the Company have been duly authorized and validly issued, are
fully paid and nonassessable and conform to the description
thereof contained in the Prospectus; the Company has
authorized and outstanding capital stock as set forth under
the caption "Capitalization" in the Prospectus as of the date
specified therein; the certificates for the Offered
Securities, assuming they are in the form filed with the
Commission, are in due and proper form; and no stockholder of
the Company has any preemptive rights with respect to the
Securities pursuant to any statute, the Company's Certificate
of Incorporation, By-laws, or to such counsel's knowledge, any
agreement with the Company;
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no
outstanding securities of the Company convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of capital stock of the Company and
there are no outstanding or authorized options, warrants or
other securities obligating the Company to issue any shares of
its capital stock or any securities convertible or
exchangeable into or evidencing the right to purchase or
subscribe for any shares of such capital stock;
(iv) There are no contracts, agreements or
understandings known to such counsel between the Company and
any person granting such person the right to require the
Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned
by such person or to require the Company to include such
securities in the securities registered pursuant to the
Registration Statement or in any
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<PAGE>
securities being registered pursuant to any other registration
statement filed by the Company under the Act which have not
been fully satisfied or waived;
(v) No consent, approval, authorization or order of,
or filing with, any governmental agency or body or any court
is required to be obtained or made by the Company for the
consummation of the transactions contemplated by this
Agreement in connection with the issuance or sale of the
Offered Securities by the Company, except such as have been
obtained and made under the Act or the NASD and such as may be
required under state securities laws or the NASD;
(vi) The execution, delivery and performance of this
Agreement and the issuance and sale of the Offered Securities
will not result (a) in a material breach or violation of any
of the terms and provisions of, or constitute a default under,
any statute, any rule, regulation or order of any governmental
agency or body or any court having jurisdiction over the
Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument known to such
counsel to which the Company or any such subsidiary is a party
or by which the Company or any such subsidiary is bound or to
which any of the properties of the Company or any such
subsidiary is subject, or (b) result in a breach or violation
of the charter or by-laws of the Company or any such
subsidiary; and the Company has full power and authority to
authorize, issue and sell the Offered Securities as
contemplated by this Agreement;
(vii) The Initial Registration Statement was declared
effective under the Act as of the date and time specified in
such opinion, the Additional Registration Statement (if any)
was filed and became effective under the Act as of the date
and time (if determinable) specified in such opinion, the
Prospectus either was filed with the Commission pursuant to
the subparagraph of Rule 424(b) specified in such opinion on
the date specified therein or was included in the Initial
Registration Statement or the Additional Registration
Statement (as the case may be), and, to the knowledge of such
counsel after due inquiry, no stop order suspending the
effectiveness of a Registration Statement or any part thereof
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act, and
each Registration Statement and the Prospectus, and each
amendment or supplement thereto, as of their respective
effective or issue dates, complied as to form in all material
respects with the requirements of the Act and the Rules and
Regulations; such counsel have no reason to believe that any
part of a Registration Statement or any amendment thereto, as
of its effective date or as of such Closing Date, contained
any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary
to make the statements therein not misleading, or that the
Prospectus or any amendment or supplement thereto, as of its
issue date or as of such Closing Date, contained any untrue
statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; and the descriptions in the Registration
Statements and Prospectus of United States statutes, legal and
governmental proceedings and contracts and other documents are
accurate in all material respects and fairly present the
information required to be shown; it being understood that
such counsel need express no opinion as to the financial
statements or other financial data contained in the
Registration Statements or the Prospectus;
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<PAGE>
(viii) This Agreement has been duly authorized,
executed and delivered by the Company;
(ix) All of the Offered Securities have been duly
authorized and accepted for quotation on the Nasdaq National
Market, subject to official notice of issuance;
(x) The Company is not and, after giving effect to
the offering and sale of the Offered Securities and the
application of the proceeds thereof as described in the
Prospectus, will not be an "investment company" as defined in
the Investment Company Act of 1940, as amended; and
(xi) Such counsel does not know of any legal or
governmental proceedings or investigations pending or
threatened to which the Company or any of its subsidiaries is
a party or to which the property of the Company or any of its
subsidiaries is subject that are required to be described in
any Registration Statement or the Prospectus and are not
described therein or any statutes, regulations, contracts or
other documents that are required to be described in any
Registration Statement or the Prospectus or to be filed as
exhibits to any Registration Statement that are not described
therein or filed as required.
(e) The Representatives shall have received from Testa,
Hurwitz & Thibeault, LLP, counsel for the Underwriters, such opinion or
opinions, dated such Closing Date, with respect to the incorporation of
the Company, the validity of the Offered Securities delivered on such
Closing Date, the Registration Statements, the Prospectus and other
related matters as the Representatives may require, and the Company
shall have furnished to such counsel such documents as they request for
the purpose of enabling them to pass upon such matters. In rendering
such opinion, Testa, Hurwitz & Thibeault, LLP may rely as to the
incorporation of the Company upon the opinion of Foley, Hoag & Eliot
LLP.
(f) The Representatives shall have received a certificate,
dated such Closing Date, of the President or any Vice President and a
principal financial or accounting officer of the Company in which such
officers, to the best of their knowledge after reasonable
investigation, shall state that: the representations and warranties of
the Company in this Agreement are true and correct; the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied hereunder at or prior to such Closing
Date; no stop order suspending the effectiveness of any Registration
Statement has been issued and no proceedings for that purpose have been
instituted or are contemplated by the Commission; the Additional
Registration Statement (if any) satisfying the requirements of
subparagraphs (1) and (3) of Rule 462(b) was filed pursuant to Rule
462(b), including payment of the applicable filing fee in accordance
with Rule 111(a) or (b) under the Act, prior to the time the Prospectus
was printed and distributed to any Underwriter; subsequent to the dates
of the most recent financial statements in the Prospectus, there has
been no material adverse change, nor any development or event involving
a prospective material adverse change, in the condition (financial or
other), business, properties or results of operations of the Company
and its subsidiaries taken as a whole except as set forth in or
contemplated by the Prospectus or as described in such certificate.
(g) The Representatives shall have received a letter, dated
such Closing Date, of PricewaterhouseCoopers LLP which meets the
requirements of subsection (a) of this Section, except that the
specified date referred to in such subsection will be a date not more
than three days prior to such Closing Date for the purposes of this
subsection.
-14-
<PAGE>
(h) The Representatives shall have received from all officers
and directors of the Company and holders of Common Stock, securities
convertible into Common Stock and options to purchase Common Stock
listed in Schedule B, an agreement ("Lock-up Agreement") dated on or
before the date of this Agreement to the effect that, for a period of
180 days after the date on which shares of Securities are first sold by
the Underwriters to the public pursuant to a Registration Statement,
such person will not, without the prior written consent of CSFBC offer,
sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of Securities or securities convertible into or
exchangeable or exercisable for any shares of Securities or publicly
disclose the intention to make any such offer, sale, pledge or
disposition.
If any of the conditions hereinabove provided for in this Section 6 shall not
have been fulfilled when and as required by this Agreement to be fulfilled, the
obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
telegram at or prior to the First Closing Date and each Optional Closing Date.
The Company will furnish the Representatives with such conformed copies of such
opinions, certificates, letters and documents as the Representatives reasonably
request. CSFBC may in its sole discretion waive on behalf of the Underwriters
compliance with any conditions to the obligations of the Underwriters hereunder,
whether in respect of an Optional Closing Date or otherwise.
7. Indemnification and Contribution. (a) The Company will indemnify and
hold harmless each Underwriter, its partners, directors and officers and each
person, if any, who controls such Underwriter within the meaning of Section 15
of the Act, against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement,
the Prospectus, or any amendment or supplement thereto, or any related
preliminary prospectus, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement in or omission or alleged omission from
any of such documents in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through the
Representatives specifically for use therein, it being understood and agreed
that the only such information furnished by any Underwriter consists of the
information described as such in subsection (b) below; and provided, further,
that with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from any preliminary prospectus the indemnity
agreement set forth in this Section 7(a) shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Offered Securities concerned, to the extent that a
prospectus relating to such Offered Securities was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Offered Securities to such person, a copy of
the Prospectus if the Company had previously furnished copies thereof to such
Underwriter.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act, against any
losses, claims, damages or liabilities to which the Company may
-15-
<PAGE>
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement, the Prospectus, or any amendment or
supplement thereto, or any related preliminary prospectus, or arise out of or
are based upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company by such Underwriter through the Representatives specifically for use
therein, and will reimburse any legal or other expenses reasonably incurred by
the Company in connection with investigating or defending any such loss, claim,
damage, liability or action as such expenses are incurred, it being understood
and agreed that the only such information furnished by any Underwriter consists
of the following information in the Prospectus furnished on behalf of each
Underwriter: (i) the table under the first paragraph under the caption
"Underwriting," (ii) the concession and reallowance figures appearing in the
fourth paragraph under the caption "Underwriting," (iii) the information
contained in the sixth and eighth, paragraphs under the caption "Underwriting,"
and (iv) the information set forth under the caption "Notice to Canadian
Residents."
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under
subsection (a) or (b) above, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under subsection (a) or (b) above. In case any such action is brought against
any indemnified party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to such
indemnified party (who shall not, except with the consent of the indemnified
party, be counsel to the indemnifying party), and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party under this Section for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement of any
pending or threatened action in respect of which any indemnified party is or
could have been a party and indemnity could have been sought hereunder by such
indemnified party unless such settlement includes an unconditional release of
such indemnified party from all liability on any claims that are the subject
matter of such action.
(d) If the indemnification provided for in this Section is unavailable
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in subsection (a) or (b) above (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the 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 on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities as well as any other relevant equitable considerations. The relative
benefits received by the Company on the one hand and the Underwriters on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters.
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged
-16-
<PAGE>
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities referred to in the first sentence of this subsection (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any action or
claim which is the subject of this subsection (d). Notwithstanding the
provisions of this subsection (d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Securities underwritten by it and distributed to the public were offered to
the public exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls any
Underwriter within the meaning of the Act; and the obligations of the
Underwriters under this Section shall be in addition to any liability which the
respective Underwriters may otherwise have and shall extend, upon the same terms
and conditions, to each director of the Company, to each officer of the Company
who has signed a Registration Statement and to each person, if any, who controls
the Company within the meaning of the Act.
8. Default of Underwriters. If any Underwriter or Underwriters default
in their obligations to purchase Offered Securities hereunder on either the
First or any Optional Closing Date and the aggregate number of shares of Offered
Securities that such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of shares of Offered Securities
that the Underwriters are obligated to purchase on such Closing Date, CSFBC may
make arrangements satisfactory to the Company for the purchase of such Offered
Securities by other persons, including any of the Underwriters, but if no such
arrangements are made by such Closing Date, the non-defaulting Underwriters
shall be obligated severally, in proportion to their respective commitments
hereunder, to purchase the Offered Securities that such defaulting Underwriters
agreed but failed to purchase on such Closing Date. If any Underwriter or
Underwriters so default and the aggregate number of shares of Offered Securities
with respect to which such default or defaults occur exceeds 10% of the total
number of shares of Offered Securities that the Underwriters are obligated to
purchase on such Closing Date and arrangements satisfactory to CSFBC and the
Company for the purchase of such Offered Securities by other persons are not
made within 36 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or the Company, except
as provided in Section 9 (provided that if such default occurs with respect to
Optional Securities after the First Closing Date, this Agreement will not
terminate as to the Firm Securities or any Optional Securities purchased prior
to such termination). As used in this Agreement, the term "Underwriter" includes
any person substituted for an Underwriter under this Section. Nothing herein
will relieve a defaulting Underwriter from liability for its default.
9. Survival of Certain Representations and Obligations. The respective
indemnities, agreements, representations, warranties and other statements of the
Company or its officers and of the several Underwriters set forth in or made
pursuant to this Agreement will remain in full force and effect, regardless of
any investigation, or statement as to the results thereof, made by or on behalf
of any Underwriter, the Company or any of their respective representatives,
officers or directors or any
-17-
<PAGE>
controlling person, and will survive delivery of and payment for the Offered
Securities. If this Agreement is terminated pursuant to Section 8 or if for any
reason the purchase of the Offered Securities by the Underwriters is not
consummated, the Company shall remain responsible for the expenses to be paid or
reimbursed by it pursuant to Section 5 and the respective obligations of the
Company and the Underwriters pursuant to Section 7 shall remain in effect, and
if any Offered Securities have been purchased hereunder the representations and
warranties in Section 2 and all obligations under Section 5 shall also remain in
effect. If the purchase of the Offered Securities by the Underwriters is not
consummated for any reason other than solely because of the termination of this
Agreement pursuant to Section 8 or the occurrence of any event specified in
clause (iii), (iv) or (v) of Section 6(c), the Company will reimburse the
Underwriters for all out-of-pocket expenses (including fees and disbursements of
counsel) reasonably incurred by them in connection with the offering of the
Offered Securities.
10. Notices. All communications hereunder will be in writing and, if
sent to the Underwriters, will be mailed, delivered or telegraphed and confirmed
to the Representatives c/o Credit Suisse First Boston Corporation, Eleven
Madison Avenue, New York, New York 10010-3629, Attention: Investment Banking
Department--Transactions Advisory Group, or, if sent to the Company, will be
mailed, delivered or telegraphed and confirmed to it at Allaire Corporation, One
Alewife Center, Cambridge, Massachusetts 02140, Attention: President; provided,
however, that any notice to an Underwriter pursuant to Section 7 will be mailed,
delivered or telegraphed and confirmed to such Underwriter.
11. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 7, and no other
person will have any right or obligation hereunder.
12. Representation of Underwriters. The Representatives will act for
the several Underwriters in connection with this financing, and any action under
this Agreement taken by the Representatives jointly or by CSFBC will be binding
upon all the Underwriters.
13. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same Agreement.
14. Applicable Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York, without regard to
principles of conflicts of laws.
The Company hereby submits to the non-exclusive jurisdiction of the
Federal and state courts in the Borough of Manhattan in The City of New York in
any suit or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
-18-
<PAGE>
If the foregoing is in accordance with the Representatives'
understanding of our agreement, kindly sign and return to the Company one of the
counterparts hereof, whereupon it will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
ALLAIRE CORPORATION
By ...............................
David J. Orfao, President
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
CREDIT SUISSE FIRST BOSTON CORPORATION
DAIN RAUSCHER WESSELS, A DIVISION OF
DAIN RAUSCHER INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
Acting on behalf of themselves and as the
Representatives of the several
Underwriters
By CREDIT SUISSE FIRST BOSTON CORPORATION
By
..................................................
[Joseph D. Fashano
Director]
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<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Underwriter Firm Securities
----------- ---------------
<S> <C>
Credit Suisse First Boston Corporation.......................................
Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated.................................................
NationsBanc Montgomery Securities LLC........................................
----------
Total............................................. 2,200,000
==========
</TABLE>
<PAGE>
SCHEDULE B
Lockup Agreements
Certificate of Incorporation
Of
Allaire Corporation
FIRST: The name of the corporation is Allaire Corporation (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, Delaware, County of New
Castle, and the name of its registered agent at such address is Corporation
Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
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.
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue shall be 15,000,000, consisting of
(i) 10,000,000 shares of common stock, par value $.01 per share ("Common
Stock"), and (ii) 5,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation:
A. COMMON STOCK.
-------------
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of Common Stock will be entitled to one vote per
share on all matters to be voted on by the stockholders of the Corporation.
There shall be no cumulative voting.
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential liquidation rights of any then
outstanding Preferred Stock.
B. PREFERRED STOCK.
----------------
Preferred Stock may be issued from time to time in one or more series,
each of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. No share of
Preferred Stock that is redeemed, purchased or acquired by the Corporation may
be reissued except as otherwise provided herein
<PAGE>
or by law. Different series of Preferred Stock shall not be construed to
constitute different classes of shares for the purposes of voting by classes
unless expressly provided herein, in any such resolution or resolutions, or by
law.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided by law or by this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the
Certificate of Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the Corporation.
FIFTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided that:
(a) The business and affairs of the Corporation shall be managed by
or under the direction of a Board of Directors.
(b) Elections of directors need not be by written ballot unless, and
only to the extent, otherwise provided in the By-Laws.
(c) The Board of Directors shall have concurrent power with the
stockholders to adopt, alter, amend or repeal the By-Laws of the Corporation.
(d) Subject to any applicable requirements of law, the books of the
Corporation may be kept outside the State of Delaware at such locations as may
be designated by the Board of Directors or in the By-Laws of the Corporation.
(e) The Board of Directors may from time to time determine whether,
to what extent, at what times and places and under what conditions and
regulations the accounts, books and records of the Corporation, or any of them,
shall be open to the inspection of the stockholders, and no stockholder shall
have any right to inspect any account, book or document of the Corporation
except as and to the extent expressly provided by law or expressly authorized by
resolution of the Board of Directors.
(f) Except as provided to the contrary in the provisions
establishing a class of stock, the number of authorized shares of such class may
be increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of a majority of the stock of the
Corporation entitled to vote, voting as a single class.
(g) In addition to the powers and authority herein or by law
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be
-2-
<PAGE>
exercised or done by the Corporation, subject, nevertheless, to the provisions
of the laws of the State of Delaware, this Certificate of Incorporation and any
By-Laws adopted by the stockholders; provided, however, that no By-Laws
hereafter adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such By-Laws had not been adopted.
SIXTH: The Corporation shall indemnify each person who at any time is, or
shall have been, a director or officer of the Corporation and 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, by reason of the fact that he or she is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, 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
incurred in connection with any such action, suit or proceeding, to the maximum
extent permitted by the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended. The foregoing right of indemnification
shall in no way be exclusive of any other rights of indemnification to which any
such director or officer may be entitled, under any by-law, agreement, vote of
directors or stockholders or otherwise. No amendment to or repeal of the
provisions of this Article SIXTH shall deprive a director or officer of the
benefit hereof with respect to any act or failure to act occurring prior to such
amendment or repeal.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: No director of the Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty by the director as a director; provided, however, that this Article EIGHTH
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (a) for any breach of the duty of loyalty of the director to
the Corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) for
any unlawful action under Section 174 of the General Corporation Law of the
State of Delaware, or (d) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this ARTICLE EIGHTH
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of the
director occurring prior to such amendment or repeal. If the laws of the State
of Delaware are hereafter changed to permit further elimination or limitation of
the liability of directors, then the liability of each director of the
Corporation shall thereupon be eliminated or limited to the fullest extent then
permitted by law.
-3-
<PAGE>
NINTH: 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 this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
TENTH: The name and the mailing address of the sole incorporator of the
Corporation is:
<TABLE>
<S> <C>
NAME MAILING ADDRESS
Robert L. Birnbaum Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
</TABLE>
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of April,
1997.
/s/ Robert L. Birnbaum
---------------------------
Robert L. Birnbaum,
Sole Incorporator
-4-
<PAGE>
CERTIFICATE OF MERGER
OF
ALLAIRE CORP., A MINNESOTA CORPORATION,
WITH AND INTO
ALLAIRE CORPORATION, A DELAWARE CORPORATION
The undersigned corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware DOES HEREBY CERTIFY:
FIRST: The name and state of incorporation of each of the constituent
corporations of the merger is as follows:
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
Allaire Corporation Delaware
Allaire Corp. Minnesota
</TABLE>
SECOND: An agreement and plan of merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with the requirements of Section 252 of the General Corporation Law
of the State of Delaware.
THIRD: The name of the surviving corporation is "Allaire Corporation."
FOURTH: The certificate of incorporation of Allaire Corporation as in
effect immediately prior to the merger, shall be the certificate of
incorporation of the surviving corporation.
FIFTH: An executed agreement and plan of merger is on file at the principal
place of business of the surviving corporation, which is located at One Alewife
Center, 3rd Floor, Cambridge, Massachusetts 02140.
SIXTH: A copy of the agreement and plan of merger will be furnished by the
surviving corporation, on request and without cost, to any stockholder of either
constituent corporation.
SEVENTH: The authorized capital stock of Allaire Corp. consists of
5,000,000 shares of Common Stock, $.01 par value, 200,000 shares of Series A
Convertible Preferred Stock, $.01 par value, 508,949 shares of Series B
Convertible Preferred Stock, $.01 par value, and 84,600 shares of Series C
Convertible Preferred Stock, $.01 par value.
Dated: April 25, 1997
ALLAIRE CORPORATION
By: /s/ David J. Orfao
--------------------
President
David J. Orfao
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
ALLAIRE CORPORATION
ALLAIRE CORPORATION, a corporation organized and existing by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
creates, from the 5,000,000 shares of Preferred Stock, par value $.01 per share,
of the Corporation authorized to be issued pursuant to Article FOURTH of the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation", which term includes this Certificate of Designations,
Preferences and Rights) a series of Preferred Stock and hereby fixes the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of the
shares of such series as follows:
(A) Designation of Series of Preferred Stock
----------------------------------------
Of the 5,000,000 shares of Preferred Stock which the Corporation is
authorized to issue under its Certificate of Incorporation, 200,000 of such
shares shall be designated as shares of Series A Convertible Preferred Stock of
the Corporation (the "Series A Preferred Stock"), par value $.01 per share. Such
shares of Series A Preferred Stock, together with the 10,000,000 shares of
authorized Common Stock of the Corporation (the "Common Stock"), the balance of
the undesignated shares of Preferred Stock of the Corporation and any other
common stock or Preferred Stock that may be authorized in or from time to time
pursuant to the Certificate of Incorporation of the Corporation, are sometimes
hereinafter collectively referred to as the "capital stock."
(B) Voting Privileges.
------------------
Each holder of Series A Preferred Stock shall have that number of votes on
all matters submitted to the stockholders that is equal to the number of shares
of Common Stock into which such holder's shares of Series A Preferred Stock are
then convertible, as hereinafter provided. Except as otherwise required by
agreement or law, the shares of capital stock of the Corporation shall vote as a
single class on all matters submitted to the stockholders.
(C) Dividends.
---------
In the event any dividend or distribution is declared or made with respect
to outstanding shares of Common Stock, a comparable dividend or distribution
must be simultaneously declared or made with respect to the outstanding shares
of Series A Preferred Stock. In the event any dividend or distribution is
declared or made with respect to the Common Stock, each holder of shares of
Series A Preferred Stock shall be paid such comparable dividend or receive such
comparable distribution on the basis of the number of shares of Common Stock
into which such holder's shares of Series A Preferred Stock are then
convertible, as hereinafter provided.
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(D) Liquidation Preference.
-----------------------
In the event of an involuntary or voluntary liquidation or dissolution of
the Corporation at any time, the holders of shares of Series A Preferred Stock
shall be entitled to receive out of the assets of the Corporation an amount per
share equal to the Conversion Price (as hereinafter defined), plus dividends
unpaid and accumulated or accrued thereon, if any. In the event of either an
involuntary or a voluntary liquidation or dissolution of the Corporation payment
shall be made to the holders of shares of Series A Preferred Stock in the
amounts herein fixed before any payment shall be made or any assets distributed
to the holders of the Common Stock or any other class of shares of the
Corporation ranking junior to the Series A Preferred Stock with respect to
payment upon dissolution or liquidation of the Corporation. If upon any
liquidation or dissolution of the Corporation the assets available for
distribution shall be insufficient to pay the holders of all outstanding shares
of Series A Preferred Stock the full amounts to which they respectively shall be
entitled, the holders of such shares shall share pro rata in any such
distribution.
(E) Conversion Right.
-----------------
At the option of the holders thereof, each share of Series A Preferred
Stock shall be convertible, at the office of the Corporation (or at such other
office or offices, if any, as the Board of Directors may designate), into fully
paid and nonassessable shares (calculated as to each conversion to the nearest
1/100th of a share) of Common Stock, at a price equal to the Conversion Price
(as defined below) applicable to such share (i.e., with respect to each share at
an initial conversion rate of one share of Common Stock for each share of Series
A Preferred Stock). The initial conversion price shall be subject to adjustment
from time to time in the instances provided below. The following provisions
shall govern the right of conversion:
(1) In order to convert shares of Series A Preferred Stock into shares of
Common Stock of the Corporation, the holder thereof shall surrender
at any office hereinabove mentioned the certificate or certificates
therefor, duly endorsed to the Corporation or in blank, and give
written notice to the Corporation at such office that such holder
elects to convert such shares. Shares of Series A Preferred Stock
shall be deemed to have been converted immediately prior to the close
of business on the day of the surrender of such shares for conversion
as herein provided, and the person entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock at such
time. As promptly as practicable on or after the conversion date, the
Corporation shall issue and deliver or cause to be issued and
delivered at such office a certificate or certificates for the number
of shares of Common Stock issuable upon such conversion.
(2) The conversion price shall be subject to adjustment from time to time
as hereinafter provided. Upon each adjustment of the conversion price
each holder of shares of Series A Preferred Stock shall thereafter be
entitled to receive the number of shares of Common Stock obtained by
multiplying the conversion price in effect immediately prior to such
adjustment by the number of shares issuable pursuant to conversion
immediately prior to such adjustment and dividing the product thereof
by the conversion price resulting from such adjustment.
(3) In case the Corporation shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as
described in subparagraph (4) below) or any obligations or any shares
of stock of the Corporation which are convertible into, or
exchangeable for, Common
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Stock (any of such obligations or shares of stock being hereinafter
called "Convertible Securities"), or in any rights or options to
purchase Common Stock or Convertible Securities, or (ii) declare any
other dividend or make any other distribution upon the Common Stock
payable otherwise than out of earnings or earned surplus, then
thereafter each holder of shares of Series A Preferred Stock upon the
conversion thereof will be entitled to receive the number of shares
of Common Stock into which such shares of Series A Preferred Stock
have been converted, and, in addition and without payment therefor,
each dividend described in clause (i) above and each dividend or
distribution described in clause (ii) above which such holder would
have received by way of dividends or distributions if continuously
since such holder became the record holder of such shares of Series A
Preferred Stock such holder (i) had been the record holder of the
number of shares of Common Stock then received, and (ii) had retained
all dividends or distributions in stock or securities (including
Common Stock or Convertible Securities, and any rights or options to
purchase any Common Stock or Convertible Securities) payable in
respect of such Common Stock or in respect of any stock or securities
paid as dividends or distributions and originating directly or
indirectly from such Common Stock. For the purposes of the foregoing
a dividend or distribution other than in cash shall be considered
payable out of earnings or earned surplus only to the extent that
such earnings or earned surplus are charged an amount equal to the
fair value of such dividend or distribution as determined by the
Board of Directors of the Corporation.
(4) In case the Corporation shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the
conversion price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock shall be combined into a smaller
number of shares, the conversion price in effect immediately prior to
such combination shall be proportionately increased.
(5) If any capital reorganization or reclassification of the capital
stock of the corporation, or consolidation or merger of the
corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange
for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate
provision shall be made whereby the holders of Series A Preferred
Stock shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the
shares of the Common Stock of the corporation immediately theretofore
receivable upon the conversion of Series A Preferred Stock, such
shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such stock
immediately theretofore receivable upon the conversion of Series A
Preferred Stock had such reorganization, reclassification,
consolidation, merger or sale not taken place, plus all dividends
unpaid and accumulated or accrued thereon to the date of such
reorganization, reclassification, consolidation, merger or sale, and
in any such case appropriate provision shall be made with respect to
the rights and interests of the holders of Series A Preferred Stock
to the end that the provisions hereof (including without limitation
provisions for adjustments of the conversion price and of the number
of shares receivable upon the conversion of Series A Preferred Stock)
shall thereafter be applicable, as nearly as may be in relation to
any shares of stock, securities or assets thereafter receivable upon
the conversion of Series A Preferred Stock. The corporation shall not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof
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the successor corporation (if other than the corporation) resulting
from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed to the
registered holders of Series A Preferred Stock, at the last addresses
of such holders appearing on the books of the corporation, the
obligation to deliver to such holders such shares of stock,
securities or assets as, in accordance with the foregoing provisions,
such holders may be entitled to receive.
(6) Upon any adjustment of the conversion price, then and in each case
the Corporation shall give written notice thereof, by first-class
mail, postage prepaid, addressed to the registered holders of Series
A Preferred Stock, at the addresses of such holders as shown on the
books of the Corporation, which notice shall state the conversion
price resulting from such adjustment and the increase or decrease, if
any, in the number of shares receivable at such price upon the
conversion of Series A Preferred Stock, setting forth in reasonable
detail the method of calculation and the facts upon which such
calculation is based.
(7) If any event occurs as to which in the opinion of the Board of
Directors of the Corporation the other provisions of this paragraph
(E) are not strictly applicable or if strictly applicable would not
fairly protect the rights of the holders of Series A Preferred Stock
in accordance with the essential intent and principles of such
provisions, then the Board of Directors shall make an adjustment in
the application of such provisions, in accordance with such essential
intent and principles, so as to protect such rights as aforesaid.
(8) As used in this paragraph (E) the term "Common Stock" shall mean and
include the Corporation's presently authorized Common Stock and shall
also include any capital stock of any class of the Corporation
hereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of
the Corporation; provided that the shares receivable pursuant to
conversion of shares of Series A Preferred Stock shall include shares
designated as Common Stock as of the date of issuance of such shares
of Series A Preferred Stock, or, in case of any reclassification of
the outstanding shares thereof, the stock, securities or assets
provided for in subparagraph (5) above.
(9) No fractional shares of Common Stock shall be issued upon conversion,
but, instead of any fraction of a share which would otherwise be
issuable, the Corporation shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the market
price per share of Common Stock as of the close of business on the
day of conversion. "Market price" shall mean if the Common Stock is
traded on a securities exchange or on the Nasdaq National Market, the
closing price of the Common Stock on such exchange or the Nasdaq
National Market, or, if the Common Stock is otherwise traded in the
over-the-counter market, the closing bid price, in each case averaged
over a period of 20 consecutive business days prior to the date as of
which "market price" is being determined. If at any time the Common
Stock is not traded on an exchange or the Nasdaq National Market, or
otherwise traded in the over-the-counter market, the "market price"
shall be deemed to be the fair value thereof determined in good faith
by the Board of Directors of the Corporation as of a date which is
within 15 days of the date as of which the determination is to be
made.
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<PAGE>
(F) Mandatory Conversion.
---------------------
The Series A Preferred Stock shall automatically be converted into shares
of Common Stock, without any act by the Corporation or the holders of the Series
A Preferred Stock, concurrently with the closing of the Initial Public Offering
of the Corporation (as hereinafter defined). As used herein, the term "closing"
shall mean the delivery by the Corporation to the underwriters of certificates
representing the shares of Common Stock offered to the public against delivery
to the Corporation by such underwriters of payment therefor. Each holder of a
share of Series A Preferred Stock so converted shall be entitled to receive the
full number of shares of Common Stock into which such share of Series A
Preferred Stock held by such holder could be converted if such holder had
exercised its conversion right at the time of closing of such public offering.
Upon such conversion, each holder of a share of Series A Preferred Stock shall
immediately surrender such share in exchange for appropriate stock certificates
representing a share or shares of Common Stock. As used herein, "Initial Public
Offering" shall mean the first public offering by the Corporation of shares of
Common Stock registered under the Securities Act of 1933, as amended, in which
(1) the aggregate public offering price of the securities sold for cash by the
Corporation in the offering is at least $2,000,000 and (2) the offering is
underwritten on a firm commitment basis by an underwriter or a group of
underwriters. The term "firm commitment basis" with respect to the underwriting
of such public offering shall mean a commitment pursuant to a written
underwriting agreement under which the nature of the underwriters' commitment is
such that all securities will be purchased by such underwriters if any
securities are purchased by such underwriters.
(G) Conversion Price.
-----------------
As used herein, the "Conversion Price" shall mean (1) $4.07 per share for
each share of Series A Preferred Stock issued upon conversion of those certain
10% Convertible Subordinated Notes due December 31, 2001, or (2) for each other
share of Series A Preferred Stock issued, that price per share equal to the cash
price paid or the value (as determined by the Board) of other assets transferred
in consideration for each share of Series A Preferred Stock issued.
IN WITNESS WHEREOF, Allaire Corporation has caused this Certificate of
Designation, Preferences and Rights of Series A Convertible Preferred Stock to
be executed on its behalf by David J. Orfao, its President, this 25th day of
April, 1997.
ALLAIRE CORPORATION
By: /s/ David J. Orfao
----------------------
President
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<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
AND
SERIES C CONVERTIBLE PREFERRED STOCK
OF
ALLAIRE CORPORATION
ALLAIRE CORPORATION, a corporation organized and existing by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
creates, from the 5,000,000 shares of Preferred Stock, par value $.01 per share,
of the Corporation authorized to be issued pursuant to Article FOURTH of the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation", which term includes this Certificate of Designations,
Preferences and Rights) a series of Preferred Stock and hereby fixes the voting
powers, designations, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of the
shares of such series as follows:
1. Designations of Series of Preferred Stock. Of the 5,000,000 shares of
Preferred Stock which the Corporation is authorized to issue under its
Certificate of Incorporation, 514,306 of such shares shall be designated as
shares of Series B Convertible Preferred Stock of the Corporation (the "Series B
Preferred Stock"), par value $.01 per share, and 169,200 of such shares shall be
designated as shares of Series C Convertible Preferred Stock of the Corporation
(the "Series C Preferred Stock" and, together with the Series B Preferred Stock,
the "Preferred Stock"), par value $.01 per share. Such shares of Preferred
Stock, together with the 10,000,000 shares of authorized Common Stock of the
Corporation ("Common Stock"), par value $.01 per share, the 200,000 shares of
authorized Series A Convertible Preferred Stock of the Corporation ("Series A
Preferred Stock"), par value $.01 per share, and the balance of the undesignated
shares of Preferred Stock of the Corporation and any other common stock or
preferred stock that may hereafter be authorized in or pursuant to the
Certificate of Incorporation of the Corporation, are sometimes hereinafter
collectively referred to as the "capital stock."
2. Voting.
-------
2A. General. Except as may be otherwise provided in these terms of the
Preferred Stock or by law, the Preferred Stock shall vote together with all
other classes and series of stock of the Corporation as a single class on all
actions to be taken by the shareholders of the Corporation, including, but not
limited to actions amending the Certificate of Incorporation of the Corporation
to increase or decrease (but not below the number of outstanding shares) the
number of authorized shares of Common Stock. Each share of Preferred Stock shall
entitle the holder thereof to such number of votes per share on each such action
as shall equal the number of shares of Common Stock (including fractions of a
share) into which such share of Preferred Stock is then convertible.
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<PAGE>
2B. Board Size. The Corporation shall not, without the written consent
or affirmative vote of the holders of at least fifty-one percent (51%) of the
then outstanding shares of Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a class,
increase the maximum number of directors constituting the Board of Directors to
a number in excess of five.
2C. Election of Directors. So long as any shares of Preferred Stock are
outstanding, (i) the holders of the Preferred Stock, exclusively and voting as a
single class, shall be entitled, by a vote of a majority of voting power of such
shares which are present and entitled to vote on such item of business, to elect
one of the directors of the Corporation and to exercise any right of removal or
replacement of such director, (ii) the holders of the Common Stock, the Series A
Preferred Stock and the Preferred Stock, exclusively and voting together as a
single class, shall be entitled, by a vote of a majority of the voting power of
such shares which are present and entitled to vote on such item of business, to
elect two of the directors of the Corporation and to exercise any right of
removal or replacement of such directors, and (iii) the remaining two directors
of the Corporation, if any, shall be elected by, and shall be removed or
replaced only by, a vote of both (A) a majority of the voting power of the
shares of the Common Stock and the Series A Preferred Stock, voting together as
a single class, which are present and entitled to vote on such item of business,
and (B) a majority of the voting power of the shares of the Preferred Stock,
voting together as a single class, which are present and entitled to vote on
such item of business.
3. Dividends. The holders of the Preferred Stock shall be entitled to
receive, out of funds legally available therefor, dividends at the same rate and
at the same time as dividends (other than dividends paid in additional shares of
Common Stock) are paid with respect to the Common Stock (treating each share of
Preferred Stock as being equal to the number of shares of Common Stock
(including fractions of a share) into which each share of Preferred Stock is
then convertible).
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, each holder of Preferred Stock
shall be entitled, before any distribution or payment is made upon any stock
ranking on liquidation junior to the Preferred Stock, to be paid with respect to
each such share an amount equal to the greater of (i) the Original Purchase
Price (as defined below) (appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar changes hereafter
effected) of such share plus, in the case of each share, an amount equal to all
dividends declared but unpaid thereon, computed to the date payment thereof is
made available, or (ii) such amount as would have been payable had such share
been converted to Common Stock pursuant to paragraph 6 immediately prior to such
liquidation, dissolution or winding up, and the holders of Preferred Stock shall
not be entitled to any further payment, such amount payable with respect to one
share of Preferred Stock being sometimes referred to as the "Liquidation
Preference Payment" and with respect to all shares of Preferred Stock being
sometimes referred to as the "Liquidation Preference Payments". The Original
Purchase Price per share shall be $4.52 in the case of the Series B Preferred
Stock and $5.91 in the case of the Series C Preferred Stock. If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Preferred Stock
shall be insufficient to permit payment to the holders of Preferred Stock of the
amount distributable as aforesaid, then the entire assets of the Corporation to
be so distributed shall be distributed pro rata among the holders of Preferred
Stock in accordance with the respective amounts which would have been
distributed to such holders if such assets had been sufficient to make the
Liquidation Preference Payments in full. Upon any such liquidation, dissolution
or winding up of the Corporation, after the holders of Preferred Stock shall
have been paid in full the amounts to which they shall be entitled, the
remaining net assets of the Corporation may be distributed to the holders of
stock ranking on liquidation junior to the Preferred Stock. Written notice of
such liquidation, dissolution or winding up, stating a payment date, the amount
of the Liquidation Preference Payments and the place where said Liquidation
Preference Payments
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<PAGE>
shall be payable, shall be delivered in person, mailed by certified or
registered mail, return receipt requested, or sent by telecopier or telex, not
less than 20 days prior to the payment date stated therein, to the holders of
record of Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities as a result
of which shareholders of the Corporation immediately before the transaction own
less than a majority of the successor or surviving corporation immediately
thereafter, or the sale, lease, abandonment, transfer or other disposition by
the Corporation of all or substantially all its assets, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning of
the provisions of this paragraph 4. For purposes hereof, the Common Stock shall
rank on liquidation junior to the Preferred Stock and the Series A Preferred
Stock shall rank on a parity with the Preferred Stock.
5. Restrictions. At any time when at least 25% of the shares of Preferred
Stock are outstanding, except where the vote or written consent of the holders
of a greater number of shares of the Corporation is required by law or by the
Certificate of Incorporation and in addition to any other vote required by law
or the Certificate of Incorporation, without the approval of the holders of at
least fifty-one percent (51%) of the then outstanding shares of Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a class, (such that the Series B and the Series C Preferred
Stock vote together as a single class) the Corporation will not:
5A. Create or authorize the creation of any additional class or series
of shares of stock ranking senior to the Preferred Stock as to the distribution
of assets on the liquidation, dissolution or winding up of the Corporation (such
senior stock referred to herein as "Senior Stock"), or increase the authorized
amount of any existing class or series of shares of Senior Stock, or create or
authorize any obligation or security convertible into shares of Senior Stock or
into shares of any other class or series of Senior Stock, or change the terms of
any existing class or series of shares of Senior Stock unless, following such
change, such series or class shall no longer be Senior Stock, whether any such
creation, authorization, increase or change shall be by means of amendment to
the Certificate of Incorporation or by merger, consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merge into or with any other entity or entities
(except any consolidation or merger in which the shareholders of the Corporation
immediately prior to such consolidation or merger continue to own a majority of
the outstanding capital stock of the surviving corporation immediately after
such consolidation or merger) or sell, lease, abandon, transfer or otherwise
dispose of all or substantially all or any substantial portion of its assets;
5C. Amend, alter or repeal its Certificate of Incorporation to effect
amendments or alterations whose effect would be (i) to change in any manner the
rights, preferences or privileges of any series of Preferred Stock; (ii)
detrimental or adverse in any manner with respect to the rights of holders of
any series of Preferred Stock, or (iii) to amend this paragraph 5;
5D. Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any equity securities of the Corporation
other than the Preferred Stock, except for dividends or other distributions
payable on the Common Stock solely in the form of additional shares of Common
Stock and except for the purchase of shares of Common Stock from former
employees of the Corporation who acquired such shares directly from the
Corporation, if each such purchase is made pursuant to contractual rights held
by the Corporation relating to the termination of employment of such former
employee or pursuant to any rights of first refusal upon transfers of any
capital stock;
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<PAGE>
5E. Redeem or otherwise acquire any shares of Preferred Stock except as
expressly authorized in paragraph 7 hereof or pursuant to a purchase offer made
pro rata to all holders of the shares of Preferred Stock on the basis of the
aggregate Original Purchase Price of the Preferred Stock then held by each such
holder.
6. Conversions. The holders of shares of Preferred Stock shall have the
following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
paragraph 6, any holder of shares of Preferred Stock shall have the right, at
its option at any time, to convert each such share of Preferred Stock (except
that upon any liquidation of the Corporation the right of conversion shall
terminate at the close of business on the business day fixed for payment of the
amount distributable on the Preferred Stock) into such number of fully paid and
nonassessable shares of Common Stock as is obtained by dividing the Original
Purchase Price of such share by the conversion price of such share (which shall
initially be the Original Purchase Price of such share) or, in case an
adjustment of such price has taken place pursuant to the further provisions of
this paragraph 6, then by the conversion price as last adjusted and in effect at
the date any share or shares of Preferred Stock are surrendered for conversion
(such price, or such price as last adjusted, being referred to as the
"Conversion Price"). Such rights of conversion shall be exercised by the holder
thereof by giving written notice that the holder elects to convert a stated
number of shares of Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to the Corporation
at its principal office (or such other office or agency of the Corporation as
the Corporation may designate by notice in writing to the holders of the
Preferred Stock) at any time during its usual business hours on the date set
forth in such notice, together with a statement or the name or names (with
address) in which the certificate or certificates for shares of Common Stock
shall be issued.
6B. Issuance of Certificates: Time Conversion Effected. Promptly after
the receipt of the written notice referred to in subparagraph 6A and surrender
of the certificate or certificates for the share or shares of Preferred Stock to
be converted, the Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such holder may
direct, a certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion of such share or shares of Preferred Stock.
To the extent permitted by law, such conversion shall be deemed to have been
effected and the Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares of Preferred Stock shall cease, and the person or
persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Preferred Stock into Common Stock and
no payment or adjustment shall be made upon any conversion on account of any
cash dividends on the Common Stock issued upon such conversion. At the time of
each conversion, and to the extent the Corporation has funds legally available
therefor, the Corporation shall pay in cash an amount equal to all dividends
accrued and unpaid on the shares of Preferred Stock surrendered for conversion
to the date upon which such conversion is deemed to take place as provided in
subparagraph 6B. In case the number of shares of Preferred Stock represented by
the certificate or certificates surrendered pursuant to subparagraph 6A exceeds
the number of shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Preferred Stock
represented by the certificate or certificates surrendered which are
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<PAGE>
not to be converted. If any fractional share of Common Stock would, except for
the provisions of the first sentence of this subparagraph 6C, be delivered upon
such conversion, the Corporation, in lieu of delivering such fractional share,
shall pay to the holder surrendering the Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 6E, if an whenever the Corporation shall issue or sell,
or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to have
issued or sold, any shares of Common Stock for a consideration per share less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then, forthwith upon such issue or sale, the Conversion Price shall be
reduced concurrently with such issue to the price (calculated to the nearest
cent) determined by dividing (i) an amount equal to the sum of (a) the number of
shares of Common Stock outstanding immediately prior to such issue or sale
(which shall be deemed to include all shares of Common Stock issuable upon the
conversion of all outstanding convertible securities of the Corporation,
including the Series A Preferred Stock and the Preferred Stock) multiplied by
the then existing Conversion Price and (b) the consideration, if any, received
by the Corporation upon such issue or sale, by (ii) the total number of shares
of Common Stock (which shall be deemed to include all shares of Common Stock
issuable upon the conversion of all outstanding convertible securities of the
Corporation, including the Series A Preferred Stock and the Preferred Stock)
outstanding immediately after such issue or sale.
Notwithstanding anything contained herein to the contrary, the holder of
any shares of Preferred Stock shall not be entitled to the benefits of this
subparagraph 6D if such holder has failed to participate in any particular
offering by the Corporation of shares of any class or series of its capital
stock, however designated (or other securities, whether debt or equity,
convertible into or exchangeable for any class or series of capital stock, or
any warrants, options, subscriptions or other purchase rights with options,
subscriptions or other purchase rights with respect thereto), which would
otherwise result in an adjustment to the Conversion Price pursuant to this
subparagraph 6D (a "Dilutive Offering"), by acquiring in such Dilutive Offering
at least such number of shares actually offered in the Dilutive Offering to all
holders of Preferred Stock, as determined by the Board of Directors of the
Corporation, multiplied by a fraction: (a) the numerator of which is the number
of shares of Preferred Stock held by such holder at the time of such Dilutive
Offering, and (b) the denominator of which is the total number of shares of
Preferred Stock then outstanding (the "Pro Rata Share"). If any holder of
Preferred Stock shall fail to purchase its Pro Rata Share of any Dilutive
Offering, then the Conversion Price of the Preferred Stock held by such holder
will not be reduced in accordance with the foregoing provision of this Section,
and instead the shares of Preferred Stock held by such holder will be converted
automatically and without further action on the part of such holder into Common
Stock at the Conversion Price in effect immediately prior to the issuance of
shares in the Dilutive Offering. The provisions of this second paragraph of
subparagraph 6D may be waived in any instance (without the necessity of
convening any meeting of shareholders of the Corporation) upon the written
consent of the holders of a majority of the outstanding shares of Preferred
Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to
6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "Convertible
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Securities") whether or not such Options or the right to convert or
exchange any such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (i) the total amount, if any, received
or receivable by the Corporation as consideration for the granting of such
Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options, plus, in
the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon
the issue or sale of such Convertible Securities and upon the conversion or
exchange thereof, by (ii) the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise of
such Options) shall be less than the Conversion Price in effect immediately
prior to the time of the granting of such Options, then the total maximum
number of shares of Common Stock issuable upon the exercise of such Options
or upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall be
deemed to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except as otherwise provided
in subparagraph 6D(3), no adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock or of such Convertible
Securities upon exercise of such Options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the Corporation
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (i) the total
amount received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
the conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Conversion Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall be deemed to have been issued for
such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph 6D(3), no
adjustment of the Conversion Price shall be made upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible Securities
is made upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or are
to be made pursuant to other provisions of this subparagraph 6D, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
6D(3) Change in Option Price or Conversion Rate. Upon the happening of
any of the following events, namely, if the purchase price provided for in
any Option referred to in subparagraph 6D(1), the additional consideration,
if any, payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 6D(1) or 6D(2), or the rate at which
Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Conversion Price in effect at
the time of such event
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shall forthwith be readjusted to the Conversion Price which would have been
in effect at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time initially
granted, issued or sold, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced; and on the
termination of any such Option or any such right to convert or exchange
such Convertible Securities, the Conversion Price then in effect hereunder
shall forthwith be increased to the Conversion Price which would have been
in effect at the time of such termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
termination, never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the Corporation
(other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
6D(5) Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any Options shall be issued in connection
with the issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good
faith by the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities or (ii) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Stock for the purpose of
this subparagraph 6D.
6E. Certain Issues of Capital Stock Excepted. Anything herein to the
contrary notwithstanding the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance, from and after
the date of filing of these terms of the Preferred Stock, of (i) shares of
capital stock issued upon conversion of convertible notes of the Corporation
issued and outstanding on the date of filing of these terms, (ii) shares of
capital stock issued upon the conversion of any shares of Series A Preferred
Stock
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or Preferred Stock issued and outstanding on the date of filing of these terms,
(iii) shares of capital stock issued upon exercise of options and warrants
issued and outstanding on the date of filing of these terms, plus such number of
shares of capital stock as are subject to such options and warrants that expire
or terminate without exercise, or (iv) up to an aggregate of 2,300,000 shares
(appropriately adjusted to reflect the occurrence of any event described in
subparagraph 6F) of Common Stock, and rights to purchase such stock, to
directors, officers, employees or consultants of the Corporation in connection
with their service as directors of the Corporation, their employment by the
Corporation or their retention as consultants by the Corporation, plus such
number of shares of Common Stock which are repurchased by the Corporation from
any such persons after December 31, 1996 pursuant to contractual rights held by
the Corporation and at repurchase prices not exceeding the respective original
purchase prices paid by such persons to the Corporation therefor, plus such
number of shares of Common Stock as are subject to such purchase rights that
expire or terminate without exercise.
6F. Subdivision of Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionally increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Preferred
Stock shall thereupon have the right to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of Preferred Stock, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interest of such holder to the end
that the provisions hereof (including without limitation provisions for
adjustments of the Conversion Price) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
6H. Notice of Adjustment. Upon any adjustment of the Conversion Price,
then and in each such case the Corporation shall give written notice thereof, by
delivery in person, certified or registered mail, return receipt requested,
telecopier or telex, addressed to each holder of shares of Preferred Stock at
the address of such holder as shown on the books of the Corporation, which
notice shall state the Conversion Price resulting from such adjustment, setting
forth in reasonable detail the method upon which such calculation is based.
6I. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of its
Common Stock;
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(2) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into another entity or entities, or a sale, lease,
abandonment, transfer or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, at
least 20 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up, as the case may be.
6J. Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Preferred Stock as herein provided, such number
of shares of Common Stock as shall then be issuable upon the conversion of all
outstanding shares of Preferred Stock. The Corporation covenants that all shares
of Common Stock which shall be so issued shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, and without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time take all
such action as may be requisite to assure that the par value per share of the
Common Stock is at all times equal to or less than the Conversation Price in
effect at the time. The Corporation will take all such action as may be
necessary to assure that all shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirement of any
national securities exchange upon which the Common Stock may be listed. The
Corporation will not take any action which results in any adjustment of the
Conversion Price if the total number of shares of Common Stock issued and
issuable after such action upon conversion of the Preferred Stock would exceed
the total number of shares of Common Stock then authorized by the Certificate of
Incorporation.
6K. No Reissuance of Preferred Stock. Shares of Preferred Stock which
are converted into shares of Common Stock as provided herein shall not be
reissued.
6L. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Preferred Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Preferred Stock which is being converted.
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6M. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Preferred
Stock in any manner which interferes with the timely conversion of such
Preferred Stock, except as may otherwise be required to comply with applicable
securities laws.
6N. Definition of Common Stock. As used in this paragraph 6, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $.01 per share, as constituted on the date of filing of these term of
the Preferred Stock, and shall also include any capital stock of any class of
the Corporation thereafter authorized which shall not be limited to a fixed sum
or percentage in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided that the
shares of Common Stock receivable upon conversion of shares of Preferred Stock
shall include only shares designated as Common Stock of the Corporation on the
date of filing of this instrument, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in subparagraph 6G.
6O. Mandatory Conversion. If at any time (i) the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which (A) the aggregate price paid for such shares by the public shall be at
least $15,000,000 and (B) the price per share paid by the public for such shares
shall be at least five times the Original Purchase Price of the Series B
Preferred Stock (appropriately adjusted to reflect the occurrence of any event
described in subparagraph 6F) or (ii) the holders of two-thirds of the shares of
Preferred Stock issued pursuant to that certain Convertible Stock Purchase
Agreement dated as of June 18, 1996 have elected to convert such shares into
Common Stock pursuant to paragraph 6A, then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering or such
conversion, as the case may be, all outstanding shares of such Preferred Stock
shall automatically convert to shares of Common Stock on the basis set forth in
this paragraph 6. Holders of shares of Preferred Stock so converted may deliver
to the Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to such
holders) during its usual business hours, the certificate or certificates for
the shares so converted. As promptly as practicable thereafter, the Corporation
shall issue and deliver to such holder a certificate or certificates for the
number of whole shares of Common Stock to which such holder is entitled,
together with any cash dividends and payment in lieu of fractional shares to
which such holder may be entitled pursuant to subparagraph 6C. Until such time
as a holder of shares of Preferred Stock shall surrender his or its certificates
therefor as provided above, such certificates shall be deemed to represent the
shares of Common Stock to which such holder shall be entitled upon the surrender
thereof.
7. Redemption. The shares of Preferred Stock shall be redeemed as follows:
7A. Redemption at the Request of Holders. The Corporation shall not
have the right to call or redeem at any time all or any shares of Preferred
Stock. With the approval of the holders of a majority of the then outstanding
shares of Preferred Stock, one or more holders of shares of Preferred Stock may,
by giving notice (the "Notice") to the Corporation at any time after June 30,
2001 require the Corporation to redeem all of the outstanding Preferred Stock in
three equal installments, with one-third of the shares of outstanding Series B
Preferred Stock and Series C Preferred Stock redeemed on the First Redemption
Date (as defined below), one-half of the remaining shares of Series B Preferred
Stock and Series C Preferred Stock redeemed on the first anniversary of the
First Redemption Date (the "Second Redemption Date") and the remainder of shares
of Series B Preferred Stock and Series C Preferred Stock redeemed on the third
anniversary of the First Redemption Date (the "Third Redemption Date"). Upon
receipt of the Notice, the Corporation will
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so notify all other persons holding Preferred Stock. After receipt of the
Notice, the Corporation shall fix the first date for redemption (the "First
Redemption Date"), provided that such First Redemption Date shall occur within
sixty (60) after receipt of the Notice. All holders of Preferred Stock shall
deliver to the Corporation, or to such other place as may be designated by the
Corporation, during regular business hours the certificate or certificates for
the Preferred Stock on or before the First Redemption Date. The First Redemption
Date, the Second Redemption Date and the Third Redemption Date are collectively
referred to as the "Redemption Dates".
7B. Redemption Price and Payment. The shares of Preferred Stock to be
redeemed on any Redemption Date shall be redeemed by paying for each share in
cash an amount equal to the Original Purchase Price per share plus, in the case
of each share, an amount equal to all dividends declared but unpaid thereon,
computed to such Redemption Date, such amount being referred to as the
"Redemption Price". Such payment shall be made in full on the applicable
Redemption Date to the holders entitled thereto.
7C. Redemption Mechanics. At least 20 but not more than 30 days prior
to each Redemption Date, written notice (the "Redemption Notice") shall be given
by the Corporation by delivery in person, certified or registered mail, return
receipt requested, telecopier or telex, to each holder of record (at the close
of business on the business day next preceding the day on which the Redemption
Notice is given) of shares of Preferred Stock notifying such holder of the
redemption and specifying the Redemption Price, such Redemption Date, and the
place where said Redemption Price shall be payable. The Redemption Notice shall
be addressed to each holder at his address as shown by the records of the
Corporation. From and after the close of business on a Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of shares of Preferred Stock being redeemed (except the right
to receive the Redemption Price) shall cease with respect to the shares to be
redeemed on such Redemption Date, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption of shares of Preferred Stock on a Redemption Date are insufficient to
redeem the total number of shares of Preferred Stock to be redeemed on such
Redemption Date, the holders of such shares shall share ratably in any funds
legally available for redemption of such shares according to the respective
amounts which would be payable to them if the full number of shares to be
redeemed on such Redemption Date were actually redeemed. The shares of Preferred
Stock to be redeemed but not so redeemed shall remain outstanding and entitled
to all rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
such shares of Preferred Stock, such funds will be used, at the end of the next
succeeding fiscal quarter, to redeem the balance of such shares, or such portion
thereof for which funds are then legally available, on the basis set forth
above.
7D. Redeemed or Otherwise Acquired Shares to be Retired. Any shares of
Preferred Stock redeemed pursuant to this paragraph 7 or otherwise acquired by
the Corporation in any manner whatsoever shall be canceled and shall not under
any circumstances be reissued; and the Corporation may from time to time take
such appropriate corporate action as may be necessary to reduce accordingly the
number of authorized shares of the applicable series of Preferred Stock.
7E. Failure to Redeem. If the Corporation shall fail to redeem any
shares of Preferred Stock in the manner set forth in this paragraph 7 within six
months of a Redemption Date then upon the written request (the "Request") of
holders of a majority of the outstanding shares of Preferred Stock (the
"Majority"), the Corporation shall, within thirty (30) days of receipt of the
Request, at the Corporation's expense, engage a third-party investment banking
firm or other agent (the "Agent") acceptable to the Majority for the purpose of
assisting the Corporation in taking such steps as are necessary for the
Corporation to meet its obligations
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under this paragraph 7 (a "Liquidity Event"). The Liquidity Event may be a
merger, sale of assets or other reorganization event or any other type of
transaction which would make available sufficient cash for the Corporation to
effect the requested redemption. If the Corporation shall fail to engage such
Agent within the required thirty (30) day period, the Majority may, at their
election and at the Corporation's expense, engage such Agent. If a Liquidity
Event has not occurred within six months of the date of the Request, the
Majority may, at its election, compel a Liquidity Event by a judgment for
specific performance or other remedies, at law or in equity, by a court of
competent jurisdiction.
8. Amendments. These terms of the Preferred Stock may be amended, modified
or waived only with the written consent or affirmative vote of the holders of at
least fifty-one percent (51%) of the then outstanding shares of Preferred Stock.
IN WITNESS WHEREOF, Allaire Corporation has caused this Certificate of
Designation, Preferences and Rights of Series A Convertible Preferred Stock to
be executed on its behalf by David J. Orfao, its President, this 25th day of
April, 1997.
ALLAIRE CORPORATION
By: /s/ David J. Orfao
------------------------
President
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CERTIFICATE OF AMENDMENT
OF
ALLAIRE CORPORATION
PURSUANT TO SECTION 242 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
Whereas, ALLAIRE CORPORATION, a corporation organized and existing by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), filed its Certificate of Incorporation on April 4, 1997, filed a
Certificate of Merger on April 25, 1997, filed a Certificate of Designations of
Series A Convertible Preferred Stock on April 25, 1997 and filed a Certificate
of Designations of Series B Convertible Preferred Stock and Series C Convertible
Preferred Stock on April 25, 1997 (the "Series B and C Designation"); and
Whereas, the Corporation desires to amend its Certificate of Incorporation
to amend the Series B and C Designation and designate a new series of Preferred
Stock;
Now therefore, the Corporation does hereby certify as follows:
The Board of Directors of the Corporation, acting by unanimous written
consent in accordance with Section 141 of the General Corporation Law of the
State of Delaware, adopted a resolution, pursuant to Section 242 of the General
Corporation Law of the State of Delaware, setting forth an amendment to the
Certificate of Incorporation of the Corporation and declaring said amendment to
be advisable. The stockholders of the Corporation duly approved said proposed
amendment by written consent in accordance with Sections 228 and 242 of the
General Corporation Law of the State of Delaware. The resolution setting forth
the amendment (hereinafter referred to as the "New Designation") is as follows:
Resolved: That the New Designation, be, and it hereby is approved, and the
officers of the Corporation, and each of them, are hereby authorized, for and on
behalf of the Company, to make, execute and file with the Delaware Secretary of
State in the manner required by law, the New Designation, and to execute and
deliver such other instruments and to take such other action as they, or any of
them, may deem necessary or advisable to carry out the purposes of this
resolution.
Now therefore, Part B of Article FOURTH of the Corporation's Certificate of
Incorporation be amended by amending the Series B and C Designation and creating
a new series of Preferred Stock as follows:
1. Designations of Series of Preferred Stock. Of the 5,000,000 shares of
Preferred Stock which the Corporation is authorized to issue under its
Certificate of Incorporation, 514,306 of such shares shall be designated as
shares of Series B Convertible Preferred Stock of the Corporation, par value
$.01 per share (the "Series B Preferred Stock"), 169,200 of such shares shall be
designated as shares of Series C Convertible Preferred Stock of the Corporation,
par value $.01 per share (the "Series C Preferred Stock"), and 2,500,000 of such
shares shall be designated as shares of Series D Convertible Preferred Stock of
the Corporation, par value $.01 per share (the "Series D Preferred Stock" and,
together with the Series B Preferred Stock and the Series C Preferred Stock, the
"Preferred Stock"). Such shares of Preferred Stock, together with the 10,000,000
shares of authorized Common Stock of the Corporation ("Common Stock"), par value
$.01 per share, the 200,000 shares of authorized Series A Convertible Preferred
Stock of the Corporation ("Series A Preferred Stock"), par value $.01 per share,
and the balance of the undesignated shares of Preferred Stock of the Corporation
and any other common stock or preferred stock that may hereafter be authorized
in or pursuant
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to the Certificate of Incorporation of the Corporation, are sometimes
hereinafter collectively referred to as the "capital stock."
2. Voting.
-------
2A. General. Except as may be otherwise provided in these terms of the
Preferred Stock or by law, the Preferred Stock shall vote together with all
other classes and series of stock of the Corporation as a single class on all
actions to be taken by the shareholders of the Corporation, including, but not
limited to actions amending the Certificate of Incorporation of the Corporation
to increase or decrease (but not below the number of outstanding shares) the
number of authorized shares of Common Stock. Each share of Preferred Stock shall
entitle the holder thereof to such number of votes per share on each such action
as shall equal the number of shares of Common Stock (including fractions of a
share) into which such share of Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written consent
or affirmative vote of the holders of at least fifty-one percent (51%) of the
then outstanding shares of Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a class,
increase the maximum number of directors constituting the Board of Directors to
a number in excess of seven.
2C. Election of Directors. So long as any shares of Preferred Stock
are outstanding, (i) the holders of the Preferred Stock, exclusively and voting
as a single class, shall be entitled, by a vote of a majority of voting power of
such shares which are present and entitled to vote on such item of business, to
elect two of the directors of the Corporation and to exercise any right of
removal or replacement of such directors, (ii) the holders of the Common Stock
and the Series A Preferred Stock, exclusively and voting together as a single
class, shall be entitled, by a vote of a majority of the voting power of such
shares which are present and entitled to vote on such item of business, to elect
two of the directors of the Corporation and to exercise any right of removal or
replacement of such directors, and (iii) the remaining three directors of the
Corporation, if any, shall be elected by, and shall be removed or replaced only
by, a vote of both (A) a majority of the voting power of the shares of the
Common Stock and the Series A Preferred Stock, voting together as a single
class, which are present and entitled to vote on such item of business, and (B)
a majority of the voting power of the shares of the Preferred Stock, voting
together as a single class, which are present and entitled to vote on such item
of business.
3. Dividends. The holders of the Preferred Stock shall be entitled to
receive, out of funds legally available therefor, dividends at the same rate and
at the same time as dividends (other than dividends paid in additional shares of
Common Stock) are paid with respect to the Common Stock (treating each share of
Preferred Stock as being equal to the number of shares of Common Stock
(including fractions of a share) into which each share of Preferred Stock is
then convertible).
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, each holder of Preferred Stock
shall be entitled, before any distribution or payment is made upon any stock
ranking on liquidation junior to the Preferred Stock, to be paid with respect to
each such share an amount equal to the greater of (i) the Original Purchase
Price (as defined below) (appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar changes hereafter
effected) of such share plus, in the case of each share, an amount equal to all
dividends declared but unpaid thereon, computed to the date payment thereof is
made available, or (ii) such amount as would have been payable had such share
been converted to Common Stock pursuant to paragraph 6 immediately prior to such
liquidation, dissolution or winding up, and the holders of Preferred Stock shall
not be entitled to any further
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payment, such amount payable with respect to one share of Preferred Stock being
sometimes referred to as the Liquidation Preference Payment and with respect to
all shares of Preferred Stock being sometimes referred to as the Liquidation
Preference Payments. The Original Purchase Price per share shall be $4.52 in
the case of the Series B Preferred Stock, $5.91 in the case of the Series C
Preferred Stock and $4.00 in the case of the Series D Preferred Stock. If upon
such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Preferred Stock shall be insufficient to permit payment to the holders of
Preferred Stock of the amount distributable as aforesaid, then the entire assets
of the Corporation to be so distributed shall be distributed pro rata among the
holders of Preferred Stock in accordance with the respective amounts which would
have been distributed to such holders if such assets had been sufficient to make
the Liquidation Preference Payments in full. Upon any such liquidation,
dissolution or winding up of the Corporation, after the holders of Preferred
Stock shall have been paid in full the amounts to which they shall be entitled,
the remaining net assets of the Corporation may be distributed to the holders of
stock ranking on liquidation junior to the Preferred Stock. Written notice of
such liquidation, dissolution or winding up, stating a payment date, the amount
of the Liquidation Preference Payments and the place where said Liquidation
Preference Payments shall be payable, shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, not less than 20 days prior to the payment date stated therein, to the
holders of record of Preferred Stock, such notice to be addressed to each such
holder at its address as shown by the records of the Corporation. The
consolidation or merger of the Corporation into or with any other entity or
entities as a result of which shareholders of the Corporation immediately before
the transaction own less than a majority of the successor or surviving
corporation immediately thereafter, or the sale, lease, abandonment, transfer or
other disposition by the Corporation of all or substantially all its assets,
shall be deemed to be a liquidation, dissolution or winding up of the
Corporation within the meaning of the provisions of this paragraph 4. For
purposes hereof, the Common Stock shall rank on liquidation junior to the
Preferred Stock and the Series A Preferred Stock shall rank on a parity with the
Preferred Stock.
5. Restrictions. At any time when at least 25% of the shares of Preferred
Stock are outstanding, except where the vote or written consent of the holders
of a greater number of shares of the Corporation is required by law or by the
Certificate of Incorporation and in addition to any other vote required by law
or the Certificate of Incorporation, without the approval of the holders of at
least fifty-one percent (51%) of the then outstanding shares of Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a class (such that the Series B, Series C and the Series D
Preferred Stock vote together as a single class), the Corporation will not:
5A. Create or authorize the creation of any additional class or series
of shares of stock ranking senior to the Preferred Stock as to the distribution
of assets on the liquidation, dissolution or winding up of the Corporation (such
senior stock referred to herein as Senior Stock ), or increase the authorized
amount of any existing class or series of shares of Senior Stock, or create or
authorize any obligation or security convertible into shares of Senior Stock or
into shares of any other class or series of Senior Stock, or change the terms of
any existing class or series of shares of Senior Stock unless, following such
change, such series or class shall no longer be Senior Stock, whether any such
creation, authorization, increase or change shall be by means of amendment to
the Certificate of Incorporation or by merger, consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merge into or with any other entity or entities
(except any consolidation or merger in which the shareholders of the Corporation
immediately prior to such consolidation or merger continue to own a majority of
the outstanding capital stock of the surviving corporation immediately after
such consolidation or merger) or sell, lease, abandon, transfer or otherwise
dispose of all or substantially all or any substantial portion of its assets;
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5C. Amend, alter or repeal its Certificate of Incorporation to effect
amendments or alterations whose effect would be (i) to change in any manner the
rights, preferences or privileges of any series of Preferred Stock; (ii)
detrimental or adverse in any manner with respect to the rights of holders of
any series of Preferred Stock, or (iii) to amend this paragraph 5;
5D. Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any equity securities of the Corporation
other than the Preferred Stock, except for dividends or other distributions
payable on the Common Stock solely in the form of additional shares of Common
Stock and except for the purchase of shares of Common Stock from former
employees of the Corporation who acquired such shares directly from the
Corporation, if each such purchase is made pursuant to contractual rights held
by the Corporation relating to the termination of employment of such former
employee or pursuant to any rights of first refusal upon transfers of any
capital stock;
5E. Redeem or otherwise acquire any shares of Preferred Stock except
as expressly authorized in paragraph 7 hereof or pursuant to a purchase offer
made pro rata to all holders of the shares of Preferred Stock on the basis of
the aggregate Original Purchase Price of the Preferred Stock then held by each
such holder.
6. Conversions. The holders of shares of Preferred Stock shall have the
following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
paragraph 6, any holder of shares of Preferred Stock shall have the right, at
its option at any time, to convert each such share of Preferred Stock (except
that upon any liquidation of the Corporation the right of conversion shall
terminate at the close of business on the business day fixed for payment of the
amount distributable on the Preferred Stock) into such number of fully paid and
nonassessable shares of Common Stock as is obtained by dividing the Original
Purchase Price of such share by the conversion price of such share (which
conversion price in the case of each share of the Series B Preferred Stock and
Series C Preferred Stock initially shall be one-half of the Original Purchase
Price of such share, and in the case of the Series D Preferred Stock initially
shall be the Original Purchase Price of such share) or, in case an adjustment of
such price has taken place pursuant to the further provisions of this paragraph
6, then by the conversion price as last adjusted and in effect at the date any
share or shares of Preferred Stock are surrendered for conversion (in each case
such price, or such price as last adjusted, being referred to as the Conversion
Price ). Such rights of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Preferred Stock into Common Stock and by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Preferred
Stock) at any time during its usual business hours on the date set forth in such
notice, together with a statement or the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be issued.
6B. Issuance of Certificates: Time Conversion Effected. Promptly after
the receipt of the written notice referred to in subparagraph 6A and surrender
of the certificate or certificates for the share or shares of Preferred Stock to
be converted, the Corporation shall issue and deliver, or cause to be issued and
delivered, to the holder, registered in such name or names as such holder may
direct, a certificate or certificates for the number of whole shares of Common
Stock issuable upon the conversion of such share or shares of Preferred Stock.
To the extent permitted by law, such conversion shall be deemed to have been
effected and the Conversion Price shall be determined as of the close of
business on the date on which such written notice
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shall have been received by the Corporation and the certificate or certificates
for such share or shares shall have been surrendered as aforesaid, and at such
time the rights of the holder of such share or shares of Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Preferred Stock into Common Stock and
no payment or adjustment shall be made upon any conversion on account of any
cash dividends on the Common Stock issued upon such conversion. At the time of
each conversion, and to the extent the Corporation has funds legally available
therefor, the Corporation shall pay in cash an amount equal to all dividends
accrued and unpaid on the shares of Preferred Stock surrendered for conversion
to the date upon which such conversion is deemed to take place as provided in
subparagraph 6B. In case the number of shares of Preferred Stock represented by
the certificate or certificates surrendered pursuant to subparagraph 6A exceeds
the number of shares converted, the Corporation shall, upon such conversion,
execute and deliver to the holder, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Preferred Stock
represented by the certificate or certificates surrendered which are not to be
converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this subparagraph 6C, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Preferred Stock for conversion an amount in
cash equal to the current market price of such fractional share as determined in
good faith by the Board of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Conversion Price in effect immediately prior to the time of such
issue or sale, then, forthwith upon such issue or sale, the Conversion Price
shall be reduced concurrently with such issue to the price (calculated to the
nearest cent) determined by dividing (i) an amount equal to the sum of (a) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale (which shall be deemed to include all shares of Common Stock issuable upon
the conversion of all outstanding convertible securities of the Corporation,
including the Series A Preferred Stock and the Preferred Stock) multiplied by
the then existing Conversion Price and (b) the consideration, if any, received
by the Corporation upon such issue or sale, by (ii) the total number of shares
of Common Stock (which shall be deemed to include all shares of Common Stock
issuable upon the conversion of all outstanding convertible securities of the
Corporation, including the Series A Preferred Stock and the Preferred Stock)
outstanding immediately after such issue or sale.
Notwithstanding anything contained herein to the contrary, the holder of
any shares of Preferred Stock shall not be entitled to the benefits of this
subparagraph 6D if such holder has failed to participate in any particular
offering by the Corporation of shares of any class or series of its capital
stock, however designated (or other securities, whether debt or equity,
convertible into or exchangeable for any class or series of capital stock, or
any warrants, options, subscriptions or other purchase rights with options,
subscriptions or other purchase rights with respect thereto), the issuance of
shares pursuant to which would result in an adjustment to the Conversion Price
pursuant to this subparagraph 6D (a Dilutive Offering ), by acquiring in such
Dilutive Offering at least such number of shares actually offered in the
Dilutive Offering to all holders of Preferred Stock, as determined by the Board
of Directors of the Corporation, multiplied by a fraction: (a) the numerator of
which is the number of shares of Preferred Stock held by such holder at the time
of such Dilutive Offering, and (b) the denominator of which is the
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total number of shares of Preferred Stock then outstanding (the Pro Rata Share).
If any holder of Preferred Stock shall fail to purchase its Pro Rata Share of
any Dilutive Offering, then the Conversion Price of the Preferred Stock held by
such holder will not be reduced in accordance with the foregoing provision of
this Section, and instead the shares of Preferred Stock held by such holder will
be converted automatically and without further action on the part of such holder
into Common Stock at the Conversion Price in effect immediately prior to the
issuance of shares in the Dilutive Offering. The provisions of this second
paragraph of subparagraph 6D may be waived in any instance (without the
necessity of convening any meeting of shareholders of the Corporation) upon the
written consent of the holders of a majority of the outstanding shares of
Preferred Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1) to
6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by assumption in
a merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called Options and such convertible or exchangeable
stock or securities being called Convertible Securities ) whether or not
such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale
of such Convertible Securities and upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be
less than the Conversion Price in effect immediately prior to the time of
the granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon conversion
or exchange of the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed to have been
issued for such price per share as of the date of granting of such Options
or the issuance of such Convertible Securities and thereafter shall be
deemed to be outstanding. Except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock or of such Convertible Securities upon exercise
of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the Corporation
shall in any manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (i) the total
amount received or receivable by the Corporation as consideration for the
issue or sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Corporation upon
the conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion
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or exchange of all such Convertible Securities) shall be less than the
Conversion Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities shall be deemed
to have been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to be
outstanding, provided that (a) except as otherwise provided in subparagraph
6D(3), no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such Convertible
Securities and (b) if any such issue or sale of such Convertible Securities
is made upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or are
to be made pursuant to other provisions of this subparagraph 6D, no further
adjustment of the Conversion Price shall be made by reason of such issue or
sale.
6D(3) Change in Option Price or Conversion Rate. Upon the happening of
any of the following events, namely, if the purchase price provided for in
any Option referred to in subparagraph 6D(1), the additional consideration,
if any, payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph 6D(1) or 6D(2), or the rate at which
Convertible Securities referred to in subparagraph 6D(1) or 6D(2) are
convertible into or exchangeable for Common Stock shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), the Conversion Price in effect at
the time of such event shall forthwith be readjusted to the Conversion
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is thereby
reduced; and on the termination of any such Option or any such right to
convert or exchange such Convertible Securities, the Conversion Price then
in effect hereunder shall forthwith be increased to the Conversion Price
which would have been in effect at the time of such termination had such
Option or Convertible Securities, to the extent outstanding immediately
prior to such termination, never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the Corporation
(other than the Common Stock) payable in Common Stock, Options or
Convertible Securities, then any Common Stock, Options or Convertible
Securities, as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued or sold without
consideration.
6D(5) Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. In case any Options shall be issued in connection
with the issue and sale of other securities of the Corporation, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good
faith by the Board of Directors of the Corporation.
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6D(6) Record Date. In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to
receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities or (ii) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
6D(7) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares
shall be considered an issue or sale of Common Stock for the purpose of
this subparagraph 6D.
6E. Certain Issues of Capital Stock Excepted. Anything herein to the
contrary notwithstanding the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance, from and after
the date of filing of these terms of the Preferred Stock, of (i) shares of
capital stock issued upon conversion of convertible notes of the Corporation
issued and outstanding on the date of filing of these terms, (ii) shares of
capital stock issued upon the conversion of any shares of Series A Preferred
Stock or Preferred Stock issued and outstanding on the date of filing of these
terms or issuable upon exercise of warrants issued and outstanding on the date
of filing of these terms, (iii) shares of capital stock issued upon exercise of
rights, options and warrants issued and outstanding or otherwise in existence on
the date of filing of these terms, (iv) shares of Common Stock, and options or
other rights to purchase such stock, to directors, officers, employees or
consultants of the Corporation in connection with their service as directors of
the Corporation, their employment by the Corporation or their retention as
consultants by the Corporation, provided that such Common Stock, options and
other rights are granted with the approval of the Compensation Committee of the
Company's Board of Directors or, if there is no Compensation Committee, by the
Company's Board of Directors, or (v) such number of shares of Common Stock which
are repurchased by the Corporation from any employees pursuant to contractual
rights held by the Corporation and at repurchase prices not exceeding the
respective original purchase prices paid by such persons to the Corporation
therefor.
6F. Subdivision of Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionally increased. In the case of any such subdivision, no further
adjustment shall be made pursuant to subparagraph 6D(4) by reason thereof.
6G. Reorganization or Reclassification. If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Preferred
Stock shall thereupon have the right to receive, upon the basis and upon the
terms and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of Preferred Stock, such shares of stock, securities or assets as may be issued
or payable with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case appropriate
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provisions shall be made with respect to the rights and interest of such holder
to the end that the provisions hereof (including without limitation provisions
for adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of such conversion rights.
6H. Notice of Adjustment. Upon any adjustment of the Conversion Price,
then and in each such case the Corporation shall give written notice thereof, by
delivery in person, certified or registered mail, return receipt requested,
telecopier or telex, addressed to each holder of shares of Preferred Stock at
the address of such holder as shown on the books of the Corporation, which
notice shall state the Conversion Price resulting from such adjustment, setting
forth in reasonable detail the method upon which such calculation is based.
6I. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of its
Common Stock;
(2) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(3) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into another entity or entities, or a sale, lease,
abandonment, transfer or other disposition of all or substantially all its
assets; or
(4) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by delivery
in person, certified or registered mail, return receipt requested, telecopier or
telex, addressed to each holder of any shares of Preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, disposition, dissolution, liquidation or winding up, at
least 20 days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause (a) shall also specify, in
the case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, disposition, dissolution, liquidation
or winding up, as the case may be.
6J. Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Preferred Stock as herein provided, such number
of shares of Common Stock as shall then be issuable upon the conversion of all
outstanding shares of Preferred Stock. The Corporation covenants that all shares
of Common Stock which shall be so issued shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, and without limiting the generality of the
foregoing, the
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Corporation covenants that it will from time to time take all such action as may
be requisite to assure that the par value per share of the Common Stock is at
all times equal to or less than the Conversation Price in effect at the time.
The Corporation will take all such action as may be necessary to assure that all
shares of Common Stock may be so issued without violation of any applicable law
or regulation, or of any requirement of any national securities exchange upon
which the Common Stock may be listed. The Corporation will not take any action
which results in any adjustment of the Conversion Price if the total number of
shares of Common Stock issued and issuable after such action upon conversion of
the Preferred Stock would exceed the total number of shares of Common Stock then
authorized by the Certificate of Incorporation.
6K. No Reissuance of Preferred Stock. Shares of Preferred Stock which
are converted into shares of Common Stock as provided herein shall not be
reissued.
6L. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Preferred Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereof, provided that the Corporation
shall not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the holder of the Preferred Stock which is being converted.
6M. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Preferred
Stock in any manner which interferes with the timely conversion of such
Preferred Stock, except as may otherwise be required to comply with applicable
securities laws.
6N. Definition of Common Stock. As used in this paragraph 6, the term
Common Stock shall mean and include the Corporation's authorized Common Stock,
par value $.01 per share, as constituted on the date of filing of these term of
the Preferred Stock, and shall also include any capital stock of any class of
the Corporation thereafter authorized which shall not be limited to a fixed sum
or percentage in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; provided that the
shares of Common Stock receivable upon conversion of shares of Preferred Stock
shall include only shares designated as Common Stock of the Corporation on the
date of filing of this instrument, or in case of any reorganization or
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in subparagraph 6G.
6O. Mandatory Conversion. If at any time (i) the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which (A) the aggregate price paid for such shares by the public shall be at
least $15,000,000 and (B) the price per share paid by the public for such shares
shall be at least two and one-half times the Original Purchase Price of the
Series B Preferred Stock (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F) or (ii) the holders of two-thirds of the
shares of Preferred Stock have elected to convert such shares into Common Stock
pursuant to paragraph 6A, then effective upon the closing of the sale of such
shares by the Corporation pursuant to such public offering or such conversion,
as the case may be, all outstanding shares of such Preferred Stock shall
automatically convert to shares of Common Stock on the basis set forth in this
paragraph 6. Holders of shares of Preferred Stock so converted may deliver to
the Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to such
holders) during its usual business hours, the certificate or certificates for
the shares so converted. As promptly as practicable thereafter, the Corporation
shall issue and deliver to such holder a certificate or certificates for the
number of whole shares of Common Stock to which such holder is entitled,
together with any cash dividends and payment
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in lieu of fractional shares to which such holder may be entitled pursuant to
subparagraph 6C. Until such time as a holder of shares of Preferred Stock shall
surrender his or its certificates therefor as provided above, such certificates
shall be deemed to represent the shares of Common Stock to which such holder
shall be entitled upon the surrender thereof.
7. Redemption. The shares of Preferred Stock shall be redeemed as
follows:
7A. Redemption at the Request of Holders. The Corporation shall not
have the right to call or redeem at any time all or any shares of Preferred
Stock. With the approval of the holders of a majority of the then outstanding
shares of Preferred Stock, one or more holders of shares of Preferred Stock may,
by giving notice (the Notice ) to the Corporation at any time after June 1, 2002
require the Corporation to redeem all of the outstanding Preferred Stock in
three equal installments, with one-third of the shares of outstanding Preferred
Stock redeemed on the First Redemption Date (as defined below), one-half of the
remaining shares of Preferred Stock redeemed on the first anniversary of the
First Redemption Date (as to such redemption, the Second Redemption Date ) and
the remainder of shares of Preferred Stock redeemed on the third anniversary of
the First Redemption Date (as to such redemption, the Third Redemption Date ).
Upon receipt of any Notice, the Corporation will so notify all other persons
holding Preferred Stock. After receipt of any Notice, the Corporation shall fix
the first date for redemption to which the Notice relates (the First Redemption
Date ), provided that such First Redemption Date shall occur within sixty (60)
days after receipt of such Notice. All holders of Preferred Stock shall deliver
to the Corporation, or to such other place as may be designated by the
Corporation, during regular business hours the certificate or certificates for
the Preferred Stock on or before the First Redemption Date. The First Redemption
Date, Second Redemption Date and Third Redemption Date are collectively referred
to as the Redemption Dates.
7B. Redemption Price and Payment. The shares of Preferred Stock to
be redeemed on any Redemption Date shall be redeemed by paying for each share in
cash an amount equal to the Original Purchase Price per share plus, in the case
of each share, an amount equal to all dividends declared but unpaid thereon,
computed to such Redemption Date, such amount being referred to as the
Redemption Price. Such payment shall be made in full on the applicable
Redemption Date to the holders entitled thereto.
7C. Redemption Mechanics. At least 20 but not more than 30 days
prior to each Redemption Date, written notice (the Redemption Notice ) shall be
given by the Corporation by delivery in person, certified or registered mail,
return receipt requested, telecopier or telex, to each holder of record (at the
close of business on the business day next preceding the day on which the
Redemption Notice is given) of shares of Preferred Stock notifying such holder
of the redemption and specifying the Redemption Price, such Redemption Date, and
the place where said Redemption Price shall be payable. The Redemption Notice
shall be addressed to each holder at his address as shown by the records of the
Corporation. From and after the close of business on a Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of shares of Preferred Stock being redeemed (except the right
to receive the Redemption Price) shall cease with respect to the shares to be
redeemed on such Redemption Date, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption of shares of Preferred Stock to be redeemed on any Redemption Date
are insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such Redemption Date, the holders of such shares shall share ratably
in any funds legally available for redemption of such shares according to the
respective amounts which would be payable to them if the full number of shares
to be redeemed on such Redemption Date were actually redeemed. The shares of
Preferred Stock to be redeemed but not so redeemed shall remain outstanding and
entitled to all rights and preferences provided herein. At any time thereafter
when additional funds of the Corporation are
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<PAGE>
legally available for the redemption of such shares of Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above.
7D. Redeemed or Otherwise Acquired Shares to be Retired. Any shares
of Preferred Stock redeemed pursuant to this paragraph 7 or otherwise acquired
by the Corporation in any manner whatsoever shall be canceled and shall not
under any circumstances be reissued; and the Corporation may from time to time
take such appropriate corporate action as may be necessary to reduce accordingly
the number of authorized shares of the applicable series of Preferred Stock.
7E. Failure to Redeem. If the Corporation shall fail to redeem any
shares of Preferred Stock in the manner set forth in this paragraph 7 within six
months of a Redemption Date upon which such shares were to be redeemed then upon
the written request (the Request ) of holders of a majority of the outstanding
shares of Preferred Stock (the Majority ), the Corporation shall, within thirty
(30) days of receipt of the Request, at the Corporation's expense, engage a
third-party investment banking firm or other agent (the Agent ) acceptable to
the Majority for the purpose of assisting the Corporation in taking such steps
as are necessary for the Corporation to meet its obligations under this
paragraph 7 (a Liquidity Event ). The Liquidity Event may be a merger, sale of
assets or other reorganization event or any other type of transaction which
would make available sufficient cash for the Corporation to effect the requested
redemption. If the Corporation shall fail to engage such Agent within the
required thirty (30) day period, the Majority may, at their election and at the
Corporation's expense, engage such Agent. If a Liquidity Event has not occurred
within six months of the date of the Request, the Majority may, at its election,
compel a Liquidity Event by a judgment for specific performance or other
remedies, at law or in equity, by a court of competent jurisdiction.
8. Amendments. These terms of the Preferred Stock may be amended, modified
or waived only with the written consent or affirmative vote of the holders of at
least fifty-one percent (51%) of the then outstanding shares of Preferred Stock.
IN WITNESS WHEREOF, Allaire Corporation has caused this Certificate of
Amendment to the Certificate of Incorporation which amends Article Fourth, Part
B pertaining to the Preferences and Rights of Series B Convertible Preferred
Stock and Series C Convertible Preferred Stock and adds Certificate of
Designations, Preferences and Rights of Series D Convertible Preferred Stock, to
be executed on its behalf by David J. Orfao, its President, this 14th day of
May, 1997.
ALLAIRE CORPORATION
By: /s/ David J. Orfao
------------------------
President
Certificate of Amendment
Of
Certificate of Incorporation
Of
Allaire Corporation
Allaire Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
FIRST: That by a Consent of the Directors of the Corporation dated as
of , resolutions were duly adopted proposing and
declaring advisable that the Certificate of Incorporation of
the Corporation be amended and that such amendment be
submitted to the stockholders of the Corporation for their
consideration, as follows:
RESOLVED: That the Board of Directors of the
Corporation recommends and deems it
advisable that the Certificate of
Incorporation of the Corporation, as
heretofore amended, be further amended by
deleting the first paragraph of Article
Fourth in its entirety and substituting
therefor a new paragraph as follows:
"FOURTH: The total number of shares
of all classes of capital stock which the
Corporation shall have authority to issue
shall be 40,000,000, consisting of (i)
35,000,000 shares of common stock, par
value $.01 per share ("Common Stock"), and
(ii) 5,000,000 shares of preferred stock,
par value $.01 per share ("Preferred
Stock")."
RESOLVED: That the aforesaid proposed amendment be
submitted to the stockholders of the
Corporation for their consideration.
RESOLVED: That following the approval by the
stockholders of the aforesaid proposed
amendment as required by law, the officers
of the Corporation be, and they hereby are,
and each of them acting singly hereby is,
authorized and directed (i) to prepare,
execute and file with the Secretary of
State of the State of Delaware a
Certificate of Amendment setting forth the
aforesaid amendment in the form approved by
the
<PAGE>
stockholders and (ii) to take any and all
other actions necessary, desirable or
convenient to give effect to the aforesaid
amendment or otherwise to carry out the
purposes of the foregoing resolutions.
SECOND: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 228 and Section 242
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Allaire Corporation has caused this certificate to
be executed on its behalf by David J. Orfao, its President, this ___ day of
__________, 1999.
ALLAIRE CORPORATION
By:_________________________________
President
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Proposed Form of
Amended and Restated
Certificate of Incorporation
Of
Allaire Corporation
Allaire Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
1. The Corporation filed its original Certificate of Incorporation with the
Secretary of State of Delaware on April 4, 1997. The Corporation filed a
Certificate of Merger on April 25, 1997. The Corporation filed a Certificate of
Designations, Preferences and Rights of Series A Convertible Preferred Stock on
April 25, 1997 and a Certificate of Designations, Preferences and Rights of
Series B Convertible Preferred Stock and Series C Convertible Preferred Stock on
April 25, 1997. The Certificate of Incorporation was amended by a Certificate of
Amendment of Certificate of Incorporation filed on May 15, 1997 and a
Certificate of Amendment of Certificate of Incorporation filed on
__________ __, 1999.
2. The following Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions set forth in Sections 242 and 245
of the General Corporation Law of the State of Delaware:
FIRST: The name of the corporation is Allaire Corporation (the
"Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, Wilmington, Delaware, County of New
Castle, and the name of its registered agent at such address is Corporation
Trust Company.
THIRD: The nature of the business or purposes to be conducted or promoted
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.
FOURTH: The total number of shares of all classes of capital stock which
the Corporation shall have authority to issue shall be 40,000,000, consisting of
(i) 35,000,000 shares of common stock, par value $.01 per share ("Common
Stock"), and (ii) 5,000,000 shares of preferred stock, par value $.01 per share
("Preferred Stock").
The following is a statement of the designations and the powers, privileges
and rights, and the qualifications, limitations or restrictions thereof in
respect of each class of capital stock of the Corporation:
A. COMMON STOCK.
-------------
1. General. The voting, dividend and liquidation rights of the holders of
the Common Stock are subject to and qualified by the rights of the holders of
the Preferred Stock of any series as may be designated by the Board of Directors
upon any issuance of the Preferred Stock of any series.
2. Voting. The holders of Common Stock will be entitled to one vote per
share on all matters to be voted on by the stockholders of the Corporation.
There shall be no cumulative voting.
<PAGE>
3. Dividends. Dividends may be declared and paid on the Common Stock from
funds lawfully available therefor as and when determined by the Board of
Directors and subject to any preferential dividend rights of any then
outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the Corporation,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Corporation available for distribution to its
stockholders, subject to any preferential liquidation rights of any then
outstanding Preferred Stock.
B. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series, each
of such series to have such terms as stated or expressed herein and in the
resolution or resolutions providing for the issue of such series adopted by the
Board of Directors of the Corporation as hereinafter provided. No share of
Preferred Stock that is redeemed, purchased or acquired by the Corporation may
be reissued except as otherwise provided herein or by law. Different series of
Preferred Stock shall not be construed to constitute different classes of shares
for the purposes of voting by classes unless expressly provided herein, in any
such resolution or resolutions, or by law.
Authority is hereby expressly granted to the Board of Directors from time
to time to issue the Preferred Stock in one or more series, and in connection
with the creation of any such series, by resolution or resolutions providing for
the issue of the shares thereof, to determine and fix such voting powers, full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, including without limitation thereof, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as shall
be stated and expressed in such resolutions, all to the full extent now or
hereafter permitted by the General Corporation Law of Delaware. Without limiting
the generality of the foregoing, the resolutions providing for issuance of any
series of Preferred Stock may provide that such series shall be superior or rank
equally or be junior to the Preferred Stock of any other series to the extent
permitted by law. Except as otherwise provided by law or by this Certificate of
Incorporation, no vote of the holders of the Preferred Stock or Common Stock
shall be a prerequisite to the issuance of any shares of any series of the
Preferred Stock authorized by and complying with the conditions of the
Certificate of Incorporation, the right to have such vote being expressly waived
by all present and future holders of the capital stock of the Corporation.
FIFTH: In furtherance of and not in limitation of powers conferred by
statute, it is further provided that:
(a) The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors.
(b) Elections of directors need not be by written ballot unless, and
only to the extent, otherwise provided in the By-Laws.
(c) The Board of Directors is expressly authorized to adopt, alter,
amend or repeal the By-Laws of the Corporation.
(d) Subject to any applicable requirements of law, the books of the
Corporation may be kept outside the State of Delaware at such locations as may
be designated by the Board of Directors or in the By-Laws of the Corporation.
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<PAGE>
(e) The Board of Directors may from time to time determine whether, to
what extent, at what times and places and under what conditions and regulations
the accounts, books and records of the Corporation, or any of them, shall be
open to the inspection of the stockholders, and no stockholder shall have any
right to inspect any account, book or document of the Corporation except as and
to the extent expressly provided by law or expressly authorized by resolution of
the Board of Directors.
(f) Except as provided to the contrary in the provisions establishing
a class of stock, the number of authorized shares of such class may be increased
or decreased (but not below the number of shares thereof then outstanding) by
the affirmative vote of a majority of the stock of the Corporation entitled to
vote, voting as a single class.
(g) The number of Directors shall be fixed from time to time by or in
the manner provided in the Corporation's By-laws, as amended or restated from
time to time.
(h) Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or special meeting
of such holders and may not be effected by any consent in writing by such
holders. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by law or by this Certificate of Incorporation, may
be called by the Chairman of the Board of Directors or the President and shall
be called by the President or Secretary at the request in writing of a majority
of the Board of Directors. Such request shall state the purpose or purposes of
the proposed meeting and business to be transacted at any special meeting of the
stockholders.
(i) In addition to the powers and authority herein or by law expressly
conferred upon them, the directors are hereby empowered to exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the laws of the State
of Delaware, this Certificate of Incorporation and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws hereafter adopted by the
stockholders shall invalidate any prior act of the directors which would have
been valid if such By-Laws had not been adopted.
SIXTH: The following provisions shall apply with respect to the
indemnification of, and advancement of expenses to, certain parties as set forth
below:
A. INDEMNIFICATION.
1. Proceedings Other than by or in the Right of the Corporation. The
Corporation shall indemnify each 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
such person is or was, or has agreed to become, a director or officer of the
Corporation, or is or was serving or has agreed to serve, at the request of the
Corporation, as a director, officer or trustee of, or in a similar capacity
with, another corporation (including any partially or wholly owned subsidiary of
the Corporation), partnership, joint venture, trust or other enterprise
(including any employee benefit plan) (each of such persons being referred to as
an "Indemnitee"), or by reason of any action alleged to have been taken or
omitted in such capacity, against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
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<PAGE>
by the Indemnitee or on the Indemnitee's behalf in connection with such action,
suit or proceeding and any appeal therefrom, if (A) the Indemnitee acted in good
faith and in a manner the Indemnitee reasonably believed to be in, or not
opposed to, the best interests of the Corporation and (B) with respect to any
criminal action or proceeding, the Indemnitee had no reasonable cause to believe
the Indemnitee's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the Indemnitee did not act in good faith, did not act in a manner that the
Indemnitee reasonably believed to be in, or not opposed to, the best interests
of the Corporation or, with respect to any criminal action or proceeding, did
not have reasonable cause to believe that the Indemnitee's conduct was unlawful.
Notwithstanding anything to the contrary in this Article SIXTH, except as set
forth in Section C.2. of this Article SIXTH, the Corporation shall not indemnify
an Indemnitee seeking indemnification in connection with a proceeding (or part
thereof) initiated by the Indemnitee unless the initiation thereof was approved
by the board of directors of the Corporation.
2. Proceedings by or in the Right of the Corporation. The Corporation shall
indemnify any Indemnitee 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 the Corporation's favor by reason of
the fact that the Indemnitee is or was, or has agreed to become, a director or
officer of the Corporation, or is or was serving as a director, officer or
trustee of, or in a similar capacity with, another corporation (including any
partially or wholly owned subsidiary of the Corporation), partnership, joint
venture, trust or other enterprise (including any employee benefit plan), or by
reason of any action alleged to have been taken or omitted in such capacity,
against all expenses (including attorneys' fees) and amounts paid in settlement
actually and reasonably incurred by the Indemnitee or on the Indemnitee's behalf
in connection with such action, suit or proceeding and any appeal therefrom, if
the Indemnitee acted in good faith and in a manner the Indemnitee reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which the Indemnitee shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery of Delaware
shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses (including
attorneys' fees) that the Court of Chancery of the State of Delaware shall deem
proper.
3. Expenses of Successful Indemnitee. Notwithstanding any other provision
of this Article SIXTH, to the extent that an Indemnitee has been successful, on
the merits or otherwise (including a disposition without prejudice), in defense
of any action, suit or proceeding referred to in Section A.1. or 2. of this
Article SIXTH, or in defense of any claim, issue or matter therein, or on appeal
from any such action, suit or proceeding, the Indemnitee shall be indemnified
against all expenses (including attorneys' fees) actually and reasonably
incurred by the Indemnitee or on the Indemnitee's behalf in connection
therewith. Without limiting the foregoing, if any action, suit or proceeding is
disposed of, on the merits or otherwise (including a disposition without
prejudice), without (A) the disposition being adverse to the Indemnitee, (B) an
adjudication that the Indemnitee was liable to the Corporation, (C) a plea of
guilty or nolo contendere by the Indemnitee, (D) an adjudication that the
Indemnitee did not act in good faith and in a manner the Indemnitee reasonably
believed to be in, or not opposed to, the best interests of the Corporation, and
(E) with respect to any criminal proceeding, an adjudication that the Indemnitee
had reasonable cause to believe the Indemnitee's conduct was unlawful, the
Indemnitee shall be considered for the purposes hereof to have been wholly
successful with respect thereto.
4. Partial Indemnification. If any Indemnitee is entitled under any
provision of this Section A. to indemnification by the Corporation for a
portion, but not all, of the expenses (including attorneys' fees), judgments,
fines or amounts paid in settlement actually and reasonably incurred by the
Indemnitee or on the
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<PAGE>
Indemnitee's behalf in any appeal therefrom, the Corporation shall indemnify the
Indemnitee for the portion of such expenses (including attorneys' fees),
judgments, fines or amounts paid in settlement to which the Indemnitee is
entitled.
B. ADVANCEMENT OF EXPENSES.
------------------------
Subject to Section C.2. of this Article SIXTH, in the event that the
Corporation does not assume a defense pursuant to Section C.1. of this Article
SIXTH of any action, suit, proceeding or investigation of which the Corporation
receives notice under this Article SIXTH, any expenses (including attorneys'
fees) incurred by an Indemnitee in defending a civil or criminal action, suit,
proceeding or investigation or any appeal therefrom shall be paid by the
Corporation in advance of the final disposition of such matter; provided,
however, that the payment of such expenses incurred by an Indemnitee in advance
of the final deposition of such matter shall be made only upon receipt of an
undertaking by or on behalf of the Indemnitee to repay all amounts so advanced
in the event that it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified by the Corporation as authorized in this Article
SIXTH. Any such undertaking by an Indemnitee shall be accepted without reference
to the financial ability of the Indemnitee to make such repayment.
C. PROCEDURES.
-----------
1. Notification and Defense of Claim. As a condition precedent to any
Indemnitee's right to be indemnified, the Indemnitee must promptly notify the
Corporation in writing of any action, suit, proceeding or investigation
involving the Indemnitee for which indemnity will or may be sought. With respect
to any action, suit, proceeding or investigation of which the Corporation is so
notified, the Corporation will be entitled to participate therein at its own
expense and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Indemnitee; provided that the Corporation
shall not be entitled, without the consent of the Indemnitee, to assume the
defense of any claim brought by or in the right of the Corporation or as to
which counsel for the Indemnitee shall have reasonably concluded that there may
be a conflict of interest or position on any significant issue between the
Corporation and the Indemnitee in the conduct of the defense of such claim.
After notice from the Corporation to the Indemnitee of its election so to assume
such defense, the Corporation shall not be liable to the Indemnitee for any
legal or other expenses subsequently incurred by the Indemnitee in connection
with such claim, other than as provided in this Section C.1. The Indemnitee
shall have the right to employ the Indemnitee's own counsel in connection with
such claim, but the fees and expenses of such counsel incurred after notice from
the Corporation of its assumption of the defense thereof shall be at the expense
of the Indemnitee unless (A) the employment of counsel by the Indemnitee has
been authorized by the Corporation, (B) counsel to the Indemnitee has reasonably
concluded that there may be a conflict of interest or position on any
significant issue between the Corporation and the Indemnitee in the conduct of
the defense of such action or (C) the Corporation has not in fact employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of counsel for the Indemnitee shall be at the expense of the
Corporation except as otherwise expressly provided by this Article SIXTH.
2. Requests and Payment. In order to obtain indemnification or advancement
of expenses pursuant to this Article SIXTH, an Indemnitee shall submit to the
Corporation a written request therefor, which request shall include
documentation and information as is reasonably available to the Indemnitee and
is reasonably necessary to determine whether and to what extent the Indemnitee
is entitled to indemnification or advancement of expenses. Any such
indemnification or advancement of expenses shall be made promptly, and in any
event within sixty days after receipt by the Corporation of the written request
of the Indemnitee, unless with respect to requests under Section A.1., A.2. or
B. of this Article SIXTH, the Corporation determines, by clear and convincing
evidence, within such sixty-day period, that any Indemnitee did not meet the
applicable
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<PAGE>
standard of conduct set forth in Section A.1. or A.2. of this Article SIXTH.
Such determination shall be made in each instance by (A) a majority vote of the
directors of the Corporation consisting of persons who are not at that time
parties to the action, suit or proceeding in question ("disinterested
directors"), even though less than a quorum, (B) a majority vote of a quorum of
the outstanding shares of capital stock of all classes entitled to vote for
directors, which quorum shall consist of stockholders who are not at that time
parties to the action, suit, proceeding or investigation in question, (C)
independent legal counsel (who may be regular legal counsel to the Corporation),
or (D) a court of competent jurisdiction.
3. Remedies. The right of an Indemnitee to indemnification or advancement
of expenses pursuant to this Article SIXTH shall be enforceable by the
Indemnitee in any court of competent jurisdiction if the Corporation denies, in
whole or in part, a request of an Indemnitee in accordance with the preceding
Paragraph 2. or if no disposition thereof is made within the sixty-day period
referred to in the preceding Paragraph 2. Unless otherwise provided by law, the
burden of proving that an Indemnitee is not entitled to indemnification or
advancement of expenses pursuant to this Article SIXTH shall be on the
Corporation. Neither the failure of the Corporation to have made a determination
prior to the commencement of such action that indemnification is proper in the
circumstances because the Indemnitee has met any applicable standard of conduct,
nor an actual determination by the Corporation pursuant to the preceding Section
C.2. that the Indemnitee has not met such applicable standard of conduct, shall
be a defense to the action or create a presumption that the Indemnitee has not
met the applicable standard of conduct. The Indemnitee's expenses (including
attorneys' fees) incurred in connection with successfully establishing the
Indemnitee's right to indemnification, in whole or in part, in any such
proceeding shall also be indemnified by the Corporation.
D. RIGHTS NOT EXCLUSIVE.
---------------------
The right of an Indemnitee to indemnification and advancement of expenses
pursuant to this Article SIXTH shall not be deemed exclusive of any other rights
to which the Indemnitee may be entitled under any law (common or statutory),
agreement, vote of stockholders or disinterested directors, or otherwise, both
as to action in the Indemnitee's official capacity and as to action in any other
capacity while holding office for the Corporation, and shall continue as to an
Indemnitee who has ceased to serve in the capacity with respect to which the
Indemnitee's right to indemnification or advancement of expenses accrued, and
shall inure to the benefit of the estate, heirs, executors and administrators of
the Indemnitee. Nothing contained in this Article SIXTH shall be deemed to
prohibit, and the Corporation is specifically authorized to enter into,
agreements with officers and directors providing indemnification rights and
procedures supplemental to those set forth in this Article SIXTH. The
Corporation may, to the extent authorized from time to time by its board of
directors, grant indemnification rights to other employees or agents of the
Corporation or other persons serving the Corporation and such rights may be
equivalent to, or greater or less than, those set forth in this Article SIXTH.
In addition, the Corporation may purchase and maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation (including any partially or wholly owned
subsidiary of the Corporation), partnership, joint venture, trust or other
enterprise (including any employee benefit plan) against any expense, liability
or loss incurred by such a person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the General
Corporation Law of the State of Delaware.
E. SUBSEQUENT EVENTS.
------------------
1. Amendments of Article or Law. No amendment, termination or repeal of
this Article SIXTH or of any relevant provisions of the General Corporation Law
of the State of Delaware or any other applicable
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<PAGE>
law shall affect or diminish in any way the rights of any Indemnitee to
indemnification under the provisions of this Article SIXTH with respect to any
action, suit, proceeding or investigation arising out of or relating to any
actions, transactions or facts occurring prior to the effective date of such
amendment, termination or repeal. If the General Corporation Law of the State of
Delaware is amended after adoption of this Article SIXTH to expand further the
indemnification permitted to any Indemnitee, then the Corporation shall
indemnify the Indemnitee to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended, without the need for
any further action with respect to this Article SIXTH.
2. Merger or Consolidation. If the Corporation is merged into or
consolidated with another corporation and the Corporation is not the surviving
corporation, the surviving corporation shall assume the obligations of the
Corporation under this Article SIXTH with respect to any action, suit,
proceeding or investigation arising out of or relating to any actions,
transactions or factors occurring prior to the date of such merger or
consolidation.
F. INVALIDATION.
-------------
If any or all of the provisions of this Article SIXTH shall be invalidated
on any ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each Indemnitee as to any expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in connection with any
action, suit, proceeding or investigation, whether civil, criminal or
administrative, including an action by or in the right of the Corporation, to
the fullest extent permitted by any applicable provision of this Article SIXTH
that shall not have been invalidated and to the fullest extent permitted by the
General Corporation Law of the State of Delaware or any other applicable law.
G. DEFINITIONS.
------------
Unless defined elsewhere in this Amended and Restated Certificate of
Incorporation, any term used in this Article SIXTH and defined in Section 145(h)
or (i) of the General Corporation Law of the State of Delaware shall have the
meaning ascribed to such term in such Section.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: No director of the Corporation shall be personally liable to the
Corporation or to any of its stockholders for monetary damages arising out of
such director's breach of fiduciary duty as a director of
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the Corporation, except to the extent that the elimination or limitation of such
liability is not permitted by the General Corporation Law of the State of
Delaware, as the same exists or may hereafter be amended. No amendment to or
repeal of this ARTICLE EIGHTH shall apply to or have any effect on the liability
or alleged liability of any director of the Corporation for or with respect to
any acts or omissions of the director occurring prior to such amendment or
repeal.
NINTH: 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 this Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation. Notwithstanding the foregoing, any other provision of law, this
Certificate of Incorporation or the By-Laws, and notwithstanding the fact that a
lesser percentage may be specified by law, the affirmative vote of the holders
of at least two-thirds of the shares of capital stock of the corporation issued
and outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, Article FIFTH or Article NINTH of this
Certificate of Incorporation.
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IN WITNESS WHEREOF, Allaire Corporation has caused this Amended and
Restated Certificate of Incorporation to be executed on its behalf by David J.
Orfao, its President, this ____ day of __________, 1999.
ALLAIRE CORPORATION
By:
--------------------------
President
ALLAIRE CORPORATION
By-Laws
Section 1. CERTIFICATE OF INCORPORATION AND BY-LAWS
These by-laws are subject to the certificate of incorporation of the
corporation. In these by-laws, references to the certificate of incorporation
and by-laws mean the provisions of the certificate of incorporation and the
by-laws as are from time to time in effect.
Section 2. OFFICES
2.1 Registered Office. The registered office shall be in the
City of Wilmington, County of New Castle, State of Delaware.
2.2 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.
Section 3. STOCKHOLDERS
3.1 Location of Meetings. All meetings of the stockholders 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. Any adjourned session of
any meeting shall be held at the place designated in the vote of adjournment.
3.2 Annual Meeting. An annual meeting of stockholders shall be held in
each calendar year on such date and at such time as shall be designated from
time to time by the Board of Directors, at which the stockholders shall elect a
board of directors and transact such other business as may be required by law or
these by-laws or as may properly come before the meeting.
3.3 Special Meeting in Place of Annual Meeting. If the election for
directors shall not be held on the day designated by the Board of Directors
pursuant to Section 3.2, the directors shall cause the election to be held as
soon thereafter as convenient, and to that end, if the annual meeting is omitted
on the day provided therefor or if the election of directors shall not be held
thereat, a special meeting of the stockholders may be held in place of such
omitted meeting or election, and any business transacted or election held at
such special meeting shall have the same effect as if transacted or held at the
annual meeting, and in such case all references in these by-laws to the annual
meeting of the stockholders, or to the annual election of directors, shall be
deemed to refer to or include such special meeting. Any such special meeting
shall be called and the purposes thereof shall be specified in the call, as
provided in Section 3.4.
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3.4 Notice of Annual Meeting. Written notice of the annual meeting
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting. Such notice may specify the business
to be transacted and actions to be taken at such meeting. No action shall be
taken at such meeting unless such notice is given, or unless waiver of such
notice is given by the holders of outstanding stock having not less than the
minimum number of votes necessary to take such action at a meeting at which all
shares entitled to vote thereon were voted. Prompt notice of all action taken in
connection with such waiver of notice shall be given to all stockholders not
present or represented at such meeting.
3.5 Other Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by law or by the
certificate of incorporation, may be called by the president; by the treasurer;
by the board of directors or any two or more members thereof; by one or more
stockholders holding not less than ten percent of the voting power of all shares
of the corporation entitled to vote (except that a special meeting for the
purpose of considering any action to directly or indirectly facilitate or effect
a business combination, including any action to change or otherwise affect the
composition of the board of directors for that purpose, must be called by
stockholders holding not less than twenty-five percent of the voting power of
all shares of the corporation entitled to vote); or by any holder or holders of
at least twenty-five percent of the outstanding shares of any of the Series B
Convertible Preferred Stock of the corporation, the Series C Convertible
Preferred Stock of the corporation or the Series D Convertible Preferred Stock
of the corporation, who shall demand such special meeting by written notice
given to the president or the treasurer. Such notice shall state the purpose or
purposes of the proposed meeting and business to be transacted at the special
meeting of stockholders.
3.6 Notice of Special Meeting. Written notice of a special meeting
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given not less than ten nor more than
sixty days before the date of the meeting, to each stockholder entitled to vote
at such meeting. No action shall be taken at such meeting unless such notice is
given, or unless waiver of such notice is given by the holders of outstanding
stock having not less than the minimum number of votes necessary to take such
action at a meeting at which all shares entitled to vote thereon were voted.
Prompt notice of all action taken in connection with such waiver of notice shall
be given to all stockholders not present or represented at such meeting.
3.7 Stockholder List. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten 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
ten 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 of the
meeting, 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.
3.8 Quorum of Stockholders. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business except as otherwise required by
law, or by the certificate of incorporation or by these by-laws. Except as
otherwise provided by law, no stockholder present at a meeting may withhold his
or her shares from the quorum count by declaring such stockholder's shares
absent from the meeting.
3.9 Adjournment. Any meeting of stockholders may be adjourned from time
to time to any other time and to any other place at which a meeting of
stockholders may be held under these by-laws,
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which time and place shall be announced at the meeting, by a majority of votes
cast upon the question, whether or not a quorum is present. 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 original meeting. If the
adjournment is for more than thirty 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.
3.10 Proxy Representation. Every stockholder may authorize another
person or persons to act for such stockholder by proxy in all matters in which a
stockholder is entitled to participate, whether by waiving notice of any
meeting, objecting to or voting or participating at a meeting, or expressing
consent or dissent without a meeting. Every proxy must be signed by the
stockholder or by the stockholder's attorney-in-fact. No proxy shall be voted or
acted upon after three years from its date unless such proxy provides for a
longer period. Except as provided by law, a revocable proxy shall be deemed
revoked if the stockholder is present at the meeting for which the proxy was
given. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and, if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. The
authorization of a proxy may but need not be limited to specified action,
provided, however, that if a proxy limits its authorization to a meeting or
meetings of stockholders, unless otherwise specifically provided such proxy
shall entitle the holder thereof to vote at any adjourned session but shall not
be valid after the final adjournment thereof.
3.11 Inspectors. The directors or the person presiding at the meeting
may, but need not, appoint one or more inspectors of election and any substitute
inspectors to act at the meeting or any adjournment thereof. Each inspector,
before entering upon the discharge of the inspector's duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his or her ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum and the validity and effect of proxies, and shall
receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspectors shall make a report in
writing of any challenge, question or matter determined by them and execute a
certificate of any fact found by them.
3.12 Action by Vote. When a quorum is present at any meeting, whether
the same be an original or an adjourned session, a plurality of the votes
properly cast for election to any office shall elect to such office and a
majority of the votes properly cast upon any question other than an election to
an office shall decide the question, except when a larger vote is required by
law, by the certificate of incorporation or by these by-laws. No ballot shall be
required for any election unless requested by a stockholder present or
represented at the meeting and entitled to vote in the election.
3.13 Action Without Meetings. Unless otherwise provided in the
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that
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would be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Section 4. DIRECTORS
4.1 Number. The number of directors which shall constitute the whole
board shall not be less than one. The first board shall consist of one director.
Thereafter, within the foregoing limits, the stockholders at the annual meeting
shall determine the number of directors, and within such limits, the number of
directors may be increased or decreased at any time or from time to time by the
stockholders or by the directors by vote of a majority of directors then in
office, except that any such decrease by vote of the directors shall only be
made to eliminate vacancies existing by reason of the death, resignation or
removal of one or more directors. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 4.4 of these by-laws.
Directors need not be stockholders.
4.2 Tenure. Except as otherwise provided by law, by the certificate of
incorporation or by these by-laws, each director shall hold office until the
next annual meeting and until his or her successor is elected and qualified, or
until he or she sooner dies, resigns, is removed or becomes disqualified.
4.3 Powers. The business of the corporation shall be managed by or
under the direction of the board of directors which shall have and may exercise
all the powers of the corporation and do all such lawful acts and things as are
not by law, the certificate of incorporation or these by-laws directed or
required to be exercised or done by the stockholders.
4.4 Vacancies. Vacancies and any newly created directorships resulting
from any increase in the number of directors may be filled by vote of the
stockholders at a meeting called for the purpose, or by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. When one or more directors shall resign from the board, effective at a
future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the certificate of incorporation or of
these by-laws as to the number of directors required for a quorum or for any
vote or other actions.
4.5 Committees. The board of directors may, by vote of a majority of
the whole board, (a) designate, change the membership of or terminate the
existence of any committee or committees, each committee to consist of one or
more of the directors; (b) designate one or more directors as alternate members
of any such committee who may replace any absent or disqualified member at any
meeting of the committee; and (c) determine the extent to which each such
committee shall have and may exercise the powers and authority of the board of
directors in the management of the business and affairs of the corporation,
including the power to authorize the seal of the corporation to be affixed to
all papers which require it and the power and authority to declare dividends or
to authorize the issuance of stock; excepting, however, such powers which by
law, by the certificate of incorporation or by these by-laws they are prohibited
from so delegating. In the absence or disqualification of any member of such
committee and his or her alternate, if any, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the board
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of directors to act at the meeting in the place of any such absent or
disqualified member. Except as the board of directors may otherwise determine,
any committee may make rules for the conduct of its business, but unless
otherwise provided by the board or such rules, its business shall be conducted
as nearly as may be in the same manner as is provided by these by-laws for the
conduct of business by the board of directors. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors upon
request.
4.6 Regular Meeting. Regular meetings of the board of directors may be
held without call or notice at such place within or without the State of
Delaware and at such times as the board may from time to time determine,
provided that notice of the first regular meeting following any such
determination shall be given to absent directors. A regular meeting of the
directors may be held without call or notice immediately after and at the same
place as the annual meeting of the stockholders.
4.7 Special Meetings. Special meetings of the board of directors may be
held at any time and at any place within or without the State of Delaware
designated in the notice of the meeting, when called by the any director,
reasonable notice thereof being given to each director by the secretary or by
the president or by the director calling the meeting.
4.8 Notice. It shall be reasonable and sufficient notice to a director
to send notice by mail at least forty-eight hours or by telegram at least
twenty-four hours before the meeting, addressed to the director at the
director's usual or last known business or residence address or to give notice
to the director in person or by telephone at least twenty-four hours before the
meeting. Notice of a meeting need not be given to any director if a written
waiver of notice, executed by him before or after the meeting, is filed with the
records of the meeting, or to any director who attends the meeting without
protesting prior thereto or at its commencement the lack of notice to him.
Neither notice of a meeting nor a waiver of a notice need specify the purposes
of the meeting.
4.9 Quorum. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, at any meeting of the
directors a majority of the directors then in office shall constitute a quorum;
a quorum shall not in any case be less than one-third of the total number of
directors constituting the whole board. Any meeting may be adjourned from time
to time by a majority of the votes cast upon the question, whether or not a
quorum is present, and the meeting may be held as adjourned without further
notice.
4.10 Action by Vote. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, when a quorum is present at
any meeting the vote of a majority of the directors present shall be the act of
the board of directors.
4.11 Action Without a Meeting. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting if all the members of the board or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the records of the meetings of the board or of such
committee. Such consent shall be treated for all purposes as the act of the
board or of such committee, as the case may be.
4.12 Participation in Meetings by Conference Telephone. Unless
otherwise restricted by the certificate of incorporation or these by-laws,
members of the board of directors or of any committee thereof
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may participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person at such meeting.
4.13 Compensation. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix from time to time the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the board of
directors and the performance of their responsibilities as directors and may be
paid a fixed sum for attendance at each meeting of the board of directors and/or
a stated salary as director. No such payment shall preclude any director from
serving the corporation or its parent or subsidiary corporations in any other
capacity and receiving compensation therefor. The board of directors may also
allow compensation for members of special or standing committees for service on
such committees.
4.14 Interested Directors and Officers.
(a) No contract or transaction between the corporation and one
or more of its directors or officers, or between the corporation and any other
corporation, partnership, association, or other organization in which one or
more of the corporation's directors or officers are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present at or participates in the
meeting of the board or committee thereof which authorizes the contract or
transaction, or solely because his or her or their votes are counted for such
purpose, if:
(1) The material facts as to his relationship or interest and
as to the contract or transaction are disclosed or are known to the board of
directors or the committee, and the board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(2) The material facts as to his or her relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation
as of the time it is authorized, approved or ratified, by the board of
directors, a committee thereof, or the stockholders.
(b) Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
4.15 Resignation or Removal of Directors. Unless otherwise restricted
by the certificate of incorporation or by law, any director or the entire board
of directors may be removed, with or without cause, by the holders of a majority
of the stock issued and outstanding and entitled to vote at an election of
directors. Any director may resign at any time by delivering his or her
resignation in writing to the president or the secretary or to a meeting of the
board of directors. Such resignation shall be effective upon receipt unless
specified to be effective at some other time; and without in either case the
necessity of its being accepted unless the resignation shall so state. No
director resigning and (except where a right to receive compensation shall be
expressly provided in a duly authorized written agreement with the corporation)
no director removed shall have any right to receive compensation as such
director for any
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period following such director's resignation or removal, or any right to damages
on account of such removal, whether his compensation be by the month or by the
year or otherwise; unless in the case of a resignation, the directors, or in the
case of removal, the body acting on the removal, shall in their or its
discretion provide for compensation.
Section 5. NOTICES
5.1 Form of Notice. Whenever, under the provisions of law, or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, such notice may be given by mail, addressed to
such director or stockholder, at his or her address as it appears on the records
of the corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Unless written notice by mail is required by law, written notice
may also be given by telegram, cable, telecopy, commercial delivery service,
telex or similar means, addressed to such director or stockholder at the address
of such director or stockholder as it appears on the records of the corporation,
in which case such notice shall be deemed to be given when delivered into the
control of the persons charged with effecting such transmission, the
transmission charge to be paid by the corporation or the person sending such
notice and not by the addressee. Oral notice or other in-hand delivery (in
person or by telephone) shall be deemed given at the time it is actually given.
5.2 Waiver of Notice. Whenever notice is required to be given under the
provisions of law, the certificate of incorporation or these by-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, 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 meeting of the stockholders, directors or members of a
committee of the directors need be specified in any written waiver of notice.
Section 6. OFFICERS AND AGENTS
6.1 Enumeration; Qualification. The officers of the corporation shall
be a president, a treasurer, a secretary and such other officers, if any, as the
board of directors from time to time may in its discretion elect or appoint
including without limitation one or more vice presidents. Any officer may be,
but none need be, a director or stockholder. Any two or more offices may be held
by the same person. Any officer may be required by the board of directors to
secure the faithful performance of his or her duties to the corporation by
giving bond in such amount and with sureties or otherwise as the board of
directors may determine.
6.2 Powers. Subject to law, to the certificate of incorporation and to
the other provisions of these by-laws, each officer shall have, in addition to
the duties and powers herein set forth, such duties and powers as are commonly
incident to his or her office and such additional duties and powers as the board
of directors may from time to time designate.
6.3 Election. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a president, a secretary and a
treasurer. Other officers may be appointed by the board of directors at such
meeting, at any other meeting or by written consent. At any time or from time
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to time, the directors may delegate to any officer their power to elect or
appoint any other officer or any agents.
6.4 Tenure. Each officer shall hold office until the first meeting of
the board of directors following the next annual meeting of the stockholders and
until his or her successor is elected and qualified unless a shorter period
shall have been specified in terms of his or her election or appointment, or in
each case until he or she sooner dies, resigns, is removed or becomes
disqualified. Each agent of the corporation shall retain his or her authority at
the pleasure of the directors, or the officer by whom he or she was appointed or
by the officer who then holds agent appointive power.
6.5 President and Vice Presidents. The president shall be the chief
executive officer and shall have direct and active charge of all business
operations of the corporation and shall have general supervision of the entire
business of the corporation, subject to the control of the board of directors.
The president shall preside at all meetings of the stockholders and of the board
of directors at which the president is present, except as otherwise voted by the
board of directors.
The president or treasurer shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
Any vice presidents shall have such duties and powers as shall be
designated from time to time by the board of directors or by the president.
6.6 Treasurer and Assistant Treasurers. The treasurer shall be the
chief financial officer of the corporation and shall be in charge of its funds
and valuable papers, and shall have such other duties and powers as may be
assigned to him or her from time to time by the board of directors or by the
president.
Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
treasurer.
6.7 Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the stockholders, of the board of directors and of committees of
the board of directors in a book or series of books to be kept therefor and
shall file therein all writings of, or related to, action by stockholder or
director consent. In the absence of the secretary from any meeting, an assistant
secretary, or if there is none or he is absent, a temporary secretary chosen at
the meeting, shall record the proceedings thereof. Unless a transfer agent has
been appointed, the secretary shall keep or cause to be kept the stock and
transfer records of the corporation, which shall contain the names and record
addresses of all stockholders and the number of shares registered in the name of
each stockholder. The secretary shall have such other duties and powers as may
from time to time be designated by the board of directors or the president.
Any assistant secretaries shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
secretary.
6.8 Resignation and Removal. Any officer may resign at any time by
delivering his or her resignation in writing to the president or the secretary
or to a meeting of the board of directors. Such
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resignation shall be effective upon receipt unless specified to be effective at
some other time, and without in any case the necessity of its being accepted
unless the resignation shall so state. The board of directors may at any time
remove any officer either with or without cause. The board of directors may at
any time terminate or modify the authority of any agent. No officer resigning
and (except where a right to receive compensation shall be expressly provided in
a duly authorized written agreement with the corporation) no officer removed
shall have any right to any compensation as such officer for any period
following his or her resignation or removal, or any right to damages on account
of such removal, whether such officer's compensation be by the month or by the
year or otherwise; unless in the case of a resignation, the directors, or in the
case of removal, the body acting on the removal, shall in their or its
discretion provide for compensation.
6.9 Vacancies. If the office of the president or the treasurer or the
secretary becomes vacant, the directors may elect a successor by vote of a
majority of the directors then in office. If the office of any other officer
becomes vacant, any person or body empowered to elect or appoint that office may
choose a successor. Each such successor shall hold office for the unexpired term
of his or her predecessor, and in the case of the president, the treasurer and
the secretary until his or her successor is chosen and qualified, or in each
case until he or she sooner dies, resigns, is removed or becomes disqualified.
Section 7. CAPITAL STOCK
7.1 Stock Certificates. Each stockholder shall be entitled to a
certificate stating the number and the class and the designation of the series,
if any, of the shares held by the stockholder, in such form as shall, in
conformity to law, the certificate of incorporation and the by-laws, be
prescribed from time to time by the board of directors. Such certificate shall
be signed by the president or a vice-president and (i) the treasurer or an
assistant treasurer or (ii) the secretary or an assistant secretary. Any of or
all the signatures on the certificate may be a facsimile. In case an officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed on such certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he, she or it were such officer, transfer
agent, or registrar at the time of its issue.
7.2 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 the owner of such lost, stolen or destroyed certificate or
certificates, or the owner's legal representative, to advertise the same in such
manner as it shall require and/or 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 alleged to have been lost, stolen or
destroyed.
Section 8. TRANSFER OF SHARES OF STOCK
8.1 Transfer on Books. Subject to any restrictions with respect to the
transfer of shares of stock, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its transfer agent of the
certificate therefor properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the board of directors
or the transfer agent of the corporation may
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reasonably require. Except as may be otherwise required by law, by the
certificate of incorporation or by these by-laws, the corporation shall be
entitled to treat the record holder of stock as shown on its books as the owner
of such stock for all purposes, including the payment of dividends and the right
to receive notice and to vote or to give any consent with respect thereto and to
be held liable for such calls and assessments, if any, as may lawfully be made
thereon, regardless of any transfer, pledge or other disposition of such stock
until the shares have been properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the corporation of
the stockholder's post office address.
Section 9. GENERAL PROVISIONS
9.1 Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action to which
such record date relates. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting. If no record date is fixed,
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held;
(b) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the board of directors is necessary, shall be the day on which the
first written consent is expressed; and
(c) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating to such purpose.
9.2 Dividends. Dividends upon the capital stock of the corporation may
be declared by the board of directors at any regular or special meeting or by
written consent, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the certificate of
incorporation.
9.3 Payment of Dividends. 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 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 directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
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9.4 Checks. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
9.5 Fiscal Year. The fiscal year of the corporation shall begin on the
first of January in each year and shall end on the last day of December next
following, unless otherwise determined by the board of directors.
9.6 Seal. The board of directors may, by resolution, adopt a corporate
seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
The seal may be altered from time to time by the board of directors.
Section 10. INDEMNIFICATION
It being the intent of the corporation to provide maximum protection
available under the law to its officers and directors, the corporation shall
indemnify its officers and directors to the full extent the corporation is
permitted or required to do so by the General Corporation Law of Delaware. The
directors and officers of the corporation shall also have the right to receive
payment in advance of any expenses incurred by them in connection with any claim
or proceeding to which they may be entitled to indemnification, without regard
to their ability to repay such advance payments.
Section 11. AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders or by the board of directors when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors. If the power
to adopt, amend or repeal by-laws is conferred upon the board of directors by
the certificate of incorporation, it shall not divest or limit the power of the
stockholders to adopt, amend or repeal by-laws.
* * *
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AMENDED AND RESTATED BY-LAWS
OF ALLAIRE CORPORATION
Section 1. CERTIFICATE OF INCORPORATION AND BY-LAWS
1.1 These by-laws are subject to the certificate of incorporation of the
corporation. In these by-laws, references to the certificate of incorporation
and by-laws mean the provisions of the certificate of incorporation and the
by-laws as are from time to time in effect.
Section 2. OFFICES
2.1 Registered Office. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
2.2 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.
Section 3. STOCKHOLDERS
3.1 Location of Meetings. All meetings of the stockholders 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. Any adjourned session of any
meeting shall be held at the place designated in the vote of adjournment.
3.2 Annual Meeting. The annual meeting of stockholders shall be held at
10:00 a.m. on the second Thursday in May in each year (unless that day be a
legal holiday at the place where the meeting is to be held, in which case the
meeting shall be held at the same hour on the next succeeding day not a legal
holiday)(the "Specified Date") or at such other date and time as shall be
designated from time to time by the board of directors, at which they shall
elect a board of directors and transact such other business as may be required
by law or these by-laws or as may properly come before the meeting.
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3.3 Special Meeting in Place of Annual Meeting. If the election for
directors shall not be held on the day designated by these by-laws, the
directors shall cause the election to be held as soon thereafter as convenient,
and to that end, if the annual meeting is omitted on the day herein provided
therefor or if the election of directors shall not be held thereat, a special
meeting of the stockholders may be held in place of such omitted meeting or
election, and any business transacted or election held at such special meeting
shall have the same effect as if transacted or held at the annual meeting, and
in such case all references in these by-laws to the annual meeting of the
stockholders, or to the annual election of directors, shall be deemed to refer
to or include such special meeting. Any such special meeting shall be called and
the purposes thereof shall be specified in the call, as provided in Section 3.4.
3.4 Notice of Annual Meeting. Written notice of the annual meeting stating
the place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. Such notice may specify the business to be
transacted and actions to be taken at such meeting. No action shall be taken at
such meeting unless such notice is given, or unless waiver of such notice is
given by the holders of outstanding stock having not less than the minimum
number of votes necessary to take such action at a meeting at which all shares
entitled to vote thereon were voted. Prompt notice of all action taken in
connection with such waiver of notice shall be given to all stockholders not
present or represented at such meeting.
3.5 Other Special Meetings. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by law or by the certificate of
incorporation, may be called by chairman of the board or the president and shall
be called by the president or the secretary at the request in writing of a
majority of the board of directors. Such request shall state the purpose or
purposes of the proposed meeting and business to be transacted at any special
meeting of the stockholders.
3.6 Notice of Special Meeting. Written notice of a special meeting stating
the place, date and hour of the meeting and the purpose or purposes for which
the meeting is called, shall be given not less than ten nor more than sixty days
before the date of the meeting, to each stockholder entitled to vote at such
meeting. No action shall be taken at such meeting unless such notice is given,
or unless waiver of such notice is given by the holders of outstanding stock
having not less than the minimum number of votes necessary to take such action
at a meeting at which all shares entitled to vote thereon were voted. Prompt
notice of all action taken in connection with such waiver of notice shall be
given to all stockholders not present or represented at such meeting.
3.7 Notice of Stockholder Business at a Meeting of the Stockholders.
Unless otherwise prescribed by law or by the certificate of incorporation,
the following provisions of this Section 3.7 shall apply to the conduct of
business at any meeting of the stockholders. (As used in this Section 3.7, the
term annual meeting shall include a special meeting in lieu of an annual
meeting.)
(a) At any meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder of the Corporation who is a stockholder of
record at the time of giving of the notice provided for in paragraph (b) of this
Section 3.7, who shall be entitled to vote at such meeting and who complies with
the notice procedures set forth in paragraph (b) of this Section 3.7.
(b) For business to be properly brought before any meeting of the
stockholders by a stockholder pursuant to clause (iii) of paragraph (a) of this
Section 3.7, the stockholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a
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stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation (i) in the case of an annual
meeting, not less than sixty days nor more than ninety days prior to the
Specified Date, regardless of any postponements, deferrals or adjournments of
that meeting to a later date; provided, however, that if the annual meeting of
stockholders or a special meeting in lieu thereof is to be held on a date prior
to the Specified Date, and if less than seventy days' notice or prior public
disclosure of the date of such annual or special meeting is given or made,
notice by the stockholder to be timely must be so delivered or received not
later than the close of business on the tenth day following the earlier of the
date on which notice of the date of such annual or special meeting was mailed or
the day on which public disclosure was made of the date of such annual or
special meeting; and (ii) in the case of a special meeting (other than a special
meeting in lieu of an annual meeting), not later than the tenth (10th) day
following the earlier of the day on which notice of the date of the scheduled
meeting was mailed or the day on which public disclosure was made of the date of
the scheduled meeting. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the meeting (i) a
brief description of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (ii) the name and
address, as they appear on the Corporation's books, of the stockholder proposing
such business, the name and address of the beneficial owner, if any, on whose
behalf the proposal is made, and the name and address of any other stockholders
or beneficial owners known by such stockholder to be supporting such proposal,
(iii) the class and number of shares of the Corporation which are owned
beneficially and of record by such stockholder of record, by the beneficial
owner, if any, on whose behalf the proposal is made and by any other
stockholders or beneficial owners known by such stockholder to be supporting
such proposal, and (iv) any material interest of such stockholder of record
and/or of the beneficial owner, if any, on whose behalf the proposal is made, in
such proposed business and any material interest of any other stockholders or
beneficial owners known by such stockholder to be supporting such proposal in
such proposed business, to the extent known by such stockholder.
(c) Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 3.7. The person presiding at the meeting shall, if the
facts warrant, determine that business was not properly brought before the
meeting and in accordance with the procedures prescribed by these by-laws, and
if he should so determine, he shall so declare at the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Section 3.7, a stockholder
shall also comply with all applicable requirements of the Securities Exchange
Act of 1934, as amended (or any successor provision), and the rules and
regulations thereunder with respect to the matters set forth in this Section
3.7.
(d) This provision shall not prevent the consideration and approval or
disapproval at the meeting of reports of officers, Directors and committees of
the Board of Directors, but, in connection with such reports, no new business
shall be acted upon at such meeting unless properly brought before the meeting
as herein provided.
3.8 Stockholder List. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten 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
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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 ten 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 of the meeting, 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.
3.9 Quorum of Stockholders. The holders of a majority of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise required by law, or by the
certificate of incorporation or by these by-laws. Except as otherwise provided
by law, no stockholder present at a meeting may withhold his shares from the
quorum count by declaring his shares absent from the meeting.
3.10 Adjournment. Any meeting of stockholders may be adjourned from time to
time to any other time and to any other place at which a meeting of stockholders
may be held under these by-laws, which time and place shall be announced at the
meeting, by a majority of votes cast upon the question, whether or not a quorum
is present. 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 original meeting. If the adjournment is for more than thirty 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.
3.11 Proxy Representation. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, objecting to
or voting or participating at a meeting, or expressing consent or dissent
without a meeting. Every proxy must be signed by the stockholder or by his
attorney-in-fact. No proxy shall by voted or acted upon after three years from
its date unless such proxy provides for a longer period. Except as provided by
law, a revocable proxy shall be deemed revoked if the stockholder is present at
the meeting for which the proxy was given. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and, if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power. A
proxy may be made irrevocable regardless of whether the interest with which it
is coupled is an interest in the stock itself or an interest in the corporation
generally. The authorization of a proxy may but need not be limited to specified
action, provided, however, that if a proxy limits its authorization to a meeting
or meetings of stockholders, unless otherwise specifically provided such proxy
shall entitle the holder thereof to vote at any adjourned session but shall not
be valid after the final adjournment thereof.
3.12 Inspectors. If required to do so by Section 231 of the Delaware
General Corporation Law or other applicable law or regulation, the directors or
the person presiding at the meeting shall appoint one or more inspectors of
election and any substitute inspectors to act at the meeting or any adjournment
thereof. If not so required, the directors or the person presiding at the
meeting may, but need not, appoint such inspectors and substitute inspectors. In
either event, the inspectors and substitute inspectors shall have such duties
and responsibilities as are required by applicable law or regulation and such
other duties and responsibilities not inconsistent therewith as the directors or
the person presiding at the meeting shall deem appropriate.
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3.13 Action by Vote. When a quorum is present at any meeting, whether the
same be an original or an adjourned session, a plurality of the votes properly
cast for election to any office shall elect to such office and a majority of the
votes properly cast upon any question other than an election to an office shall
decide the question, except when a larger vote is required by law, by the
certificate of incorporation or by these by-laws. No ballot shall be required
for any election unless requested by a stockholder present or represented at the
meeting and entitled to vote in the election.
3.14 No Action by Consent. Any action required or permitted to be taken by
the stockholders of the corporation must be effected at a duly constituted
annual or special meeting of such holders and may not be effected by any consent
in writing by such stockholders.
Section 4. DIRECTORS
4.1 Number. The number of directors which shall constitute the whole board
shall be determined by resolution of the board, but in no event shall be less
than three. The number of directors may be decreased at any time or from time to
time by the directors by vote of a majority of directors then in office, except
that any such decrease by vote of the directors shall only be made to eliminate
vacancies existing by reason of the death, resignation, removal or
disqualification of one or more directors. The directors shall be elected at the
annual meeting of the stockholders, except as provided in Section 4.4 of these
by-laws. Directors need not be stockholders.
4.2 Tenure. Except as otherwise provided by law, by the certificate of
incorporation or by these by-laws, each director shall hold office until the
next annual meeting and until his or her successor is elected and qualified, or
until he or she sooner dies, resigns, is removed or becomes disqualified.
4.3 Powers. The business of the corporation shall be managed by or under
the direction of the board of directors which shall have and may exercise all
the powers of the corporation and do all such lawful acts and things as are not
by law, the certificate of incorporation or these by-laws directed or required
to be exercised or done by the stockholders.
4.4 Vacancies. Except as otherwise provided by law or by the certificate of
incorporation, vacancies and any newly created directorships resulting from any
increase in the number of directors shall be filled only by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. When one or more directors shall resign from the board, effective at a
future date, a majority of the directors then in office, including those who
have resigned, shall have power to fill such vacancy or vacancies, the vote or
action by writing thereon to take effect when such resignation or resignations
shall become effective. The directors shall have and may exercise all their
powers notwithstanding the existence of one or more vacancies in their number,
subject to any requirements of law or of the certificate of incorporation or of
these by-laws as to the number of directors required for a quorum or for any
vote or other actions.
4.5 Nomination of Directors.
The following provisions of this Section 4.5 shall apply to the nomination
of persons for election to the Board of Directors.
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(a) Nominations of persons for election to the Board of Directors of the
Corporation may be made (i) by or at the direction of the Board of Directors or
(ii) by any stockholder of the Corporation who is a stockholder of record at the
time of giving of notice provided for in paragraph (b) of this Section 4.5, who
shall be entitled to vote for the election of Directors at the meeting and who
complies with the notice procedures set forth in paragraph (b) of this Section
4.5.
(b) Nominations by stockholders shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation, not less than sixty days nor more than ninety days
prior to the Specified Date, regardless of any postponements, deferrals or
adjournments of that meeting to a later date; provided, however, that if the
annual meeting of stockholders or a special meeting in lieu thereof is to be
held on a date prior to the Specified Date, and if less than seventy days'
notice or prior public disclosure of the date of such annual or special meeting
is given or made, notice by the stockholder to be timely must be so delivered or
received not later than the close of business on the tenth day following the
earlier of the day on which notice of the date of such annual or special meeting
was mailed or the day on which public disclosure was made of the date of such
annual or special meeting. Such stockholder's notice shall set forth (x) as to
each person whom the stockholder proposes to nominate for election or reelection
as a Director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended, or pursuant to any other then existing statute, rule or regulation
applicable thereto (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a Director if elected); (y)
as to the stockholder giving the notice (1) the name and address, as they appear
on the Corporation's books, of such stockholder and (2) the class and number of
shares of the Corporation which are beneficially owned by such stockholder and
also which are owned of record by such stockholder; and (Z) as to the beneficial
owner, if any, on whose behalf the nomination is made, (1) the name and address
of such person and (2) the class and number of shares of the Corporation which
are beneficially owned by such person. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee as a Director.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee.
(c) No person shall be eligible to serve as a Director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
4.5. The person presiding at the meeting shall, if the facts warrant, determine
that a nomination was not made in accordance with the procedures prescribed by
these by-laws, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded. Notwithstanding the foregoing
provisions of this Section 4.5, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended (or
any successor provision), and the rules and regulations thereunder with respect
to the matters set forth in this by-law.
4.6 Committees. The board of directors may, by vote of a majority of the
whole board, (a) designate, change the membership of or terminate the existence
of any committee or committees, each committee to consist of one or more of the
directors; (b) designate one or more directors as
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alternate members of any such committee who may replace any absent or
disqualified member at any meeting of the committee; and (c) determine the
extent to which each such committee shall have and may exercise the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, including the power to authorize the seal of the
corporation to be affixed to all papers which require it and the power and
authority to declare dividends or to authorize the issuance of stock; excepting,
however, such powers which by law, by the certificate of incorporation or by
these by-laws they are prohibited from so delegating. In the absence or
disqualification of any member of such committee and his alternate, if any, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting 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. Except as the board of directors may otherwise
determine, any committee may make rules for the conduct of its business, but
unless otherwise provided by the board or such rules, its business shall be
conducted as nearly as may be in same manner as is provided by these by-laws for
the conduct of business by the board of directors. Each committee shall keep
regular minutes of its meetings and report the same to the board of directors
upon request.
4.7 Regular Meeting. Regular meetings of the board of directors may be held
without call or notice at such place within or without the State of Delaware and
at such times as the board may from time to time determine, provided that notice
of the first regular meeting following any such determination shall be given to
absent directors. A regular meeting of the directors may be held without call or
notice immediately after and at the same place as the annual meeting of the
stockholders.
4.8 Special Meetings. Special meetings of the board of directors may be
held at any time and at any place within or without the State of Delaware
designated in the notice of the meeting, when called by the chairman of the
board or president, or by one-third or more in number of the directors,
reasonable notice thereof being given to each director by the secretary or by
the chairman of the board or president or by any one of the directors calling
the meeting.
4.9 Notice. It shall be reasonable and sufficient notice to a director to
send notice by mail at least forty-eight hours or by telegram or telecopy at
least twenty-four hours before the meeting, addressed to him at his usual or
last known business or residence address or to give notice to him in person or
by telephone at least twenty-four hours before the meeting. Notice of a meeting
need not be given to any director if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
director who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. Neither notice of a meeting nor a waiver
of a notice need specify the purposes of the meeting.
4.10 Quorum. Except as may be otherwise provided by law, by the certificate
of incorporation or by these by-laws, at any meeting of the directors a majority
of the directors then in office shall constitute a quorum; a quorum shall not in
any case be less than one-third of the total number of directors constituting
the whole board. Any meeting may be adjourned from time to time by a majority of
the votes cast upon the question, whether or not a quorum is present, and the
meeting may be held as adjourned without further notice.
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4.11 Action by Vote. Except as may be otherwise provided by law, by the
certificate of incorporation or by these by-laws, when a quorum is present at
any meeting the vote of a majority of the directors present shall be the act of
the board of directors.
4.12 Action Without a Meeting. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting if all the members of the board or of such
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the records of the meetings of the board or of such
committee. Such consent shall be treated for all purposes as the act of the
board or of such committee, as the case may be.
4.13 Participation in Meetings by Conference Telephone. Unless otherwise
restricted by the certificate of incorporation or these by-laws, members of the
board of directors or of any committee thereof may participate in a meeting of
such board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Such participation shall constitute presence in
person at such meeting.
4.14 Compensation. Unless otherwise restricted by the certificate of
incorporation or these by-laws, the board of directors shall have the authority
to fix from time to time the compensation of directors. The directors may be
paid their expenses, if any, of attendance at each meeting of the board of
directors and the performance of their responsibilities as directors and may be
paid a fixed sum for attendance at each meeting of the board of directors and/or
a stated salary as director. No such payment shall preclude any director from
serving the corporation or its parent or subsidiary corporations in any other
capacity and receiving compensation therefor. The board of directors may also
allow compensation for members of special or standing committees for service on
such committees.
4.15 Interested Directors and Officers.
(a) No contract or transaction between the corporation and one or more of
its directors or officers, or between the corporation and any other corporation,
partnership, association, or other organization in which one or more of the
corporation's directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee thereof which authorizes the contract or transaction, or
solely because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the board of directors
or the committee, and the board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the stockholders; or
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(3) The contract or transaction is fair as to the corporation as of
the time it is authorized, approved or ratified, by the board of directors, a
committee thereof, or the stockholders.
(b) Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the board of directors or of a committee
which authorizes the contract or transaction.
4.16 Resignation or Removal of Directors. Unless otherwise restricted by
the certificate of incorporation or by law, any director or the entire board of
directors may be removed for cause by the holders of a majority of the stock
issued and outstanding and entitled to vote at an election of directors. Any
director may resign at any time by delivering his resignation in writing to the
president or the secretary or to a meeting of the board of directors. Such
resignation shall be effective upon receipt unless specified to be effective at
some other time; and without in either case the necessity of its being accepted
unless the resignation shall so state. No director resigning and (except where a
right to receive compensation shall be expressly provided in a duly authorized
written agreement with the corporation) no director removed shall have any right
to receive compensation as such director for any period following his
resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise; unless in
the case of a resignation, the directors, or in the case of removal, the body
acting on the removal, shall in their or its discretion provide for
compensation.
Section 5. NOTICES
5.1 Form of Notice. Whenever, under the provisions of law, or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, such notice may be given by mail, addressed to
such director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Unless written notice by mail is required by law, written notice may also be
given by telegram, cable, telecopy, commercial delivery service, telex or
similar means, addressed to such director or stockholder at his address as it
appears on the records of the corporation, in which case such notice shall be
deemed to be given when delivered into the control of the persons charged with
effecting such transmission, the transmission charge to be paid by the
corporation or the person sending such notice and not by the addressee. Oral
notice or other in-hand delivery (in person or by telephone) shall be deemed
given at the time it is actually given.
5.2 Waiver of Notice. Whenever notice is required to be given under the
provisions of law, the certificate of incorporation or these by-laws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, 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 meeting of the stockholders, directors or members of a
committee of the directors need be specified in any written waiver of notice.
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Section 6. OFFICERS AND AGENTS
6.1 Enumeration; Qualification. The officers of the corporation shall be a
president, a treasurer, a secretary and such other officers, if any, as the
board of directors from time to time may in its discretion elect or appoint
including without limitation a chairman of the board and one or more vice
presidents. Any officer may be, but none need be, a director or stockholder. Any
two or more offices may be held by the same person. Any officer may be required
by the board of directors to secure the faithful performance of his duties to
the corporation by giving bond in such amount and with sureties or otherwise as
the board of directors may determine.
6.2 Powers. Subject to law, to the certificate of incorporation and to the
other provisions of these by-laws, each officer shall have, in addition to the
duties and powers herein set forth, such duties and powers as are commonly
incident to his office and such additional duties and powers as the board of
directors may from time to time designate.
6.3 Election. The board of directors at its first meeting after each annual
meeting of stockholders shall choose a president, a secretary and a treasurer.
Other officers may be appointed by the board of directors at such meeting, at
any other meeting or by written consent. At any time or from time to time, the
directors may delegate to any officer their power to elect or appoint any other
officer or any agents.
6.4 Tenure. Each officer shall hold office until the first meeting of the
board of directors following the next annual meeting of the stockholders and
until his successor is elected and qualified unless a shorter period shall have
been specified in terms of his election or appointment, or in each case until he
sooner dies, resigns, is removed or becomes disqualified. Each agent of the
corporation shall retain his authority at the pleasure of the directors, or the
officer by whom he was appointed or by the officer who then holds agent
appointive power.
6.5 President and Vice President. The president shall be the chief
executive officer and shall have direct and active charge of all business
operations of the corporation and shall have general supervision of the entire
business of the corporation, subject to the control of the board of directors.
He shall preside at all meetings of the stockholders and of the board of
directors at which he is present, except as otherwise voted by the board of
directors.
The president or treasurer shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
board of directors to some other officer or agent of the corporation.
Any vice presidents shall have such duties and powers as shall be
designated from time to time by the board of directors or by the president.
6.6 Treasurer and Assistant Treasurers. The treasurer shall be in charge of
the corporation's funds and valuable papers, and shall have such other duties
and powers as may be assigned to him from time to time by the board of directors
or by the president.
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Any assistant treasurers shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
treasurer.
6.7 Secretary and Assistant Secretaries. The secretary shall record all
proceedings of the stockholders, of the board of directors and of committees of
the board of directors in a book or series of books to be kept therefor and
shall file therein all writings of, or related to, action by stockholder or
director consent. In the absence of the secretary from any meeting, an assistant
secretary, or if there is none or he is absent, a temporary secretary chosen at
the meeting, shall record the proceedings thereof. Unless a transfer agent has
been appointed, the secretary shall keep or cause to be kept the stock and
transfer records of the corporation, which shall contain the names and record
addresses of all stockholders and the number of shares registered in the name of
each stockholder. The secretary shall have such other duties and powers as may
from time to time be designated by the board of directors or the president.
Any assistant secretaries shall have such duties and powers as shall be
designated from time to time by the board of directors, the president or the
secretary.
6.8 Resignation and Removal. Any officer may resign at any time by
delivering his resignation in writing to the president or the secretary or to a
meeting of the board of directors. Such resignation shall be effective upon
receipt unless specified to be effective at some other time, and without in any
case the necessity of its being accepted unless the resignation shall so state.
The board of directors may at any time remove any officer either with or without
cause. The board of directors may at any time terminate or modify the authority
of any agent. No officer resigning and (except where a right to receive
compensation shall be expressly provided in a duly authorized written agreement
with the corporation) no officer removed shall have any right to any
compensation as such officer for any period following his resignation or
removal, or any right to damages on account of such removal, whether his
compensation be by the month or by the year or otherwise; unless in the case of
a resignation, the directors, or in the case of removal, the body acting on the
removal, shall in their or its discretion provide for compensation.
6.9 Vacancies. If the office of the president or the treasurer or the
secretary becomes vacant, the directors may elect a successor by vote of a
majority of the directors then in office. If the office of any other officer
becomes vacant, any person or body empowered to elect or appoint that office may
choose a successor. Each such successor shall hold office for the unexpired term
of his predecessor, and in the case of the president, the treasurer and the
secretary until his successor is chosen and qualified, or in each case until he
sooner dies, resigns, is removed or becomes disqualified.
Section 7. CAPITAL STOCK
7.1 Stock Certificates. Each stockholder shall be entitled to a certificate
stating the number and the class and the designation of the series, if any, of
the shares held by him, in such form as shall, in conformity to law, the
certificate of incorporation and the by-laws, be prescribed from time to time by
the board of directors. Such certificate shall be signed by the president or a
vice-president and (i) the treasurer or an assistant treasurer or (ii) the
secretary or an assistant secretary. Any of or all the signatures on the
certificate may be a facsimile. In case an officer, transfer agent, or registrar
who has signed or whose facsimile signature has been placed on such certificate
shall have ceased to
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<PAGE>
be such officer, transfer agent, or registrar before such certificate is issued,
it may be issued by the corporation with the same effect as if he were such
officer, transfer agent, or registrar at the time of its issue.
7.2 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 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
and/or 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 alleged to have been lost, stolen or destroyed.
Section 8. TRANSFER OF SHARES OF STOCK
8.1 Transfer on Books. Subject to any restrictions with respect to the
transfer of shares of stock, shares of stock may be transferred on the books of
the corporation by the surrender to the corporation or its transfer agent of the
certificate therefor properly endorsed or accompanied by a written assignment
and power of attorney properly executed, with necessary transfer stamps affixed,
and with such proof of the authenticity of signature as the board of directors
or the transfer agent of the corporation may reasonably require. Except as may
be otherwise required by law, by the certificate of incorporation or by these
by-laws, the corporation shall be entitled to treat the record holder of stock
as shown on its books as the owner of such stock for all purposes, including the
payment of dividends and the right to receive notice and to vote or to give any
consent with respect thereto and to be held liable for such calls and
assessments, if any, as may lawfully be made thereon, regardless of any
transfer, pledge or other disposition of such stock until the shares have been
properly transferred on the books of the corporation.
It shall be the duty of each stockholder to notify the corporation of his
post office address.
Section 9. GENERAL PROVISIONS
9.1 Record Date. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty days nor less than ten days before the date
of such meeting, nor more than sixty days prior to any other action to which
such record date relates. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting. If no record date is fixed,
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(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held;
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the board of directors is necessary, shall be the day on which the first
written consent is expressed; and
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board of directors
adopts the resolution relating to such purpose.
9.2 Dividends. Dividends upon the capital stock of the corporation may be
declared by the board of directors at any regular or special meeting or by
written consent, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the certificate of
incorporation.
9.3 Payment of Dividends. 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 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 directors shall think conducive to the interest of
the corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
9.4 Checks. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate.
9.5 Fiscal Year. The fiscal year of the corporation shall begin on the
first of January in each year and shall end on the last day of December next
following, unless otherwise determined by the board of directors.
9.6 Seal. The board of directors may, by resolution, adopt a corporate
seal. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the word "Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. The seal may be altered from time to time by the board
of directors.
Section 10. AMENDMENTS
10.1 By the Board of Directors. These by-laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the board of
directors at which a quorum is present.
10.2 By the Stockholders. Except as otherwise provided in Section 10.3,
these by-laws may be altered, amended or repealed or new by-laws may be adopted
by the affirmative vote of the
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<PAGE>
holders of a majority of the shares of the capital stock of the corporation
issued and outstanding and entitled to vote at any regular or special meeting of
stockholders, provided notice of such alteration, amendment, repeal or adoption
of new by-laws shall have been stated in the notice of such regular or special
meeting.
10.3 Certain Provisions. Notwithstanding any other provision of law, the
certificate of incorporation or these by-laws, and notwithstanding the fact that
a lesser percentage may be specified by law, the affirmative vote of the holders
of at least two-thirds of the shares of capital stock of the corporation issued
and outstanding and entitled to vote shall be required to amend or repeal, or to
adopt any provision inconsistent with, Section 3.5, Section 3.7, Section 3.14,
Section 4 and Section 10 of these by-laws.
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ALLAIRE CORP.
1997 STOCK INCENTIVE PLAN
1. Purpose. The purpose of this 1997 Stock Incentive Plan (the "Plan") is
to promote the interests of Allaire Corp. (the "Company") and its Affiliates, if
any, by providing key employees, directors, advisors and representatives of the
Company and any Affiliates an opportunity to acquire a proprietary interest in
the Company and thereby develop a stronger incentive to put forth maximum effort
for the continued success and growth of the Company and its Affiliates. This
Plan is also intended to facilitate recruiting and retaining key personnel of
outstanding ability.
2. Definitions. The capitalized terms used in this Plan have the meanings
set forth in the list of defined terms attached to this Plan as Exhibit A.
3. Administration.
(a) Authority of Committee. The Committee shall administer this Plan.
The Committee shall have exclusive power to make Awards and to determine when
and to whom Awards will be granted, and the form, amount and other terms and
conditions of each Award, subject to the provisions of this Plan. The Committee
may determine whether, to what extent and under what circumstances Awards may be
settled, paid or exercised in cash, Shares or other Awards or other property, or
canceled, forfeited or suspended. The Committee shall have the authority to
interpret this Plan and any Award or Agreement made under this Plan, to
establish, amend, waive and rescind any rules and regulations relating to the
administration of this Plan, to determine the terms and provisions of any
Agreements entered into hereunder (not inconsistent with this Plan), and to make
all other determinations necessary or advisable for the administration of this
Plan. The Committee may correct any defect, supply any omission or reconcile any
inconsistency in this Plan or in any Award in the manner and to the extent it
shall deem desirable. The determinations of the Committee in the administration
of this Plan, as described herein, shall be final, binding and conclusive.
(b) Rule 16b-3 Compliance. It is intended that, from and after Section
12 Registration, this Plan and all Awards granted pursuant to it shall be
administered by the Committee so as to permit this Plan and Awards to comply
with Exchange Act Rule 16b-3. If any provision of this Plan or of any Award
would otherwise frustrate or conflict with the intent expressed in this Section
3(b), that provision to the extent possible shall be interpreted and deemed
amended in the manner determined by the Committee so as to avoid such conflict.
To the extent of any remaining irreconcilable conflict with such intent, the
provision shall be deemed void as applicable to Participants who are then
subject to the reporting requirements of Section 16 of the Exchange Act to the
extent permitted by law and in the manner deemed advisable by the Committee.
(c) Delegation of Authority. The Committee may delegate all or any
part of its authority under this Plan to persons who are not Non-employee
Director for purposes of determining and administering Awards. From and after
Section 12 Registration, such delegation shall be for purposes of determining
and administering Awards solely to Employees who are not then subject to the
reporting requirements of Section 16 of the Exchange Act.
(d) Indemnification. To the full extent permitted by law, each member
and former member of the Committee and each person to whom the Committee
delegates or has delegated authority under this Plan shall be entitled to
indemnification by the Company against and from any loss, liability, judgment,
damage, cost and reasonable expense incurred by such member, former member or
other person by reason of any action taken, failure to act or determination made
in good faith under or with respect to this Plan.
<PAGE>
4. Shares Available; Maximum Payouts.
(a) Shares Available. The number of Shares available for distribution
under this Plan is 1,726,000 (subject to adjustment under Section 12(f) hereof).
(b) Shares Again Available. Any Shares subject to the terms and
conditions of an Award under this Plan which are not used because the Award
expires without all Shares subject to such Award having been issued or because
the terms and conditions of the Award are not met may again be used for an Award
under this Plan. Any Shares that are the subject of Awards which are
subsequently forfeited to the Company pursuant to the restrictions applicable to
such Award may again be used for an Award under this Plan. If a Participant
exercises a Stock Appreciation Right, any Shares covered by the Stock
Appreciation Right in excess of the number of Shares issued (or, in the case of
a settlement in cash or any other form of property, in excess of the number of
Shares equal in value to the amount of such settlement, based on the Fair Market
Value of such Shares on the date of such exercise) may again be used for an
Award under this Plan. If, in accordance with the Plan, a Participant uses
Shares to (i) pay a purchase or exercise price, including an Option exercise
price, or (ii) satisfy tax withholdings, such Shares may again be used for an
Award under this Plan.
(c) Unexercised Awards. Any unexercised or undistributed portion of
any terminated, expired, exchanged, or forfeited Award or any Award settled in
cash in lieu of Shares (except as provided in Section 4(b) hereof) shall be
available for further Awards.
(d) No Fractional Shares. No fractional Shares may be issued under
this Plan; fractional Shares will be rounded to the nearest whole Share.
(e) Maximum Payouts. No more than 25% of all Shares subject to this
Plan may be granted in the aggregate pursuant to Restricted Stock and Other
Stock-Based Awards.
5. Eligibility. Awards may be granted under this Plan at the discretion of
the Committee to any Employee of the Company or any Affiliate, whether or not
such person is an employee of the Company or any such Affiliate within the
meaning of the Code; provided, however, that key employees of the Company or its
Affiliates within the meaning of the Code (including any such employee who is
also an officer or director the the Company or any such Affiliate) shall be the
only persons eligible to receive Options intended to constitute Incentive Stock
Options.
6. General Terms of Awards.
(a) Awards. Awards under this Plan may consist of Stock, Options
(either Incentive Stock Options or Non-Qualified Stock Options), Stock
Appreciation Rights, Performance Shares, Restricted Stock and Other Stock-Based
Awards. Awards of Restricted Stock may, in the discretion of the Committee,
provide the Participant with dividends or dividend equivalents and voting rights
prior to vesting (whether vesting is based on a period of time, the attainment
of specified performance conditions or otherwise).
<PAGE>
(b) Amount of Awards. Each Agreement shall set forth the number of
Shares of Stock, Shares of Restricted Stock or Performance Shares subject to
such Agreement, or the number of Shares to which the Option applies or with
respect to which payment upon the exercise of the Stock Appreciation Right is to
be determined, as the case may be, together with such other terms and conditions
applicable to the Award (not inconsistent with this Plan) as determined by the
Committee in its sole discretion.
(c) Term. Each Agreement, other than those relating solely to Awards
of Stock without restrictions, shall set forth the Term of the Award and any
applicable Performance Period for Performance Shares, as the case may be, but in
no event shall the Term of an Award or the Performance Period be longer than ten
years after the date of grant. An Agreement with a Participant may permit
acceleration of vesting requirements and of the expiration of the applicable
Term upon such terms and conditions as shall be set forth in the Agreement,
which may, but need not, include, without limitation, acceleration resulting
from the occurrence of a Change in Control, a Fundamental Change, or the
Participant's death, Disability or Retirement. Acceleration of the Performance
Period of Performance Shares shall be subject to Section 9(b) hereof.
(d) Agreements. Each Award under this Plan shall be evidenced by an
Agreement setting forth the terms and conditions, as determined by the
Committee, which shall apply to such Award, in addition to the terms and
conditions specified in this Plan.
(e) Transferability. During the lifetime of a Participant to whom an
Award is granted, only such Participant (or such Participant's legal
representative or, if so provided in the applicable Agreement in the case of a
Non-Qualified Stock Option, a permitted transferee as hereafter described) may
exercise an Option or Stock Appreciation Right or receive payment with respect
to Performance Shares or any other Award. No Award of Restricted Stock (prior to
the expiration of the restrictions), Options, Stock Appreciation Rights,
Performance Shares or other Award (other than an award of Stock without
restrictions) may be sold, assigned, transferred, exchanged, or otherwise
encumbered, and any attempt to do so shall be of no effect. Notwithstanding the
immediately preceding sentence, (i) an Agreement may provide that an Award shall
be transferable to a Successor in the event of a Participant's death and (ii) an
Agreement may provide that an Award (other than an Incentive Stock Option) shall
be transferable to any member of a Participant's "immediate family" (as such
term is defined in Rule 16a-1(e) promulgated under the Exchange Act, or any
successor rule or regulation) or to one or more trusts whose beneficiaries are
members of such Participant's "immediate family" or partnerships in which such
family members are the only partners; provided, however, that (1) the
Participant receives no consideration for the transfer and (2) such transferred
Award shall continue to be subject to the same terms and conditions as were
applicable to such Award immediately prior to its transfer.
(f) Termination of Employment. Except as otherwise determined by the
Committee or provided by the Committee in an applicable Agreement, in case of
termination of employment, the following provisions shall apply:
(1) Options and Stock appreciation Rights.
(i) Death. If a Participant who has been granted an Option
or Stock Appreciation Rights shall die before such Option or
Stock Appreciation Rights has expired, the Option or Stock
Appreciation Rights shall become exercisable in full, and may be
exercised by the Participant's Successor at any time, or from
time to time, within five years after the date of the
Participant's death.
<PAGE>
(ii) Disability or Retirement. If a Participant's employment
terminates because of Disability or Retirement, the Option or
Stock Appreciation Rights shall become exercisable in full, and
the Participant may exercise his or her Options or Stock
Appreciation Rights at any time, or from time to time, within (x)
five years after the date of such termination if such termination
results from the Participant's disability (one year in the case
of an Incentive Stock Option) or (y) within three months, or such
longer period as the Committee may permit, after the date of such
termination if such termination results from the Participant's
retirement.
(iii) Reasons other than Death, Disability or Retirement. If
a Participant's employment terminates for any reason other than
death, Disability or Retirement, the unvested or unexercised
portion of any Award held by such Participant shall terminate at
the date of termination of employment.
(iv) Expiration of Term. Notwithstanding the foregoing
paragraphs (i)-(iii), in no event shall an Option or a Stock
Appreciation Right be exercisable after expiration of the Term of
such Award.
(2) Performance Shares. If a Participant's employment with the
Company or any of its Affiliates terminates during a Performance
Period because of death, Disability or Retirement, or under other
circumstances provided by the Committee in its discretion in the
applicable Agreement, the Participant shall be entitled to a payment
of Performance Shares at the end of the Performance Period based upon
the extent to which achievement of performance targets was satisfied
at the end of such period (as determined at the end of the Performance
Period) and prorated for the portion of the Performance Period during
which the Participant was employed by the Company or any Affiliate.
Except as provided in this Section 6(f)(2) or in the applicable
Agreement, if a Participant's employment terminates with the Company
or any of its Affiliates during a Performance Period, then such
Participant shall not be entitled to any payment with respect to that
Performance Period.
(3) Restricted Stock. Unless otherwise provided in the applicable
Agreement, in case of a Participant's death, Disability or Retirement,
the Participant shall be entitled to receive that number of shares of
Restricted Stock under outstanding Awards which has been pro rated for
the portion of the Term of the Awards during which the Participant was
employed by the Company or any Affiliate, and with respect to such
Shares all restrictions shall lapse.
(g) Rights as Shareholder. A Participant shall have no rights as a
shareholder with respect to any securities covered by an Award until the date
the Participant becomes the holder of record, and then only to the such rights
are not otherwise restricted by the Agreement covering such Award.
(h) Lock-Up Agreements. Unless the Committee specifies otherwise, each
Award shall provide that upon the request of the Company or the Managing
Underwriter(s), any Participant shall, in connection with an initial public
offering of the Company's Stock, agree in writing that for a period of time (not
to exceed 180 days) from the effective date of the Registration Statement filed
with the Securities and Exchange Commission for such offering, he shall not
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any shares of the Company's Stock owned or controlled by
him. This provision shall apply only to a Participant who, at the time of the
request, is an officer or director of the Company or is the holder (assuming
exercise of all options and warrants, and the conversion of all convertible
securities held by the Participant, to the extent then exercisable or
convertible) of a number of shares of the Company's Stock equal to at least one
percent (1%) of the total number of shares of Stock then issued and outstanding.
<PAGE>
7. Stock Options.
(a) Terms of All Options. Each Option shall be granted pursuant to an
Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option.
Only Non-Qualified Stock Options may be granted to Employees who are not
employees of the Company or an Affiliate. The purchase price of each Share
subject to an Option shall be determined by the Committee and set forth in the
Agreement, but shall not be less than 50% of the Fair Market Value of a Share as
of the date the Option is granted. The purchase price of the Shares with respect
to which an Option is exercised shall be payable in full at the time of
exercise, provided that, to the extent permitted by law, Participants may
simultaneously exercise Options and sell the Shares thereby acquired pursuant to
a brokerage or similar relationship and use the proceeds from such sale to pay
the purchase price of such Shares. The purchase price may be paid in cash or, if
the Committee so permits, through a reduction of the number of Shares delivered
to the Participant upon exercise of the Option or delivery to the Company of
Shares held by such Participant (in each case, such Shares having a Fair Market
Value as of the date the Option is exercised equal to the purchase price of the
Shares being purchased pursuant to the Option), or a combination thereof, unless
otherwise provided in the Agreement. If the Committee so determines, the
Agreement relating to any Option may provide for the issuance of "reload"
Options pursuant to which, subject to the terms and conditions established by
the Committee and any applicable requirements of Exchange Act Rule 16b-3 or any
other applicable law, the Participant will, either automatically or subject to
subsequent Committee approval, be granted a new Option when the payment of the
exercise price of the original Option, or the payment of tax withholdings
pursuant to Section 12(d) hereof, is made through the delivery to the Company of
Shares held by such Participant, such new "reload" Option (i) being an Option to
purchase the number of Shares provided as consideration for the exercise price
and in payment of taxes in connection with the exercise of the original Option,
and (ii) having a Per Share exercise price equal to the Fair Market Value as of
the date of exercise of the original Option. Each Option shall be exercisable in
whole or in part on the terms provided in the Agreement. In no event shall any
Option be exercisable at any time after its Term. When an Option is no longer
exercisable, it shall be deemed to have lapsed or terminated.
(b) Incentive Stock Options. In addition to the other terms and
conditions applicable to all Options:
(i) the purchase price of each Share subject to an Incentive Stock
Option shall not be less than 100% of the Fair Market Value of a Share as
of the date the Option is granted (or such other limit as may be required
by the Code) if such limitation is necessary to qualify the Option as an
Incentive Stock Option;
(ii) the aggregate Fair Market Value (determined as of the date the
Option is granted) of the Shares with respect to which Incentive Stock
Options held by an individual first become exercisable in any calendar year
(under this Plan and all other incentive stock option plans of the Company
and its Affiliates) shall not exceed $100,000 (or such other limit as may
be required by the Code), if such limitation is necessary to qualify the
Option as an Incentive Stock Option, and to the extent an Option or Options
granted to a Participant exceed such limit, such Option or Options shall be
treated as a Non-Qualified Stock Option;
(iii) an Incentive Stock Option shall not be exercisable and the Term
of the Award shall not be more than ten years after the date of grant (or
such other limit as may be required by the Code) if such limitation is
necessary to qualify the Option as an Incentive Stock Option;
(iv) the Agreement covering an Incentive Stock Option shall contain
such other terms and provisions which the Committee determines necessary to
qualify such Option as an Incentive Stock Option; and
<PAGE>
(v) no Participant may receive an Incentive Stock Option under this
Plan if, at the time the Award is granted, the Participant owns (after
application of the rules contained in Section 424(d) of the Code, or its
successor provision) Shares possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or its
subsidiaries, unless (A) the option price for such Incentive Stock Option
is at least 110% of the Fair Market Value of the Shares subject to such
Incentive Stock Option on the date of grant and (B) such Option is not
exercisable after the date five years from the date such Incentive Stock
Option is granted.
8. Stock Appreciation Rights. An Award of a Stock Appreciation Right shall
entitle the Participant, subject to terms and conditions determined by the
Committee, to receive upon exercise of the Stock Appreciation Right all or a
portion of the excess of (i) the Fair Market Value of a specified number of
Shares as of the date of exercise of the Stock Appreciation Right over (ii) a
specified price which shall not be less than 50% of the Fair Market Value of
such Shares as of the date of grant of the Stock Appreciation Right. A Stock
Appreciation Right may be granted in connection with a previously or
contemporaneously granted Option, or independent of any Option. If issued in
connection with an Option, the Committee may impose a condition that exercise of
a Stock Appreciation Right cancels the Option with which it is connected and
exercise of the connected Option cancels the Stock Appreciation Right. Each
Stock Appreciation Right may be exercisable in whole or in part on the terms
provided in the Agreement. Notwithstanding anything to the contrary stated in
this Plan, no Stock Appreciation Right shall be exercisable prior to six months
from the date of grant except in the event of the death or Disability of the
Participant. No Stock Appreciation Right shall be exercisable at any time after
its Term. When a Stock Appreciation Right is no longer exercisable, it shall be
deemed to have lapsed or terminated. Except as otherwise provided in the
applicable Agreement, upon exercise of a Stock Appreciation Right, payment to
the Participant (or to his or her Successor) shall be made in the form of cash,
Stock or a combination of cash and Stock as promptly as practicable after such
exercise. The Agreement may provide for a limitation upon the amount or
percentage of the total appreciation on which payment (whether in cash and/or
Stock) may be made in the event of the exercise of a Stock Appreciation Right.
9. Performance Shares.
(a) Initial Award. An Award of Performance Shares shall entitle a
Participant (or a Successor) to future payments based upon the achievement of
performance targets established in writing by the Committee. Payment shall be
made in Stock, or a combination of cash and Stock, as determined by the
Committee, provided that at least 25% of the value of the vested Performance
Shares shall be distributed in the form of Stock. With respect to those
Participants who are "covered employees" within the meaning of Section 162(m) of
the Code and the regulations thereunder, such performance targets shall consist
of one or any combination of two or more of earnings or earnings per share
before income tax (profit before taxes), net earnings or net earnings per share
(profits after tax), inventory, total, or net operating asset turnover,
operating income, total shareholder return, return on equity, pre-tax and
pre-interest expense return on average invested capital, which may be expressed
on a current value basis, or sales growth, and any such targets may relate to
one or any combination of two or more of corporate, group, unit, division,
Affiliate or individual performance. The Agreement may establish that a portion
of the maximum amount of a Participant's Award will be paid for performance
which exceeds the minimum target but falls below the maximum target applicable
to such Award. The Agreement shall also provide for the timing of such payment.
Following the conclusion or acceleration of each Performance Period, the
Committee shall determine the extent to which (i) performance targets have been
attained, (ii) any other terms and conditions with respect to an Award relating
to such Performance Period have been satisfied, and (iii) payment is due with
respect to a Performance Share Award.
(b) Acceleration and Adjustment. The Agreement may permit an
acceleration of the Performance Period and an adjustment of performance targets
and payments with respect to some or all of the Performance Shares awarded to a
Participant, upon such terms and conditions as shall be set forth in the
Agreement, upon the occurrence of certain events, which may, but need not,
include without limitation a Change in Control, a Fundamental Change, the
Participant's death, Disability or Retirement, a change in accounting practices
of the Company or its Affiliates, or, with respect to payments in Stock for
Performance Share Awards, a reclassification, stock dividend, stock split or
stock combination as provided in Section 12(f) hereof.
<PAGE>
(c) Valuation. Each Performance Share earned after conclusion of a
Performance Period shall have a value equal to the Fair Market Value of a Share
on the last day of such Performance Period.
10. Restricted Stock. Subject to Section 4(e), Restricted Stock may be
granted in the form of Shares registered in the name of the Participant but held
by the Company until the end of the Term of the Award. Any employment
conditions, performance conditions and the Term of the Award shall be
established by the Committee in its discretion and included in the applicable
Agreement. The Committee may provide in the applicable Agreement for the lapse
or waiver of any such restriction or condition based on such factors or criteria
as the Committee, in its sole discretion, may determine. No Award of Restricted
Stock may vest earlier than one year from the date of grant, except as provided
in the applicable Agreement.
11. Other Stock-Based Awards. Subject to Section 4(e) the Committee may
from time to time grant Awards of Stock, and other Awards under this Plan
(collectively herein defined as "Other Stock-Based Awards"), including without
limitation those Awards pursuant to which Shares may be acquired in the future,
such as Awards denominated in Stock units, securities convertible into Stock and
phantom securities. The Committee, in its sole discretion, shall determine the
terms and conditions of such Awards provided that such Awards shall not be
inconsistent with the terms and purposes of this Plan. The Committee may, in its
sole discretion, direct the Company to issue Shares subject to restrictive
legends and/or stop transfer instructions which are consistent with the terms
and conditions of the Award to which such Shares relate.
12. General Provisions.
(a) Effective Date of this Plan. This Plan shall become effective as
of February 4, 1997, provided that this Plan is approved and ratified by the
affirmative vote of the holders of a majority of the outstanding Shares of Stock
present or represented and entitled to vote in person or by proxy at a meeting
of the shareholders of the Company, or by written action, no later than December
31, 1997. If this plan is not so approved by such holders, any Awards granted
under this Plan subject to such approval shall be null and void.
(b) Duration of this Plan. This Plan shall remain in effect until all
Stock subject to it shall be distributed or all Awards have expired or lapsed,
whichever is latest to occur, or this Plan is terminated pursuant to Section
12(e) hereof. No Award of an Incentive Stock Option shall be made more than ten
years after the effective date provided in Section 12(a) hereof (or such other
limit as may be required by the Code) if such limitation is necessary to qualify
the Option as an Incentive Stock Option. The date and time of approval by the
Committee of the granting of an Award shall be considered the date and time at
which such Award is made or granted, notwithstanding the date of any Agreement
with respect to such Award; provided, however, that the Committee may grant
Awards other than Incentive Stock Options to be effective and deemed to be
granted on the occurrence of certain specified contingencies.
(c) Right to Terminate Employment. Nothing in this Plan or in any
Agreement shall confer upon any Participant who is an Employee the right to
continue in the employment of the Company or any Affiliate or affect any right
which the Company or any Affiliate may have to terminate or modify the
employment of the Participant with or without cause.
(d) Tax Withholding. The Company may withhold from any payment of cash
or Stock to a Participant or other person under this Plan an amount sufficient
to cover any required withholding taxes, including the Participant's social
security and Medicare taxes (FICA) and federal, state and local income tax with
respect to income arising from payment of the Award. The Company shall have the
right to require the payment of any such taxes before issuing any Stock pursuant
to the Award. In lieu of all or any part of a cash payment from a person
receiving Stock under this Plan, the individual may elect to cover all or any
part of the required withholdings, and to cover any
<PAGE>
additional withholdings up to the amount needed to cover the individual's full
FICA and federal, state and local income tax with respect to income arising from
payment of the Award, through a reduction of the number of Shares delivered to
such individual or a subsequent return to the Company of Shares held by the
Participant or other person, in each case valued in the same manner as used in
computing the withholding taxes under the applicable laws.
(e) Amendment, Modification and Termination of this Plan. Except as
provided in this Section 12(e), the Board may at any time amend, modify,
terminate or suspend this Plan. Except as provided in this Section 12(e), the
Committee may at any time alter or amend any or all Agreements under this Plan
to the extent permitted by law. Amendments are subject to approval of the
shareholders of the Company only if such approval is necessary to maintain this
Plan in compliance with the requirements of Exchange Act Rule 16b-3, Section 422
of the Code, their successor provisions, or any other applicable law or
regulation. No termination, suspension or modification of this Plan may
materially and adversely affect any right acquired by any Participant (or a
Participant's legal representative) or any Successor under an Award granted
before the date of termination, suspension or modification, unless otherwise
agreed by the Participant in the Agreement or otherwise or required as a matter
of law. It is conclusively presumed that any adjustment for changes in
capitalization provided for in Section 9(b) or 12(f) hereof does not adversely
affect any right of a Participant under an Award.
(f) Adjustment for Changes in Capitalization. Appropriate adjustments
in the aggregate number and type of Shares available for Awards under this Plan,
in the limitations on the number and type of Shares that may be issued to an
individual Participant, in the number and type of Shares and amount of cash
subject to Awards then outstanding, in the Option exercise price as to any
outstanding Options and, subject to Section 9(b) hereof, in outstanding
Performance Shares and payments with respect to outstanding Performance Shares
may be made by the Committee in its sole discretion to give effect to
adjustments made in the number or type of Shares through a Fundamental Change
(subject to Section 12(g) hereof), recapitalization, reclassification, stock
dividend, stock split, stock combination, or other relevant change, provided
that fractional Shares shall be rounded to the nearest whole Share.
(g) Fundamental Change. In the event of a proposed Fundamental Change:
(a) involving a merger, consolidation or statutory share exchange, unless
appropriate provision shall be made (which the Committee may, but shall not be
obligated to, make) for the protection of the outstanding Options and Stock
Appreciation Rights by the substitution of options, stock appreciation rights
and appropriate voting common stock of the corporation surviving any such merger
or consolidation or, if appropriate, the Parent of such surviving corporation,
to be issuable upon the exercise of options or used to calculate payments upon
the exercise of stock appreciation rights in lieu of Options, Stock Appreciation
Rights and capital stock of the Company, or (b) involving the dissolution or
liquidation of the Company, the Committee may, but shall not be obligated to,
declare, at least twenty days prior to the occurrence of the Fundamental Change,
and provide written notice to each holder of an Option or Stock Appreciation
Right of the declaration, that each outstanding Option and Stock Appreciation
Right, whether or not then exercisable, shall be canceled at the time of, or
immediately prior to the occurrence of, the Fundamental Change in exchange for
payment to each holder of an Option or Stock Appreciation Right, within 20 days
after the Fundamental Change, of cash equal to (i) for each Share covered by the
canceled Option, the amount, if any, by which the Fair Market Value (as defined
in this Section 12(g)) per Share exceeds the exercise price per Share covered by
such Option or (ii) for each Stock Appreciation Right, the price determined
pursuant to Section 8 hereof, except that Fair Market Value of the Shares as of
the date of exercise of the Stock Appreciation Right, as used in clause (i) of
Section 8, shall be deemed to mean Fair Market Value for each Share with respect
to which the Stock Appreciation Right is calculated determined in the manner
hereinafter referred to in this Section 12(g). At the time of the declaration
provided for in the immediately preceding sentence, each Stock Appreciation
Right that has been outstanding for at least six months and each Option shall
immediately become exercisable in full and each person holding an Option or a
Stock Appreciation Right shall have the right, during the period preceding the
time of cancellation of the Option or Stock Appreciation Right, to exercise the
Option as to all or any part of the Shares covered thereby or the Stock
Appreciation Right in whole or in part, as the case may
<PAGE>
be. In the event of a declaration pursuant to this Section 12(g), each
outstanding Option and Stock Appreciation Right that shall not have been
exercised prior to the Fundamental Change shall be canceled at the time of, or
immediately prior to, the Fundamental Change, as provided in the declaration.
Notwithstanding the foregoing, no person holding an Option or Stock Appreciation
Right shall be entitled to the payment provided for in this Section 12(g) if
such Option or Stock Appreciation Right shall have expired pursuant to an
Agreement. For purposes of this Section 12(g) only, "Fair Market Value" per
Share means the cash plus the fair market value, as determined in good faith by
the Committee, of the non-cash consideration to be received per Share by the
shareholders of the Company upon the occurrence of the Fundamental Change,
notwithstanding anything to the contrary provided in this Plan.
(h) Other Benefit and Compensation Programs. Payments and other
benefits received by a Participant under an Award shall not be deemed a part of
a Participant's regular, recurring compensation for purposes of any termination,
indemnity or severance pay laws and shall not be included in, nor have any
effect on, the determination of benefits under any other employee benefit plan,
contract or similar arrangement provided by the Company or an Affiliate, unless
expressly so provided by such other plan, contract or arrangement or the
Committee determines that an Award or portion of an Award should be included to
reflect competitive compensation practices or to recognize that an Award has
been made in lieu of a portion of competitive cash compensation.
(i) Beneficiary Upon Participant's Death. To the extent that the
transfer of a Participant's Award at death is permitted by this Plan or under an
Agreement, (i) a Participant's Award shall be transferable to the beneficiary,
if any, designated on forms prescribed by and filed with the Committee and (ii)
upon the death of the Participant, such beneficiary shall succeed to the rights
of the Participant to the extent permitted by law and this Plan. If no such
designation of a beneficiary has been made, the Participant's legal
representative shall succeed to the Awards, which shall be transferable by will
or pursuant to laws of descent and distribution to the extent permitted by this
Plan or under an Agreement.
(j) Unfunded Plan. This Plan shall be unfunded and the Company shall
not be required to segregate any assets that may at any time be represented by
Awards under this Plan. Neither the Company, its Affiliates, the Committee, nor
the Board shall be deemed to be a trustee of any amounts to be paid under this
Plan nor shall anything contained in this Plan or any action taken pursuant to
its provisions create or be construed to create a fiduciary relationship between
the Company and/or its Affiliates, and a Participant or Successor. To the extent
any person acquires a right to receive an Award under this Plan, such right
shall be no greater than the right of an unsecured general creditor of the
Company.
(k) Limits of Liability.
(i) Any liability of the Company to any Participant with respect to an
Award shall be based solely upon contractual obligations created by this
Plan and the Agreement.
(ii) Except as may be required by law, neither the Company nor any
member or former member of the Board or of the Committee, nor any other
person participating (including participation pursuant to a delegation of
authority under Section 3(b) hereof) in any determination of any question
under this Plan, or in the interpretation, administration or application of
this Plan, shall have any liability to any party for any action taken, or
not taken, in good faith under this Plan.
(l) Compliance with Applicable Legal Requirements. No certificate for
Shares distributable pursuant to this Plan shall be issued and delivered unless
the issuance of such certificate complies with all applicable legal requirements
including, without limitation, compliance with the provisions of applicable
state securities laws, the Securities Act of 1933, as amended and in effect from
time to time or any successor statute, the Exchange Act and the requirements of
the exchanges, if any, on which the Company's Shares may, at the time, be
listed.
<PAGE>
(m) Deferrals and Settlements. The Committee may require or permit
Participants to elect to defer the issuance of Shares or the settlement of
Awards in cash under such rules and procedures as it may establish under this
Plan. It may also provide that deferred settlements include the payment or
crediting of interest on the deferral amounts.
13. Governing Law. To the extent that federal laws do not otherwise
control, this Plan and all determinations made and actions taken pursuant to
this Plan shall be governed by the laws of Minnesota and construed accordingly.
14. Severability. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of this Plan, and this Plan shall be construed and enforced
as if the illegal or invalid provision had not been included.
<PAGE>
EXHIBIT A
ALLAIRE CORP.
1997 STOCK INCENTIVE PLAN
List Of Defined Terms
(a) "Affiliate" means any corporation that is a "parent corporation" or
"subsidiary corporation" of the Company, as those terms are defined in Sections
424(e) and (f) of the Code, or any successor provision, and, for purposes other
than the grant of Incentive Stock Options, any joint venture in which the
Company or any such "parent corporation" or "subsidiary corporation" owns an
equity interest.
(b) "Agreement" means a written contract entered into between the Company
or an Affiliate and a Participant containing the terms and conditions of an
Award in such form (not inconsistent with this Plan) as the Committee approves
from time to time, together with all amendments thereof, which amendments may be
unilaterally made by the Company (with the approval of the Committee) unless
such amendments are deemed by the Committee to be materially adverse to the
Participant and are not required as a matter of law.
(c) "Award" means a grant made under this Plan in the form of Stock,
Options, Stock Appreciation Rights, Restricted Stock, Performance Shares or any
Other Stock-Based Award.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means:
(i) a majority of the directors of the Company shall be persons other
than persons
(A) for whose election proxies shall have been solicited by the
Board or
(B) who are then serving as directors appointed by the Board to
fill vacancies on the Board caused by death or resignation
(but not by removal) or to fill newly-created directorships,
(ii) 30% or more of the (1) combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors ("Outstanding Company
Voting Securities") or (2) the then outstanding Shares of Stock
("Outstanding Company Common Stock") is acquired or beneficially
owned (as defined in Rule 13d-3 under the Exchange Act, or any
successor rule thereto) by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act), provided, however, that the following acquisitions
and beneficial ownership shall not constitute Changes in Control
pursuant to this paragraph 2(e)(ii):
(A) any acquisition or beneficial ownership by the Company or a
Subsidiary, or
(B) any acquisition or beneficial ownership by any employee
benefit plan (or related trust) sponsored or maintained by
the Company or one or more of its Subsidiaries,
<PAGE>
(C) any acquisition or beneficial ownership by the Participant
or any group that includes the Participant, or
(D) any acquisition or beneficial ownership by a Parent or its
wholly-owned subsidiaries, as long as they shall remain
wholly-owned subsidiaries, of 100% of the Outstanding
Company Voting Securities as a result of a merger or
statutory share exchange which complies with paragraph
2(e)(iii)(A)(2) or the exception in paragraph 2(e)(iii)(B)
hereof in all respects,
(iii) the shareholders of the Company approve a definitive agreement
or plan to
(A) merge or consolidate the Company with or into another
corporation (other than (1) a merger or consolidation with a
Subsidiary or (2) a merger in which
(a) the Company is the surviving corporation,
(b) no Outstanding Company Voting Securities or Outstanding
Company Common Stock (other than fractional shares)
held by shareholders of the Company immediately prior
to the merger is converted into cash, securities, or
other property (except (i) voting stock of a Parent
owning directly or indirectly through wholly-owned
subsidiaries, both beneficially and of record 100% of
the Outstanding Company Voting Securities immediately
after the Merger or (ii) cash upon the exercise by
holders of Outstanding Company Voting Securities of
statutory dissenters' rights),
(c) the persons who were the beneficial owners,
respectively, of the Outstanding Company Voting
Securities and Outstanding Company Common Stock
immediately prior to such merger beneficially own,
directly or indirectly, immediately after the merger,
more than 70% of, respectively, the then outstanding
common stock and the voting power of the then
outstanding voting securities of the surviving
corporation or its Parent entitled to vote generally in
the election of directors, and
(d) if voting securities of the Parent are exchanged for
Outstanding Company Voting Securities in the merger,
all holders of any class or series of Outstanding
Company Voting Securities immediately prior to the
merger have the right to receive substantially the same
per share consideration in exchange for their
Outstanding Company Voting Securities as all other
holders of such class or series),
(B) exchange, pursuant to a statutory share exchange,
Outstanding Company Voting Securities of any one or more
classes or series held by shareholders of the Company
immediately prior to the exchange for cash, securities or
other property, except for (a) voting stock of a Parent
owning directly, or indirectly through wholly-owned
subsidiaries, both beneficially and of record 100% of the
Outstanding Company Voting Securities immediately after the
statutory share exchange if (i) the persons who were the
beneficial owners, respectively, of the Outstanding Company
Voting Securities and Outstanding Company Common Stock
immediately prior to such statutory share exchange own,
directly or indirectly, immediately after the statutory
share exchange more than 70% of, respectively, the then
outstanding common stock and the voting power of the then
outstanding voting securities of such Parent entitled to
vote generally
<PAGE>
in the election of directors, and (ii) all holders of any
class or series of Outstanding Company Voting Securities
immediately prior to the statutory share exchange have the
right to receive substantially the same per share
consideration in exchange for their Outstanding Company
Voting Securities as all other holders of such class or
series or (b) cash with respect to fractional shares of
Outstanding Company Voting Securities or payable as a result
of the exercise by holders of Outstanding Company Voting
Securities of statutory dissenters' rights,
(C) sell or otherwise dispose of all or substantially all of the
assets of the Company (in one transaction or a series of
transactions), or
(D) liquidate or dissolve the Company,
unless a majority of the voting stock (or the voting equity interest)
of the surviving corporation or its parent corporation or of any
corporation (or other entity) acquiring all or substantially all of
the assets of the Company (in the case of a merger, consolidation or
disposition of assets) or the Company or its Parent (in the case of a
statutory share exchange) is, immediately following the merger,
consolidation, statutory share exchange or disposition of assets,
beneficially owned by the Participant or a group of persons, including
the Participant, acting in concert.
(f) "Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time, or any successor statute.
(g) "Committee" means two or more persons designated by the Board to
administer this Plan under Section 3 of the Plan. From and after Section 12
Registration, the persons designated by the Board shall be "Non-employee
Directors" and the Committee shall otherwise be constituted so as to permit
awards under this Plan to comply with Exchange Act Rule 16b-3.
(h) "Company" means Allaire Corp., a Minnesota corporation, or any
successor to all or substantially all of its businesses by merger,
consolidation, purchase of assets or otherwise.
(i) "Disability" means the disability of a Participant such that the
Participant is considered disabled under any retirement plan of the Company
which is qualified under Section 401 of the Code, or as otherwise determined by
the Committee.
(j) "Non-employee Director" means a member of the Board who is considered a
non-employee director within the meaning of Exchange Act Rule 16b-3.
(k) "Employee" means any full-time or part-time employee (including an
officer or director who is also an employee) of the Company or an Affiliate.
Except with respect to grants of Incentive Stock Options, "Employee" shall also
include other individuals and entities who are not "employees" of the Company or
an Affiliate but who provide services to the Company or an Affiliate in the
capacity of an independent contractor. References in this Plan to "employment"
and related terms shall include the providing of services in any such capacity.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as amended;
"Exchange Act Rule 16b-3" means Rule 16b-3 promulgated by the Securities and
Exchange Commission under the Exchange Act as in effect with respect to the
Company or any successor regulation.
(m) "Fair Market Value" as of any date means, unless otherwise expressly
provided in this Plan:
(i) the closing sale price of a Share (A) on The Nasdaq Stock Market,
or (B) if the Shares are not traded on the Nasdaq Stock Market, on the
composite tape for New York Stock Exchange ("NYSE") listed shares, or (C)
if the Shares are not quoted on the NYSE composite tape, on the principal
United States securities exchange registered under the Exchange Act on
which the Shares are listed, in any case on the date immediately preceding
that date, or, if no sale of Shares shall have occurred on that date, on
the next preceding
<PAGE>
day on which a sale of Shares occurred, or
(ii) if clause (i) is not applicable, what the Committee determines in
good faith to be 100% of the fair market value of a Share on that date.
However, if the applicable securities exchange or system has closed for the
day at the time the event occurs that triggers a determination of Fair Market
Value, all references in this paragraph to the "date immediately preceding that
date" shall be deemed to be references to "that date." In the case of an
Incentive Stock Option, if such determination of Fair Market Value is not
consistent with the then current regulations of the Secretary of the Treasury,
Fair Market Value shall be determined in accordance with said regulations. The
determination of Fair Market Value shall be subject to adjustment as provided in
Section 12(f) of the Plan.
(n) "Fundamental Change" means a dissolution or liquidation of the Company,
a sale of substantially all of the assets of the Company, a merger or
consolidation of the Company with or into any other corporation, regardless of
whether the Company is the surviving corporation, or a statutory share exchange
involving capital stock of the Company.
(o) "Incentive Stock Option" means any Option designated as such and
granted in accordance with the requirements of Section 422 of the Code or any
successor to such section.
(p) "Non-Qualified Stock Option" means an Option other than an Incentive
Stock Option.
(q) "Other Stock-Based Award" means an Award based on Stock other than
Options, Stock Appreciation Rights, Restricted Stock or Performance Shares.
(r) "Option" means a right to purchase Stock, including both Non-Qualified
Stock Options and Incentive Stock Options.
(s) "Parent" means a "parent corporation", as that term is defined in
Section 424(e) of the Code, or any successor provision.
(t) "Participant" means an Employee to whom an Award is made.
(u) "Performance Period" means the period of time as specified in an
Agreement over which Performance Shares are to be earned.
(v) "Performance Shares" means a contingent award of a specified number of
Performance Shares, with each Performance Share equivalent to one Share, a
variable percentage of which may vest depending upon the extent of achievement
of specified performance objectives during the applicable Performance Period.
(w) "Plan" means this 1997 Stock Incentive Plan, as amended and in effect
from time to time.
(x) "Restricted Stock" means Stock granted under Section 10 of the Plan so
long as such Stock remains subject to one or more restrictions.
(y) "Retirement" means termination of employment on or after age 55,
provided the Employee has been employed by the Company and/or one or more
Affiliates for at least ten years, or termination of employment on or after age
62, provided in either case that the Employee has given the Company at least six
months' prior written notice of such termination, or as otherwise determined by
the Committee.
(z) "Section 12 Registration" means the date on which the Company first
registers a class of its equity securities under Section 12 of the Exchange Act.
(aa) "Share" means a share of Stock.
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(bb) "Stock" means the common stock, per value $.01 per share, of the
Company.
(cc) "Stock Appreciation Right" means a right, the value of which is
determined relative to appreciation in value of Shares pursuant to an Award
granted under Section 8 of the Plan.
(dd) "Subsidiary" means a "subsidiary corporation," as that term is defined
in Section 424(f) of the Code, or any successor provision.
(ee) "Successor" with respect to a Participant means the legal
representative of an incompetent Participant and, if the Participant is
deceased, the legal representative of the estate of the Participant or the
person or persons who may, by bequest or inheritance, or under the terms of an
Award or of forms submitted by the Participant to the Committee under Section
12(i) of the Plan, acquire the right to exercise an Option or Stock Appreciation
Right or receive cash and/or Shares issuable in satisfaction of an Award in the
event of a Participant's death.
(ff) "Term" means the period during which an Option or Stock Appreciation
Right may be exercised or the period during which the restrictions placed on
Restricted Stock or any other Award are in effect.
Except when otherwise indicated by the context, reference to the masculine
gender shall include, when used, the feminine gender and any term used in the
singular shall also include the plural.
ALLAIRE CORPORATION
1998 STOCK INCENTIVE PLAN
SECTION 1. General Purpose of the Plan; Definitions
The name of the plan is the Allaire Corporation 1998 Stock Incentive Plan
(the "Plan"). The purpose of the Plan is to encourage and enable officers,
directors, and employees of Allaire Corporation (the "Company") and its
Subsidiaries and other persons to acquire a proprietary interest in the Company.
It is anticipated that providing such persons with a direct stake in the
Company's welfare will assure a closer identification of their interests with
those of the Company and its shareholders, thereby stimulating their efforts on
the Company's behalf and strengthening their desire to remain with the Company.
The following terms shall be defined as set forth below:
"Award" or "Awards", except where referring to a particular category of
grant under the Plan, shall include Incentive Stock Options, Non-Statutory Stock
Options, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share
Awards and Stock Appreciation Rights.
"Board" means the Board of Directors of the Company.
"Cause" means (i) any material breach by the participant of any agreement
to which the participant and the Company are both parties, and (ii) any act or
omission justifying termination of the participant's employment for cause, as
determined by the Committee.
"Change of Control" shall have the meaning set forth in Section 15.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor Code, and related rules, regulations and interpretations.
"Restricted Stock Award" means an Award granted pursuant to Section 6.
"Committee" shall have the meaning set forth in Section 2.
"Disability" means disability as set forth in Section 22(e)(3) of the Code.
"Effective Date" means the date on which the Plan is approved by
stockholders as set forth in Section 17.
"Eligible Person" shall have the meaning set forth in Section 4.
"Fair Market Value" on any given date means the closing price per share of
the Stock on such date as reported by a nationally recognized stock exchange,
or, if the Stock is not listed on
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such an exchange, as reported by NASDAQ, or, if the Stock is not quoted on
NASDAQ, the fair market value of the Stock as determined by the Committee.
"Incentive Stock Option" means any Stock Option designated and qualified as
an "incentive stock option" as defined in Section 422 of the Code.
"Non-Statutory Stock Option" means any Stock Option that is not an
Incentive Stock Option.
"Normal Retirement" means retirement from active employment with the
Company and its Subsidiaries in accordance with the retirement policies of the
Company and its Subsidiaries then in effect.
"Outside Director" means any director who (i) is not an employee of the
Company or of any "affiliated group," as such term is defined in Section 1504(a)
of the Code, which includes the Company (an "Affiliate"), (ii) is not a former
employee of the Company or any Affiliate who is receiving compensation for prior
services (other than benefits under a tax-qualified retirement plan) during the
Company's or any Affiliate's taxable year, (iii) has not been an officer of the
Company or any Affiliate and (iv) does not receive remuneration from the Company
or any Affiliate, either directly or indirectly, in any capacity other than as a
director. "Outside Director" shall be determined in accordance with Section
162(m) of the Code and the Treasury regulations issued thereunder.
"Option" or "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
"Performance Share Award" means an Award granted pursuant to Section 8.
"Stock" means the Common Stock, $.01 par value per share, of the Company,
subject to adjustments pursuant to Section 3.
"Stock Appreciation Right" means an Award granted pursuant to Section 9.
"Subsidiary" means a subsidiary as defined in Section 424 of the Code.
"Unrestricted Stock Award" means Awards granted pursuant to Section 7.
SECTION 2. Administration of Plan; Committee Authority to Select Participants
and Determine Awards.
(a) Committee. The Plan shall be administered by a committee of the Board
(the "Committee") consisting of not less than two (2) Outside Directors, but the
authority and validity of any act taken or not taken by the Committee shall not
be affected if any person administering
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the Plan is not an "Outside Director." Except as specifically reserved to the
Board under the terms of the Plan, the Committee shall have full and final
authority to operate, manage and administer the Plan on behalf of the Company.
Action by the Committee shall require the affirmative vote of a majority of all
members thereof.
(b) Powers of Committee. The Committee shall have the power and authority
to grant and modify Awards consistent with the terms of the Plan, including the
power and authority:
(i) to select the persons to whom Awards may from time to time be
granted;
(ii) to determine the time or times of grant, and the extent, if any,
of Incentive Stock Options, Non-Statutory Stock Options, Restricted Stock,
Unrestricted Stock, Performance Shares and Stock Appreciation Rights, or
any combination of the foregoing, granted to any one or more participants;
(iii) to determine the number of shares to be covered by any Award;
(iv) to determine and modify the terms and conditions, including
restrictions, not inconsistent with the terms of the Plan, of any Award,
which terms and conditions may differ among individual Awards and
participants, and to approve the form of written instruments evidencing the
Awards; provided, however, that no such action shall adversely affect
rights under any outstanding Award without the participant's consent;
(v) to accelerate the exercisability or vesting of all or any portion
of any Award;
(vi) subject to the provisions of Section 5(b), to extend the period
in which any outstanding Stock Option or Stock Appreciation Right may be
exercised;
(vii) to determine whether, to what extent, and under what
circumstances Stock and other amounts payable with respect to an Award
shall be deferred either automatically or at the election of the
participant and whether and to what extent the Company shall pay or credit
amounts equal to interest (at rates determined by the Committee) or
dividends or deemed dividends on such deferrals; and
(viii) to adopt, alter and repeal such rules, guidelines and practices
for administration of the Plan and for its own acts and proceedings as it
shall deem advisable; to interpret the terms and provisions of the Plan and
any Award (including related written instruments); to make all
determinations it deems advisable for the administration of the Plan; to
decide all disputes arising in connection with the Plan; and to otherwise
supervise the administration of the Plan.
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All decisions and interpretations of the Committee shall be binding on all
persons, including the Company and Plan participants.
SECTION 3. Shares Issuable under the Plan; Mergers; Substitution.
(a) Shares Issuable. The maximum number of shares of Stock with respect to
which Awards (including Stock Appreciation Rights) may be granted under the Plan
shall be one million nine hundred thousand (1,900,000). For purposes of this
limitation, the shares of Stock underlying any Awards which are forfeited,
cancelled, reacquired by the Company or otherwise terminated (other than by
exercise) shall be added back to the shares of Stock with respect to which
Awards may be granted under the Plan so long as the participants to whom such
Awards had been previously granted received no benefits of ownership of the
underlying shares of Stock to which the Award related. Subject to such overall
limitation, any type or types of Award may be granted with respect to shares,
including Incentive Stock Options. Shares issued under the Plan may be
authorized but unissued shares or shares reacquired by the Company.
(b) Limitation on Awards. In no event may any Plan participant be granted
Awards (including Stock Appreciation Rights) with respect to more than five
hundred thousand (500,000) shares of Stock in any calendar year. The number of
shares of Stock relating to an Award granted to a Plan participant in a calendar
year that is subsequently forfeited, cancelled or otherwise terminated shall
continue to count toward the foregoing limitation in such calendar year. In
addition, if the exercise price of an Award is subsequently reduced, the
transaction shall be deemed a cancellation of the original Award and the grant
of a new one so that both transactions shall count toward the maximum shares
issuable in the calendar year of each respective transaction.
(c) Stock Dividends, Mergers, etc. In the event that after approval of the
Plan by the stockholders of the Company in accordance with Section 17, the
Company effects a stock dividend, stock split or similar change in
capitalization affecting the Stock, the Committee shall make appropriate
adjustments in (i) the number and kind of shares of stock or securities with
respect to which Awards may thereafter be granted (including without limitation
the limitations set forth in Sections 3(a) and (b) above), (ii) the number and
kind of shares remaining subject to outstanding Awards, and (iii) the option or
purchase price in respect of such shares. In the event of any merger,
consolidation, dissolution or liquidation of the Company, the Committee in its
sole discretion may, as to any outstanding Awards, make such substitution or
adjustment in the aggregate number of shares reserved for issuance under the
Plan and in the number and purchase price (if any) of shares subject to such
Awards as it may determine and as may be permitted by the terms of such
transaction, or accelerate, amend or terminate such Awards upon such terms and
conditions as it shall provide (which, in the case of the termination of the
vested portion of any Award, shall require payment or other consideration which
the Committee deems equitable in the circumstances), subject, however, to the
provisions of Section 15.
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(d) Substitute Awards. The Committee may grant Awards under the Plan in
substitution for stock and stock based awards held by employees of another
corporation who concurrently become employees of the Company or a Subsidiary as
the result of a merger or consolidation of the employing corporation with the
Company or a Subsidiary or the acquisition by the Company or a Subsidiary of
property or stock of the employing corporation. The Committee may direct that
the substitute awards be granted on such terms and conditions as the Committee
considers appropriate in the circumstances. Shares which may be delivered under
such substitute awards may be in addition to the maximum number of shares
provided for in Section 3(a).
SECTION 4. Eligibility.
Awards may be granted to officers, directors, and employees of, and
consultants and advisers to, the Company or its Subsidiaries ("Eligible
Persons").
SECTION 5. Stock Options.
The Committee may grant to Eligible Persons options to purchase Stock.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options
or Non-Statutory Stock Options. Unless otherwise specified by the Committee in
its action or by an express provision in the Option, an Option shall be a
Non-Statutory Stock Option. To the extent that any option designated as an
Incentive Stock Option does not qualify as an Incentive Stock Option, it shall
constitute a Non-Statutory Stock Option.
No Incentive Stock Option shall be granted under the Plan after the tenth
anniversary of the earlier of (i) the date of adoption of the Plan by the Board,
or (ii) the date on which the Plan is approved by the stockholders as set forth
in Section 17.
The Committee in its discretion may determine the effective date of Stock
Options, provided, however, that grants of Incentive Stock Options shall be made
only to persons who are, on the effective date of the grant, employees of the
Company or any Subsidiary. Stock Options granted pursuant to this Section 5(a)
shall be subject to the following terms and conditions and the terms and
conditions of Section 13 and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Committee shall deem
desirable.
(a) Exercise Price. The exercise price per share for the Stock covered
by a Stock Option granted pursuant to this Section 5(a) shall be determined
by the Committee at the time of grant but shall be, in the case of
Incentive Stock Options, not less than one hundred percent (100%) of Fair
Market Value on the date of grant. If an employee owns
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or is deemed to own (by reason of the attribution rules applicable under
Section 424(d) of the Code) more than ten percent (10%) of the combined
voting power of all classes of stock of the Company or any Subsidiary or
parent corporation and an Incentive Stock Option is granted to such
employee, the option price shall be not less than one hundred ten percent
(110%) of Fair Market Value on the grant date.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
(10) years after the date the option is granted. If an employee owns or is
deemed to own (by reason of the attribution rules of Section 424(d) of the
Code) more than ten percent (10%) of the combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation and
an Incentive Stock Option is granted to such employee, the term of such
option shall be no more than five (5) years from the date of grant.
(c) Exercisability; Rights of a Shareholder. Stock Options shall
become vested and exercisable at such time or times, whether or not in
installments, as shall be determined by the Committee at or after the grant
date. The Committee may at any time accelerate the exercisability of all or
any portion of any Stock Option. An optionee shall have the rights of a
shareholder only as to shares acquired upon the exercise of a Stock Option
and not as to unexercised Stock Options.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part, by delivering written notice of exercise to the Company, specifying
the number of shares to be purchased. Payment of the purchase price may be
made by one or more of the following methods:
(i) In cash, by certified or bank check or other instrument
acceptable to the Committee;
(ii) In the form of shares of Stock that are not then subject to
restrictions, if permitted by the Committee, in its discretion. Such
surrendered shares shall be valued at Fair Market Value on the
exercise date; or
(iii) By the optionee delivering to the Company a properly
executed exercise notice together with irrevocable instructions to a
broker to promptly deliver to the Company cash or a check payable and
acceptable to the Company to pay the purchase price; provided that in
the event the optionee chooses to pay the purchase price as so
provided, the optionee and the broker shall comply with such
procedures and enter into such agreements of indemnity and other
agreements as the Committee shall prescribe as a condition of such
payment procedure. The Company need not act upon such exercise notice
until the Company receives full payment of the exercise price; or
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(iv) By any other means (including, without limitation, by
delivery of a promissory note of the optionee payable on such terms as
are specified by the Committee) which the Committee determines are
consistent with the purpose of the Plan and with applicable laws and
regulations.
The delivery of certificates representing shares of Stock to be
purchased pursuant to the exercise of a Stock Option will be
contingent upon receipt from the Optionee (or a purchaser acting in
his stead in accordance with the provisions of the Stock Option) by
the Company of the full purchase price for such shares and the
fulfillment of any other requirements contained in the Stock Option or
imposed by applicable law.
(e) Non-transferability of Options. Except as the Committee may
provide with respect to a Non-Statutory Stock Option, no Stock Option
shall be transferable other than by will or by the laws of descent and
distribution and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) Annual Limit on Incentive Stock Options. To the extent
required for "incentive stock option" treatment under Section 422 of
the Code, the aggregate Fair Market Value (determined as of the time
of grant) of the Stock with respect to which incentive stock options
granted under this Plan and any other plan of the Company or its
Subsidiaries become exercisable for the first time by an optionee
during any calendar year shall not exceed $100,000.
(g) Form of Settlement. Shares of Stock issued upon exercise of a
Stock Option shall be free of all restrictions under the Plan, except
as otherwise provided in this Plan.
SECTION 6. Restricted Stock Awards.
(a) Nature of Restricted Stock Award. The Committee may grant Restricted
Stock Awards to any Eligible Person, entitling the recipient to acquire, for a
purchase price determined by the Committee, shares of Stock subject to such
restrictions and conditions as the Committee may determine at the time of grant
("Restricted Stock"), including continued employment and/or achievement of
pre-established performance goals and objectives.
(b) Acceptance of Award. A participant who is granted a Restricted Stock
Award shall have no rights with respect to such Award unless the participant
shall have accepted the Award within sixty (60) days (or such shorter date as
the Committee may specify) following the award date by making payment to the
Company of the specified purchase price for the shares covered by the Award and
by executing and delivering to the Company a written instrument that sets forth
the terms and conditions applicable to the Restricted Stock in such form as the
Committee shall determine.
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(c) Rights as a Shareholder. Upon complying with Section 6(b) above, a
participant shall have all the rights of a shareholder with respect to the
Restricted Stock, including voting and dividend rights, subject to
non-transferability restrictions and Company repurchase or forfeiture rights
described in this Section 6 and subject to such other conditions contained in
the written instrument evidencing the Restricted Award. Unless the Committee
shall otherwise determine, certificates evidencing shares of Restricted Stock
shall remain in the possession of the Company until such shares are vested as
provided in Section 6(e) below.
(d) Restrictions. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided herein. In the event of termination of employment by the
Company and its Subsidiaries for any reason (including death, Disability, Normal
Retirement and for Cause), the Company shall have the right, at the discretion
of the Committee, to repurchase shares of Restricted Stock with respect to which
conditions have not lapsed at their purchase price, or to require forfeiture of
such shares to the Company if acquired at no cost, from the participant or the
participant's legal representative. The Company must exercise such right of
repurchase or forfeiture within ninety (90) days following such termination of
employment (unless otherwise specified in the written instrument evidencing the
Restricted Stock Award).
(e) Vesting of Restricted Stock. The Committee at the time of grant shall
specify the date or dates and/or the attainment of pre-established performance
goals, objectives and other conditions on which the non-transferability of the
Restricted Stock and the Company's right of repurchase or forfeiture shall
lapse. Subsequent to such date or dates and/or the attainment of such
preestablished performance goals, objectives and other conditions, the shares on
which all restrictions have lapsed shall no longer be Restricted Stock and shall
be deemed "vested." The Committee at any time may accelerate such date or dates
and otherwise waive or, subject to Section 13, amend any conditions of the
Award.
(f) Waiver, Deferral and Reinvestment of Dividends. The written instrument
evidencing the Restricted Stock Award may require or permit the immediate
payment, waiver, deferral or investment of dividends paid on the Restricted
Stock.
SECTION 7. Unrestricted Stock Awards.
(a) Grant or Sale of Unrestricted Stock. The Committee may grant or sell to
any Eligible Person shares of Stock free of any restrictions under the Plan
("Unrestricted Stock") at a purchase price determined by the Committee. Shares
of Unrestricted Stock may be granted or sold as described in the preceding
sentence in respect of past services or other valid consideration.
(b) Restrictions on Transfers. The right to receive unrestricted Stock may
not be sold, assigned, transferred, pledged or otherwise encumbered, other than
by will or the laws of descent and distribution.
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SECTION 8. Performance Share Awards.
The Committee may grant Performance Share Awards to any Eligible Person. A
Performance Share Award is an Award entitling the recipient to acquire shares of
Stock upon the attainment of specified performance goals. The Committee may make
Performance Share Awards independent of or in connection with the granting of
any other Award under the Plan. Performance Share Awards may be granted under
the Plan to any Eligible Person. The Committee in its discretion shall determine
whether and to whom Performance Share Awards shall be made, the performance
goals applicable under each such Award, the periods during which performance is
to be measured, and all other limitations and conditions applicable to the
awarded Performance Shares.
SECTION 9. Stock Appreciation Rights
The Committee may grant Stock Appreciation Rights to any Eligible Person
(i) alone, or (ii) simultaneously with the grant of a Stock Option and in
conjunction therewith or in the alternative thereto. A Stock Appreciation Right
shall entitle the participant upon exercise thereof to receive from the Company,
upon written request to the Company at its principal offices (the "Request"), a
number of shares of Stock (with or without restrictions as to substantial risk
of forfeiture and transferability, as determined by the Committee in its sole
discretion), an amount of cash, or any combination of Stock and cash, as
specified in the Request (but subject to the approval of the Committee in its
sole discretion, at any time up to and including the time of payment, as to the
making of any cash payment), having an aggregate Fair Market Value equal to the
product of (i) the excess of Fair Market Value, on the date of such Request,
over the exercise price per share of Stock specified in such Stock Appreciation
Right or its related Option, multiplied by (ii) the number of shares of Stock
for which such Stock Appreciation Right shall be exercised. Notwithstanding the
foregoing, the Committee may specify at the time of grant of any Stock
Appreciation Right that such Stock Appreciation Right may be exercisable solely
for cash and not for Stock.
SECTION 10. Termination of Stock Options and Stock Appreciation Rights.
(a) Incentive Stock Options:
(i) Termination by Death. If any participant's employment by the
Company and its Subsidiaries terminates by reason of death, any Incentive
Stock Option owned by such participant may thereafter be exercised to the
extent exercisable at the date of death, by the legal representative or
legatee of the participant, for a period of two (2) years (or such longer
period as the Committee shall specify at any time) from the date of death,
or until the expiration of the stated term of the Incentive Stock Option,
if earlier.
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(ii) Termination by Reason of Disability or Normal Retirement.
(A) Any Incentive Stock Option held by a participant whose employment
by the Company and its Subsidiaries has terminated by reason of Disability
may thereafter be exercised, to the extent it was exercisable at the time
of such termination, for a period of one (1) year (or such longer period as
the Committee shall specify at any time) from the date of such termination
of employment, or until the expiration of the stated term of the Option, if
earlier.
(B) Any Incentive Stock Option held by a participant whose employment
by the Company and its Subsidiaries has terminated by reason of Normal
Retirement may thereafter be exercised, to the extent it was exercisable at
the time of such termination, for a period of ninety (90) days (or such
longer period as the Committee shall specify at any time) from the date of
such termination of employment, or until the expiration of the stated term
of the Option, if earlier.
(C) The Committee shall have sole authority and discretion to
determine whether a participant's employment has been terminated by reason
of Disability or Normal Retirement.
(D) Except as otherwise provided by the Committee at the time of
grant, the death of a participant during a period provided in this Section
10(b) for the exercise of an Incentive Stock Option shall extend such
period for two (2) years from the date of death, subject to termination on
the expiration of the stated term of the Option, if earlier.
(iii) Termination for Cause. If any participant's employment by the
Company and its Subsidiaries has been terminated for Cause, any Incentive
Stock Option held by such participant shall immediately terminate and be of
no further force and effect; provided, however, that the Committee may, in
its sole discretion, provide that such Option can be exercised for a period
of up to thirty (30) days from the date of termination of employment or
until the expiration of the stated term of the Option, if earlier.
(iv) Other Termination. Unless otherwise determined by the Committee,
if a participant's employment by the Company and its Subsidiaries
terminates for any reason other than death, Disability, Normal Retirement
or for Cause, any Incentive Stock Option held by such participant may
thereafter be exercised, to the extent it was exercisable on the date of
termination of employment, for ninety (90) days (or such longer period as
the Committee shall specify at any time) from the date of termination of
employment or until the expiration of the stated term of the Option, if
earlier.
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(b) Non-Statutory Stock Options and Stock Appreciation Rights. Any
Non-Statutory Stock Option or Stock Appreciation Right granted under the Plan
shall contain such terms and conditions with respect to its termination as the
Committee, in its discretion, may from time to time determine.
SECTION 11. Tax Withholding.
(a) Payment by Participant. Each participant shall, no later than the date
as of which the value of an Award or of any Stock or other amounts received
thereunder first becomes includable in the gross income of the participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Committee regarding payment of any Federal, state or local
taxes of any kind required by law to be withheld with respect to such income.
The Company and its Subsidiaries shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
participant.
(b) Payment in Shares. A Participant may elect, with the consent of the
Committee, to have such tax withholding obligation satisfied, in whole or in
part, by (i) authorizing the Company to withhold from shares of Stock to be
issued pursuant to an Award a number of shares with an aggregate Fair Market
Value (as of the date the withholding is effected) that would satisfy the
withholding amount due with respect to such Award, or (ii) transferring to the
Company shares of Stock owned by the participant with an aggregate Fair Market
Value (as of the date the withholding is effected) that would satisfy the
withholding amount due.
SECTION 12. Transfer, Leave of Absence, Etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from
the Company to a Subsidiary, or from one Subsidiary to another;
(b) an approved leave of absence for military service or sickness, or for
any other purpose approved by the Company, if the employee's right to
re-employment is guaranteed either by a statute or by contract or under the
policy pursuant to which the leave of absence was granted or if the Committee
otherwise so provides in writing.
SECTION 13. Amendments and Termination.
The Board may at any time amend or discontinue the Plan and the Committee
may at any time amend or cancel any outstanding Award (or provide substitute
Awards at the same or reduced exercise or purchase price or with no exercise or
purchase price, but such price, if any, must satisfy the requirements which
would apply to the substitute or amended Award if it were then initially granted
under this Plan) for the purpose of satisfying changes in law or for any other
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lawful purpose, but no such action shall adversely affect rights under any
outstanding Award without the holder's consent. However, no such amendment,
unless approved by the stockholders of the Company, shall be effective if it
would cause the Plan to fail to satisfy the incentive stock option requirements
of the Code
SECTION 14. Status of Plan.
With respect to the portion of any Award which has not been exercised and
any payments in cash, Stock or other consideration not received by a
participant, a participant shall have no rights greater than those of a general
creditor of the Company unless the Committee shall otherwise expressly determine
in connection with any Award or Awards. In its sole discretion, the Committee
may authorize the creation of trusts or other arrangements to meet the Company's
obligations to deliver Stock or make payments with respect to Awards hereunder,
provided that the existence of such trusts or other arrangements is consistent
with the provision of the foregoing sentence.
SECTION 15. Change of Control Provisions.
(a) Upon the occurrence of a Change of Control as defined in this Section
15:
(i) subject to the provisions of clause (iii) below, after the
effective date of such Change of Control, each holder of an outstanding
Stock Option, Restricted Stock Award, Performance Share Award or Stock
Appreciation Right shall be entitled, upon exercise of such Award, to
receive, in lieu of shares of Stock (or consideration based upon the Fair
Market Value of Stock), shares of such stock or other securities, cash or
property (or consideration based upon shares of such stock or other
securities, cash or property) as the holders of shares of Stock received in
connection with the Change of Control;
(ii) the Committee may accelerate the time for exercise of, and waive
all conditions and restrictions on, each unexercised and unexpired Stock
Option, Restricted Stock Award, Performance Share Award and Stock
Appreciation Right, effective upon a date prior or subsequent to the
effective date of such Change of Control, specified by the Committee; or
(iii) each outstanding Stock Option, Restricted Stock Award,
Performance Share Award and Stock Appreciation Right may be cancelled by
the Committee as of the effective date of any such Change of Control
provided that (x) notice of such cancellation shall be given to each holder
of such an Award and (y) each holder of such an Award shall have the right
to exercise such Award to the extent that the same is then exercisable or,
in full, if the Committee shall have accelerated the time for exercise of
all such unexercised and unexpired Awards, during the thirty (30) day
period preceding the effective date of such Change of Control.
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<PAGE>
(b) "Change of Control" shall mean the occurrence of any one of the
following events:
(i) any "person" (as such term is used in Sections 13(d) and 14(d)(2)
of the Act) becomes a "beneficial owner" (as such term is defined in Rule
13d-3 promulgated under the Act) (other than the Company, any trustee or
other fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company), directly or indirectly, of securities
of the Company representing fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities; or
(ii) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation or other entity, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than sixty-five percent (65%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; or
(iii) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets.
SECTION 16. General Provisions.
(a) No Distribution; Compliance with Legal Requirements. The Committee
may require each person acquiring shares pursuant to an Award to represent
to and agree with the Company in writing that such person is acquiring the
shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all
applicable securities laws and other legal and stock exchange requirements
have been satisfied. The Committee may require the placing of such stop
orders and restrictive legends on certificates for Stock and Awards as it
deems appropriate.
(b) Delivery of Stock Certificates. Delivery of stock certificates to
participants under this Plan shall be deemed effected for all purposes when
the Company or a stock transfer agent of the Company shall have delivered
such certificates in the United States mail, addressed to the participant,
at the participant's last known address on file with the Company.
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<PAGE>
(c) Other Compensation Arrangements; No Employment Rights. Nothing
contained in this Plan shall prevent the Board from adopting other or additional
compensation arrangements, including trusts, subject to stockholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan or any
Award under the Plan does not confer upon any employee any right to continued
employment with the Company or any Subsidiary.
SECTION 17. Effective Date of Plan.
The Plan shall become effective upon approval by the holders of a majority
of the shares of capital stock of the Company present or represented and
entitled to vote at a meeting of stockholders.
SECTION 18. Governing Law.
This Plan shall be governed by, and construed and enforced in accordance
with, the substantive laws of the State of Delaware without regard to its
principles of conflicts of laws.
* * *
-14-
ALLAIRE CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The Allaire Corporation 1998 Employee Stock Purchase Plan (the
"Plan") is intended to provide a method whereby employees of Allaire Corporation
(the "Company") will have an opportunity to acquire an ownership interest (or
increase an existing ownership interest) in the Company through the purchase of
shares of the Common Stock of the Company. It is the intention of the Company
that the Plan qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended (the "Code"). The provisions of
the Plan shall, accordingly, be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. DEFINITIONS.
(a) "Compensation" means, for the purpose of any Offering
pursuant to this Plan, base pay in effect as of the Offering Commencement Date
(as hereinafter defined). Compensation shall not include any deferred
compensation other than contributions by an individual through a salary
reduction agreement to a cash or deferred plan pursuant to Section 401(k) of the
Code or to a cafeteria plan pursuant to Section 125 of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means the Compensation Committee of the Board.
(d) "Common Stock" means the common stock, $.01 par value per
share, of the Company.
(e) "Company" shall also include any Parent or Subsidiary of
Allaire Corporation designated by the Board, unless the context otherwise
requires.
(f) "Employee" means any person who is customarily employed at
least 20 hours per week and more than five months in a calendar year by the
Company.
(g) "Parent" shall mean any present or future corporation
which is or would constitute a "parent corporation" as that term is defined in
Section 424 of the Code.
(h) "Subsidiary" shall mean any present or future corporation
which is or would constitute a "subsidiary corporation" as that term is defined
in Section 424 of the Code.
<PAGE>
3. ELIGIBILITY.
(a) Participation in the Plan is completely voluntary.
Participation in any one or more of the offerings under the Plan shall neither
limit, nor require, participation in any other offering.
(b) Each employee shall be eligible to participate in the Plan
on the first Offering Commencement Date, as hereafter defined, following the
completion of three (3) full calendar months of continuous service with the
Company. Notwithstanding the foregoing, no employee shall be granted an option
under the Plan:
(i) if, immediately after the grant, such employee
would own stock, and/or hold outstanding options to purchase stock, possessing
5% or more of the total combined voting power or value of all classes of stock
of the Company or any Parent or Subsidiary; for purposes of this Paragraph the
rules of Section 424(d) of the Code shall apply in determining stock ownership
of any employee; or
(ii) which permits his rights to purchase stock under
all Section 423 employee stock purchase plans of the Company and any Parent or
Subsidiary to exceed $25,000 of the fair market value of the stock (determined
at the time such option is granted) for each calendar year in which such option
is outstanding; for purposes of this Paragraph, the rules of Section 423(b)(8)
of the Code shall apply.
4. OFFERING DATES.
The right to purchase stock hereunder shall be made available
by a series of offerings of such duration as the Committee determines (the
"Offering" or "Offerings") to employees eligible in accordance with Paragraph 3
hereof. The Committee will, in its discretion, determine the applicable date of
commencement ("Offering Commencement Date") and termination date ("Offering
Termination Date") for each Offering. Participation in any one or more of the
Offerings under the Plan shall neither limit, nor require, participation in any
other Offering.
5. PARTICIPATION.
Any eligible employee may become a participant by completing a
payroll deduction authorization form provided by the Company and filing it with
the office of the Company's Treasurer 20 days prior to an applicable Offering
Commencement Date, as determined by the Committee pursuant to Paragraph 4. A
participant who obtains shares of Common Stock in one Offering will be deemed to
have elected to participate in each subsequent Offering, provided such
participant is eligible to participate during each such subsequent Offering and
provided that such participant has not specifically elected not to participate
in such subsequent Offering. Such participant will also be deemed to have
authorized the same payroll deductions under Paragraph
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<PAGE>
6 hereof for each such subsequent Offering as in the immediately preceding
Offering; provided however, that, during the enrollment period prior to each new
Offering, the participant may elect to change such participant's payroll
deductions by submitting a new payroll deduction authorization form.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his authorization for a
payroll deduction, he shall elect to have deductions made from his pay on each
payday during any Offering in which he is a participant at a specified
percentage of his Compensation as determined on the applicable Offering
Commencement Date; said percentage shall be in increments of one percent up to a
maximum percentage of ten percent.
(b) Payroll deductions for a participant shall commence on the
applicable Offering Commencement Date when his authorization for a payroll
deduction becomes effective and subject to the last sentence of Paragraph 5
shall end on the Offering Termination Date of the Offering to which such
authorization is applicable unless sooner terminated by the participant as
provided in Paragraph 10.
(c) All payroll deductions made for a participant shall be
credited to his account under the Plan. A participant may not make any separate
cash payment into such account.
(d) A participant may withdraw from the Plan at any time
during the applicable Offering period.
7. GRANTING OF OPTION.
(a) Except as provided in clause (ii) of Paragraph 3(b), on
the Offering Commencement Date of each Offering, a participating employee shall
be deemed to have been granted an option to purchase a maximum number of shares
of the Common Stock equal to two times an amount determined as follows: 85% of
the market value per share of the Common Stock on the applicable Offering
Commencement Date shall be divided into an amount equal to the percentage of the
employee's Compensation which he has elected to have withheld (but no more than
10%) multiplied by the employee's Compensation over the Offering period. Such
market value per share of the Common Stock shall be determined as provided in
clause (i) of Paragraph 7(b).
(b) The option price of the Common Stock purchased with
payroll deductions made during each such Offering for a participant therein
shall be the lower of:
(i) 85% of the closing price per share on the
Offering Commencement Date as reported by a nationally recognized stock
exchange, or, if the Common Stock is not listed on such an exchange, as reported
by the National Association of Securities Dealers Automated
-3-
<PAGE>
Quotation System ("Nasdaq") National Market System or, if the Common Stock is
not listed on the Nasdaq National Market System, 85% of the mean of the bid and
asked prices per share on the Offering Commencement Date or, if the Common Stock
is not traded over-the-counter, 85% of the fair market value on the Offering
Commencement Date as determined by the Committee; and
(ii) 85% of the closing price per share on the
Offering Termination Date as reported by a nationally recognized stock exchange,
or, if the Common Stock is not listed on such an exchange, as reported by the
Nasdaq National Market System or, if the Common Stock is not listed on the
Nasdaq National Market System, 85% of the mean of the bid and asked prices per
share on the Offering Termination Date or, if the Common Stock is not traded
over-the-counter, 85% of the fair market value on the Offering Termination Date
as determined by the Committee.
8. EXERCISE OF OPTION.
(a) Unless a participant gives written notice to the Treasurer
of the Company as hereinafter provided, his option for the purchase of Common
Stock with payroll deductions made during any Offering will be deemed to have
been exercised automatically on the Offering Termination Date applicable to such
Offering for the purchase of the number of full shares of Common Stock which the
accumulated payroll deductions in his account at that time will purchase at the
applicable option price (but not in excess of the number of shares for which
options have been granted the employee pursuant to Paragraph 7(a)), and any
excess in his account at that time, other than amounts representing fractional
shares, will be returned to him.
(b) Fractional shares will not be issued under the Plan and
any accumulated payroll deductions which would have been used to purchase
fractional shares shall be automatically carried forward to the next Offering
unless the participant elects, by written notice to the Treasurer of the
Company, to have the excess cash returned to him.
9. DELIVERY.
The Company will deliver to each participant (as promptly as
possible after the appropriate Offering Termination Date), a certificate
representing the Common Stock purchased upon exercise of his option.
10. WITHDRAWAL AND TERMINATION.
(a) Prior to the Offering Termination Date for an Offering,
any participant may withdraw the payroll deductions credited to his account
under the Plan for such Offering by giving written notice to the Treasurer of
the Company. All of the participant's payroll deductions credited to such
account will be paid to him promptly after receipt of notice of withdrawal,
without interest, and no future payroll deductions will be made from his pay
during such Offering.
-4-
<PAGE>
The Company will treat any attempt to borrow by a participant on the security of
accumulated payroll deductions as an election to withdraw such deductions.
(b) A participant's election not to participate in, or
withdrawal from, any Offering will not have any effect upon his eligibility to
participate in any succeeding Offering or in any similar plan which may
hereafter be adopted by the Company.
(c) Upon termination of the participant's employment for any
reason, including retirement but excluding death, the payroll deductions
credited to his account will be returned to him, or, in the case of his death,
to the person or persons entitled thereto under Paragraph 14.
(d) Upon termination of the participant's employment because
of death, his beneficiary (as defined in Paragraph 14) shall have the right to
elect, by written notice given to the Company's Treasurer prior to the
expiration of a period of 90 days commencing with the date of the death of the
participant, either:
(i) to withdraw all of the payroll deductions
credited to the participant's account under the Plan; or
(ii) to exercise the participant's option for the
purchase of stock on the Offering Termination Date next following the date of
the participant's death for the purchase of the number of full shares which the
accumulated payroll deductions in the participant's account at the date of the
participant's death will purchase at the applicable option price (subject to the
limitation contained in Paragraph 7(a)), and any excess in such account will be
returned to said beneficiary. In the event that no such written notice of
election shall be duly received by the office of the Company's Treasurer, the
beneficiary shall automatically be deemed to have elected to withdraw the
payroll deductions credited to the participant's account at the date of the
participant's death and the same will be paid promptly to said beneficiary.
11. INTEREST.
No interest will be paid or allowed on any money paid into the
Plan or credited to the account of any participating employee.
12. STOCK.
(a) The maximum number of shares of Common Stock available for
issuance and purchase by employees under the Plan, subject to adjustment upon
changes in capitalization of the Company as provided in Paragraph 17, shall be
300,000 shares of Common Stock, par value $.01 per share, of the Company. If the
total number of shares for which options are exercised on any Offering
Termination Date in accordance with Paragraph 8 exceeds the maximum number of
shares for the applicable Offering, the Company shall make a pro rata allocation
of the shares available for delivery and distribution in an equitable manner,
and the balances of payroll deductions credited to the account of each
participant under the Plan shall be returned to the participant.
-5-
<PAGE>
(b) The participant will have no interest in stock covered by
his option until such option has been exercised.
13. ADMINISTRATION.
The Plan shall be administered by the Committee. The
interpretation and construction of any provision of the Plan and adoption of
rules and regulations for administering the Plan shall be made by the Committee.
Determinations made by the Committee with respect to any matter or provision
contained in the Plan shall be final, conclusive and binding upon the Company
and upon all participants, their heirs or legal representatives. Any rule or
regulation adopted by the Committee shall remain in full force and effect unless
and until altered, amended, or repealed by the Committee.
14. DESIGNATION OF BENEFICIARY.
A participant shall file with the Treasurer of the Company a
written designation of a beneficiary who is to receive any Common Stock and/or
cash under the Plan. Such designation of beneficiary may be changed by the
participant at any time by written notice. Upon the death of a participant and
upon receipt by the Company of proof of the identity and existence at the
participant's death of a beneficiary validly designated by him under the Plan,
the Company shall deliver such Common Stock and/or cash to such beneficiary. In
the event of the death of a participant and in the absence of a beneficiary
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such Common Stock and/or cash to
the executor or administrator of the estate of the participant. No beneficiary
shall prior to the death of the participant by whom he has been designated,
acquire any interest in the Common Stock and/or cash credited to the participant
under the Plan.
15. TRANSFERABILITY.
Neither payroll deductions credited to a participant's account
nor any rights with regard to the exercise of an option or to receive Common
Stock under the Plan may be assigned, transferred, pledged, or otherwise
disposed of in any way by the participant other than by will or the laws of
descent and distribution. Any such attempted assignment, transfer, pledge, or
other disposition shall be without effect, except that the Company may treat
such act as an election to withdraw funds in accordance with Paragraph 10.
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<PAGE>
16. USE OF FUNDS.
All payroll deductions received or held by the Company under
this Plan may be used by the Company for any corporate purpose, and the Company
shall not be obligated to segregate such payroll deductions.
17. EFFECT OF CHANGES OF COMMON STOCK.
If the Company shall subdivide or reclassify the Common Stock
which has been or may be subject to options under this Plan, or shall declare
thereon any dividend payable in shares of such Common Stock, or shall take any
other action of a similar nature affecting such Common Stock, then the number
and class of shares of Common Stock which may thereafter be subject to options
under the Plan (in the aggregate and to any participant) shall be adjusted
accordingly and in the case of each option outstanding at the time of any such
action, the number and class of shares which may thereafter be purchased
pursuant to such option and the option price per share shall be adjusted to such
extent as may be determined by the Committee, with the approval of independent
public accountants and counsel, to be necessary to preserve the rights of the
holder of such option.
18. AMENDMENT OR TERMINATION.
The Board may at any time terminate or amend the Plan. No such
termination shall affect options previously granted, nor may an amendment make
any change in any option theretofore granted which would adversely affect the
rights of any participant holding options under the Plan without the consent of
such participant.
19. NOTICES.
All notices or other communications by a participant to the
Company under or in connection with the Plan shall be deemed to have been duly
given when received by the Treasurer of the Company.
20. MERGER OR CONSOLIDATION.
If the Company shall at any time merge into or consolidate
with another corporation, the holder of each option then outstanding will
thereafter be entitled to receive at the next Offering Termination Date upon the
exercise of such option, in lieu of the number of shares of Common Stock as to
which such option shall be exercisable, the number and class of shares of stock
or other securities or property to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of record of a number of shares of Common Stock equal to the number of
shares for which such option was exercisable. In accordance with this Paragraph
and Paragraph 17, the Committee shall determine the kind and amount of such
securities or property which such holder of an option shall be entitled to
receive. A sale of all or substantially all of the assets of the Company shall
be deemed a merger or consolidation for the foregoing purposes.
-7-
<PAGE>
21. APPROVAL OF STOCKHOLDERS.
The Plan is subject to the approval of the stockholders of the
Company at their next annual meeting or at any special meeting of the
stockholders for which one of the purposes shall be to act upon the Plan.
22. GOVERNMENTAL AND OTHER REGULATIONS.
The Plan, and the grant and exercise of the rights to purchase
shares hereunder, and the Company's obligation to sell and deliver shares upon
the exercise of rights to purchase shares, shall be subject to all applicable
federal, state and foreign laws, rules and regulations, and to such approvals by
any regulatory or governmental agency as may, in the opinion of counsel for the
Company, be required. The Plan shall be governed by, and construed and enforced
in accordance with, the provisions of Sections 421, 423 and 424 of the Code and
the substantive laws of the State of Delaware. In the event of any inconsistency
between such provisions of the Code and any such laws, such provisions of the
Code shall govern to the extent necessary to preserve favorable federal income
tax treatment afforded employee stock purchase plans under Section 423 of the
Code.
* * *
-8-
ALLAIRE CORPORATION
1997 STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
This is a NONSTATUTORY STOCK OPTION AGREEMENT between Allaire
Corporation, a Delaware corporation (the "Company"), and the optionee (the
"Optionee") identified on the Notice of Grant of Stock Options to which this
Agreement is attached and which is incorporated into this Agreement by reference
(the "Notice").
WHEREAS, the Company desires to carry out the purposes of the
Allaire Corporation 1997 Stock Incentive Plan (the "Plan"), by affording the
Optionee an opportunity to purchase shares of Common Stock of the Company, par
value $.01 per share (the "Shares"), according to the terms set forth herein.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms of the Plan, the
Company hereby grants to the Optionee the right and option (the "Option") to
purchase the number of Shares specified in the Notice, on the terms and
conditions hereinafter set forth. The Option is not intended by the Company to
be an "incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Purchase Price. The purchase price of each of the Shares
subject to the Option shall be the exercise price per share specified in the
Notice, which price has been specified in accordance with paragraph 7(a) of the
Plan.
3. Option Period.
(a) Subject to the provisions of Sections 5 and 6 of
this Agreement, the Option shall become exercisable as to the number of Shares
and on the dates specified in the exercise schedule in the Notice. The exercise
schedule shall be cumulative; thus, to the extent the Option has not already
been exercised and has not expired, terminated or been canceled, the Optionee
may at any time, and from time to time, purchase all or any portion of the
Shares then purchasable under the exercise schedule. Notwithstanding the
foregoing or any other provision herein to the contrary, the Option shall become
immediately exercisable:
(i) upon the occurrence of the death, Disability (as
defined in the Plan) or Retirement (as defined in the Plan) of the Optionee as
provided in paragraph 6(a) of this Agreement; or
(ii) in the event that the committee under the Plan
(the "Committee") shall notify the Optionee pursuant to paragraph 6(b) that the
Option shall be canceled at the time of, or immediately prior to the occurrence
of a Fundamental Change (as defined in the Plan).
(b) The Option and all rights to purchase Shares
thereunder shall cease on the earliest of:
(i) the expiration date specified in the Notice
(which date shall not be more than ten years after the date of this Agreement);
(ii) the expiration of the period after the
termination of the Optionee's employment (as defined in the Plan, which, for the
purpose of this Agreement shall also include individuals serving in the capacity
of a member of the Company's Board of Directors) within which the Option is
exercisable as specified in paragraph 5(a) or 5(b), whichever is applicable; or
(iii) the date, if any, fixed for cancellation pursuant to
paragraph 6(b) hereof.
<PAGE>
Notwithstanding any other provision in this Agreement, in no event may anyone
exercise the Option, in whole or in part, after its original expiration date.
4. Manner of Exercising Option.
(a) Subject to the terms and conditions of this
Agreement, the Option may be exercised by delivering written notice of exercise
to the Company at its principal executive office, to the attention of its Chief
Financial Officer. The notice shall state the election to exercise the Option
and the number of Shares in respect of which it is being exercised, and shall be
signed by the person exercising the Option. If the person exercising the Option
is not the Optionee, he or she also shall send with the notice appropriate proof
of his or her right to exercise the Option.
The notice of exercise shall be accompanied by
payment (by check, bank draft or money order payable to the Company) of the full
purchase price of the Shares being purchased. Alternatively, if cashless
exercises are permitted by the Committee, such notice may be accompanied by
certificates for unencumbered Shares having an aggregate Fair Market Value (as
defined in the Plan) on the date of exercise equal to the purchase price of the
Shares to be purchased or a combination of cash and such unencumbered Shares in
the amount of such purchase price. The Optionee shall duly endorse in blank all
certificates delivered to the Company pursuant to this subparagraph and shall
represent and warrant in writing that he or she is the owner of the Shares so
delivered free and clear of all liens, security interests and other restrictions
or encumbrances. Notwithstanding the other terms and conditions of this
subparagraph, the Optionee shall not be permitted to pay any portion of the
purchase price of the Shares being purchased with Shares if the Committee
believes that payment in such manner could have an adverse effect on the
Company's financial statements.
(c) As soon as practicable after receipt of the
purchase price provided for above, the Company shall deliver to the person
exercising the Option, in the name of the Optionee or his or her estate or
heirs, as the case may be, a certificate or certificates representing the Shares
being purchased. The Company shall pay all original issue or transfer taxes, if
any, with respect to the issue or transfer of the Shares to the person
exercising the Option and all fees and expenses necessarily incurred by the
Company in connection therewith. All Shares so issued shall be fully paid and
nonassessable. Notwithstanding anything to the contrary in this Agreement, the
Company shall not be required, upon the exercise of this Option or any part
thereof, to issue or deliver any Shares prior to the completion of such
registration or other qualification of such Shares under any State law, rule or
regulation as the Company shall determine to be necessary or desirable.
5. Exercisability of Option After Termination of Employment.
(a) During the lifetime of the Optionee, the Option
may be exercised only while the Optionee is employed by the Company or a parent
or subsidiary thereof, and only if the Optionee has been continuously so
employed since the date of this Agreement, except that:
(i) if the Optionee is not a Non-employee Director
(as defined in the Plan), the Option shall continue to be
exercisable for three months after termination of the
Optionee's employment but only to the extent that the Option
was exercisable immediately prior to the Optionee's
termination of employment, and if the Optionee is a
Non-employee Director, the Option shall continue to be
exercisable after the Optionee ceases to be a director of the
Company for the term of the Agreement, but only to the extent
that the Option was exercisable immediately prior to the
Optionee's ceasing to be a director;
<PAGE>
(ii) in the event of the Optionee's employment terminates
due to Disability, the Optionee or his or her legal
representative may exercise the Option within five years after
the termination of the Optionee's employment;
(iii) in the event the Optionee's employment terminates
due to Retirement, the Option shall continue to be exercisable
for three months after the Optionee's Retirement; and
(iv) if the Optionee's employment terminates after the
Committee notifies the Optionee pursuant to paragraph 6(b)
that the Option shall be canceled, the Optionee may exercise
the Option at any time permitted by paragraph 6(b).
(b) In the event of the Optionee's death prior to
expiration of the Option, the legal representative, heirs or
legatees of the Optionee's estate or the person who acquired
the right to exercise the Option by bequest or inheritance may
exercise the Option within five years after the death of the
Optionee.
(c) Neither the transfer of the Optionee between any
combination of the Company, its parent and any subsidiary of
the Company, nor a leave of absence granted to the Optionee
and approved by the Committee, shall be deemed a termination
of employment. The terms "parent" and "subsidiary" as used
herein shall have the meaning ascribed to "parent corporation"
and "subsidiary corporation," respectively, in Sections 425(e)
and (f) (or successor provisions) of the Code.
6. Acceleration of Option.
(a) Death, Disability or Retirement. If paragraph
5(a)(ii) 5(a)(iii) or 5(b) of this Agreement is applicable, the Option, whether
or not previously exercisable, shall become immediately exercisable in full if
the Optionee shall have been employed continuously by the Company or a parent or
subsidiary thereof between the date the Option was granted and the date of such
Disability or, in the event of death, a date not more than three months prior to
such death.
(b) Fundamental Change. In the event of a proposed
Fundamental Change (as defined in the Plan) involving a merger, consolidation or
statutory share exchange, the Committee may, but is not obligated to, provide
for the issuance of a Substitute Option (as defined below). If the Committee
does not provide for a Substitute Option, the Option will be first accelerated
and then canceled in accordance with this paragraph 6(b). In the event of a
proposed Fundamental Change involving a liquidation or dissolution, the Option
will be first accelerated and then canceled in accordance with this paragraph
6(b).
Notice of Cancellation and Acceleration of Canceled Options. If
the option is to be canceled, the Committee shall provide written
notice to the Optionee of the impending cancellation not less than 20
days prior to the occurrence of the Fundamental Change. During the 20
days preceding the Fundamental Change, the Option shall be exercisable
in full and the Optionee shall have the right to exercise the Option as
to all or any part of the Shares covered by the Option.
Payment in Respect of Canceled Options. The Option, to the extent
not then exercised, will be canceled at the time of, or immediately
prior to the occurrence of, the Fundamental Change. For each Share
covered by the canceled Option, the Company will pay to the Optionee,
within twenty days after the Fundamental Change, cash equal to the
amount, if any, by which the Fair Market Value per Share exceeds the
exercise price per Share covered by the Option. For this purpose, the
"Fair Market Value" per Share means the cash plus the fair market
value, as determined in good faith by the Committee, of the non-cash
consideration to be received per Share by the shareholders of the
Company upon the occurrence of the Fundamental Change.
<PAGE>
Substitute Options. For the purpose of this paragraph 6(b), a
"Substitute Option" shall mean an option to purchase voting common
stock of the corporation surviving the merger, consolidation or share
exchange (or, if appropriate, the Parent of such surviving corporation)
appropriate to protect the rights of the Optionee under this Option. If
the Committee makes provision for the issuance of a Substitute Option,
the Option will expire upon such issuance, and will not be accelerated
or canceled pursuant to this paragraph 6(b).
(c) Acceleration Upon a Change of Control.
Notwithstanding any other provision of this paragraph 6, one hundred percent
(100%) of the Shares which are not then exercisable shall become exercisable
upon the occurrence of a Change of Control, if the Optionee is an employee of
the Company immediately before the occurrence of the Change of Control and (1)
the Optionee's employment with the Company is terminated by the Company
(including any successor or parent resulting from the Change in Control) without
Cause within six (6) months after the Change in Control, or (2) the Company (or
successor) does not offer the Optionee a Comparable Position upon the Change in
Control, or (3), if the Optionee is offered and accepts a Comparable Position,
the Optionee is involuntarily removed from such position within six (6) months
after the Change in Control. For the purpose of this paragraph 6(c), the terms
"Change of Control," "Comparable Position" and "Cause" shall have the meanings
ascribed to such terms below:
(i) "Change of Control" means as defined in the Plan, except that
clauses (i) and (ii) of the definition shall not apply prior to the
effectiveness of a Section 12 Registration (as defined in the Plan),
the term "30%" in clause (ii) shall be changed to "50%"; and the term
"70%" in clause (iii) shall be changed to "50%";
(ii) "Comparable Position" means a position of employment with the
Company or its successor following a Change of Control (or if the
Company or its successor has a Parent following a Change of Control,
its Parent) (A) with substantially the same or superior title,
responsibilities, base salary, opportunity for incentive compensation,
and eligibility for stock options or other equity incentives as the
Optionee had prior to the Change of Control, and (B) at a location
within 50 miles of the Optionee's location prior to the Change of
Control, without the Optionee's express prior written consent; and
(iii) "Cause" means (A) substantial failure by or refusal of the
Optionee to perform the Optionee's duties to the Company, gross neglect
of such duties, or other material breach of the Optionee's written or
oral employment agreement with the Company, as the case may be; (B)
material misappropriation by the Optionee of the Company's property or
trade secrets, commission of a felony by the Optionee or other public
misconduct by the Optionee detrimental to the reputation of the Company
or (C) material dishonesty or material violation of any fiduciary duty
or duty of loyalty owed by the Optionee to the Company.
7. Limitation on Transfer. During the lifetime of the
Optionee, only the Optionee or his or her guardian or legal representative may
exercise the Option. The Optionee shall not assign or transfer the Option
otherwise than by will or the laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act ("ERISA"), or the rules thereunder, and
the Option shall not be subject to pledge, hypothecation, execution, attachment
or similar process. Any attempt to assign, transfer, pledge, hypothecate or
otherwise dispose of the Option contrary to the provisions hereof, and the levy
of any attachment or similar process upon the Option, shall be null and void.
8. Shareholder Rights Before Exercise. The Optionee shall have
none of the rights of a shareholder of the Company with respect to any Share
subject to the Option until the Share is actually issued to him or her upon
exercise of the Option.
<PAGE>
9. Adjustments. The Committee may in its sole discretion make
appropriate adjustments in the number of Shares subject to the Option and in the
purchase price per Share to give effect to any adjustments made in the number of
outstanding Shares of the Company through a merger or consolidation (that is not
a Fundamental Change) or a recapitalization, reclassification, combination,
stock dividend, stock split or other relevant change, provided that fractional
Shares shall be rounded to the nearest whole share.
10. Tax Withholding. The parties hereto recognize that the
Company or a parent or subsidiary thereof may be obligated to withhold federal
and state income taxes and social security or other taxes upon the Optionee's
exercise of the Option. The Optionee agrees that, at the time he or she
exercises the Option, if the Company or a parent or subsidiary thereof is
required to withhold such taxes, he or she will promptly pay in cash upon demand
to the Company, or the parent or subsidiary having such obligation, such amounts
as shall be necessary to satisfy such obligation; provided, however, that in
lieu of all or any part of such a cash payment, the Board may, but shall not be
required to, permit the Optionee to elect to cover all or any part of the
required withholdings, and to cover any additional withholdings up to the amount
needed to cover the Optionee's full FICA and federal, state and local income tax
with respect to income arising from the exercise of the Option, through a
reduction of the number of Shares delivered to the Optionee or through a
subsequent return to the Company of Shares delivered to the Optionee.
11. Lock Up Agreement. Optionee agrees that, upon the request
of the Company or the managing underwriter(s) in connection with a Section 12
Registration (as defined in the Plan), for a period of time (not to exceed 180
days) from the effective date of the Section 12 Registration, Optionee (or any
transferee of permitted under this Agreement) shall not sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
shares of the Company's Stock owned or controlled by it; provided, however,
that, at the time of the request, the Optionee is an officer or director of the
Company or the Optionee holds (assuming exercise of all options and warrants,
and the conversion of all convertible securities held by the Optionee, to the
extent then exercisable or convertible) an aggregate number of shares of the
Company's Common Stock (or equivalent) equal to at least one percent (1%) of the
total number of shares of the Company's Common Stock then issued and
outstanding.
12. Interpretation of this Agreement. All decisions and
interpretations made by the Committee with regard to any question arising
hereunder or under the Plan shall be binding and conclusive upon the Company and
the Optionee. In the event that there is any inconsistency between the
provisions of this Agreement and the Plan, the provisions of the Plan shall
govern.
13. Discontinuance of Employment. This Agreement shall not
give the Optionee a right to continued employment with the Company or any parent
or subsidiary thereof, and the Company or any such parent or subsidiary thereof
employing the Optionee may terminate his or her employment and otherwise deal
with the Optionee without regard to the effect it may have upon him or her under
this Agreement.
14. General. The Company shall at all times during the term of
this Option reserve and keep available such number of Shares as will be
sufficient to satisfy the requirements of this Option Agreement. This Agreement
shall be binding in all respects on the Optionee's heirs, representatives,
successors and assigns. This Agreement is entered into under the laws of the
Commonwealth of Massachusetts and shall be construed and interpreted thereunder.
<PAGE>
ALLAIRE CORPORATION
1997 STOCK INCENTIVE PLAN
AMENDMENT TO
NONSTATUTORY STOCK OPTION AGREEMENT
This Agreement is between Allaire Corporation, a Delaware
corporation (the Company ), and the optionee (the Optionee ) identified on the
copy of Notice of Grant of Stock Options to which this Agreement is attached
(the "Grant Notice") and amends the Nonstatutory Stock Option Agreement (the
"Stock Option Agreement") into which the original Grant Notice is incorporated.
1. Defined Terms. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Stock Option
Agreement.
2. Amendments.
(a) The following subsection (c) shall be appended to
Section 6 of the Stock Option Agreement:
6. Acceleration of Option.
* * * * *
(c) Early Exercise for Restricted
Shares. The Optionee may exercise the Option for shares of the
Company's stock prior to the date or dates upon which such
shares become exercisable in accordance with this subsection
6(c), and the exercise schedule in the Grant Notice shall be
deemed to have been accelerated for such purpose. The shares
issued upon such early exercise shall be subject to the
restrictions set forth in this subsection, and are referred to
in this subsection as the "Restricted Shares."
(i) Reverse Vesting. Restricted Shares
purchased under this subsection 6(c) prior to the
Option becoming exercisable shall "vest" according to
the same schedule (i.e., on the same dates and in the
same amounts) as such shares would have become
purchasable upon exercise the Option had the exercise
schedule not been accelerated in accordance with this
subsection. Restricted Shares that are not vested
shall be subject to repurchase by the Company under
clauses 6(c)(ii) and 6(c)(iii) below. As Restricted
Shares become vested they shall no longer be subject
to repurchase by the Company.
(ii) Company Repurchase Rights. The
Company shall have the option to purchase all or any
part of the Restricted Shares that were not vested
prior to termination of the Optionee's employment
(including as a result of the Optionee's death or
disability) at a per share price equal to the
purchase paid by the Optionee upon exercise of the
Option (subject to equitable adjustment for any stock
split, stock dividend or combination of the
Restricted Shares).
<PAGE>
(iii) Terms of Company Purchase. If the
Company intends to repurchase the Restricted Shares
subject to repurchase, then it shall within sixty
(60) days after termination of Optionee's employment
mail written notice of its intent to repurchase the
Restricted Shares and the number of Restricted Shares
to be repurchased to the Optionee's last known
address appearing in the personnel records of the
Company. If the Company has not mailed notice within
that period, the Restricted Shares will no longer be
subject to repurchase by the Company. Upon receipt
from the Optionee of the certificate for the
Restricted Shares, duly endorsed in blank or
accompanied by a duly endorsed blank stock power
suitable for transferring the Shares to the Company,
the Company shall send to the Optionee (or his or her
representative or beneficiary) the purchase price for
the Restricted Shares and a certificate for the
shares which are not subject to repurchase or are not
being repurchased by the Company. The purchase price
for the Restricted Shares being repurchased may be
payable by check, by cancellation or all or a portion
of any outstanding indebtedness of the Optionee to
the Company, or both. If the Company has not received
the certificate for the Restricted shares by the time
the Company is to prepared to pay the purchased price
for such shares, then the Company, at its option, may
coincident with the payment of the purchase price
and/or cancellation of debt, make appropriate entries
in the records of the Company to effect the transfer
of the Restricted Shares to the Company free and
clear of any liens or encumbrances.
(iv) Optionee Representations . By
exercising the shares under this subsection 6(c), the
Optionee represents that (i) he or she is acquiring
the Restricted Shares for investment and not with a
view to, or for resale in connection with, any
distribution thereof; (ii) the Restricted Shares are
restricted securities within the meaning of Rule 144
promulgated under the Securities Act of 1933, as
amended (the Securities Act ), and that there is no
assurance that such Rule will apply to future resales
of the Restricted Shares; (iii) he or she will make
no sale or other distribution that would cause the
Optionee to be deemed an underwriter within the
meaning of Section 2(11) of the Securities Act; and
(iv) he or she will make no sale, pledge, transfer or
other disposition of the Restricted Shares received
except in accordance with this Agreement unless a
registration statement with respect to the Restricted
Shares is then in effect under applicable federal and
state securities laws or unless he obtains an opinion
of counsel satisfactory to the Company that such
disposition may be effected without violation of
applicable federal or state securities laws.
(v) Certificates; Legends. [Provision
regarding uncertificated shares.] The certificates
representing the Restricted Shares will bear
restrictive legends noting the restrictions
identified in the preceding clause, the Company's
repurchase rights and the restrictions on transfer
set forth in Section 7 of this Agreement.
(b) Section 7 of the Stock Option Agreement shall
amended in its entirety to read as follows:
7. Limitation on Transfer. During the
lifetime of the Optionee, only the Optionee or his or
her guardian or legal representative or transferee of
a transfer permitted by this Section may exercise the
Option. The Optionee shall not assign or transfer the
Option or Restricted Shares issued upon early
exercise of the Option, except that the Optionee may
transfer the Option or Restricted Shares: (a) by will
or the laws of descent and distribution; (b) by way
of gift to any member of his or her family or to any
trust for the benefit of any such family member or
such Optionee, provided that any such transferee
shall agree in writing with the Company, as a
condition to such transfer, to be bound by all of the
provision of this Agreement to the same extent as the
Optionee; or (c) pursuant to a qualified domestic
relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act ( ERISA
), or the rules thereunder. Neither the Option nor
the Restricted Shares shall be subject to pledge,
hypothecation, execution, attachment or similar
process. Any attempt to assign, transfer, pledge,
hypothecate or otherwise dispose of the Option or any
Restricted Shares contrary to the provisions hereof,
and the levy of any attachment or similar process
upon the Option or any Restricted Shares, shall be
null and void.
<PAGE>
2. Amendments. The Stock Option Agreement shall remain
in full force and effect except as specifically amended hereby.
IN WITNESS WHEREOF, the Company has executed this Amendment as of the
day and year first above written.
ALLAIRE CORPORATION
By:
----------------------------
Title:
---------------------------
For Record Keeping Purposes:
- --------------------------------
Optionee Name
<PAGE>
ALLAIRE CORPORATION
Notice of Grant of Stock Options ID: 41-1830-792
and Option Agreement ONE ALEWIFE CENTER
THIRD FLOOR
CAMBRIDGE, MA 02140
- --------------------------------------------------------------------------------
David Orfao Option Number: 00000035
17 Bartkus Farm Rd. Plan: 1997
Concord, MA 01742 ID: ###-##-####
- --------------------------------------------------------------------------------
Effective 2/7/97, you have been granted a(n) Non-Qualified Stock Option to buy
510,000 shares of ALLAIRE CORPORATION (the Company) stock at $0.5000 per share.
The total option price of the shares granted is $255,000.00
Shares in each period will become fully vested on the date shown.
Shares Vest Type Full Vest Expiration
------ --------- --------- ----------
127,500 On Vest Date 2/28/98 2/7/07
382,500 Monthly 2/28/01 2/7/07
- --------------------------------------------------------------------------------
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
- --------------------------------------------------------------------------------
/s/ David A. Gerth 10/20/97
- -------------------------------- -----------------------------------
ALLAIRE CORPORATION Date
/s/ David Orfao 9/12/97
- -------------------------------- -----------------------------------
David Orfao Date
Date: 7/30/97
Time: 1:23:37 PM
ALLAIRE CORPORATION
1997 STOCK INCENTIVE PLAN
NONSTATUTORY STOCK OPTION AGREEMENT
This is a NONSTATUTORY STOCK OPTION AGREEMENT between Allaire
Corporation, a Delaware corporation (the "Company"), and the optionee (the
"Optionee") identified on the Notice of Grant of Stock Options to which this
Agreement is attached and which is incorporated into this Agreement by reference
(the "Notice").
WHEREAS, the Company desires to carry out the purposes of the
Allaire Corporation 1997 Stock Incentive Plan (the "Plan"), by affording the
Optionee an opportunity to purchase shares of Common Stock of the Company, par
value $.01 per share (the "Shares"), according to the terms set forth herein.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms of the Plan, the
Company hereby grants to the Optionee the right and option (the "Option") to
purchase the number of Shares specified in the Notice, on the terms and
conditions hereinafter set forth. The Option is not intended by the Company to
be an "incentive stock option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. Purchase Price. The purchase price of each of the Shares
subject to the Option shall be the exercise price per share specified in the
Notice, which price has been specified in accordance with paragraph 7(a) of the
Plan.
3. Option Period.
(a) Subject to the provisions of Sections 5 and 6 of
this Agreement, the Option shall become exercisable as to the number of Shares
and on the dates specified in the exercise schedule in the Notice. The exercise
schedule shall be cumulative; thus, to the extent the Option has not already
been exercised and has not expired, terminated or been canceled, the Optionee
may at any time, and from time to time, purchase all or any portion of the
Shares then purchasable under the exercise schedule. Notwithstanding the
foregoing or any other provision herein to the contrary, the Option shall become
immediately exercisable:
(i) upon the occurrence of the death, Disability (as
defined in the Plan) or Retirement (as defined in the Plan) of
the Optionee as provided in paragraph 6(a) of this Agreement;
or
(ii) in the event that the committee under the Plan
(the "Committee") shall notify the Optionee pursuant to
paragraph 6(b) that the Option shall be canceled at the time
of, or immediately prior to the occurrence of a Fundamental
Change (as defined in the Plan).
(b) The Option and all rights to purchase Shares
thereunder shall cease on the earliest of:
(i) the expiration date specified in the Notice
(which date shall not be more than ten years after the date of
this Agreement);
(ii) the expiration of the period after the
termination of the Optionee's employment (as defined in the
Plan, which, for the purpose of this Agreement shall also
include individuals serving in the capacity of a member of the
Company's Board of Directors) within which the Option is
exercisable as specified in paragraph 5(a) or 5(b), whichever
is applicable; or
(iii) the date, if any, fixed for cancellation
pursuant to paragraph 6(b) hereof.
<PAGE>
Notwithstanding any other provision in this Agreement, in no event may anyone
exercise the Option, in whole or in part, after its original expiration date.
4. Manner of Exercising Option.
(a) Subject to the terms and conditions of this
Agreement, the Option may be exercised by delivering written notice of exercise
to the Company at its principal executive office, to the attention of its Chief
Financial Officer. The notice shall state the election to exercise the Option
and the number of Shares in respect of which it is being exercised, and shall be
signed by the person exercising the Option. If the person exercising the Option
is not the Optionee, he or she also shall send with the notice appropriate proof
of his or her right to exercise the Option.
The notice of exercise shall be accompanied by
payment (by check, bank draft or money order payable to the Company) of the full
purchase price of the Shares being purchased. Alternatively, if cashless
exercises are permitted by the Committee, such notice may be accompanied by
certificates for unencumbered Shares having an aggregate Fair Market Value (as
defined in the Plan) on the date of exercise equal to the purchase price of the
Shares to be purchased or a combination of cash and such unencumbered Shares in
the amount of such purchase price. The Optionee shall duly endorse in blank all
certificates delivered to the Company pursuant to this subparagraph and shall
represent and warrant in writing that he or she is the owner of the Shares so
delivered free and clear of all liens, security interests and other restrictions
or encumbrances. Notwithstanding the other terms and conditions of this
subparagraph, the Optionee shall not be permitted to pay any portion of the
purchase price of the Shares being purchased with Shares if the Committee
believes that payment in such manner could have an adverse effect on the
Company's financial statements.
(c) As soon as practicable after receipt of the
purchase price provided for above, the Company shall deliver to the person
exercising the Option, in the name of the Optionee or his or her estate or
heirs, as the case may be, a certificate or certificates representing the Shares
being purchased. The Company shall pay all original issue or transfer taxes, if
any, with respect to the issue or transfer of the Shares to the person
exercising the Option and all fees and expenses necessarily incurred by the
Company in connection therewith. All Shares so issued shall be fully paid and
nonassessable. Notwithstanding anything to the contrary in this Agreement, the
Company shall not be required, upon the exercise of this Option or any part
thereof, to issue or deliver any Shares prior to the completion of such
registration or other qualification of such Shares under any State law, rule or
regulation as the Company shall determine to be necessary or desirable.
5. Exercisability of Option After Termination of Employment.
(a) During the lifetime of the Optionee, the Option
may be exercised only while the Optionee is employed by the Company or a parent
or subsidiary thereof, and only if the Optionee has been continuously so
employed since the date of this Agreement, except that:
(i) if the Optionee is not a Non-employee Director (as
defined in the Plan), the Option shall continue to be
exercisable for three months after termination of the
Optionee's employment but only to the extent that the Option
was exercisable immediately prior to the Optionee's
termination of employment, and if the Optionee is a
Non-employee Director, the Option shall continue to be
exercisable after the Optionee ceases to be a director of the
Company for the term of the Agreement, but only to the extent
that the Option was exercisable immediately prior to the
Optionee's ceasing to be a director;
(ii) in the event of the Optionee's employment terminates
due to Disability, the Optionee or his or her legal
representative may exercise the Option within five years after
the termination of the Optionee's employment;
2
<PAGE>
(iii) in the event the Optionee's employment terminates
due to Retirement, the Option shall continue to be exercisable
for three months after the Optionee's Retirement; and
(iv) if the Optionee's employment terminates after the
Committee notifies the Optionee pursuant to paragraph 6(b)
that the Option shall be canceled, the Optionee may exercise
the Option at any time permitted by paragraph 6(b).
(b) In the event of the Optionee's death prior to
expiration of the Option, the legal representative, heirs or legatees of the
Optionee's estate or the person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option within five years after the death
of the Optionee.
(c) Neither the transfer of the Optionee between any
combination of the Company, its parent and any subsidiary of the Company, nor a
leave of absence granted to the Optionee and approved by the Committee, shall be
deemed a termination of employment. The terms "parent" and "subsidiary" as used
herein shall have the meaning ascribed to "parent corporation" and "subsidiary
corporation," respectively, in Sections 425(e) and (f) (or successor provisions)
of the Code.
6. Acceleration of Option.
(a) Death, Disability or Retirement. If paragraph
5(a)(ii) 5(a)(iii) or 5(b) of this Agreement is applicable, the Option, whether
or not previously exercisable, shall become immediately exercisable in full if
the Optionee shall have been employed continuously by the Company or a parent or
subsidiary thereof between the date the Option was granted and the date of such
Disability or, in the event of death, a date not more than three months prior to
such death.
(b) Fundamental Change. In the event of a proposed
Fundamental Change (as defined in the Plan) involving a merger, consolidation or
statutory share exchange, the Committee may, but is not obligated to, provide
for the issuance of a Substitute Option (as defined below). If the Committee
does not provide for a Substitute Option, the Option will be first accelerated
and then canceled in accordance with this paragraph 6(b). In the event of a
proposed Fundamental Change involving a liquidation or dissolution, the Option
will be first accelerated and then canceled in accordance with this paragraph
6(b).
Notice of Cancellation and Acceleration of Canceled Options. If
the option is to be canceled, the Committee shall provide written
notice to the Optionee of the impending cancellation not less than 20
days prior to the occurrence of the Fundamental Change. During the 20
days preceding the Fundamental Change, the Option shall be exercisable
in full and the Optionee shall have the right to exercise the Option as
to all or any part of the Shares covered by the Option.
Payment in Respect of Canceled Options. The Option, to the extent
not then exercised, will be canceled at the time of, or immediately
prior to the occurrence of, the Fundamental Change. For each Share
covered by the canceled Option, the Company will pay to the Optionee,
within twenty days after the Fundamental Change, cash equal to the
amount, if any, by which the Fair Market Value per Share exceeds the
exercise price per Share covered by the Option. For this purpose, the
"Fair Market Value" per Share means the cash plus the fair market
value, as determined in good faith by the Committee, of the non-cash
consideration to be received per Share by the shareholders of the
Company upon the occurrence of the Fundamental Change.
Substitute Options. For the purpose of this paragraph 6(b), a
"Substitute Option" shall mean an option to purchase voting common
stock of the corporation surviving the merger, consolidation or share
exchange (or, if appropriate, the Parent of such surviving corporation)
appropriate to protect the rights of the Optionee under this Option. If
the Committee makes provision for the issuance of a Substitute Option,
the Option will expire upon such issuance, and will not be accelerated
or canceled pursuant to this paragraph 6(b).
3
<PAGE>
(c) Partial Acceleration Upon a Change of Control.
Notwithstanding any other provision of this paragraph 6, fifty-percent (50%) of
the Shares which are not then exercisable shall become exercisable upon the
occurrence of a Change of Control, if the Optionee is an employee of the Company
immediately before the occurrence of the Change of Control and (1) the
Optionee's employment with the Company is terminated by the Company (including
any successor or parent resulting from the Change in Control) without Cause
within six (6) months after the Change in Control, or (2) the Company (or
successor) does not offer the Optionee a Comparable Position upon the Change in
Control, or (3), if the Optionee is offered and accepts a Comparable Position,
the Optionee is involuntarily removed from such position within six (6) months
after the Change in Control. For the purpose of this paragraph 6(c), the terms
"Change of Control," "Comparable Position" and "Cause" shall have the meanings
ascribed to such terms below:
(i) "Change of Control" means as defined in the Plan, except that
clauses (i) and (ii) of the definition shall not apply prior to the
effectiveness of a Section 12 Registration (as defined in the Plan),
the term "30%" in clause (ii) shall be changed to "50%"; and the term
"70%" in clause (iii) shall be changed to "50%";
(ii) "Comparable Position" means a position of employment with the
Company or its successor following a Change of Control (or if the
Company or its successor has a Parent following a Change of Control,
its Parent) (A) with substantially the same or superior title,
responsibilities, base salary, opportunity for incentive compensation,
and eligibility for stock options or other equity incentives as the
Optionee had prior to the Change of Control, and (B) at a location
within 50 miles of the Optionee's location prior to the Change of
Control, without the Optionee's express prior written consent; and
(iii) "Cause" means (A) substantial failure by or refusal of the
Optionee to perform the Optionee's duties to the Company, gross neglect
of such duties, or other material breach of the Optionee's written or
oral employment agreement with the Company, as the case may be; (B)
material misappropriation by the Optionee of the Company's property or
trade secrets, commission of a felony by the Optionee or other public
misconduct by the Optionee detrimental to the reputation of the Company
or (C) material dishonesty or material violation of any fiduciary duty
or duty of loyalty owed by the Optionee to the Company.
7. Limitation on Transfer. During the lifetime of the
Optionee, only the Optionee or his or her guardian or legal representative may
exercise the Option. The Optionee shall not assign or transfer the Option
otherwise than by will or the laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined by the Code or Title I of the
Employee Retirement Income Security Act ("ERISA"), or the rules thereunder, and
the Option shall not be subject to pledge, hypothecation, execution, attachment
or similar process. Any attempt to assign, transfer, pledge, hypothecate or
otherwise dispose of the Option contrary to the provisions hereof, and the levy
of any attachment or similar process upon the Option, shall be null and void.
8. Shareholder Rights Before Exercise. The Optionee shall have
none of the rights of a shareholder of the Company with respect to any Share
subject to the Option until the Share is actually issued to him or her upon
exercise of the Option.
9. Adjustments. The Committee may in its sole discretion make
appropriate adjustments in the number of Shares subject to the Option and in the
purchase price per Share to give effect to any adjustments made in the number of
outstanding Shares of the Company through a merger or consolidation (that is not
a Fundamental Change) or a recapitalization, reclassification, combination,
stock dividend, stock split or other relevant change, provided that fractional
Shares shall be rounded to the nearest whole share.
10. Tax Withholding. The parties hereto recognize that the
Company or a parent or subsidiary thereof may be obligated to withhold federal
and state income taxes and social security or other
4
<PAGE>
taxes upon the Optionee's exercise of the Option. The Optionee agrees that, at
the time he or she exercises the Option, if the Company or a parent or
subsidiary thereof is required to withhold such taxes, he or she will promptly
pay in cash upon demand to the Company, or the parent or subsidiary having such
obligation, such amounts as shall be necessary to satisfy such obligation;
provided, however, that in lieu of all or any part of such a cash payment, the
Board may, but shall not be required to, permit the Optionee to elect to cover
all or any part of the required withholdings, and to cover any additional
withholdings up to the amount needed to cover the Optionee's full FICA and
federal, state and local income tax with respect to income arising from the
exercise of the Option, through a reduction of the number of Shares delivered to
the Optionee or through a subsequent return to the Company of Shares delivered
to the Optionee.
11. Lock Up Agreement. Optionee agrees that, upon the request
of the Company or the managing underwriter(s) in connection with a Section 12
Registration (as defined in the Plan), for a period of time (not to exceed 180
days) from the effective date of the Section 12 Registration, Optionee (or any
transferee of permitted under this Agreement) shall not sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
shares of the Company's Stock owned or controlled by it; provided, however,
that, at the time of the request, the Optionee is an officer or director of the
Company or the Optionee holds (assuming exercise of all options and warrants,
and the conversion of all convertible securities held by the Optionee, to the
extent then exercisable or convertible) an aggregate number of shares of the
Company's Common Stock (or equivalent) equal to at least one percent (1%) of the
total number of shares of the Company's Common Stock then issued and
outstanding.
12. Interpretation of this Agreement. All decisions and
interpretations made by the Committee with regard to any question arising
hereunder or under the Plan shall be binding and conclusive upon the Company and
the Optionee. In the event that there is any inconsistency between the
provisions of this Agreement and the Plan, the provisions of the Plan shall
govern.
13. Discontinuance of Employment. This Agreement shall not
give the Optionee a right to continued employment with the Company or any parent
or subsidiary thereof, and the Company or any such parent or subsidiary thereof
employing the Optionee may terminate his or her employment and otherwise deal
with the Optionee without regard to the effect it may have upon him or her under
this Agreement.
14. General. The Company shall at all times during the term of
this Option reserve and keep available such number of Shares as will be
sufficient to satisfy the requirements of this Option Agreement. This Agreement
shall be binding in all respects on the Optionee's heirs, representatives,
successors and assigns. This Agreement is entered into under the laws of the
Commonwealth of Massachusetts and shall be construed and interpreted thereunder.
<PAGE>
ALLAIRE CORPORATION
1997 STOCK INCENTIVE PLAN
AMENDMENT TO
NONSTATUTORY STOCK OPTION AGREEMENT
This Agreement is between Allaire Corporation, a Delaware
corporation (the Company ), and the optionee (the Optionee ) identified on the
copy of Notice of Grant of Stock Options to which this Agreement is attached
(the "Grant Notice") and amends the Nonstatutory Stock Option Agreement (the
"Stock Option Agreement") into which the original Grant Notice is incorporated.
1. Defined Terms. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to such terms in the Stock Option
Agreement.
2. Amendments.
(a) The following subsection (c) shall be appended to
Section 6 of the Stock Option Agreement:
6. Acceleration of Option.
* * * * *
(c) Early Exercise for Restricted
Shares. The Optionee may exercise the Option for shares of the
Company's stock prior to the date or dates upon which such
shares become exercisable in accordance with this subsection
6(c), and the exercise schedule in the Grant Notice shall be
deemed to have been accelerated for such purpose. The shares
issued upon such early exercise shall be subject to the
restrictions set forth in this subsection, and are referred to
in this subsection as the "Restricted Shares."
(i) Reverse Vesting. Restricted Shares
purchased under this subsection 6(c) prior to the
Option becoming exercisable shall "vest" according to
the same schedule (i.e., on the same dates and in the
same amounts) as such shares would have become
purchasable upon exercise the Option had the exercise
schedule not been accelerated in accordance with this
subsection. Restricted Shares that are not vested
shall be subject to repurchase by the Company under
clauses 6(c)(ii) and 6(c)(iii) below. As Restricted
Shares become vested they shall no longer be subject
to repurchase by the Company.
(ii) Company Repurchase Rights. The
Company shall have the option to purchase all or any
part of the Restricted Shares that were not vested
prior to termination of the Optionee's employment
(including as a result of the Optionee's death or
disability) at a per share price equal to the
purchase paid by the Optionee upon exercise of the
Option (subject to equitable adjustment for any stock
split, stock dividend or combination of the
Restricted Shares).
<PAGE>
(iii) Terms of Company Purchase. If the
Company intends to repurchase the Restricted Shares
subject to repurchase, then it shall within sixty
(60) days after termination of Optionee's employment
mail written notice of its intent to repurchase the
Restricted Shares and the number of Restricted Shares
to be repurchased to the Optionee's last known
address appearing in the personnel records of the
Company. If the Company has not mailed notice within
that period, the Restricted Shares will no longer be
subject to repurchase by the Company. Upon receipt
from the Optionee of the certificate for the
Restricted Shares, duly endorsed in blank or
accompanied by a duly endorsed blank stock power
suitable for transferring the Shares to the Company,
the Company shall send to the Optionee (or his or her
representative or beneficiary) the purchase price for
the Restricted Shares and a certificate for the
shares which are not subject to repurchase or are not
being repurchased by the Company. The purchase price
for the Restricted Shares being repurchased may be
payable by check, by cancellation or all or a portion
of any outstanding indebtedness of the Optionee to
the Company, or both. If the Company has not received
the certificate for the Restricted shares by the time
the Company is to prepared to pay the purchased price
for such shares, then the Company, at its option, may
coincident with the payment of the purchase price
and/or cancellation of debt, make appropriate entries
in the records of the Company to effect the transfer
of the Restricted Shares to the Company free and
clear of any liens or encumbrances.
(iv) Optionee Representations . By
exercising the shares under this subsection 6(c), the
Optionee represents that (i) he or she is acquiring
the Restricted Shares for investment and not with a
view to, or for resale in connection with, any
distribution thereof; (ii) the Restricted Shares are
restricted securities within the meaning of Rule 144
promulgated under the Securities Act of 1933, as
amended (the Securities Act ), and that there is no
assurance that such Rule will apply to future resales
of the Restricted Shares; (iii) he or she will make
no sale or other distribution that would cause the
Optionee to be deemed an underwriter within the
meaning of Section 2(11) of the Securities Act; and
(iv) he or she will make no sale, pledge, transfer or
other disposition of the Restricted Shares received
except in accordance with this Agreement unless a
registration statement with respect to the Restricted
Shares is then in effect under applicable federal and
state securities laws or unless he obtains an opinion
of counsel satisfactory to the Company that such
disposition may be effected without violation of
applicable federal or state securities laws.
(v) Certificates; Legends. [Provision
regarding uncertificated shares.] The certificates
representing the Restricted Shares will bear
restrictive legends noting the restrictions
identified in the preceding clause, the Company's
repurchase rights and the restrictions on transfer
set forth in Section 7 of this Agreement.
(b) Section 7 of the Stock Option Agreement shall
amended in its entirety to read
as follows:
7. Limitation on Transfer. During the
lifetime of the Optionee, only the Optionee or his or
her guardian or legal representative or transferee of
a transfer permitted by this Section may exercise the
Option. The Optionee shall not assign or transfer the
Option or Restricted Shares issued upon early
exercise of the Option, except that the Optionee may
transfer the Option or Restricted Shares: (a) by will
or the laws of descent and distribution; (b) by way
of gift to any member of his or her family or to any
trust for the benefit of any such family member or
such Optionee, provided that any such transferee
shall agree in writing with the Company, as a
condition to such transfer, to be bound by all of the
provision of this Agreement to the same extent as the
Optionee; or (c) pursuant to a qualified domestic
relations order as defined by the Code or Title I of
the Employee Retirement Income Security Act ( ERISA
), or the rules thereunder. Neither the Option nor
the Restricted Shares shall be subject to pledge,
hypothecation, execution, attachment or similar
process. Any attempt to assign, transfer, pledge,
hypothecate or otherwise dispose of the Option or any
Restricted Shares contrary to the provisions hereof,
and the levy of any attachment or similar process
upon the Option or any Restricted Shares, shall be
null and void.
<PAGE>
2. Amendments. The Stock Option Agreement shall remain
in full force and effect except as specifically amended hereby.
IN WITNESS WHEREOF, the Company has executed this Amendment as of the
day and year first above written.
ALLAIRE CORPORATION
By:
----------------------------
Title:
---------------------------
For Record Keeping Purposes:
- --------------------------------
Optionee Name
1997 Plan NSO Amendment.doc
ONE ALEWIFE CENTER OFFICE LEASE
-------------------------------
OFFICE LEASE
------------
STANDARD FORM
-------------
THIS LEASE ("Lease") made at Cambridge, Massachusetts, between David
L. Wightman and David R. Vickery, as Trustees of ONE ALEWIFE CENTER REALTY
TRUST under a Declaration of Trust dated November 5, 1987, recorded with
Middlesex South District Registry of Deeds in Book 18671, Page 237, and filed
with Middlesex South Registry District of the Land Court as Document No. 763134
("Landlord"), and Allaire Corporation, a Massachusetts corporation with a
principal place of business at One Alewife Center, Cambridge, Massachusetts
02140 ("Tenant").
WITNESSETH:
-----------
ARTICLE 1
Reference Data and Definitions
------------------------------
1.01. Reference Data.
---------------
LANDLORD'S REPRESENTATIVE: Mr. John M. Kane
LANDLORD'S ADDRESS
(FOR PAYMENT OF RENT): One Alewife Center Realty Trust
c/o Spaulding & Slye
P.O. Box 7247-7609
Philadelphia, PA 19170-7609
LANDLORD'S ADDRESS
(FOR NOTICES AND COMMUNICATIONS): One Alewife Center Realty Trust
c/o Spaulding & Slye
125 Cambridge Park Drive
Cambridge, MA 02140
TENANT'S ADDRESS (FOR NOTICE AND BILLING): As stated above prior to the Term
Commencement Date, thereafter, the Premises.
TENANT'S REPRESENTATIVE: David Gerth, CFO
PREMISES: A portion of the third floor and a portion of the fourth floor of the
Building shown outlined in red on Exhibit B and designated "Premises Part A" and
"Premises Part B".
<PAGE>
RENTABLE AREA OF PREMISES: Comprised of two areas, Part A containing 24,305
square feet on the third floor of the Building and Part B containing 10,395
square feet on the fourth floor of the Building.
RENTABLE AREA OF THE BUILDING: 89,504 square feet.
ESTIMATED TERM COMMENCEMENT DATE: November 1, 1997.
BASIC RENT COMMENCEMENT DATE: Premises Part B: Sixty (60) days after completion
of the demolition work described in Section 7.01 below and delivery of the
Premises to Tenant for the commencement of Tenant Improvements. Premises Part A:
April 1, 1998.
TERM: Approximately 5 YEARS and 5 MONTHS as to Premises Part B. and
approximately 5 YEARS for Premises Part A.
BASIC RENT: $30.00 per square foot of Rentable Area per year for the initial
term:
Basic Rent Commencement Date for Premises Part B through March 31,
1998: $25,987.50 per month
April 1, 1998 through Lease Termination Date: $86,750.00 per month;
$1,041,000.00 per year
ESTIMATED COST OF ELECTRICAL SERVICE: $.85 per square foot of Rentable Area per
year.
INITIAL MONTHLY PAYMENT (Basic Rent plus Estimated Cost of Electrical Service):
$26,723.81
TAX BASE: Actual taxes for fiscal year 1997.
OPERATING EXPENSE BASE: Actual Operating Expenses for calendar year 1997.
TENANT'S SHARE: Part A: 27.16%; Part B: 11.61%; Total Premises: 38.77%
SECURITY DEPOSIT: At least $124,740.00 Letter of Credit due upon execution of
Lease by Tenant which shall be increased to $367,790.00 prior to the payment to
Tenant of the Tenant Allowance for the Premises Part A, as further described in
Section 24.01.
GUARANTOR: None.
PERMITTED USES: General Office uses consistent with a first class office
building.
1.02. General Provisions. For all purposes of this Lease unless otherwise
expressed and provided herein or therein or unless the context otherwise
requires:
(a) The words herein, hereof, hereunder and other words of similar
import refer to this Lease as a whole and not to any particular article,
section or other subdivision of this Lease.
(b) A pronoun in one gender includes and applies to the other genders
as well.
2
<PAGE>
(c) Each definition stated in Section 1.01 or 1.02 of this Lease
applies equally to the singular and the plural forms of the term or
expression defined.
(d) Any reference to a document defined in Section 1.02 of this Lease
is to such document as originally executed, or, if modified, amended or
supplemented in accordance with the provisions of this Lease, to such
document as so modified, amended or supplemented and in effect at the
relevant time of reference thereto.
(e) All accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles.
(f) All references in Section 1.01 hereof are subject to the specific
definitions thereof (if any) in Exhibit A attached hereto and made a part
hereof.
(g) Each term or expression set forth in Exhibit A hereto shall have
the meaning stated immediately after it.
(h) Whenever any opinion, determination, consent, approval or decision
is required or permitted to be made by Landlord pursuant to this Lease,
such opinion, determination, consent, approval or decision shall be made by
Landlord in its sole judgment and discretion, unless expressly set forth to
the contrary herein.
ARTICLE 2
Premises
--------
2.01. Premises. Landlord hereby leases and lets to Tenant, and Tenant
hereby takes and hires from Landlord, upon and subject to the terms, conditions,
covenants and provisions hereof, the Premises subject to the Permitted
Exceptions. Landlord reserves the right to relocate within or without the
Premises pipes, ducts, vents, flues, conduits, wires and appurtenant fixtures
which service other parts of the Building or the Land; provided that such work
is done in such a manner that it does not reduce the size of the Premises by
more than one (1) percent or does not unreasonably interfere with Tenant's use
of the Premises.
2.02. Appurtenances. Subject to availability and the Rules and Regulations,
Tenant may use on a non-exclusive basis the Common Areas and the Land as
appurtenant to the Premises for the purposes for which they were designed.
ARTICLE 3
Term
----
3.01. Term Commencement. The Lease Term shall commence on the Term
Commencement Date. Tenant will execute an agreement acknowledging the Term
Commencement Date within ten (10) days after the occurrence of the Term
Commencement Date (Exhibit C).
3
<PAGE>
3.02. Termination. The Lease Term shall end on the Lease Termination Date.
ARTICLE 4
Rent
----
4.01. Basic Rent. Tenant shall pay Landlord for the Premises, without
offset or deduction and without previous demand therefor, the Basic Rent as
annual rent during each year of the Lease Term. Basic Rent shall be paid in
equal monthly installments in advance on the first day of each calendar month
during the Lease Term. The first installment of Basic Rent shall be paid on the
Basic Rent Commencement Date. Subsequent installments of Basic Rent shall be
paid on the first day of every calendar month thereafter. Basic Rent for partial
months at the beginning or end of the Lease Term shall be pro-rated and paid on
the Basic Rent Commencement Date and the first day of the calendar month in
which the Stated Expiration Date is to occur.
4.02. Computation of Basic Rent. The Basic Rent for each Lease Year shall
be as stated in Article 1.01 hereof.
ARTICLE 5
Use of Premises
---------------
5.01. Use Restricted. The Premises may be used for the Permitted Use and
for no other purpose. No improvements may be made in or to the Premises except
as otherwise provided in this Lease. Tenant shall comply with any restrictions
shown on Exhibit F hereto.
5.02. Parking Area. Tenant may use 87 parking spaces within the Parking
Area on a non-exclusive basis, subject to the availability of such parking
spaces, solely for the purpose of providing parking for automobiles of invitees,
guests, independent contractors, employees or agents of Tenant, but not for the
public generally and for no other purpose. Tenant may lease from Landlord
additional parking spaces within the Parking Area, subject to the availability
of such parking spaces for the aforesaid purpose on a tenant-at-will basis at a
monthly rental of $50.00 per parking space. Landlord shall have the right to
relocate the Parking Area, or portions thereof, to other locations within the
Land or on adjacent land, either on grade or in a parking structure. At such
time as surface parking is no longer available and structured parking is
substituted therefor, Tenant shall be allocated its pro rata share of the
parking spaces within such structure (determined with respect to all buildings
served by such structure) and Tenant agrees to pay at a fair market rate (to be
determined at that time but, in any event, not more than the rate charged to
other occupants of the Building) for its spaces on a monthly basis. Said fair
market rate for structured parking shall be subject to adjustment on an annual
basis. Nothing herein shall be deemed a representation or warranty that the
Parking Area shall be sufficient for Tenant's purposes or needs. The use of the
Parking Area shall be regulated and shall be subject to the Rules and
Regulations.
4
<PAGE>
ARTICLE 6
Taxes; Operating Expenses;
--------------------------
Estimated Cost of Electrical Service
------------------------------------
6.01. Expenses and Taxes. If with respect to any Calendar Year Tenant's
Share of (a) Operating Expenses exceeds the Operating Expense Base or (b) Taxes
exceeds the Tax Base (whether as the result of an increase in rate or assessment
or both), Tenant shall pay to Landlord the amount of each such excess. Any
amount due with respect to this Section 6.01 shall be due within ten (10) days
after receipt by the Tenant of the statement described in Section 6.02 hereof.
6.02. Annual Statement of Additional Rent Due. Within a reasonable time
after the end of each Calendar Year, Landlord shall render to Tenant a
statement, prepared in accordance with generally accepted accounting practices,
showing (i) for the Calendar Year just ended (a) Taxes, (b) Operating Expenses
and (c) Tenant's obligation under Section 6.01, and (ii) for the then current
Calendar Year, an estimate for (a) Operating Expenses (b) Taxes and (c) Tenant's
obligation under Section 6.01. Landlord may from time to time send to Tenant
during each Calendar Year a revised statement for the then current year
adjusting the previous estimates for Operating Expenses, Taxes, and Tenant's
obligation under Section 6.01, and shall include in such revised statement an
explanation of such adjustments.
6.03. Monthly Payments of Additional Rent. Tenant shall pay to Landlord (a)
in advance for each calendar month of the Lease Term falling between receipt by
Tenant of the statement described in Section 6.02 and receipt by Tenant of the
next such statement, as Additional Rent, an amount equal to 1/12th of Tenant's
estimated obligation under Section 6.01 shown thereon, and (b) if any such
revised statement shall show amounts due from Tenant, Tenant shall pay such
amounts in a lump sum within ten (10) days after receipt of the applicable
statement. The amount due under this Section 6.03 shall be paid with Tenant's
monthly payments of Basic Rent, except that payments under Section 6.03 shall
also be due on the Term Commencement Date and the first day of every month
between the Term Commencement Date and the Basic Rent Commencement Date, and
shall be credited by Landlord to Tenant's obligations under Section 6.01. If the
total amount paid hereunder exceeds the amount due under such Section, such
excess shall be credited by Landlord against the monthly installments of
Additional Rent next falling due or refunded to Tenant upon the expiration or
termination of this Lease (unless such termination is the result of an Event of
Default in which event such excess shall be credited against amounts owing from
Tenant to Landlord, with the balance, if any, refunded to Tenant). Payment on
account of Taxes and Operating Expenses shall commence upon the Term
Commencement Date.
6.04. Accounting Periods. Landlord shall have the right from time to time
to change the periods of accounting hereunder to any other annual period than a
Calendar Year, and upon any such change, all items referred to in this Article 6
shall be appropriately apportioned. In all statements rendered under Section
6.02, amounts for periods partially within and partially without the accounting
periods shall be appropriately apportioned, and any items which are not
determinable at the time of a statement shall be included therein on the basis
of Landlord's estimate and with respect thereof Landlord shall render promptly
after determination a supplemental statement and appropriate adjustment shall be
made according thereto.
5
<PAGE>
6.05. Abatement of Taxes. Landlord may at any time and from time to
time make application to the appropriate Governmental Authority for an abatement
of Taxes. If (i) such an application is successful and (ii) Tenant has made any
payment in respect of Taxes pursuant to this Article 6 for the period with
respect to which the abatement was granted, Landlord shall (a) deduct from the
amount of the abatement all expenses incurred by it in connection with the
application, (b) credit to Tenant's account Tenant's Share (adjusted for any
period for which Tenant had made a partial payment) of such abatement, with
interest, if any, paid by the Governmental Authority on such abatement, and (c)
retain the balance, if any.
6.06. Electric Service; Payment as Additional Rent. The Estimated Cost of
Electrical Service is Landlord's estimate of the cost (on the date hereof) of
lighting the Premises and operating Tenant's office equipment. This estimate is
based on information supplied to Landlord by Tenant and shall be subject to
adjustment as hereinafter set forth. Tenant shall reimburse Landlord for the
cost of providing such electrical energy by paying to Landlord the Estimated
Cost of Electrical Service. Tenant shall pay Landlord (without previous demand
therefor) such amount in monthly installments on the same day on which Basic
Rent is due. If Tenant (a) connects equipment (i) other than normal office
equipment (ii) which operates in excess of 120 volts nominal to the Building
Distribution System or (b) operates any such equipment beyond Normal Building
Operating Hours, the Estimated Cost of Electrical Service shall be increased by
an amount which will reflect the cost to Landlord of the additional electrical
service to be furnished by Landlord. If Landlord and Tenant cannot agree on the
amount of such increase, such amount shall be conclusively determined by a
reputable independent electrical engineer or consulting firm to be selected by
Landlord and reasonably satisfactory to Tenant and paid equally by both parties.
All additional risers or other equipment required for equipment other than
normal office equipment or equipment which operates on 120 volts nominal shall
be provided by Landlord, and the cost thereof shall be paid by Tenant.
Tenant shall have the right during the construction of the initial Tenant
improvements to install at its own cost and expense, a check meter to verify any
increase made in the Estimated Cost of Electrical Service. The meter must be a
meter which registers consumption, and if applicable, demand and must be
installed by a licensed electrical contractor agreeable to Landlord. All
billings will be based on the actual readings subject to further adjustments per
the terms of this Section 6.06.
6.07 Audit. Upon Tenant's request, Landlord shall deliver with Landlord's
annual statement under Section 6.02 such substantiating documentation as Tenant
may reasonably request. Tenant shall have the right, to be exercised within 30
days after delivery of Landlord's statement, to cause Landlord's determination
of Operating Expenses and Taxes to be audited by a certified public accountant
reasonably acceptable to Landlord. If such audit shall indicate that Landlord's
determination of any of the foregoing is (i) overstated, or (ii) understated,
then in the case of (i) Landlord shall credit the difference against monthly
installments of Rent next thereafter coming due (or refund the difference if the
Lease Term has ended and Tenant has no further obligation to Landlord), or in
the case of (ii) Tenant shall pay to Landlord, as additional Rent, the amount of
such excess. The cost of such audit shall be paid for by Tenant unless such
audit shall indicate an overstatement of more than 5% in which case the cost of
such audit shall be
6
<PAGE>
paid for by Landlord. Landlord's obligation under this 6.07 shall survive the
expiration of the Lease Term or earlier termination of this Lease.
ARTICLE 7
Improvements, Repairs, Additions, Replacements
----------------------------------------------
7.01. Preparation of the Premises. Tenant hereby accepts delivery of the
Premises Part B in their "as is" condition as of the Term Commencement Date and
the Premises Part A as of April 1, 1998. Notwithstanding the foregoing, Landlord
represents and warrants that the Premises and the base building systems serving
the Premises (specifically excluding the air distribution systems) are in good
working order and condition. Tenant acknowledges that a portion of Premises Part
B is currently occupied by Circadian Physiology ("Circadian") and a portion of
Premises Part A is currently occupied by Verisign ("Verisign"). Landlord agrees
to deliver the portion of Premises Part B occupied by Circadian free of
occupants by October 31, 1997, and the portion of Premises Part A occupied by
Verisign free of occupants by March 31, 1998. Any delay in such delivery beyond
the agreed upon dates shall result in a proportionate reduction in Rent on a day
to day basis for each day of such delay.
The Premises shall be prepared by Tenant as shown on Tenant's final plans
and specifications for initial Tenant Improvements, which final plans and
specifications shall be in accordance with the criteria set forth on Schedules 1
and 2 hereof. Landlord and Tenant agree that Spaulding & Slye Construction shall
be the general contractor for the initial Tenant Improvements; provided, that,
the total cost to be charged by said general contractor is competitive with bids
by other qualified general contractors; and provided further, that all
subcontracts are competitively bid. Landlord agrees to (i) pay for (a) the
modification of the fire alarm system in the Building, (b) the installation of
the basic sprinkler grid in the Building and (c) the installation of any
Building systems and/or equipment necessary to bring the Premises into
compliance with all Legal Requirements and Insurance Requirements as of the Term
Commencement Date (excluding any such systems and/or equipment required as a
result of any action undertaken by Tenant in performing the initial Tenant
Improvements), (d) the demolition of the interior office spaces in the portion
of the Premises Part B denoted as the "Demolition Area" on Exhibit B and (e) the
demolition of the interior wall separating the two major spaces that currently
comprises Premises Part B along with any ceiling repair necessitated by such
demolition and (ii) provide Tenant with a construction allowance of twelve
dollars ($12.00) per square foot of Premises Part B and ten dollars ($10.00) per
square foot of Premises Part A ("Tenant Allowance") which shall be paid by
Landlord to Tenant within 30 days after receipt by Landlord of the bill
therefor. Such Tenant Allowance shall include architectural and engineering
costs and up to $35,000.00 for data and telecommunications wiring. Any costs
incurred for the preparation of the Premises in excess of the Tenant Allowance
shall be paid by Tenant. Tenant hereby covenants and agrees that at least
seventy-five (75%) percent of the Tenant Allowance shall be used by Tenant for
leasehold improvements to the Premises. If any portion of the Tenant Allowance
above the seventy-five (75%) percent minimum is not utilized by Tenant, said
portion shall be applied as a credit against Basic Rent amortized and applied
over the remaining Term of this Lease using the Stated Expiration Date of March
31, 2003 as the endpoint of the amortization period.
7
<PAGE>
7.02. Alterations and Improvements. Tenant shall not make alterations or
additions to the Premises except in accordance with plans and specifications
therefor first approved in writing by Landlord not to be unreasonably withheld
or delayed. Landlord shall review such plans and specifications and shall at
that time notify Tenant in writing whether the alterations and improvements set
forth in the plans and specifications must be removed at Tenant's expense on or
before the Termination Date. Tenant shall not hang shades, curtains, signs,
awnings or other materials, attach any materials to or make any change in the
appearance of any glass visible from outside of the Premises, add any window
treatment of any kind or make improvements or install furniture visible from
outside of the Premises, without Landlord's prior written consent not to be
unreasonably withheld or delayed. Without limitation, Landlord shall not be
deemed unreasonable for withholding approval of any alterations or additions
which would (a) delay completion of the Premises or the Building, (b) adversely
affect the character, outside appearance, value, usefulness, or rentability of
the Building or any part thereof, or any of the facilities, equipment or
improvements therein, (c) involve any structural changes or weaken or impair
(temporarily or permanently) the structure or lessen the value or usable area of
the Building or the Land either during the making of any alteration, addition or
improvement or upon their completion, (d) require unusual expense to readapt the
Premises to normal office use upon termination of this Lease or (e) increase (i)
the cost of construction or insurance or (ii) Taxes. All of Tenant's alterations
and additions and installation of furnishings shall be coordinated with any work
being performed by Landlord and shall be performed in such manner as to maintain
harmonious labor relations and not to damage the Building, the Land, or the
Premises or interfere with the Building operation or the Land operation and,
except for installation of furnishings, shall be performed by contractors or
workmen first approved in writing by Landlord. Except for work done by or
through Landlord, Tenant before its work is started shall: secure all licenses
and permits necessary therefor; deliver to Landlord a statement of the names of
all its contractors and subcontractors and the estimated cost of all labor and
material to be furnished by them; and cause each contractor to carry workmen's
compensation insurance in statutory amounts covering all the contractor's and
subcontractor's employees and comprehensive public liability insurance with such
limits as Landlord may reasonably require, but in no event less than
$300,000-$500,000, and property damage insurance with limits of not less than
$100,000 (all such insurance to be written in companies rated "A" or better by
A. M. Best and Company, and approved by Landlord and insuring Landlord and
Tenant as well as the contractors), and to deliver to Landlord evidence of all
such insurance. Tenant agrees to pay promptly when due the entire cost of any
work done in the Premises by Tenant, its agents, employees, or independent
contractors, and not to cause or permit any liens for labor or materials
performed or furnished in connection therewith to attach to the Premises and
immediately to discharge any such liens which may so attach. All construction
work done by Tenant, its agents, employees or independent contractors shall be
done in a good and workmanlike manner and in compliance with all Legal
Requirements and Insurance Requirements and the Rules and Regulations. Landlord
may inspect such work at any time or times and shall promptly give notice to
Tenant of any observed defects. If any observed defects are not promptly
corrected or if work performance does not conform to the approved plans and
specifications, Landlord at its sole option may stop all work from continuing
until all defects are cured or all work conforms to the approved plans and
specifications.
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7.03. Maintenance. Tenant shall, at all times during the Lease Term, and at
its own cost and expense, (i) keep and maintain (or cause to be kept and
maintained) the Premises in the same repair and condition existing on the Term
Commencement Date with respect to Premises Part B and on April 1, 1998 with
respect to Premises Part A (ordinary wear and tear and damage by fire or
casualty or taking by eminent domain only excepted) and (ii) use all reasonable
precaution to prevent waste, damage, or injury thereto.
Notwithstanding the foregoing, Landlord shall, at all times during the
Lease Term and at its own cost and expense, keep in good order, condition and
repair, the structural elements of the Building and the Premises, including
without limitation, the heating, ventilating, air conditioning, mechanical,
electrical and plumbing systems not exclusively serving the Premises.
7.04. Redelivery. On the Lease Termination Date, Tenant shall quit and
surrender the Premises free and clear of all tenants, occupants, liens, and
encumbrances whatsoever except (i) Permitted Exceptions and (ii) encumbrances,
restrictions or reservations caused by or consented to by Landlord and Land
Lessor in their sole judgment and absolute discretion. Tenant shall, subject to
the provisions of Articles 17 and 18 hereof, surrender the Premises to Landlord
broom clean and in the same condition and repair existing on the Rent
Commencement Date with respect to Premises Part B and on April 1, 1998 with
respect to Premises Part A or may have been put in during the Term (ordinary
wear and tear, damage by fire or casualty and taking by eminent domain only
excepted) with all damages occasioned by Tenant's removal of Tenant's fixtures
or equipment repaired at Tenant's expense to Landlord's satisfaction.
ARTICLE 8
Building Services
-----------------
8.01. Building Services. Landlord shall furnish, or cause to be furnished,
during the Lease Term the Basic Services and the janitorial services described
on Schedule 3 attached hereto.
8.02. Other Janitors. No persons shall be employed by Tenant to do
janitorial work in the Premises and no persons other than the janitors of
Building shall clean the Premises unless Landlord shall give its written consent
thereto. Any person employed by Tenant with Landlord's consent to do janitorial
work shall, while in the Building, either inside or outside the Premises, be
subject to and under the control and direction of the Landlord's Representative
(but not as agent or servant of said Landlord's Representative).
8.03. Additional Services. Tenant will pay Landlord a reasonable charge for
any extra cleaning of the Premises required because of the carelessness or
indifference of Tenant and for any Additional Services rendered at the request
of Tenant. Tenant has requested and Landlord has agreed to provide as an
Additional Service, mid-day cleaning (five (5) times per week) of the lavatories
servicing the Premises by a day porter. If the cost of cleaning the Premises
shall be increased due to the installation in the Premises, at Tenant's request,
of any unique or special materials, finish, or equipment, Tenant shall pay the
Landlord an amount equal to such increase in cost. All charges for Additional
Services shall be Additional Rent and shall be due and payable within ten (10)
days of the date on which they are billed.
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8.04. Limitations on Landlord's Liability. Landlord shall not be liable in
damages, nor in default hereunder, for any failure or delay in furnishing any of
the Basic Services or Additional Services when such failure or delay is
occasioned by Force Majeure or by the act or default of Tenant. No such failure
or delay shall be held or pleaded as an eviction or disturbance in any manner
whatsoever of Tenant's possession or give Tenant any right to terminate this
Lease or give rise to any claim for set-off or any abatement of Rent or of any
of Tenant's obligations under this Lease.
8.05. Electric Service. Subject to Section 6.06 Landlord shall furnish
electrical energy required for lighting the Premises and operating Tenant's
office equipment used in the Premises. Landlord may, at any time, elect to
discontinue the furnishing of electrical energy. In the event of any such
election by Landlord: (1) Landlord shall give reasonable advance notice of any
such discontinuance to Tenant; (2) Landlord shall permit Tenant to receive
electrical service directly from the public utility supplying service to the
Building and to use (in common with others) the existing feeders, risers,
wiring, and other electrical facilities serving the Premises for such purpose to
the extent they are suitable and safely capable; (3) Landlord shall pay such
charges and costs, if any, as such public utility may impose in connection with
the installation of Tenant's meters and pay for such other installations as such
public utility may require, as a condition to providing comparable electrical
service to Tenant unless Landlord is required to discontinue the furnishing of
electrical energy, in which event all of the costs and charges set forth in this
clause (3) shall be paid by Tenant; (4) Tenant's obligations under Section 6.06
shall end; and (5) Tenant shall thereafter pay, directly to the utility
furnishing the same, all charges for electrical services to the Premises.
ARTICLE 9
Tenant's Particular Covenants
-----------------------------
9.01. Pay Rent. Tenant shall pay when due all Rent and all charges for
utility services rendered to the Premises not included in Rent and, as further
Additional Rent, all charges of Landlord for Additional Services.
9.02. Occupancy of the Premises. Tenant shall occupy the Premises
continuously from the Term Commencement Date for the Permitted Uses only. Tenant
shall not (i) injure or deface the Premises or the Building, (ii) install any
sign in or on any window, demising wall, corridor, elevator foyer, or Common
Area, (iii) permit in the Premises any inflammable fluids or chemicals not
reasonably related to the Permitted Uses, nor (iv) permit any nuisance or any
use of the Premises which is improper, offensive, contrary to any Legal
Requirement or Insurance Requirement or liable to render necessary any
alteration or addition to the Building.
9.03. Rules and Regulations. Tenant shall not obstruct in any manner any
portion of the Building or the Land. Tenant will comply with all Rules and
Regulations. Landlord has the right at any time to add, delete or change the
Rules and Regulations.
9.04. Safety. Tenant shall keep the Premises equipped with all safety
appliances required by Legal Requirements or Insurance Requirements because of
any use made by Tenant. Tenant shall procure all Authorizations so required
because of such use and, if requested by Landlord, shall do any work so
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required because of such use, it being understood that the foregoing provisions
shall not be construed to broaden in any way the Permitted Uses.
9.05. Equipment. Tenant shall not place a load upon the floor of the
Premises exceeding the live load of 70 psi; and shall not move any safe or other
equipment weighing more than 50 psi in, about or out of the Premises except in
such manner and at such time as Landlord shall in each instance authorize.
Tenant shall isolate and maintain all of Tenant's business machines and
mechanical equipment which cause or may cause airborne or structure-borne
vibration or noise, whether or not it may be transmitted to any other Premises,
so as to eliminate such vibration or noise.
9.06. Electrical Equipment. Tenant shall not, without prior written notice
to Landlord in each instance connect to the Building electric distribution
system anything other than normal office equipment. Tenant hereby notifies
Landlord that Tenant shall be operating its normal office equipment on a regular
basis beyond Normal Building Operating Hours and shall pay for such additional
electrical service in accordance with Section 6.06 above. Tenant's use of
electrical energy in the Premises shall not at any time exceed the capacity of
any of the electrical conductors or equipment in or otherwise serving the
Premises. Tenant shall not, without prior written notice to Landlord in each
instance, connect to the Building electric distribution system any fixtures,
appliances, or equipment which operate on a voltage in excess of 120 volts
nominal or make any alteration or addition to the electric system of the
Premises.
9.07. Pay Taxes. Tenant shall pay promptly when due all Taxes upon personal
property (including, without limitation, fixtures and equipment) in the Premises
to whomsoever assessed.
ARTICLE 10
Requirements of Public Authority
--------------------------------
10.01. Legal Requirements. Tenant shall, at its own cost and expense,
promptly observe and comply with all Legal Requirements applicable to the
Premises. Tenant shall pay all costs, expenses, liabilities, losses, damages,
fines, penalties, claims, and demands, that may in any manner arise out of or be
imposed because of the failure of Tenant to comply with the covenants of this
Article 10. Notwithstanding anything contained herein to the contrary, Tenant
shall have no obligation to make any structural or capital improvements or
alterations to the Premises to comply with Legal Requirements unless due to
Tenant's specific use of the Premises beyond general office Use. Landlord
represents that as of the date of this Lease, the Common Areas comply with all
applicable building codes.
10.02. Contests. Tenant shall have the right to contest by appropriate
legal proceedings diligently conducted in good faith, in the name of the Tenant,
or Landlord (if legally required), or both (if legally required), without cost,
expense, liability, or damage to Landlord, the validity or application of any
Legal Requirement and, if compliance with any of the terms of any such Legal
Requirement may legally be delayed pending the prosecution of any such
proceeding, Tenant may delay such compliance therewith until the final
determination of such proceeding, provided in each case that: (a) Landlord shall
not be subject to civil or criminal penalty or to prosecution for a crime, nor
shall the Land, the Building, or any equipment and
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improvements therein or any part thereof be subject to being condemned or
vacated, or subject to any lien or encumbrance, by reason of non-compliance or
otherwise by reason of such contest; (b) before the commencement of such
contest, Tenant shall furnish to Landlord the bond of a surety company
satisfactory to Landlord, in form and substance satisfactory to Landlord and in
an amount equal to one hundred percent (100%) of the cost of such compliance (as
estimated by Landlord) and shall indemnify Landlord against the cost of such
compliance and liability resulting from or incurred in connection with such
contest or non-compliance; (c) such non-compliance or contest shall not
constitute or result in any violation of the Mortgage, the Land Lease, any
Future Mortgage, or any Future Land Lease, or if the Mortgagee, the Land Lessor,
any Future Land Lessor, or any Future Mortgagee shall condition such
non-compliance or contest upon the taking of action or furnishing of security by
Landlord, such action shall be taken and such security shall be furnished at the
expense of Tenant; and (d) Tenant shall keep Landlord and, if required or
requested, the Land Lessor, the Mortgagee, any Future Mortgagee, or any Future
Land Lessor regularly advised as to the status of such proceedings in good
faith. Landlord shall be deemed subject to prosecution for a crime if Landlord,
the Land Lessor, the Mortgagee, any Future Land Lessor or any Future Mortgagee
or any of their officers, directors, partners, shareholders, agents or
employees, is charged with a crime of any kind whatever unless such charge is
withdrawn five (5) days before such party is required to plead or answer
thereto. This Section 10.02 shall survive the expiration or earlier termination
of this Lease.
ARTICLE 11
Covenant Against Liens
----------------------
11.01. Mechanics Liens. Landlord's right, title and interest in the
Premises or the Land or the Building shall not be subject to or liable for liens
of mechanics or materialmen for work done on behalf of Tenant in connection with
improvements to the Premises. Notwithstanding such restriction, if because of
any act or omission of Tenant, any mechanic's lien or other lien, charge or
order for payment of money shall be filed against any portion of the Premises or
the Land or the Building, Tenant shall, at its own cost and expense, cause the
same to be discharged of record or bonded within fifteen (15) days after the
filing thereof.
11.02. Right to Discharge. Without otherwise limiting any other remedy of
Landlord for default hereunder, if Tenant shall fail to cause such liens to be
discharged of record or bonded within the aforesaid fifteen (15) day period,
then Landlord shall have the right to cause the same to be discharged. All
amounts (including reasonable attorneys' fees) paid by Landlord to cause such
liens to be discharged shall constitute Additional Rent, payable immediately
upon demand by Landlord.
ARTICLE 12
Access to Premises
------------------
12.01. Access. Landlord or Landlord's agents and designees shall have the
right, but not the obligation, to enter upon the Premises at all reasonable
times upon reasonable prior notice to Tenant and, in the case of an emergency,
at any time, to examine same, make any repairs at Tenant's sole cost and
expense, which Landlord deems necessary, and to exhibit the Premises
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to prospective purchasers, mortgagees, and tenants, but in the latter case only
during ordinary business hours and only during the last six (6) months of the
Lease Term.
12.02. Tenant's Access. Tenant shall have access to the Premises seven (7)
days per week, twenty-four (24) hours per day.
ARTICLE 13
Assignment and Sublettinq:
--------------------------
Occupancy Arrangements
----------------------
13.01. Sublettinq and Assignment. Subject to Exhibit F to this Lease,
Tenant shall not (either voluntarily or by operation of law) enter (nor may
Landlord cause, suffer or permit Tenant to enter) into a Prohibited Occupancy
Arrangement, and any Prohibited Occupancy Arrangement shall be absolutely void
and ineffective for any purpose. Tenant shall not enter into any other Occupancy
Arrangement, either voluntarily or by operation of law, without the prior
written consent of Landlord.
Subject to Exhibit F to this Lease, if Tenant intends to enter into an
Occupancy Arrangement which requires Landlord's consent, Tenant shall so notify
Landlord in writing, stating the name of (and a financial statement with respect
to) the Person with whom Tenant intends to enter into such Arrangement, the
exact terms of the Arrangement and a precise description of the portion of the
Premises intended to be subject thereto. Within ten (10) business days of
receipt of such writing, Landlord shall (i) withhold its consent to such
Occupancy Arrangement, (ii) consent to such Occupancy Arrangement, or (iii) if
such Occupancy Arrangement involves assigning or subletting more than thirty
(30%) percent of the Premises to any one occupant, terminate this Lease with
respect to so much of the Premises as is intended to be subject thereto, for the
term of such Arrangement.
Notwithstanding the provisions of this Section 13.01 to the contrary,
Landlord agrees not to withhold its consent to an Occupancy Arrangement with an
Affiliate of Tenant or with a successor entity by reason of merger with,
acquisition of or consolidation with Tenant provided such Affiliate or successor
entity has at the time of such proposed Occupancy Arrangement a net worth equal
or greater to the net worth of Tenant on the date of execution of this Lease
provided the Premises will be used for the Permitted Uses.
Notwithstanding the provisions of this Section 13.01 to the contrary,
provided that Tenant is not default under this Lease beyond applicable cure
periods, Landlord's consent shall not be unreasonably withheld or delayed to an
Occupancy Arrangement for the use set forth in Section 5.01 hereof provided the
proposed assignee or sublessee meets such standards as Landlord may reasonably
impose. Tenant understands and agrees that such standards shall include at least
the following criteria:
(i) The business reputation of the proposed assignee or sublessee and
its partners, officers, directors and stockholders;
(ii) The operating experience of the proposed assignee or sublessee in
the business represented by the use described in Section 5.01, such
that Landlord can reasonably expect
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that the performance of all of Tenant's obligations will not be
reduced following such assignment or sublease; and
(iii) The financial condition and credit worthiness of the proposed
assignee or sublessee being no less than the financial condition and
credit worthiness of Tenant on the date of executing of this Lease.
If the Landlord consents to such Occupancy Arrangement, Tenant shall (i)
enter into such Arrangement on the exact terms described to Landlord within
fourteen (14) days of Landlord's consent and deliver to Landlord, to Land
Lessor, and to the Mortgagee an executed original counterpart of such Occupancy
Arrangement and (ii) remain liable for the payment and performance of the terms
and covenants of this Lease. If Tenant enters into such an Arrangement, Tenant
shall pay to Landlord when received the net excess (allowing for Tenant's
reasonable expenses in connection with entering into such Occupancy
Arrangement), if any, of amounts received in respect of such Occupancy
Arrangement over the Rent.
Tenant shall not be released by any such assignment or sublet but shall
continue to be fully responsible for the due performance of the obligations
hereunder, including, but not limited to the redelivery provisions of Section
7.04.
If Landlord terminates this Lease, all Rent due shall be adjusted as of the
day the Premises (or portion thereof) are redelivered to Landlord. Any portion
of the Premises so redelivered shall be in the condition specified in Section
7.04 hereof.
ARTICLE 14
Indemnity
---------
14.01. Tenant's Indemnity. To the fullest extent permitted by law, Tenant
shall indemnify and save harmless Landlord and Land Lessor from and against any
and all liabilities, damages, penalties, and judgments and from and against any
claims, actions, proceedings, and expenses and costs in connection therewith,
including reasonable counsel fees, arising from injury to persons or property
sustained by anyone in and about the Premises, or the Building or the Land
resulting from any act or omission of Tenant, or Tenant's officers, agents,
servants, employees, contractors, sublessees, or invitees. Tenant shall, at its
own cost and expense, defend (with counsel first approved by Landlord) any and
all suits or actions (just or unjust) in which Landlord or the Land Lessor may
be impleaded with others upon any such above-mentioned matter, claim or claims,
except as may result from the acts as set forth in Section 14.02. All
merchandise, furniture, fixtures, and property of every kind, nature, and
description of Tenant or Tenant's employees, agents, contractors, invitees,
visitors, or guests which may be in or upon the Premises, the Land or the
Building during the Lease Term shall be at the sole risk and hazard of Tenant,
and if the whole or any part thereof shall be damaged, destroyed, stolen, or
removed by reason of any cause or reason whatsoever, other than the gross
negligence or intentional acts of Landlord, no part of said damage or loss shall
be charged to or borne by Landlord.
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14.02. Landlord's Liability. Except for its intentional acts or negligence
or the intentional acts or negligence of its officers, agents, servants,
employees or contractors, Landlord shall not be responsible or liable for any
damage or injury to any property, fixtures, buildings, or improvements, or to
any person or persons, at any time in the Premises or the Building or the Land,
including any damage or injury to Tenant or to any of Tenant's officers, agents,
servants, employees, contractors, invitees, customers, or sublessees.
ARTICLE 15
Insurance
---------
15.01. Liability Insurance. Tenant shall provide or cause to be provided at
its expense, and keep in force during the Lease Term: (i) comprehensive general
liability insurance (containing a broad form Liability Extension Endorsement) in
a good and solvent insurance company or companies licensed to do business in the
Commonwealth of Massachusetts, whose rating is at least an "A" by A. M. Best
selected by Tenant and reasonably satisfactory to Landlord and in an amount
reasonably required by Landlord but in any event not less than Two Million
Dollars ($2,000,000.00) with respect to injury or death to any one person and
Two Million Dollars ($2,000,000.00) with respect to injury or death to more than
one person in any one accident or other occurrence and Five Hundred Thousand
Dollars ($500,000.00) with respect to damages to property; and (ii) workers'
compensation and employers' liability insurance with statutory limits covering
all of Tenant's employees on the Premises.
15.02. General. All insurance policies required by this Article 15 shall
include Landlord, Land Lessor, the Mortgagee, Landlord's Representative, and any
Future Mortgagee as additional insurers. Tenant agrees to deliver evidence of
insurance to Landlord as of the date hereof and thereafter not less than thirty
(30) days prior to the expiration of any such policy. Such insurance shall not
be cancellable without thirty (30) days' prior written notice to Landlord.
15.03. Property Insurance. Tenant shall cause its improvements and
betterments to the Premises to be insured for the benefit of Landlord, Tenant,
Land Lessor, the Mortgagee, and any Future Mortgagee as their respective
interests may appear, by "All Risk" type coverage in an amount equal to the
greater of (i) the replacement cost thereof, if insurance in such amount is
available, or (ii) the amount necessary to avoid the effect of co-insurance
provisions of the applicable policies. In addition, Tenant shall obtain the
following endorsements to such policy: (i) Agreed Amount and (ii) an Inflation
Guard Endorsement with an annual percentage of at least 1.50%. Evidence thereof
shall be delivered to Landlord. Landlord shall, at Tenant's cost and expense,
cooperate fully with Tenant and execute any and all consents and other
instruments and take all other actions necessary to obtain the largest possible
recovery. Landlord shall not carry any insurance concurrent in coverage and
contributing in the event of loss with any insurance required to be furnished by
Tenant hereunder if the effect of such separate insurance would be to reduce the
protection or the payment to be made under Tenant's insurance.
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ARTICLE 16
Waiver of Subrogation
---------------------
16.01. Waiver of Subrogation. All insurance policies carried by either
party covering the Premises, including but not limited to contents, fire and
casualty insurance, shall expressly waive any right on the part of the insurer
to make any claim against the other party or against the Land Lessor. The
parties hereto agree that their policies will include such waiver clause or
endorsement. Landlord and Tenant hereby each hereby waive all claims, causes of
action, and rights of recovery against the other and against the Land Lessor and
their respective partners, against, officers, and employees, for any damage to
or destruction of persons, property, or business which shall occur on or about
the Premises and shall result from any of the perils insured under any and all
policies of insurance maintained by Landlord and Tenant, regardless of cause,
including the negligence and intentional wrongdoing of either party and their
respective agents, officers, and employees, but only to the extent of recovery,
if any, under such policy or policies of insurance; provided, however, that this
waiver shall be null and void to the extent that any such insurance shall be
invalidated by reason of this waiver.
ARTICLE 17
Damage or Destruction
---------------------
17.01 Substantial Damage. If the Building or any part thereof shall be
damaged by fire or other casualty to the extent that substantial alteration or
reconstruction of the Building shall, in Landlord's sole opinion, be required
(whether or not the Premises shall have been damaged) or if as a result the
Mortgagee or any Future Mortgagee requires that Proceeds payable be used to
retire any mortgage debt, Landlord may, at its option, terminate this Lease by
notifying Tenant in writing of such termination within sixty (60) days after the
date of such damage. If this Lease is so terminated, Rent shall be abated as of
the date of such damage.
17.02. Restoration. If Landlord does not terminate this Lease pursuant to
Section 17.01, Landlord shall, within seventy-five (75) days after receipt by
Landlord of the Proceeds payable in respect of such fire or other casualty,
proceed with reasonable diligence to repair and restore the Building (subject to
Force Majeure) to substantially the same condition in which it was immediately
prior to the occurrence of the casualty; provided, however, that (i) Landlord
shall not be required to rebuild, repair or replace any part of Tenant's
furniture, furnishings, fixtures or equipment all of which Tenant shall be
obligated to rebuild, repair and replace and (ii) in no event shall Landlord be
obligated to spend in connection with such repair and restoration an amount in
excess of the Proceeds actually received by Landlord and allocable thereto.
Landlord shall not be liable for any inconvenience or annoyance to Tenant or
injury to the business of Tenant resulting in any way from such damage or the
repair thereof, except that Landlord shall allow Tenant a fair diminution of
Rent during the time and to the extent the Premises are unfit for occupancy. If
such repair and restoration is not substantially completed within two hundred
forty (240) days from the date of such damage, or if such damage shall occur
during the last year of the Term, Tenant shall have the right to terminate this
Lease on written notice to Landlord. If this Lease is so terminated, Rent should
be abated as of the date of such damage.
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ARTICLE 18
Eminent Domain
--------------
18.01. Total Taking. If the Premises or the Building should be the subject
of a Total Taking, then this Lease shall terminate as of the date when physical
possession of the Building or the Premises is taken by the condemning authority.
18.02. Partial Taking. If there occurs a Partial Taking, Landlord (whether
or not the Premises are affected thereby) may terminate this Lease by giving
written notice thereof to Tenant within sixty (60) days after the right of
election accrues or Tenant may terminate this Lease if there is a Partial Taking
of the Premises which renders the balance of the Premises unsuitable for
Tenant's business purposes, in either event this Lease shall terminate as of the
date when physical possession of such portion of the Building or Premises is
taken by the condemning authority. If upon any such Partial Taking this Lease is
not terminated, Rent shall be abated by an amount representing that part of the
Rent properly allocable to the portion of the Premises so taken and Landlord
shall, at Landlord's sole expense, restore and reconstruct the Building and the
Premises to substantially their former condition to the extent that the same, in
Landlord's judgment, may be feasible; provided, however, that (i) Landlord shall
not be required to rebuild, repair, or replace any part of Tenant's Leasehold
Improvements, all of which Tenant shall be obligated to rebuild, repair and
replace, and (ii) in no event shall Landlord be required to spend an amount to
restore or reconstruct the portion of the Premises unaffected by the Partial
Taking in excess of the net amount (after expenses of collection) of the
Proceeds received by Landlord as compensation awarded upon a Taking.
18.03. Awards and Proceeds. All Proceeds payable in respect of a Taking
shall be the property of Landlord. Tenant hereby assigns to Landlord all rights
of Tenant in or to such Proceeds, provided that Tenant shall be entitled to
separately petition the condemning authority for a separate award for its moving
expenses and trade fixtures but only if such a separate award will not diminish
the amount of Proceeds payable to Landlord.
ARTICLE 19
Quiet Enjoyment
---------------
19.01. Landlord's Covenant. Provided that an Event of Default has not
occurred and is not then continuing, Tenant shall, subject to the Permitted
Exceptions, quietly have and enjoy the Premises during the Lease Term, without
hindrance or molestation from any Person lawfully claiming by, through, or under
Landlord.
19.02. Subordination. This Lease is and shall be subject and subordinate to
(i) the Land Lease, (ii) the Mortgage, (iii) any Future Land Lease, and (iv) any
Future Mortgage, and to each advance made or hereafter to be made under the
Mortgage or any Future Mortgage provided that the Land Lessor, the Mortgagee,
any Future Land Lessor, or any Future Mortgagee which succeeds to the interest
of Landlord (any such Future Mortgagee, Land Lessor, Future Land Lessor, the
Mortgagee or any other Person or successor or assignor being hereinafter
collectively called the "Successor Mortgagee/Lessor"), agrees in writing that
Tenant's possession of the Premises will not be disturbed so long as Tenant is
not in default under this Lease beyond any
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applicable grace period. In confirmation of such subordination, Tenant shall
execute and deliver promptly any certificate, in recordable form, that Landlord,
the Land Lessor, the Mortgagee, any Future Land Lessor or any Future Mortgagee
may request.
19.03. Notice to Mortgagee and Land Lessor. No act or failure to act on the
part of Landlord which would entitle Tenant under the terms of this Lease, or by
law, to be relieved of Tenant's obligations hereunder or to terminate this
Lease, shall result in a release or termination of such obligations or a
termination of this Lease unless Tenant shall have first given to the Land
Lessor, the Mortgagee, any Future Land Lessor, and any Future Mortgagee, by
registered mail, a copy of any notice of default served upon Landlord, provided
that prior to such notice Tenant has been notified in writing, (by way of notice
of Assignment of Rents and Leases or otherwise) of the address of the Land
Lessor, the Mortgagee, any Future Land Lessor, and any Future Mortgagee. Tenant
further agrees that if Landlord shall have failed to cure such default within
the time provided for in this Lease, then the Land Lessor, the Mortgagee, any
Future Land Lessor, and any Future Mortgagee shall have an additional sixty (60)
days within which to cure such default, or if such default cannot be cured
within that time, then such additional time as may be necessary to cure such
default shall be granted if within such sixty (60) days the Land Lessor, the
Mortgagee, any Future Land Lessor, or any Future Mortgagee has commenced and is
diligently pursuing the remedies necessary to cure such default (including, but
not limited to, commencement of foreclosure proceedings, if necessary to effect
such cure), in which event the Lease shall not be terminated while such remedies
are being so diligently pursued. Notwithstanding the foregoing provisions of
this Section, nothing herein contained shall be deemed to impose any obligation
on the Land Lessor, the Mortgagee, any Future Land Lessor, or any Future
Mortgagee to correct or cure any such condition.
19.04. Other Provisions Regarding Mortgagees. If this Lease or the Rent due
hereunder is assigned to the Mortgagee or any Future Mortgagee as collateral
security for a loan, neither the Mortgagee nor any Future Mortgagee, as the case
may be, shall be deemed to have assumed any of Landlord's obligations hereunder
solely as a result of said assignment. Either the Mortgagee or any Future
Mortgagee to whom this Lease has been so assigned shall be deemed to have
assumed such obligations only if (i) by the terms of the instrument of
assignment the Mortgagee or any Future Mortgagee, as the case may be,
specifically elects to assume such obligations or (ii) the Mortgagee or any
Future Mortgagee, as the case may be, has (a) foreclosed its mortgage, (b)
accepted a deed in lieu thereof, or (c) taken possession of the Premises by
entry or otherwise. Even if the Mortgagee or any Future Mortgagee, as the case
may be, so assumes the obligations of Landlord hereunder, (i) any such
obligation under Section 24.01 to return the Security Deposit to the Tenant
shall be limited to the amount actually received by the Mortgagee or any Future
Mortgagee, as the case may be, with respect thereto, and (ii) the Mortgagee or
any Future Mortgagee, as the case may be, will be liable for breaches of any of
Landlord's obligations hereunder only to the extent such breaches occur during
the period of ownership by the Mortgagee or any Future Mortgagee, as the case
may be, after foreclosure (or any conveyance by a deed in lieu thereof), all as
set forth in Section 25.11 hereof.
19.05. Further Provisions Regarding the Land Lessor. If the Land Lessor or
any Future Land Lessor succeeds to the interest of Landlord, in no event shall
Land Lessor or any Future Land Lessor be liable for any act or omission of
Landlord, liable for the return of the Security Deposit, if any, subject to any
offsets or defenses which Tenant may have against Landlord, bound by any Rent
which Tenant might have prepaid for more than the current month, or bound by any
amendment or modification of this Lease made without Land Lessor's or any Future
Land Lessor's written consent.
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ARTICLE 20
Defaults; Events of Default
---------------------------
20.01. Defaults. The following shall, if any requirement for notice or
lapse of time or both has not been met, constitute Defaults, and, if such
conditions have been met, constitute Events of Default hereunder:
(1) The occurrence of any event set forth in Article 21 hereof;
(2) Subject to Section 20.01(5) below, the failure of Tenant to pay Rent
(or any other payment due to Landlord under this Lease) when the
same shall be due and payable and the continuance of such failure
for a period of five (5) days after receipt by Tenant of notice in
writing from Landlord specifying such failure; or
(3) The failure of Tenant to observe any covenant made by it in Sections
5.01, 13.01, 15.01, 15.02, 15.03 and 25.04 hereof; or
(4) The failure of Tenant to keep, observe, or perform any of the other
covenants, conditions, and agreements herein contained on Tenant's
part to be kept, observed, or performed and the continuance of such
failure without the curing of same for a period of twenty (20) days
after receipt by Tenant of notice in writing from Landlord
specifying in reasonable detail the nature of such failure; or
(5) If Tenant shall default in the timely payment of Rent more than two
times in any period of twelve (12) months during the Term hereunder,
then, notwithstanding that such defaults shall have each been cured
within the applicable period, then any similar default shall be
deemed to be deliberate and Landlord may thereafter serve a notice
of termination upon Tenant without affording to Tenant an
opportunity to cure such default.
20.02. Tenant's Best Efforts. In the event that the Default of which
Landlord gives notice is of such a nature that it cannot be cured upon receipt
of notice from Landlord or within the applicable period set forth in Section
20.01, above, then such Default shall not be deemed to continue so long as
Tenant, after receiving such notice, proceeds to cure the Default as soon as
reasonably possible and continues to take all steps necessary to complete the
same within a period of time which, under all prevailing circumstances, shall be
reasonable. No Default shall be deemed to continue if and so long as Tenant
shall be so proceeding to cure the same in good faith or be delayed in or
prevented from curing the same by reason of Force Majeure.
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ARTICLE 21
Insolvency
----------
21.01. Insolvency. If (l) there occurs with respect to Tenant an Insolvency
or (2) any execution or attachment is issued against Tenant or any of its
property and as a result thereof the Premises are taken or occupied by some
Person other then the Tenant, except as may herein be permitted, then an Event
of Default hereunder shall be deemed to have occurred so that the provisions of
Article 22 hereof shall become effective and Landlord shall have the rights and
remedies provided for therein.
ARTICLE 22
Landlord's Remedies; Damages on Default
---------------------------------------
22.01. Landlord's Remedies. If an Event of Default shall occur, Landlord
may, at its option, give to Tenant a notice terminating this Lease upon a date
specified in such notice, which date sell be not less than three (3) Business
Days after the date of receipt by Tenant of such notice from Landlord, and upon
the date specified in said notice, the term and estate hereby vested in Tenant
shall cease and any and all other right, title, and interest of Tenant hereunder
shall likewise cease without further notice or lapse of time, as fully and with
like effect as if the entire Lease Term had elapsed, but Tenant shall continue
to be liable to Landlord as hereinafter provided.
If such Event of Default results from Tenant's failure to pay a charge for
an Additional Service pursuant to Section 8.03 hereof, Landlord may, without
further notice to Tenant, discontinue any or all of such Additional Services.
If an Event of Default shall occur, Landlord shall be relieved of its
undertakings under Article 13 hereof.
22.02. Surrender. Upon termination of this Lease as the result of an Event
of Default, Tenant shall quit and peacefully surrender the Premises to Landlord.
Landlord, upon or at any time after any such termination, may without further
notice, enter the Premises and possess itself thereof by summary proceedings or
otherwise, and may dispossess Tenant and remove Tenant and all other Persons and
property from the Premises and may have, hold and enjoy the Premises and the
right to receive all rental income of and from the same.
22.03. Right to Relet. At any time or from time to time after any such
termination, Landlord may relet the Premises or any part thereof, in the name of
Landlord or otherwise, for such term or terms (which may be greater or less than
the period which would otherwise have constituted the balance of the Lease Term)
and on such conditions (which may include concessions or free rent) as Landlord,
in its reasonable discretion, may determine and may collect and receive the
rents therefor. Landlord shall in no way be responsible or liable for any
failure to relet the Premises or any part thereof, or for any failure to collect
any rent due upon any such reletting.
22.04. Survival of Covenants. No such termination of this Lease shall
relieve Tenant of its liability and obligations under this Lease and such
liability and obligations shall survive any such termination. Tenant shall
indemnify and hold Landlord harmless from all loss, cost, expense, damage, or
liability arising out or in connection with such termination.
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22.05. Damages. Upon such termination, Tenant shall pay to the Landlord the
Rent up to the time of such termination. Tenant shall also pay Landlord monthly
on the days on which Basic Rent would have been payable, as damages for Tenant's
default, the amount by which:
(1) the amount of Rent which would be payable under this Lease by Tenant
if this Lease were still in effect, exceeds
(2) the net proceeds of any reletting, after deduction of all Landlord's
reasonable reletting expenses, including, without limitation, all
repossession costs, brokerage commissions, legal expenses,
attorneys' fees, alteration costs, and expenses of preparation for
such reletting.
At any time after such termination, in lieu of collecting the monthly
difference as aforesaid, Landlord shall be entitled to recover from Tenant on
demand, as and for liquidated and agreed damages for Tenant's Default, the
difference between
(1) the aggregate Rent which would have been payable under this Lease by
Tenant from the date of such termination until the Stated Expiration
Date, less
(2) the fair and reasonable rental value of the Premises for the same
period less Landlord's reasonable estimate of expenses to be
incurred in connection with reletting the Premises, including,
without limitation, all repossession costs, brokerage commissions,
legal expenses, attorneys' fees, alteration costs, and expenses of
preparation for such reletting.
If the Premises or any part thereof are relet by the Landlord before
presentation of proof of such liquidated damages to any court, commission or
tribunal, the amount of rent reserved upon such reletting shall be prima facie
the fair and reasonable rental value for the part or the whole of the Premises
so relet during the term of the reletting.
Nothing herein contained shall limit or prejudice the right of the Landlord
to prove and obtain as liquidated damages by reason of such termination an
amount equal to the maximum allowed by any statute or rule of law in effect at
the time when, and governing the proceedings in which, such damages are to be
proved, whether or not such amount be greater, equal to, or less than the amount
of the difference referred to above.
22.06. Right to Equitable Relief. In the event there shall occur a Default
or threatened Default, Landlord shall be entitled to enjoin such Default or
threatened Default and shall have the right to invoke any right and remedy
allowed at law or in equity or by statute or otherwise as though re-entry,
summary proceedings, and other remedies were not provided for in this Lease.
22.07. Right to Self Help. If an Event of Default shall occur and be
continuing, Landlord shall have the right, but shall not be obligated, to enter
upon the Premises and to perform such obligation notwithstanding the fact that
no specific provision for such substituted performance by Landlord is made in
this Lease with respect to such Default. In performing such obligation, Landlord
may make any payment of money or perform any other act.
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The aggregate of (i) all sums so paid by Landlord, (ii) interest (at the
rate of lO% per annum or the highest rate permitted by law, whichever is less)
on such sum, and (iii) all necessary incidental costs and expenses in connection
with the performance of any such act by Landlord, shall be deemed to be Rent
under this Lease and shall be payable to Landlord immediately upon demand.
Landlord may exercise the foregoing rights without waiving any other of its
rights or releasing Tenant from any of its obligations under this Lease.
22.08 Self Help. Subject to Section 19.03, in the event Landlord fails to
perform its obligations hereunder and such failure continues for thirty (30)
days after receipt of written notice from Tenant to Landlord, Tenant may perform
such obligations and charge Landlord for all reasonable costs and expenses
incurred in connection therewith.
22.09. Further Remedies. Upon any termination of this Lease pursuant to
Section 22.01, or at any time thereafter, Landlord may, in addition to and
without prejudice to any other rights and remedies Landlord shall have at law or
in equity, re-enter the Premises, and recover possession thereof and may
dispossess any or all occupants of the Premises in the manner prescribed by the
statute relating to summary proceedings, or similar statutes; but Tenant in such
case shall remain liable to Landlord as hereinbefore provided.
ARTICLE 23
Waivers
-------
23.01. No Waivers. Failure of Landlord to complain of any act or omission
on the part of Tenant no matter how long the same may continue, shall not be
deemed to be a waiver by Landlord of any of its rights hereunder. No waiver by
Landlord at any time, expressed or implied, of any breach of any provision of
this Lease shall be deemed a waiver of a breach of any other provision of this
Lease or a consent to any subsequent breach of the same or any other provision.
No acceptance by Landlord of any partial payment shall constitute an accord or
satisfaction but shall only be deemed a partial payment on account, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment be deemed an accord and satisfaction, and Landlord may accept such
check or payment without prejudice to Landlord's right to recover the balance of
such installment or pursue any other remedy.
ARTICLE 24
Letter of Credit
----------------
24.01. Letter of Credit. Upon the execution of this Lease, Tenant shall
deposit with Landlord evidence from _______________ Bank (the "Approved Issuing
Bank") an irrevocable letter of credit in the amount of $124,740.00 which shall
be increased to $367,790.00 prior to the payment to Tenant of the Tenant
Allowance for the Premises Part A (the "Letter of Credit") as security for the
payment and performance by Tenant of all its obligations hereunder. During the
Term of this Lease, as may be extended, Tenant will keep the Letter of Credit in
full force and in compliance with the provisions of this Lease.
Notwithstanding the foregoing, and provided that an Event of Default shall
not have occurred and be continuing, the Letter of Credit shall be reduced to
$294,232.00 on the first anniversary of the date of execution of this Lease, to
$220,674.00 on the second anniversary of the date of execution of this Lease,
and to $173,500.00 on the third anniversary of the date of execution of this
Lease through the Stated Expiration Date. Provided, further, upon completion of
an initial public offering by Tenant, or the acquisition of the stock or assets
of Tenant by an entity with annual sales in excess of $50 million, the Letter of
Credit shall be reduced to $173,500.00.
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In the event that (i) any default of Tenant occurs hereunder and continues
beyond the applicable cure period (if any), or (ii) Landlord transfers its
ownership of the Premises to a third party and the Approved Issuing Bank does
not consent to the transfer of any beneficial interest in the Letter of Credit
to such third party or issue a replacement Letter of Credit in identical form to
such third party, or (iii) any such Letter of Credit will expire by its terms in
less than thirty (30) days and Tenant has failed to provide a successor Letter
of Credit issued by the Approved Issuing Bank or its successor, then Landlord
may draw on the Letter of Credit and the proceeds shall be held and applied as
security under this Article 24. Said proceeds may be commingled with other funds
of Landlord and no fiduciary relationship shall be created with respect to such
deposit, nor shall Landlord be liable to pay Tenant interest thereon.
In the event that Landlord draws upon and applies any portion or all of the
proceeds of the Letter of Credit towards the cure of a default uncured by Tenant
hereunder, Tenant shall restore the amount so expended by Landlord within ten
(10) business days of the applicable draw of such amounts so that at all times
(subject to the ten day grace period herein referenced) Landlord shall be
entitled to draw down upon the full aggregate amount of the Letter of Credit
from time to time required to be deposited with Landlord hereunder. Any failure
of Tenant to deliver to Landlord the Letter of Credit as prescribed herein or to
restore any amount drawn under the Letter of Credit within the time and manner
specified shall constitute an Event of Default under this Lease and entitle
Landlord to immediately draw down the Letter of Credit then in force or effect
and Landlord shall retain such cash amounts as security pursuant to the
provisions of this Article.
In the event of a transfer of Landlord's interest in the Premises, Landlord
shall have the right and the obligation (where permitted by the Approved Issuing
Bank) to transfer the Letter of Credit to the transferee, and Landlord shall
thereupon be released by Tenant from all liability for the return of such
security; and Tenant shall look solely to the new landlord for the return of
said security; the provisions hereof shall apply to every transfer or assignment
made of the security to a new landlord. Tenant further covenants that it will
not assign or encumber or attempt to assign or encumber the proceeds of the
Letter of Credit and that neither Landlord nor its successors or assigns shall
be bound by any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
Within thirty (30) days after the expiration or sooner termination of the
Term, as may be extended, the original Letter of Credit (or the remaining
proceeds thereof if previously drawn and not applied to cure a default by Tenant
hereunder), to the extent not applied, shall be returned to Tenant without
interest.
Tenant shall pay all costs associated with obtaining, replacing,
supplementing, transferring, extending and maintaining the Letter of Credit in
accordance with the requirements of this Lease.
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ARTICLE 25
General Provisions
------------------
25.01. Late Payment of Rent. If any installment of Basic Rent or any
payment of Additional Rent is paid more than five days after the date the same
was due, it shall bear interest from the due date until paid in full at the
lesser of (i) 18% per annum or (ii) the highest rate permitted by law.
25.02. Force Majeure. In the event that Landlord or Tenant shall be
delayed, hindered in or prevented from the performance of any act required
hereunder by reason of Force Majeure, then performance of such act shall be
excused for the period of the delay and the period for the performance of any
such act shall be extended for a period equivalent to the period of such delay.
25.03. Notices and Communications. All notices, demands, requests and other
communications provided for or permitted under this Lease shall be in writing,
either delivered by hand or sent by registered or certified mail, postage
prepaid, return receipt requested, to the following addresses:
(a) if to Landlord, at the address stated in Section 1.01 hereof, or at
such other address as Landlord shall have designated in writing to Tenant and to
such Persons as Landlord shall have designated in writing to Tenant; or
(b) if to Tenant at the address stated in Section 1.01 hereof, or at such
other address as Tenant shall have designated in writing to Landlord, with a
copy to such Persons as Tenant shall have designated in writing to Landlord; or
(c) if to the Land Lessor, to Alewife Land Corporation, c/o W.R. Grace &
Co., 62 Whittemore Avenue, Cambridge, Massachusetts, Attention: O. Mario
Favorito, Esquire, or to such other address as the Land Lessor shall have given
to Tenant or Landlord; or
(d) if to the Mortgagee, to W.R. Grace & Co. - Conn., 62 Whittemore Avenue,
Cambridge, Massachusetts, Attention: O. Mario Favorito, Esquire, or to such
other address as the Mortgagee shall have given to Tenant or Landlord.
Any notice provided for herein shall become effective only upon and at the
time of receipt by the Person to whom it is given, unless such notice is mailed
by first-class registered or certified mail, in which case it shall be deemed to
be received on the earlier of (i) the third Business Day following the mailing
thereof or (ii) the day of its receipt, if a Business Day, or the next
succeeding Business Day.
25.04. Certificates. Estoppel Letter. Either party shall, without charge,
at any time and from time to time hereafter, within ten (10) days after written
request of the other, certify by written instrument duly executed and
acknowledged to the Mortgagee or any Future Mortgagee or purchaser, or proposed
Future Mortgagee or proposed purchaser, or any other Person specified in such
request: (a) as to whether this Lease has been supplemented or amended, and if
so, the substance and manner of such supplement or amendment, (b) as to the
validity and force and effect of this Lease in accordance with its tenor as then
constituted, (c) as to the existence of any Default or Event of Default, (d) as
to the existence of any offsets, counterclaims or defenses thereto on the part
of such other party,
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(e) as to the Term Commencement Date and Stated Expiration Date, (f) as to the
amount of Rent due and payable and the date to which such Rent has been paid,
(g) the amount of the Security Deposit forwarded to Landlord, and (h) as to any
other matters as may reasonably be so requested. Any such certificate may be
relied upon by the party requesting it and any other Person to whom the same may
be exhibited or delivered, and the contents of such certificate shall be binding
on the party executing the same.
Tenant shall in addition, within 5 days of the Term Commencement Date,
execute and deliver to Landlord a tenant estoppel letter substantially in the
form attached hereto as Exhibit D.
25.05. Extension. If this Lease is renewed or extended, the provisions of
Sections 7.01 and 7.02 of Article 7 hereof shall not apply.
25.06 Holding Over. If Tenant occupies the Premises after the Lease
Termination Date without having entered into a new lease of the Premises with
Landlord Tenant shall be a tenant-at-sufferance subject to all of the terms and
provisions of this Lease at twice the then effective Basic Rent. Such a holding
over, even if with the consent of Landlord, shall not constitute an extension or
renewal of this Lease.
25.07. Governing Law. This Lease and the performance thereof shall be
governed, interpreted, construed and regulated by the laws of the Commonwealth
of Massachusetts.
25.08. Partial Invalidity. If any term, covenant, condition, or provision
of this Lease or the application thereof to any person or circumstance shall, at
any time or to any extent, be invalid or unenforceable, the remainder of this
Lease, or the application of such term or provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant, condition, and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
25.09. Notice of Lease. The parties will at any time, at the request of
either one, promptly execute duplicate originals of an instrument, in recordable
form, which will constitute a Notice of Lease, setting forth a description of
the Premises, the Lease Term and any other portions thereof, excepting the
rental provisions, as either party may request.
25.10. Interpretation. The section headings used herein are for reference
and convenience only, and shall not enter into the interpretation hereof. This
Lease may be executed in several counterparts, each of which shall be an
original, but all of which shall constitute one and the same instrument. The
term "Landlord" whenever used herein, shall mean only the owner at the time of
Landlord's interest herein, and upon any sale or assignment (other than as
collateral security for a loan) of the interest of Landlord herein, its
respective successors in interest and/or assigns shall, during the term of
ownership of its respective estates herein, be deemed to be Landlord and the
liability of Landlord, if any, hereunder shall in any event be limited to the
Landlord's interest in the Building. The term "Landlord" shall also include any
agent or manager authorized to act on behalf of the then current Landlord.
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25.11. Entire Agreement. No oral statement or prior written matter shall
have any force or effect. Tenant agrees that its decision to enter into this
Lease has not been made in reliance upon any representation, statement or
promise made by Landlord or Landlord's agents or representatives, except as is
expressly set forth in this Lease. This Agreement shall not be modified or
canceled except by writing subscribed to by all parties.
25.12. Parties. Except as herein otherwise expressly provided, the
covenants, conditions and agreements contained in this Lease shall be binding
upon the heirs, successors, and assigns of the parties hereto.
Executed as a sealed instrument as of the _____ day of October, 1997.
LANDLORD: ONE ALEWIFE CENTER, REALTY TRUST
By: /s/ David R. Vickery
----------------------------------
David R. Vickery, Trustee
as aforesaid and not individually,
nor on behalf of the beneficiaries
individually
and
By: /s/ David L. Wightman
----------------------------------
David L. Wightman, Trustee
as aforesaid and not individually,
nor on behalf of the beneficiaries
individually
TENANT: ALLAIRE CORPORATION
By: /s/ David J. Orfao
----------------------------------
Name: David J. Orfao
Title: Chief Executive Officer
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EXHIBIT A
ONE ALEWIFE CENTER
DEFINITION OF TERMS
-------------------
Attached to and incorporated by reference into a Lease (the "Lease") between One
Alewife Center Realty Trust ("Landlord") and Allaire Corporation ("Tenant").
Terms defined in or by reference in the Lease not otherwise defined herein shall
have the same meanings herein as therein.
Additional Rent. All sums and other charges (other than Basic Rent) due
from Tenant to Landlord, or incurred by Landlord as the result of a Default.
Additional Services. Services provided to Tenant or in respect of the
Premises which are not described in Schedule 3 to the Lease.
Adjusted Operating Expense Base. The amount determined by multiplying the
Operating Expense Base by the Adjustment Factor.
Adjusted Tax Base. The amount determined by multiplying the Tax Base by the
Adjustment Factor.
Adjustment Factor. With respect to the First Calendar Year and the Last
Calendar Year, the percentage computed by dividing (i) the number of days of
each such period falling within the First Calendar Year or Last Calendar Year by
(ii) 365.
Affiliate. With respect to any specified Person, any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition, the
term "control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled by" have meanings correlative to the
foregoing.
Authorizations. All franchises, licenses, permits and other governmental
consents issued by Governmental Authorities pursuant to Legal Requirements which
are or may be required for the use and occupancy of the Premises, the Parking
Area, the Building, and the conduct or continuation of a Permitted Use therein.
Basic Services. The services described in Schedule 3 hereto.
Building. The building on the Land known as One Alewife Center.
Building Standard Tenant Finishes. The standards set by Landlord for the
quality of work done on the Premises described in Schedule 2 to the Work Letter.
Business Day. A day which is not a Saturday, Sunday or other day on which
banks in Boston, Massachusetts, are authorized or required by law or executive
order to remain closed.
Calendar Year. The First Calendar Year, the Last Calendar Year and any full
calendar year (January 1 through December 31) occurring during the Lease Term.
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Common Areas. All areas devoted to the common use of occupants of the
Building or the provision of Services to the Building, including but not limited
to the atrium, air shafts, elevator shafts and elevators, stairwells and stairs,
restrooms, mechanical rooms, janitor closets, vending areas, loading docks and
loading facilities and other similar facilities for the provision of Services or
the use of all occupants of multi-tenant floors or all occupants of the
Building.
Control. As defined in the definition of Affiliate.
Corporation. A corporation, company, association, business trust or similar
organization wherever formed.
Default. Any event or condition specified in Article 20 hereof so long as
any applicable requirement for the giving of notice or lapse of time or both
have not been fulfilled.
Event of Default. Any event or condition specified in (a) Article 20 hereof
(if all applicable periods for the giving of notice or lapse of time or both
have been fulfilled) or (b) in Article 21 hereof.
Fair Rental Value. The sum of (i) the net amount per square foot per annum
which a Person not an Affiliate of either Landlord or Tenant would pay as net
rent as of the time of determination for the Premises for a term of five years,
and (ii) the Tax and Operating Expense Bases. All charges for Additional Rent,
such as increases in Taxes, Operating Expenses, and Electrical Service shall be
in addition to the price per square foot so determined.
First Calendar Year. The partial Calendar Year period commencing on the
Term Commencement Date and ending on the next succeeding December 31.
Force Majeure. Acts of God, strikes, lock outs, labor troubles, inability
to procure materials, failure of power, restrictive Legal Requirements, riots
and insurrection, acts of the public enemy, wars, earthquakes, hurricanes and
other natural disasters, fires, explosions, any act, failure to act or Default
of the other party to this Lease or any other reason beyond the control of any
party to this Lease; provided, however, lack of money shall not be deemed such a
cause.
Future Land Lease. After the date hereof, any operating lease, overriding
lease, ground lease, land lease or underlying lease covering the Building or the
Land except for the Land Lease.
Future Land Lessor. The holder of the lessor's interest in any Future Land
Lease.
Future Mortgage. Any mortgage, other than the Mortgage, which shall
hereafter encumber the Land Lease, any Future Land Lease, the Building, the Land
or any portion thereof and all renewals, modifications, consolidations,
replacements and extensions thereof and all substitutions therefor.
Future Mortgagee. The holder of a Future Mortgage.
Governmental Authority. The United States of America, the Commonwealth of
Massachusetts, the City of Cambridge, County of Middlesex, and any political
subdivision thereof and any agency, department, commission, board, bureau or
instrumentality of any of them.
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Insolvency. The occurrence with respect to any Person of one or more of the
following events: the death, dissolution, termination of existence (other than
by merger or consolidation), insolvency, appointment of a receiver for all or
substantially all of the property of such Person, the making of a fraudulent
conveyance or the execution of an assignment or trust mortgage for the benefit
of creditors by such Person, or the filing of a petition of bankruptcy or the
commencement of any proceedings by or against such Person under a bankruptcy,
insolvency or other law relating to the relief or the adjustment of
indebtedness, rehabilitation or reorganization of debtors; provided that if such
petition or commencement is involuntarily made against such a Person and is
dismissed within thirty (30) days of the date of such filing or commencement,
such events shall not constitute an insolvency hereunder.
Insurance Requirements. All terms of any policy of insurance maintained by
Landlord or Tenant and applicable to (or affecting any condition, operation, use
or occupancy of) the Land, the Building, or the Premises or any part or parts of
either, all requirements of the issuer of any such policy, and all orders,
rules, regulations and other requirements of the National Board of Fire
Underwriters (or any other body exercising similar functions).
Land. The land on Whittemore Avenue, Cambridge shown on Plan 537 of 1985
recorded with Middlesex South District Registry of Deeds.
Land Lease. The Lease between the Land Lessor and Landlord dated as of
November 5, 1987, as amended by First Amendment to Ground Lease dated February
22, 1988, and as further amended by Second Amendment to Ground Lease dated
September 27, 1989.
Land Lessor. Alewife Land Corporation, a Massachusetts corporation, or any
successor or assignee of or under the Land Lease.
Last Calendar Year. The partial Calendar Year commencing on January 1 of
the Calendar Year in which the Lease Termination Date occurs and ending on the
Lease Termination Date.
Lease Term. The period commencing on the Term Commencement Date and ending
on the Lease Termination Date.
Lease Termination Date. The earlier to occur of (1) the Stated Expiration
Date, (2) the termination of this Lease by Landlord as the result of an Event of
Default, (3) the termination of this Lease pursuant to Articles 17 (Damage or
Destruction) or 18 (Eminent Domain) hereof.
Lease Year. A period commencing on the Term Commencement Date (or an
anniversary thereof) and ending on the day before the next succeeding
anniversary thereof. For example, the first Lease Year is a period commencing on
the Term Commencement Date and ending on the day before the first anniversary
thereof. The last Lease Year shall end on the Lease Termination Date.
Legal Requirements. All statutes, codes, ordinances (and all rules and
regulations thereunder), all executive orders and other administrative orders,
judgments, decrees, injunctions and other judicial orders of or by any
Governmental Authority which may at any time be applicable to parts or
appurtenances of the Premises or Building or to any condition or use thereof and
the provisions of all Authorizations.
29
<PAGE>
Mortgage. Collectively, (i) that certain Mortgage Deed, Leasehold Mortgage
Deed and Security Agreement granted by Landlord to Aetna Life Insurance Company
("Aetna") dated September 27, 1989 recorded on September 28, 1989 with Middlesex
South Registry of Deeds in Book 20103, Page 211, and filed with Middlesex South
Registry District of the Land Court as Document No. 807714, and (ii) that
certain Collateral Assignment of Leases and Rents made by Landlord in favor of
Aetna, dated September 27, 1989, recorded with said Deeds on September 28, 1989
in Book 20103, Page 242, and filed with said Registry District as Document No.
807715, each as affected by a certain Assignment of Note and Liens between
Aetna, as assignor, and Mortgagee, as assignee dated March 7, 1994 recorded on
March 10, 1994 with said Deeds in Book 24343, Page 027, and filed with said
Registry District as Document No. 940426.
Mortgagee. W.R. Grace & Co. - Conn., a Connecticut corporation.
Normal Building Operating Hours. Business Days from 8:00 a.m. until 5:00
p.m.
Occupancy Arrangement. With respect to the Premises or any portion thereof
or the Lease, and whether (a) written or unwritten or (b) for all or any portion
of the Lease Term, an assignment, a sublease, tenancy at will, a tenancy at
sufferance, or any other arrangement (including but not limited to a license or
concession) pursuant to which a Person occupies the Premises or any portion
thereof for any purpose.
Operating Expense Base. With respect to each Calendar Year the amount
determined by multiplying the Rentable Area of the Premises by the amount
hereinbefore set forth as the Operating Expense Base per square foot of Rentable
Area of the Building per year, but with respect to the First Calendar Year and
the Last Calendar Year, the Adjusted Operating Expense Base.
Operating Expenses. All expenses, costs, and disbursements of every kind
and nature which Landlord shall pay or become obligated to pay (to the extent
not previously paid by Landlord) in connection with the operation and
maintenance of the Building, including all facilities in operation on the Term
Commencement Date and such additional facilities in subsequent years as may be
determined by Landlord to be necessary or beneficial for the operation of the
Building, Parking Area and Land and the provision of Basic Services or any other
services provided tenants, including, but not limited to, (a) wages, salaries,
fees and costs to Landlord of all Persons engaged in connection therewith,
including taxes, workmen's compensation insurance and all benefits relating
thereto, (b) the cost of (i) all supplies, tools and equipment used in the
operation of the Land, Parking Area or Building and materials (including work
clothes of all employees and the cleaning thereof), (ii) electricity and
lighting with respect to any portion of the Land, Building or Parking Area not
required to be paid by any tenant pursuant to its lease, (iii) water, heat,
fuel, utilities, air conditioning and ventilating for the Building, (iv) all
maintenance, janitorial, and service agreements, (v) all insurance, including
the cost of casualty and liability insurance applicable to the Parking Area, the
Land, the Building and Landlord's personal property
30
<PAGE>
used in connection therewith, (vi) painting, repairs and general maintenance,
(vii) capital items which are for the purpose of reducing Operating Expenses or
upgrading services or which are at any time required by a Governmental Authority
or an Insurance Requirement amortized over the reasonable life of the capital
items on a straight line basis with the reasonable life being determined by
Landlord in accordance with generally accepted accounting principles, (viii)
reasonable expenses incurred in pursuing an application for an abatement of
Taxes pursuant to Section 6.05 hereof to the extent not deducted from the
abatement, if any, received, (ix) legal (excluding legal fees with respect to
lease negotiations, accounting and other professional fees and disbursements
(excluding leasing commissions), (x) the fair market value of office space for
the manager of the Building and telephone and stationery expenses related
thereto, (xi) charges of independent contractors and consultants performing work
included within this definition of Operating Expenses, and (xii) cleaning
(including snow removal) and exterior and interior landscaping of the Common
Areas and Parking Area, and the cleaning of those rentable areas of the Building
which are not occupied and under lease to tenants, and (c) fees to be paid to
the property manager consistent with fees being paid to property managers in the
Greater Boston and Cambridge areas. Operating Expenses shall not include (i)
capital items except as provided above or (ii) specific costs billed to and paid
by specific tenants. Operating Expenses shall not include payments to Affiliates
of Landlord to the extent such payments exceed customary charges for the goods
or services provided by such Affiliate.
Notwithstanding the foregoing, the following items shall be excluded from
Operating Expenses:
(1) Expenses incurred by the Landlord in connection with services or
other benefits of a type which are not building standard services or
benefits provided to tenants generally, but which are provided only
to specific tenants;
(2) Any items to the extent such items are reimbursable to the Landlord
by the Tenant (other than through Additional Rent), by other tenants
or occupants of the Building, or by any third parties;
(3) Salaries of officers and executives of Landlord not connected with
the operation of the Property;
(4) All costs related to the preparation of any portion of the Building
for occupancy by a tenant or other occupant;
(5) Advertising and promotional expenses associated with the marketing
of vacant space in the Building;
(6) Depreciation and amortization, except to the extent provided above;
(7) Interest, mortgage charges and Taxes;
(8) Costs and expenses incurred by the Landlord in connection with the
repair of damage to the Building or Property caused by fire or other
casualty, insured or required to be insured against hereunder;
31
<PAGE>
(9) The cost of any item for which the Landlord is reimbursed through
condemnation awards;
(10) Payments for rented equipment, the cost of which equipment would
constitute a capital expenditure (other than capital expenditures
included within the definition of Operating Expenses) if the
equipment were purchased; and
(11) Costs incurred due to violation by Landlord or any other tenant of
the Building of any lease or any laws, rules, regulations or
ordinances applicable to the Building.
If during any Lease Year less than 95% of the Rentable Area of the Building
is leased and occupied by tenants, then the Operating Expenses for such Lease
Year shall be increased proportionally to reflect the amount of Operating
Expenses which, in Landlord's sole judgment, would have been incurred during
such Lease Year if 95% of the Rentable Area of the Building was leased and
occupied by tenants.
If, during all or part of any Lease Year, Landlord shall not furnish any
particular item of work or service (which would otherwise constitute an
Operating Expense hereunder) to any portion of the Building due to the fact that
(A) such portion is not occupied or leased, (B) such item of work or service is
not required or desired by the tenant of such portion, (C) such tenant is itself
obtaining and providing such item of work or service, or (D) for any other
reason, then, for the purpose of computing Operating Expenses, the cost of such
item for such period shall be deemed to be increased by an amount equal to the
additional costs and expenses which would reasonably have been incurred during
such period by Landlord if it had at its own expense furnished such item of work
or service.
Parking Area. The on-grade parking area located on the Land, as the same
may be relocated as provided in Section 5.02.
Partial Taking. Any Taking which is not a Total Taking.
Permitted Exceptions. Any liens or encumbrances on the Premises in the
nature of (a) liens for Taxes, assessed but not yet due and payable, (b)
easements, reservations, restrictions and rights of way encumbering or affecting
the Land on the date of this Lease, (c) the rights of Landlord, Tenant and any
other Persons to whom Landlord has granted such rights to exercise in common
with respect to the Land and the Common Areas the rights granted to Tenant
hereunder, (d) mortgages of record or to be placed on record after the date
hereof and related instruments securing or concerning debts which are secured by
the Land or the Building, (e) any matters which this Lease shall become
subordinate to pursuant to Article 19 of this Lease, and (f) Title Conditions.
Person. An individual, a Corporation, a company, a voluntary association, a
partnership, a trust, an unincorporated organization or a government or any
agency, instrumentality or political subdivision thereof.
Premises. The space in the Building shown outlined in red on Exhibit B to
the Lease.
32
<PAGE>
Proceeds. Any amount which a Person is obligated to pay as a result of the
occurrence of any event described in Article 17 or 18 hereof, less any costs,
expenses and fees (including attorneys' fees) with respect to the collection
thereof.
Prohibited Occupancy Arrangement. An Occupancy Arrangement which (i)
provides for any rent or other payment based in whole or in part on the net
income or profits derived by any person from the Premises or (ii) is a
"disqualified lease" as defined in Section 168(j)(3)(B)(iii) of the Internal
Revenue Code of 1954, as amended, and the Treasury Regulations promulgated
thereunder (the "Code").
Rent. Basic Rent and all Additional Rent.
Rentable Area of the Premises. The number of square feet stated in Section
1.01, whether the same should be more or less as a result of minor variations
resulting from actual construction and completion of the Building or Premises so
long as such work is done in accordance with the terms and provisions hereof.
The calculation was made according to the following formula:
(i) On single tenant floors, the usable area measured from the inside
surfaces of the outer glass of the Building, plus Tenant's pro-rata
share of Common Areas;
(ii) On multi-tenant floors, the usable area measured from the inside
surface of the outer glass of the Building to the midpoint of all
demising walls of the space being measured plus the area of each
corridor adjacent to and required as the result of the layout of the
space being measured, measured from the midpoint of the adjacent
demising walls, plus Tenant's pro-rata share of Common Areas.
Rules and Regulations. Reasonable Rules and Regulations promulgated by
Landlord and uniformly applicable to Persons occupying the Building regulating
the details of the operation and use of the Building and the Land, as such rules
and regulations may thereafter be amended. The initial Rules and Regulations are
attached to the Lease as Exhibit E.
Services. Basic Services and Additional Services.
Stated Expiration Date. March 31, 2003.
Taking. The taking or condemnation of title to all or any part of the Land
or the possession or use of the Building or the Premises by a Competent Person
for any public use or purpose or any proceeding or negotiations which might
result in such a taking or any sale or lease in lieu of or in anticipation of
such a taking.
Tax Base. With respect to each Calendar Year the amount determined by
multiplying the Rentable Area of the Premises by the amount hereinbefore set
forth as the Tax Base per square foot of Rentable Area of the Building per year,
but with respect to the First Calendar Year and the Last Calendar Year, the
Adjusted Tax Base.
33
<PAGE>
Taxes. All taxes, special or general assessments, water rents, rates and
charges, sewer rents and other impositions and charges imposed by Governmental
Authorities of every kind and nature whatsoever, extraordinary as well as
ordinary and each and every installment thereof which shall or may during the
term of this Lease be charged, levied, laid, assessed, imposed, become due and
payable or become liens upon or for or with respect to the Land or any part
thereof and the Building or the Premises, appurtenances or equipment owned by
Landlord thereon or therein or any part thereof or on this Lease under or by
virtue of all present or future Legal Requirements and any tax based on a
percentage fraction or capitalized value of the Rent (whether in lieu of or in
addition to the taxes hereinbefore described). Taxes shall not include
inheritance, estate, excise, succession, transfer, gift, franchise, income,
gross receipt, or profit taxes except to the extent such are in lieu of or in
substitution for Taxes as now imposed on the Building, the Land, the Premises or
this Lease.
Tenant. As defined in the preamble hereof.
Tenant's Share. The percentage of the Rentable Area of the Building
represented by the Rentable Area of Premises.
Term Commencement Date. November 1, 1997.
Title Conditions. All covenants, agreements, restrictions, easements and
declarations of record on the date hereof so far as the same may be from time to
time in force and applicable and any other covenants, agreements, reservations,
rights-of-way, restrictions, easements and declarations of record executed,
delivered and/or recorded after the date hereof, provided that such instruments
do not materially inhibit the use of the Premises as set forth herein.
Total Taking. (i) a Taking of: (a) the fee interest in all or substantially
all of the Building or (b) such title to or easement in, over, under or such
rights to occupy and use any part or parts of the Building to the exclusion of
Landlord as shall have the effect, in the good faith judgment of the Landlord,
of rendering the portion of the Building remaining after such Taking (even if
restoration were made) unsuitable for the continued use and occupancy of the
Building for the Permitted Uses or (ii) a Taking of all or substantially all of
the Premises or such title to or easement in, on or over the Premises to the
exclusion of Tenant which in the good faith judgment of the Landlord prohibits
access to the Premises or the exercise by Tenant of any rights under this Lease.
34
<PAGE>
EXHIBIT B
ONE ALEWIFE CENTER
PLAN OF THE PREMISES
--------------------
[Blueprint of Floor Plan -- Partial Fourth Floor Plan
at One Alewife Center -- with Premises outlined in red]
35
<PAGE>
EXHIBIT C
ONE ALEWIFE CENTER
TERM COMMENCEMENT AGREEMENT
---------------------------
Attached to and incorporated by reference into a Lease (the "Lease")
between One Alewife Center Realty Trust ("Landlord") and Allaire Corporation
("Tenant"). Terms defined in or by reference in the Lease not otherwise defined
herein shall have the same meanings herein as therein.
Landlord and Tenant hereby stipulate that for all purposes the Term
Commencement Date of the Lease is ___________________________________________.
LANDLORD: ONE ALEWIFE CENTER REALTY TRUST
By: ___________________________
David R. Vickery, Trustee
as aforesaid and not individually, nor on
behalf of the beneficiaries individually
and
By: ____________________________
David L. Wightman, Trustee
as aforesaid and not individually, nor on
behalf of the beneficiaries individually
TENANT: /s/
_________________________________
By:
_____________________________
Name:
Title:
36
<PAGE>
EXHIBIT D
ONE ALEWIFE CENTER
TENANT ESTOPPEL LETTER
----------------------
Attached to and incorporated by reference into a Lease (the "Lease")
between One Alewife Center Realty Trust ("Landlord") and Allaire Corporation
("Tenant"). Terms defined in or by reference in the Lease not otherwise defined
herein shall have the same meanings herein as therein.
TO:
THIS IS TO CERTIFY THAT:
1. The undersigned is the Lessee ("Tenant") under that certain lease dated
_________________, 19 _ ("Lease") by and between David L. Wightman and
David R. Vickery, Trustees of One Alewife Center Realty Trust under
Declaration of Trust dated as of November 5, 1987, recorded with Middlesex
South District Registry of Deeds at Book 18671, Page 237, and filed with
Middlesex South Registry District of the Land Court as Document No. 763134
as Lessor ("Landlord") and ___________ as Tenant, covering those certain
premises commonly known and designated as One Alewife Center as described
in Exhibit A and located in Cambridge, MA ("Premises").
2. The Lease has not been modified, changed, altered, assigned, supplemented
or amended in any respect except as set forth below. The Lease is not in
default and is valid and in full force and effect on the date hereof. The
Lease is the only Lease or agreement between the Tenant and the Landlord
affecting or relating to the Premises. The Lease represents the entire
agreement between the Landlord and the Tenant with respect to the Premises.
List modifications, changes, etc. __________________.
3. The Tenant is not entitled to, and has made no agreement(s) with the
Landlord or its agents or employees concerning free rent, partial rent,
rebate of rent payments, credit or offset or reduction in rent, or any
other type of rental concessions, including, without limitation, lease
support payments or lease buy-outs except as set forth in the Lease.
4. The Tenant has accepted and now occupies the Premises, and is and has been
open for business since ______________________. The Lease Term began
_______________________. The termination date of the present term of the
Lease, excluding unexercised renewals, is __________________.
5. Under the Lease, Tenant is obligated to pay Basic Rent at the rate of
_________ per year. Tenant's obligation to pay such Rent commences on
___________________. Tenant's obligation to pay Additional Rent as provided
in the Lease commences on ____________________. Tenant is obligated to pay
its allocable share of electricity costs for the Premises. Tenant was/was
not obligated to provide a security deposit in the amount of
__________________________.
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<PAGE>
6. No event has occurred and no condition exists which, with the giving of
notice or the lapse of time or both, will constitute a default under the
Lease, except as set forth below. The Tenant has no existing defenses or
offsets against the enforcement of this Lease by the Landlord. List
defaults __________________.
7. The Tenant has received or will receive no payment or credit for tenant
improvement work other than ______________________. All conditions under
this Lease to be performed by the Landlord to the Tenant on account of the
Tenant's tenant improvements have been received by the Tenant, except
____________________________.
8. The Lease contains, and the Tenant has, no outstanding options or rights of
first refusal to purchase the Premises or any part thereof or all or any
part of the real property of which the Premises are a part.
9. No actions, whether voluntary or otherwise, are pending against the Tenant
or any general partner of the Tenant under the bankruptcy laws of the
United States or any state thereof.
10. The Tenant has not sublet the Premises to any sublessee and has not
assigned any of its rights under the Lease. No one except the Tenant and
its employees occupies the Premises.
11. The address for notices to be sent to the Tenant is as set forth in the
Lease.
12. To the best of Tenant's knowledge, the use, maintenance or operation of the
Premises complies with, and will at all times comply with, all applicable
federal, state, county or local statutes, laws, rules and regulations of
any governmental authorities relating to environmental, health or safety
matters (being hereinafter collectively referred to as the Environmental
Laws.)
13. The Premises have not been used and the Tenant does not plan to use the
Premises for any activities which, directly or indirectly, involve the use,
generation, treatment, storage, transportation or disposal of any petroleum
product or any toxic or hazardous chemical, material, substance, pollutant
or waste.
14. Tenant has not received any notices, written or oral, of violation of any
Environmental Law or of any allegation which, if true, would contradict
anything contained herein and there are no writs, injunctions, decrees,
orders or judgments outstanding, no lawsuits, claims, proceedings or
investigations pending or threatened, relating to the use, maintenance or
operation of the Premises, nor is Tenant aware of a basis for any such
proceeding.
15. The Tenant acknowledges that all the interest of the Landlord in and to the
Lease is being fully assigned to ______________________ and that pursuant
to the terms thereof, all rent payments under the Lease shall continue to
be paid to the Landlord in accordance with the terms of the Lease unless
and until the Tenant is notified otherwise in writing by __________________
____________________ or its successors or assigns.
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<PAGE>
It is particularly noted that:
(a) Under the provisions of this assignment, the Lease cannot be
terminated (either directly or by the exercise of any option which
could lead to termination) or modified in any of its terms, or
consent be given to the release of any party having liability
thereon, without the prior written consent of ______________________
or its successors or assigns, and without such consent, no rent may
be collected or accepted more than one (1) month in advance.
(b) The interest of the Landlord in the Lease has been assigned to
______________________ for the purposes specified in the assignment.
________________________, or its successors or assigns, assumes no
duty, liability or obligation whatever under the Lease or any
extension or renewal thereof.
(c) Any notices sent to ________________ or its affiliates should be
sent by registered mail and addressed to: _______________.
16. Tenant agrees to give any Mortgagee ("Mortgagee"), by registered mail, a
copy of any notice of default served upon the Landlord, provided that prior
to such notice Tenant has been notified in writing (by way of Notice of
Assignment of Rents and Leases, or otherwise) of the address of such
Mortgagee. Tenant further agrees that if Landlord shall have failed to cure
such default within the time provided for in this Lease, then the Mortgagee
shall have an additional sixty (60) days within which to cure such default
or if such default cannot be cured within that time, then such additional
time as may be necessary to cure such default shall be granted if within
such sixty (60) days Mortgagee has commenced and is diligently pursuing the
remedies necessary to cure such default (including, but not limited to,
commencement of foreclosure proceedings, if necessary to effect such cure),
in which event the Lease shall not be terminated while such remedies are
being so diligently pursued.
17. This certification is made to induce ____________________ to make certain
fundings, knowing that _______________________ relies upon the truth of
this certification in disbursing said funds.
18. The undersigned is authorized to execute this Tenant Estoppel Certificate
on behalf of the Tenant.
Dated this ______________ day of ___________________, 19__.
TENANT: ________________________________________
By: ____________________________________
Date: _______________________ Its: ___________________________________
39
<PAGE>
EXHIBIT E
ONE ALEWIFE CENTER
RULES AND REGULATIONS
---------------------
Attached to and incorporated by reference into a Lease (the "Lease")
between One Alewife Center Realty Trust ("Landlord") and Allaire Corporation
("Tenant"). Terms defined in or by reference in the Lease not otherwise defined
herein shall have the same meanings herein as therein.
1. Sidewalks, doorways, vestibules, halls, stairways and other similar
areas shall not be obstructed by tenants or used by any tenant for any purpose
other than ingress and egress to and from the Premises and for going from one
part of the Building to another part of the Building.
2. Plumbing fixtures and appliances shall be used only for the purpose for
which designated, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or placed therein. Repairs resulting from such damage to any
such fixtures or appliances from misuse by a tenant shall be paid by him, and
Landlord shall not in any case be responsible therefor.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows, doors corridors or other parts of the Building except as shall be
first approved by Landlord.
4. Landlord will provide and maintain an alphabetical directory board for
all tenants in the Building, and no other directory shall be permitted unless
previously consented to by Landlord in writing.
5. Movement of furniture or office equipment, or dispatch or receipt by
tenants of any bulky material, merchandise or materials which requires use of
elevators or stairways, or movement through the Building entrances or lobby,
shall be restricted to such hours as Landlord may designate, and such movement
shall be subject to control of Landlord.
6. Landlord shall have the authority to prescribe the weight and manner
that safes, file cabinets and other heavy equipment are positioned.
7. Passenger elevators are to be used only for the movement of persons and
routine deliveries to a tenants premises, unless an exception is approved by the
Landlord in writing.
8. All locks for doors in each tenant's premises shall be building standard
and no tenant shall place any additional lock or locks on any door in its leased
area without Landlord's written consent. All requests for duplicate keys shall
be made through Landlord and charged to the tenant.
9. Corridor doors, when not in use, shall be kept closed.
10. Tenants shall lock all office doors leading to corridors and turn out
all lights at the close of their working day.
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<PAGE>
11. Tenants shall not tamper with or attempt to adjust temperature control
thermostats in their respective Premises. Landlord shall adjust thermostats to
maintain required temperatures for heating, ventilating and air conditioning.
12. Tenants will comply with any measures instituted for the security of
the building which may include the signing in or out in a register in the
building lobby after hours and on weekends.
13. Tenants shall not make or permit any improper noises in the building or
otherwise interfere in any way with other tenants or persons having business
with them.
14. No vending machines of any type shall be allowed in tenant space
without the prior written consent of Landlord.
15. No birds or animals shall be brought into or kept in, on or about
public or tenant areas.
16. No bicycles shall be brought into or kept in, on or about public or
tenant areas.
17. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenant's premises or public areas regardless of whether
such loss occurs when area is locked against entry or not.
18. 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 required 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 agent,
employees and invitees. Such 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.
41
<PAGE>
EXHIBIT F
ONE ALEWIFE CENTER
RESTRICTIONS ON PERMITTED USES
------------------------------
[Insert any further restrictions on the Permitted Uses applicable at the
time the lease is being signed].
NONE
- -------------------------
* Note to the Property Manager: The restrictions on uses set forth in this
Exhibit F shall only be effective as long as the leases containing such
restrictions on use remain in force and effect.
42
<PAGE>
SCHEDULE 1
ONE ALEWIFE CENTER
MINIMUM INFORMATION REQUIRED OF TENANT SPACE PLAN
Floor Plan Indicating:
- ----------------------
1. Location and type of all partitions.
2. Location and types of all doors - indicate hardware and provide keying
schedule.
3. Location and type of glass partitions, windows and doors - indicate framing
if not building standard.
4. Location of telephone equipment room accompanied by an approval of the
telephone company.
5. Indicate critical dimensions necessary for construction.
6. Location of all Building Standard electrical items - outlets, switches,
telephone outlets. (Building Standard lighting will be determined by
Building architect.)
7. Location and type of all non-Building Standard electrical items including
lighting.
8. Location and type of equipment that will require special electrical
requirements. Provide manufacturers' specifications for use and operation.
9. Location, weight per square foot and description of any exceptionally heavy
equipment or filing system exceeding 50 psf live load.
10. Requirements for special air conditioning or ventilation.
11. Type and color of floor covering.
12. Location, type and color of wall covering.
13. Location, type and color of Building Standard and non-Building Standard
paint or finishes.
14. Location and type of plumbing.
15. Location and type of kitchen equipment.
Details Showing:
- ----------------
1. All millwork with verified dimensions and dimensions of all equipment to be
built-in.
2. Corridor entrance.
3. Bracing or support of special walls, glass partitions, etc., if desired. If
not included with the Space Plan, the Building architect will design all
support or bracing required at Tenant's expense.
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<PAGE>
SCHEDULE 2
ONE ALEWIFE CENTER
BUILDING STANDARD TENANT IMPROVEMENTS
The information given here is intended to provide minimum quality levels
for construction standards. Substitutions will be entertained but must be
approved in writing by the Landlord.
General Requirements
- --------------------
ADA All architectural and engineering
designs will conform to the
requirements of A.D.A.A.G. All new
construction and renovations shall
comply with the American with
Disabilities Act.
Building Codes All new construction and renovations
will be built in full compliance
with all city regulations, city
zoning ordinances and state building
codes. The contractor shall obtain
and pay for all applicable permits
including building and occupancy
permits.
Existing Conditions Where improvements are planned to
modify an existing space, the
existing conditions shall prevail as
the standard except that the quality
shall not fall below the standard
described in this document.
Doors, Frames and Hardware
- --------------------------
Tenant Entry Door
-----------------
Each space shall have one
principal entry door, which shall be
full height, solid core stain grade
wood, with two coats clear
polyurethane (1-3/4 x 3'0" x 8'6")
with side light and matching wood
frames. Hardware shall include a
closer, two pair of butts and
secured by full mortise lever
deadlatch lockset and doorstop.
Interior Doors
--------------
Interior door shall be full
height, solid core stain grade wood,
with two coats clear polyurethane
(1-3/4 x 3'0" x 8'6") with hollow
metal or wood frames. Hardware shall
include a closer, two pair of butts,
a lever-type lockset and doorstop.
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Partitions
----------
Partitions separating tenant spaces
shall be constructed of 2-1/2" metal
studs, 16" on center, fiberglass
insulation material and 5/8" gypsum
wallboard on each side. These layers
shall extend through the ceiling to
the underside of the floor above.
Partitions within tenant spaces
shall be constructed of 2-1/2" metal
studs, 16" on center, 5/8" gypsum
wallboard on each side. These layers
shall extend through the ceiling to
6" above the acoustical ceiling.
Painting and Wallcovering
-------------------------
All wall surfaces shall receive two
coats of egg-shell finish latex
paint. All metal door frames shall
receive two coats of semi gloss
enamel.
Ceiling
-------
Tenant areas ceilings shall be
8'-65' high and have a suspended 2'
x 2' x 5/8" white fissured
acoustical ceiling tile in an 15/16"
wide white suspension grid with wire
hangers.
Windows
-------
All windows shall have
mini-horizontal blinds, color
selected by Landlord.
Electric
--------
Tenant area light fixtures shall be
energy efficient tubes and ballast,
low brightness 2' x 4' lay in air
handling parabolic warm-white 3 tube
fluorescent fixtures.
Light switches shall be single pole,
quite type white wall switches with
matching face plates.
Outlets shall be 120 volt, white
duplex receptacles with matching
face plates.
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Floor Covering
- --------------
Carpeting
Floor covering shall be broadloom
nylon cut pile or loop pile carpet
and shall be directly glued down and
shall be approved by Landlord.
Vinyl Base
High resilient vinyl base shall be
2-1/2" high.
Vinyl Composition Tile
Tile shall be 12" x 12" standard
vinyl composition.
Sprinklers
- ----------
A complete fire protection sprinkler
system using semi-recessed sprinkler
heads will be provided to protect
normal office use. Additional fire
protection for special uses will be
provided at tenant's request, tenant
should advise its architect that
sprinkler heads have already been
installed. Relocation or additional
heads will be provided at tenant's
expense.
Heating, Ventilation and Air Conditioning
- -----------------------------------------
A zoned variable air volume HVAC
system will be provided including
distribution ductwork, diffusers,
return air grilles and thermostatic
controls for a normal office layout.
Heating and cooling will be
performed by package unit centrally
located on each floor. Additional
zones or special equipment for areas
such as computer rooms, copier
rooms, conference rooms, or
cafeterias will be provided at
tenant's expense.
Signage
- -------
To be determined.
Emergency Lights
- ----------------
Shall be achieved by using
Dual Lights EZ2U fixtures 120/277
volts or equivalent.
Exit Signs
- ----------
Shall be Divine Lighting CGR-2 277
volt or equivalent with EMFA
emergency battery back up pack.
46
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SCHEDULE 3
ONE ALEWIFE CENTER
LANDLORD'S SERVICES
-------------------
I. CLEANING
A. General
1. All cleaning work will be performed during non-business hours,
Monday through Friday, unless otherwise necessary for
stripping, waxing, etc.
2. Abnormal waste removal (e.g., computer installation paper,
bulk packaging, wood or cardboard crates, refuse from
cafeteria operation, etc.) shall be Tenant's responsibility,
at Tenant's sole cost and expense.
B. Daily Operations (5 times per week)
1. Tenant Areas
a. Empty and clean all waste receptacles; wash receptacles as
necessary.
b. Vacuum all rugs end carpeted areas.
2. Lavatories
a. Sweep and wash floors with disinfectant.
b. Wash both sides of toilet seats with disinfectant.
c. Wash all mirrors, basins, bowls, urinals.
d. Spot clean toilet partitions.
e. Empty and disinfect sanitary napkin disposal receptacles.
f. Refill toilet tissue, towel, soap, and sanitary napkin
dispensers.
3. Public Areas
a. Wipe down entrance doors and clean glass (interior and
exterior).
47
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b. Vacuum elevator carpets and wipe down doors and walls.
c. Clean water coolers.
C. Operations as Needed
1. Tenant and Common Areas
a. Buff all resilient floor areas.
D. Weekly Operations
1. Tenant Areas, Lavatories, Common Areas
a. Hand-dust and wipe clean all horizontal surfaces with
treated cloths to include furniture, office equipment,
windowsills, Venetian blinds, door ledges, chair
rails, baseboards, etc., within normal reach.
b. Sweep all stairways.
E. Monthly Operations
1. Tenant and Common Areas
a. Thoroughly vacuum seat cushions on chairs, sofas, etc.
b. Vacuum and dust grillwork.
2. Lavatories
a. Wash down interior walls and toilet partitions.
F. As Required and Weather Permitting
1. Entire Building (less atrium area) a. b.
a. Clean inside of all windows once a year.
b. Clean outside of all windows once a year.
G. Yearly
1. Common Areas
a. Strip and wax all resilient tile floor areas.
48
<PAGE>
II. HEATING, VENTILATING AND AIR CONDITIONING
1. Heating, ventilating, and air conditioning ("HVAC") as required to
provide reasonably comfortable temperatures for normal occupancy and
in accordance with minimum ASHRAM standards and requirements during
Normal Building Operating Hours HVAC will be provided at other times
upon twenty-four (24) hours prior written request with the cost
thereof at the rate of $20.00 per hour of actual use (subject to
adjustment) to be paid directly by the tenants sharing such
services.
2. Maintenance of any additional or special air conditioning equipment
and the associated operating cost will be at Tenant's expense.
III. WATER
Hot water for lavatory purposes and cold water for drinking, lavatory and
toilet purposes.
IV. ELEVATORS
For the use of all tenants and the general public for access to and from
all floors of the Building. Programming of elevators (including, but not
limited to, service elevators) shall be as Landlord from time to time
determines best for the Building as a whole.
V. RELAMPING OF LIGHT FIXTURES
Tenant will reimburse Landlord for the cost of replacement lamps, ballasts
and starters.
VI. CAFETERIA AND VENDING INSTALLATIONS
1. Any space to be used primarily for lunchroom or cafeteria operation
within the Premises shall be Tenant's responsibility to keep clean
and sanitary, it being understood that Landlord's approval of such
use must be first obtained in writing.
2. Vending machines or refreshment service installations by Tenant must
be approved by Landlord in writing and shall be restricted to use by
employees and business callers. All cleaning necessitated by such
installations shall be at Tenant's expense.
VII. EXTERIOR WORK
Landlord will remove snow from walkways and the Parking Area and maintain
landscaped areas of the Land as necessary.
49
DATE OF LEASE EXECUTION: 5/2l/98
ARTICLE I
REFERENCE DATA
1.1 SUBJECTS REFERRED TO:
Each reference in this Lease to any of the following subjects shall be
construed to incorporate the data stated for that subject in this Section 1.1:
LANDLORD:
CambridgePark Two Limited Partnership
MANAGING AGENT:
Spaulding and Slye Services Limited Partnership
LANDLORD'S & MANAGING AGENT'S ADDRESS:
Spaulding and Slye Services Limited Partnership
125 CambridgePark Drive
Cambridge, MA 02140
LANDLORD'S REPRESENTATIVE:
John M. Kane
TENANT:
Allaire Corporation, a corporation organized under the laws of the State of
Massachusetts.
TENANT'S ADDRESS (FOR NOTICE AND BILLING):
Allaire Corporation
150 CambridgePark Drive
Cambridge, MA 02140
TENANT'S REPRESENTATIVE:
David Gerth, CFO
PREMISES:
The space located on the 3rd floor of the Building as shown on
Exhibit B-1 and the space located on the 2nd floor of the
Building as shown on Exhibit B-2.
RENTABLE FLOOR AREA OF THE PREMISES:
approximately 32,499 square feet, consisting of approximately
24,554 square feet on the 3rd floor (the "Third Floor
Premises") and 7,945 square feet on the 2nd floor (the "Second
Floor Premises").
1
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TOTAL RENTABLE FLOOR AREA OF THE BUILDING:
approximately 252,180 square feet
SCHEDULED TERM COMMENCEMENT DATE:
September 1, 1998 with respect to the Second Floor Premises
and November 1, 1998 with respect to the Third Floor Premises.
LEASE TERM OR TERM:
Commencing on the Term Commencement Date as defined in Section
3.1 hereof and continuing for five (5) years and four (4)
months thereafter, plus the partial month at the beginning of
the Term, if any, unless sooner terminated as provided herein
ANNUAL RENT:
$30.00 per square foot of Rentable Floor Area of the Premises,
or $81,247.50 per calendar month, and proportionally at such
rate for any partial month (net of Tenant's charges for
electrical consumption in the Premises).
RENT COMMENCEMENT DATE FOR THIRD FLOOR PREMISES:
The later of (a) January 1, 1999, and (b) sixty days after
Landlord delivers the Third Floor Premises to Tenant in
accordance with Section 3.2; provided, however, if Tenant
shall be delayed in obtaining a Certificate of Occupancy for
the Third Floor Premises within such sixty (60) day period due
to the fault of Landlord, then the Rent Commencement Date
shall be delayed for an equivalent period of time.
BASE ANNUAL ELECTRICITY CHARGE:
$ 1.00 per square foot of Rentable Floor Area of the Premises
BASE ANNUAL OPERATING COSTS:
$9.00 per square foot of Rentable Floor Area of the Premises
TENANT'S PROPORTIONATE SHARE:
Until the Rent Commencement Date for the Third Floor Premises,
3.15 percent, and thereafter, 12.89 percent, subject to
adjustment based upon changes in the rentable floor area of
the Building or the Premises.
2
<PAGE>
PERMITTED USES:
Office Uses
COMMERCIAL GENERAL LIABILITY INSURANCE:
$1,000,000 bodily injury, property damage combined single
limit per occurrence, $2,000,000 annual aggregate.
BROKER:
Spaulding and Slye Services Limited Partnership
SECURITY DEPOSIT:
$487,485.00, or the amount of the Tenant Improvement Allowance
used by Tenant, as the same may be further reduced pursuant to
Article XI.
GUARANTOR:
None
TENANT'S PARKING ACCESS CARDS:
3 parking access cards per 1000 square feet or 97 parking
access cards.
TENANT IMPROVEMENT ALLOWANCE:
$15.00 per square foot of Rentable Floor Area of the Premises or
$487,485.00.
1.2 EXHIBITS.
The exhibits listed below in this section are incorporated in this
Lease by reference and are to be construed as part of this Lease:
EXHIBIT A Description of Lot
EXHIBIT B-1 Plan showing Third Floor Premises
EXHIBIT B-2 Plan showing Second Floor Premises
EXHIBIT C (Intentionally Omitted)
EXHIBIT D Landlord's Services
EXHIBIT E Rules and Regulations
EXHIBIT F Building Standards
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE II Page
PREMISES AND TERM......................................................................................7
2.1 DESCRIPTION OF PREMISES.........................................................................7
2.2 TERM............................................................................................7
2.3 OPTION TO EXTEND................................................................................7
ARTICLE III
CONSTRUCTION...........................................................................................9
3.1 TERM COMMENCEMENT DATE..........................................................................9
3.2 DELIVERY OF PREMISES ...........................................................................9
3.3 PREPARATION OF PREMISES FOR OCCUPANCY .........................................................11
3.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION..................................................12
3.5 ALTERATIONS AND ADDITIONS......................................................................12
3.6 REPRESENTATIVES................................................................................14
ARTICLE IV
RENT..................................................................................................14
4.1 ANNUAL RENT ....................................................................................14
4.2 ANNUAL OPERATING COST ESCALATION ...............................................................14
4.3 ESTIMATED ANNUAL OPERATING EXPENSE ESCALATION PAYMENT...........................................17
4.4 ELECTRICITY.....................................................................................18
4.5 CHANGE OF FISCAL YEAR...........................................................................19
4.6 PAYMENTS........................................................................................19
ARTICLE V
LANDLORD'S COVENANTS..................................................................................20
5.1 LANDLORD'S COVENANTS DURING THE TERM...........................................................20
5.1.1 Building Services.......................................................................20
5.1.2 Additional Building Services............................................................20
5.1.3 Repairs.................................................................................20
5.1.4 Tenant Directory........................................................................20
5.1.5 Food Service............................................................................20
5.1.6 Quiet Enjoyment.........................................................................21
5.1.7 Tenant's Costs..........................................................................22
5.2 INTERRUPTIONS..................................................................................22
ARTICLE VI
TENANT'S COVENANTS....................................................................................23
6.1 TENANT'S COVENANTS DURING THE TERM.............................................................23
4
<PAGE>
6.1.1 Tenant's Payments........................................................................23
6.1.2 Repairs and Yielding Up..................................................................23
6.1.3 Occupancy and Use........................................................................23
6.1.4 Rules and Regulations ...................................................................24
6.1.5 Safety Appliances........................................................................24
6.1.6 Assignment and Subletting................................................................25
6.1.7 Indemnity................................................................................26
6.1.8 Tenant's Insurance ......................................................................26
6.1.9 Tenant's Worker's Compensation Insurance.................................................26
6.1.10 Landlord's Right of Entry................................................................27
6.1.11 Loading .................................................................................27
6.1.12 Landlord's Costs.........................................................................28
6.1.13 Tenant's Property........................................................................28
6.1.14 Labor or Materialmen's Liens.............................................................28
6.1.15 Changes or Additions.....................................................................28
6.1.16 Holdover.................................................................................28
6.1.17 Security.................................................................................29
6.1.18 Tenant Financial Statements..............................................................29
ARTICLE VII
DAMAGE AND DESTRUCTION; CONDEMNATION..................................................................29
7.1 FIRE OR OTHER CASUALTY..........................................................................29
7.2 EMINENT DOMAIN..................................................................................31
ARTICLE VIII
RIGHTS OF MORTGAGEE...................................................................................32
8.1 PRIORITY OF LEASE..............................................................................32
8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S LIABILITY................................33
8.3 MORTGAGEE'S ELECTION...........................................................................34
8.4 NO PREPAYMENT OR MODIFICATION, ETC.............................................................34
8.5 NO RELEASE OR TERMINATION......................................................................34
8.6 CONTINUING OFFER...............................................................................35
ARTICLE IX
DEFAULT...............................................................................................35
9.1 EVENTS OF DEFAULT ..............................................................................35
9.2 TENANT'S OBLIGATIONS AFTER TERMINATION..........................................................36
ARTICLE X
MISCELLANEOUS.........................................................................................37
10.1 NOTICE OF LEASE..................................................................................37
10.2 RELOCATION ......................................................................................38
10.3 NOTICES FROM ONE PARTY TO THE OTHER..............................................................38
5
<PAGE>
10.4 BIND AND INURE..................................................................................38
10.5 NO SURRENDER ...................................................................................39
10.6 NO WAIVER, ETC..................................................................................39
10.7 NO ACCORD AND SATISFACTION......................................................................39
10.8 CUMULATIVE REMEDIES ............................................................................39
10.9 LANDLORD'S RIGHT TO CURE .......................................................................40
10.10 ESTOPPEL CERTIFICATE ...........................................................................40
10.11 WAIVER OF SUBROGATION ..........................................................................40
10.12 ACTS OF GOD.....................................................................................41
10.13 BROKERAGE.......................................................................................41
10.14 SUBMISSION NOT AN OFFER.........................................................................41
10.15 APPLICABLE LAW AND CONSTRUCTION.................................................................41
10.16 AUTHORITY OF TENANT.............................................................................42
ARTICLE XI
SECURITY DEPOSIT......................................................................................42
</TABLE>
6
<PAGE>
ARTICLE II
PREMISES AND TERM
2.1 DESCRIPTION OF PREMISES.
Subject to and with the benefit of the provisions of this Lease, Landlord
hereby leases to Tenant, and Tenant leases from Landlord, the Premises described
in Section 1.1 excluding exterior faces of exterior walls, the common facilities
area and building service fixtures and equipment serving exclusively or in
common other parts of the Building.
Tenant shall have, as appurtenant to the Premises, the right to use in
common with others entitled thereto: (a) common walkways, driveways, hallways,
lobbies, ramps, loading docks and stairways located in the Building or on the
parcel on which the Building is located (the "Lot"), (b) building service
fixtures and equipment serving the Premises including elevators, (c) the parking
facility, if any, on a first-come, first-served basis in the location from time
to time designated by Landlord, Tenant's use not to exceed the number of
Tenant's Parking Access Cards, and (d) if the Premises include less than the
entire Rentable Floor Area of any floor, the common toilets in the central core
area of such floor. Such rights shall be always subject to the Rules and
Regulations set forth in Exhibit E, attached hereto and incorporated herein by
reference, as the same may be amended by the Landlord from time to time and such
other reasonable Rules and Regulations from time to time established by the
Landlord by suitable notice to Tenant which such Rules and Regulations and
amendments thereto shall be uniformly applied to all tenants and occupants of
the Building, and to the right of the Landlord to designate and change from time
to time such areas, facilities, fixtures and equipment.
2.2 TERM.
To have and to hold for a period (the "Term") commencing on the Term
Commencement Date (as defined in Section 3.1 hereof) and continuing for the
Term, unless sooner terminated as provided herein.
2.3 OPTION TO EXTEND.
Tenant shall have the right and option to extend the Term for one (1)
additional period of five (5) years (the "Extension Term") commencing upon the
expiration of the original Term referred to in Section 1.1 (the "Original
Term"), provided that Tenant shall give Landlord notice of Tenant's exercise of
such option at least twelve (12) months prior to the expiration of the Original
Term and provided further that no event of default by Tenant exists hereunder,
and no condition exists which with the giving of notice or the passage of time,
or both, would constitute an event of default hereunder unless the same is cured
within the applicable cure
7
<PAGE>
period, at either the time of giving such notice or at the time of the
commencement of such Extension Term. Prior to the exercise by Tenant of such
option, the expression "Term" shall mean the Original Term, and after the
exercise by Tenant of such option, the expression "Term" shall mean the Original
Term as it has been extended by the Extension Term. Except as expressly
otherwise provided in the following paragraph and except for this Section 2.3
hereof, all the terms, covenants, conditions, provisions and agreements in the
Lease contained shall be applicable to the Extension Term. If Tenant shall give
notice of its exercise of said option to extend in the manner and within the
time period provided aforesaid, the Term shall be extended upon the giving of
such notice without the requirement of any further action on the part of either
Landlord or Tenant. If Tenant shall fail to give timely notice of the exercise
of any such option as aforesaid, Tenant shall have no right to extend the Term
of this Lease, time being of the essence of the foregoing provisions.
The Annual Base Rent payable during the Extension Term shall be the amount
being the greater of (i) the Annual Base Rent in effect for the Lease Year
immediately preceding the commencement of the Extension Term or (ii) the Fair
Market Rent for the Premises, as determined below, as of the commencement of the
Extension Term. If for any reason the Annual Base Rent payable during the
Extension Term has not been determined as of the commencement of the Extension
Term, Tenant shall pay the Annual Base Rent payable during the Original Term
until the Annual Base Rent for the Extension Term is determined, at which time,
an appropriate adjustment, if any, shall be made.
For purposes here, the Fair Market Rent shall mean the fair rent for the
Premises as of the commencement of the Extension Term under market conditions
then existing. Fair Market Rent shall be determined by agreement between
Landlord and Tenant, but if Landlord and Tenant are unable to agree upon the
Fair Market Rent at least six (6) months prior to the date upon which the Fair
Market Rent is to take effect, then the Fair Market Rent shall be determined by
appraisal made as hereinafter provided by a board of three (3) reputable
independent commercial real estate consultants, appraisers, or brokers, each of
whom shall have at least ten years of experience in the north suburban Boston
office rental market and each of whom is hereinafter referred to as "appraiser".
Tenant and Landlord shall each appoint one such appraiser and the two appraisers
so appointed shall appoint the third appraiser. The cost and expenses of each
appraiser appointed separately by Tenant and Landlord shall be borne by the
party who appointed the appraiser. The cost and expenses of the third appraiser
shall be shared equally by Tenant and Landlord. Landlord and Tenant shall
appoint their respective appraisers at lease five (5) months prior to
commencement of the period for which Fair Market Rent is to be determined and
shall designate the appraisers so appointed by notice to the other party. The
two (2) appraisers so appointed and designated shall appoint the third appraiser
at lease four (4) months prior to the commencement of such period and shall
designate such appraisers by notice to Landlord and Tenant. The board of three
(3) appraisers shall
8
<PAGE>
determine the Fair Market Rent of the space in question as of the commencement
of the period to which the Fair Market Rent shall apply and shall notify
Landlord and Tenant of their determinations at least sixty (60) days prior to
the commencement of such period. If the determinations of the Fair Market Rent
of any two (2) or all three (3) appraisers shall be identical in amount, said
amount shall be deemed to be the Fair Market Rent of the subject space. If the
determinations of all three (3) appraisers shall be different in the amount, the
average of the two values nearest in amount shall be deemed the Fair Market
Rent. The Fair Market Rent of the subject space determined in accordance with
the provisions of this Section shall be binding and conclusive on Tenant and
Landlord.
ARTICLE III
CONSTRUCTION
3.1 TERM COMMENCEMENT DATE.
The Term of this Lease shall commence on, and the Term Commencement Date
shall be, the earlier of the Term Commencement Date for the Second Floor
Premises or the Term Commencement Date for the Third Floor Premises. For each of
the Second Floor Premises and the Third Floor Premises, the Term Commencement
Date therefor shall be the earlier of (a) the applicable Scheduled Term
Commencement Date or (b) the date on which Tenant commences beneficial use
thereof for its business purposes; provided, however, that if the date on which
Tenant commences to occupy the Premises is delayed beyond the Scheduled Term
Commencement Date due to the fault of Landlord, the Term Commencement Date shall
be delayed for an equivalent period of time.
As soon as may be convenient after the Term Commencement Date has been
determined, at the request of either party, Landlord and Tenant agree to join
with each other in the execution, in recordable form, of a written Declaration
in which the Term Commencement Date and specified term of this Lease shall be
stated.
3.2 DELIVERY OF PREMISES.
Landlord agrees to use reasonable and diligent efforts to deliver the
Second Floor Premises to Tenant free of all occupants and personal property on
or before September 1, 1998 and the Third Floor Premises to the Tenant free of
all occupants and personal property on or before November 1, 1998. Any delay in
such delivery shall result in a proportionate reduction in the Annual Rent and
additional rent due under this Lease on a day-to-day basis for each day of such
delay. In addition, Landlord agrees to give Tenant, its architect, the
Contractor (as defined below), and subcontractors reasonable access to the
Premises to permit Tenant to prepare drawings and obtain permits and approvals
with respect to Tenant's Work (as defined below). Notwithstanding the foregoing,
(a) if Landlord is unable to deliver the Second Floor Premises to Tenant free of
all occupants and personal property on or before May 1, 1999, Tenant shall have
the option to terminate this Lease with
9
<PAGE>
respect to the Second Floor Premises only by written notice to Landlord given on
or before June 1, 1999, and (b) if Landlord is unable to deliver the Third Floor
Premises to Tenant free of all occupants and personal property on or before July
1, 1999, Tenant shall have the option to terminate this Lease with respect to
the Third Floor Premises only by written notice to Landlord given on or before
August 1, 1999. In the event of termination as aforesaid, the parties shall have
no further liability each to the other with respect to the Second Floor Premises
or the Third Floor Premises, as applicable, and the provisions of Section 1.1
hereof shall be deemed amended to reflect the deletion of the applicable portion
of the Premises, including, without limitation, an appropriate pro rata
adjustment in Annual Rent and Tenant's Proportionate Share.
Tenant acknowledges that Tenant has had an opportunity to inspect the
Premises. Except as set forth hereinafter, the Premises, shall be delivered to
Tenant As Is, Where Is with all faults and without representation, warranty or
guaranty of any kind by Landlord to Tenant. Notwithstanding the foregoing,
Landlord represents and warrants that the Premises and the base Building systems
serving the Premises are in good working order and condition.
Subject to the provisions hereof, Tenant shall undertake all work to
prepare the Premises for Tenant's use and occupancy in accordance with Plans
approved as set forth below ("Tenant's Work") at Tenant's sole cost and expense,
except that Landlord shall reimburse Tenant in an amount not to exceed the
Tenant Improvement Allowance. Provided that Tenant is not then in default under
any provision of this Lease or, if Tenant is in default, that Tenant cures the
same within the applicable cure period, if any, the Tenant Improvement Allowance
shall be payable by Landlord to Tenant to reimburse Tenant for architectural
fees payable to Tenant's architect, Design Science (the "Architect"), upon
notice to Tenant accompanied by the Architect's invoice therefor and to pay the
Contractor (as defined hereinafter) directly upon notice to Landlord from time
to time, accompanied by invoices from the Contractor which have been approved by
the Architect. After the entire amount of the Tenant Improvement Allowance has
been paid out by Landlord, Tenant shall bear all additional costs to complete
Tenant's Work at Tenant's sole cost and expense. If any portion of the Tenant
Improvement Allowance remains after the completion of Tenant's Work, it shall
not be payable or credited to Tenant in any manner whatsoever. Tenant shall
retain Spaulding and Slye Construction Company (the "Contractor") to serve as
Tenant's general contractor; provided that the total cost to be charged by the
Contractor is competitive with bids by other qualified general contractors and,
provided, further, that all subcontracts are competitively bid. It is understood
and agreed that the actions or inactions of the Contractor shall in no way be
attributable to the Landlord, and that Landlord has no responsibility for the
completion of Tenant's Work.
10
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For purposes hereof, Tenant shall submit a complete set of proposed plans
and specifications (collectively, "Plans") showing Tenant's Work to Landlord. No
later than fourteen (14) days thereafter, Landlord shall either approve or
disapprove the Plans, specifying by notice to Tenant in reasonable detail the
respects in which the Plans are disapproved. If Landlord disapproves the Plans,
Tenant shall submit to Landlord revised Plans which respond to the items of
disapproval specified in Landlord's notice no later than fourteen (14) days from
Landlord's notice of disapproval. Thereafter, Landlord shall have seven (7) days
from Tenant's submission of the Plans to Landlord to approve or disapprove the
revised Plans in accordance with the foregoing and, in case of disapproval,
Tenant shall have an additional seven (7) days to submit revised Plans
responding to the items of disapproval specified in Landlord's notices. The
parties shall work diligently and in good faith to agree upon approved Plans.
Landlord will not approve any construction, alterations, or additions
requiring unusual expense to readapt the Premises to normal office use on lease
termination or increasing the cost of construction, insurance or taxes on the
Building or of Landlord's services called for by Section 5.1 unless Tenant first
gives assurances acceptable to Landlord that such readaptation will be made
prior to such termination without expense to Landlord and makes provisions
acceptable to Landlord for payment of such increased cost. Landlord will also
disapprove any alterations or additions requested by Tenant which will delay
completion of the Premises. Tenant's construction, installation of furnishings,
and later changes or additions shall be coordinated with any work being
performed by Landlord in such manner as to maintain harmonious labor relations
and not to damage the Building or Lot or interfere with Building operations.
3.3 PREPARATION OF PREMISES FOR OCCUPANCY.
Landlord agrees to use reasonable efforts to substantially complete
Landlord's Work, if any, no later than the Scheduled Term Commencement Date,
subject to delays beyond Landlord's reasonable control and delays caused by
Tenant. Landlord shall be responsible for complying with all legal requirements
with respect to the common areas of the Building (including, without limitation,
the American with Disabilities Act) which shall be necessary for Tenant to
obtain a Certificate of Occupancy with respect to the Premises. The Premises
shall be deemed ready for occupancy on the date on which Landlord's Work is
substantially completed as certified by Landlord's architect, with the exception
of minor items which can be fully completed without material interference with
Tenant and other items which because of the season or weather or the nature of
the item are not practicable to do at the time, provided that none of said items
is necessary to make the Premises tenantable for the Permitted Uses; provided,
however, that if Landlord is unable to complete construction due to delay in
Tenant's compliance with any of the provisions hereof or
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due to other delays caused by Tenant (including, without limitation, any changes
to Landlord's Work requested by Tenant), then the Premises shall be deemed ready
for occupancy no later than the Scheduled Term Commencement Date.
3.4 GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.
All construction work required or permitted by this Lease, whether by
Landlord or by Tenant, shall be done in a good and workmanlike manner and in
compliance with all applicable laws and all lawful ordinances, regulations and
orders of governmental authority and insurers of the Building and the Lot.
Either party may inspect the work of the other at reasonable times and promptly
shall give notice of observed defects. Landlord's obligations under Sections 3.2
and 3.3, if any, shall be deemed to have been performed when Tenant commences to
occupy any portion of the Premises for the Permitted Uses except for items which
are incomplete or do not conform with the requirements of Section 3.1 and as to
which Tenant shall in either case have given written notice to Landlord within
three (3) weeks after such commencement or within a reasonable period of time
after discovery if such items could not reasonably have been discovered within
such three (3) week period, but no later than one (1) year from the Term
Commencement Date. If Tenant shall not have commenced to occupy the Premises for
the Permitted Uses within thirty (30) days after the Term Commencement Date, a
certificate of completion by a licensed architect or registered engineer shall
be conclusive evidence that Landlord has performed all such obligations except
for items stated in such certificate to be incomplete or not in conformity with
such requirements. Tenant acknowledges that the Building will be undergoing
substantial renovation during the Term of the Lease. Tenant acknowledges that
its quiet enjoyment and access to the Premises during the Term may be disturbed
by the noise, dust, vibrations and other effects of demolition in the Building,
provided, however, that the same shall not unreasonably interfere with Tenant's
use and enjoyment of the Premises and Landlord shall use reasonable efforts to
avoid undue interference with Tenant's use of the Premises.
3.5 ALTERATIONS AND ADDITIONS.
This Section 3.5 shall apply before and during the Term. Tenant shall not
make any alterations and additions to the Premises except in accordance with
plans and specifications first approved by Landlord which approval shall not be
unreasonably withheld, conditioned or delayed with respect to alterations which
satisfy the Alteration Conditions (as defined below). At the time Landlord
reviews the plans and specifications, Landlord shall give Tenant written notice
specifying which alterations and additions set forth in the plans and
specifications must be removed at Tenant's expense on or before the end of the
Term. In no event shall any alterations or additions be considered or approved
by Landlord which (a) involve or might affect any structural or exterior element
of the Building or building mechanical systems, including the common facilities
of the Building, or (b) will require unusual
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expense to readapt the Premises to normal office use on Lease termination or
increase the cost of construction or of insurance or taxes on the Building or
the Lot (together, the "Alteration Conditions"). All alterations and additions
shall become a part of the Premises, unless required or permitted to be removed
by Tenant hereunder. All of Tenant's alterations and additions and installation
and delivery of telephone systems, furnishings, and equipment shall be
coordinated with any work being performed by Landlord and shall be performed in
such manner, and by such persons as shall maintain harmonious labor relations
and not cause any damage to the Building or interference with Building
construction or operation and, except for installation of furnishings, equipment
and telephone systems, and except as otherwise expressly set forth herein, shall
be performed by general contractors first approved by Landlord. Before
commencing any work Tenant shall: secure all licenses and permits necessary
therefor; deliver to Landlord a statement of the names of all its contractors
and subcontractors (the identity of which must have been previously approved by
Landlord as hereinabove contemplated) and the estimated cost of all labor and
material to be furnished by them; and cause each contractor to carry (i)
worker's compensation insurance in statutory amounts covering all the
contractor's and subcontractor's employees and (ii) comprehensive public
liability insurance with such limits as Landlord may reasonably require, but in
no event less than a combined single limit of $1,500,000 (all such insurance to
be written in companies approved by Landlord and insuring Landlord and Tenant as
well as the contractors), and to deliver to Landlord certificates of all such
insurance. Tenant agrees to pay promptly when due, and to defend and indemnify
Landlord from and against, the entire cost of any work done on the Premises by
Tenant, its agents, employees or independent contractors, and not to cause or
permit any liens for labor or materials performed or furnished in connection
therewith to attach to the Building or the Lot and immediately to discharge any
such liens which may so attach. Tenant shall pay within fourteen (14) days after
being billed therefor by Landlord, as additional rent, one hundred percent
(100%) of any increase in real estate taxes on the Premises not otherwise billed
to Tenant which shall, at any time after the commencement of the Term, result
from any alteration, addition or improvement to the Premises made by or on
behalf of Tenant.
In connection with the installation of telecommunication equipment by
Tenant, such installation shall occur only in such locations and in such a
manner as approved in writing by the Landlord and none of such wires, ducts or
equipment shall be located in areas outside the Premises (provided, however,
that Tenant may install wires and cables in risers and ducts outside the
Premises which are in existence on the date of this Lease and for which there
exists, in Landlord's sole discretion, adequate space for Tenant's wires and
cables). Telephone switches, antennae, electronic distribution boxes and similar
equipment shall only be located within the Premises. Landlord shall not be
liable for any loss, damage or interruption of service related to such
facilities.
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3.6 REPRESENTATIVES.
Each party authorizes the other to rely in connection with their respective
rights and obligations under this Article III upon approval and other actions on
the party's behalf by Landlord's Representative in the case of Landlord or
Tenant's Representative in the case of Tenant or by any person designated in
substitution or addition by notice to the other party.
ARTICLE IV
RENT
4.1 ANNUAL RENT.
Tenant agrees to pay rent to Landlord without any offset or reduction
whatever (except as made in accordance with the express provisions of this
Lease), the Annual Rent in equal monthly installments in advance on the first
day of each calendar month included in the Term after the Term Commencement
Date; and for any portion of a calendar month at the beginning or end of the
Term, at the proportionate rate payable for such portion, in advance.
Notwithstanding the foregoing, provided that there is no default by Tenant
hereunder which continues after the giving of any required notice and the
expiration of any applicable grace period, from and after the Term Commencement
Date until the Rent Commencement Date for the Third Floor Premises, Tenant shall
be required to pay Annual Rent with respect to the Second Floor Premises only in
the amount of $19,862.50 per calendar month and shall not be required to pay any
Annual Rent with respect to the Third Floor Premises until the Rent Commencement
Date for the Third Floor Premises, at which time the full amount of Annual Rent
set forth in Section 1.1 hereof shall thereafter be payable from Tenant to
Landlord.
4.2 ANNUAL OPERATING COST ESCALATION.
In addition to Annual Rent, Tenant shall pay to Landlord as additional
rent, Tenant's Proportionate Share of Annual Operating Costs (as hereinafter
defined) which is in excess of $9.00 per rentable square foot. Tenant's
proportionate share of Annual Operating Costs shall be determined by multiplying
Annual Operating Costs by a fraction, the numerator of which is the Rentable
Floor Area of Tenant's Space and the denominator of which is the Total Rentable
Floor Area of the Building. In the event that the Building is not fully
occupied, such Annual Operating Costs which vary with occupancy shall be
adjusted to reflect the costs which would be incurred if the Building were 95%
occupied.
Annual Operating Costs shall mean the actual expenses paid or incurred by
Landlord in the operation, maintenance and management of the Building and Lot
and all real estate taxes and assessments, general or special, ordinary or
extraordinary,
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foreseen or unforeseen, imposed upon the Building and Lot and any future
improvement of whatever kind thereto or thereon. Annual Operating Costs shall
include without limitation:
(a) real estate taxes on the Building and Lot and off-site parking areas;
(b) installments and interest on assessments for public betterment or public
improvements; (c) expenses of any proceedings for abatement of taxes and
assessments with respect to any fiscal year or fraction of a fiscal year; (d)
service, repair, replacement and other maintenance to the Building and Lot and
components thereof; (e) wages and salaries (and taxes and other charges imposed
upon employers with respect to such wages and salaries) and fringe benefits and
worker's compensation insurance premiums paid to persons employed by the
Landlord for rendering service in the operation, maintenance, and repair of the
Building and Lot and related facilities and off-site parking areas and
amenities; (f) cost of independent contractors hired for the operation,
maintenance and repair of the Building and Lot and related facilities and
amenities (which payments may be to affiliates of Landlord provided the same are
at reasonable rates consistent with the type of occupancy and the services
rendered); (g) costs of electricity, steam, water, fuel, heating, lighting, air
conditioning, sewer, and other utilities chargeable to the operation and
maintenance of the Building and Lot net of tenant's electric; (h) cost of
insurance including insurance deductible for and relating to the Building and
the Lot, including fire and extended coverage (or such greater coverages as
Landlord may elect to carry), elevator, boiler, sprinkler leakage, water damage,
public liability and property damage, plate glass, and rent protection; (i)
costs of supplies; (j) costs of window cleaning, janitorial services, security
services, landscaping, snow and ice removal and painting; (k) sales or use taxes
on supplies and services; (1) consulting, accounting fees, legal, tax appeal,
engineering and other professional fees and expenses; (m) management fees
(provided that the percentage of gross revenue upon which such management fees
are based as of the date hereof shall not be changed); (n) contributions, costs
or expenses related to common areas or facilities and off-site parking areas of
any office park or development of which the Building or Lot are a part, (o)
alterations and improvements to the Building and Lot which are not capital in
nature made by reason of any requirement of any insurance underwriters or any
federal, state, or local statutes, regulations, ordinances, or any other duly
constituted public authorities having jurisdiction over the Building and Lot;
and (p) all Expense of Operation of the Food Services as defined in section
5.1.5 and (q) without limiting any of the foregoing, any other expense or charge
which, in accordance with sound accounting and management principles generally
accepted, would be construed as an operating expense. The term Operating Costs
shall not include the interest and amortization on mortgages for the Building
and Lot or leasehold interests therein; any charge for depreciation; leasing
commissions or legal fees for the negotiation and enforcement of leases; and the
cost of special services rendered to tenants (including Tenant) for which a
special charge is made.
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Annual Operating Costs shall exclude:
(1) The cost of capital improvements, repairs or replacements to the Building
except for Essential Capital Improvements;
(2) Payments for rented equipment, the cost of which equipment would constitute
a capital expenditure not includable in Annual Operating Expenses if such
equipment were purchased;
(3) The cost of correcting defects in the initial construction of the Building;
(4) Insurance premiums attributable to any unusual tenant activity or
improvements;
(5) Federal, state or local income, franchise or estate taxes, and interest and
penalties assessed by reason of Landlord's failure to pay real estate taxes
when due;
(6) Any items to the extent such items are reimbursed to Landlord by any third
parties;
(7) Salaries of officers and executives of Landlord not connected with the
operation of the Building;
(8) All costs related to the preparation of any portion of the Building for
occupancy by a tenant or other occupant;
(9) Any cost incurred by the negligent acts or omissions of Landlord, its
agents and employees;
(10) Advertising and promotional expenses associated with the marketing of
vacant space in the Building;
(11) Costs and expenses incurred by Landlord in connection with the repair of
damage to the Building or Property caused by fire or other casualty,
insured against to the extent of the applicable insurance proceeds;
(12) The cost of any item for which Landlord is reimbursed through condemnation
awards; and
(13) Costs incurred due to violation by Landlord of any lease or any laws,
rules, regulations or ordinances applicable to the Building.
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In the event Landlord shall make a capital expenditure for Essential
Capital Improvements, as hereinafter defined, during any year, the annual
amortization of such expenditure (determined by dividing the amount of the
expenditure by the useful life of the improvement, as determined by Landlord and
consistent with generally accepted accounting principles), together with
interest at the greater of the Prime Rate prevailing plus 2% or Landlord's
actual borrowing rate for such Essential Capital Improvements shall be deemed
part of Annual Operating Costs for each year of such useful life. As used
herein, "Essential Capital Improvement" means any of the following:
(i) a labor saving device, energy saving device or other installation,
improvement or replacement which reduces Operating Costs as referred to above,
whether or not voluntary or required by governmental mandate; or
(ii) an installation, change, improvement, addition, alteration, or removal
of any architectural barriers, whether or not the foregoing are structural in
nature, made by reason of any governmental requirement whether or not such
governmental requirement exists on the date of the execution of this Lease if
such governmental requirement is or will be applicable generally to similar
office buildings; or
(iii) an installation or improvement which directly enhances the health or
safety of tenants in the Building generally, whether or not voluntary or
required by governmental mandate (as for example, without limitation, for life
safety or security).
(iv) costs or expenditures incurred in replacing compressors and
refrigeration equipment in order to comply with regulations regarding ozone
depleting refrigerants or resulting from the excessive cost of or inability to
obtain such materials.
4.3 ESTIMATED ANNUAL OPERATING EXPENSE ESCALATION PAYMENT.
If, with respect to any fiscal year or fraction thereof during the Term,
Landlord estimates that Tenant will be obligated to pay Annual Operating Costs,
then Tenant shall pay, as additional rent, on the first day of each month of
such fiscal year and each ensuing fiscal year thereafter, an estimate equal to
1/12th of the estimated Annual Operating Cost Escalation for the respective
fiscal year ("Estimated Monthly Operating Expense Cost Payments"), with an
appropriate additional payment or refund to be made within 30 days after
Landlord's Statement (as hereafter defined) is delivered to Tenant. Landlord may
adjust such Estimated Monthly Annual Operating Cost Payment from time to time
and at any time during a fiscal year, and Tenant shall pay, as additional rent,
on the first day of each month following receipt of Landlord's notice thereof,
the adjusted Monthly Annual Operating Cost Payment.
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As soon as practicable after the end of each fiscal year ending during the
Term and after lease termination, Landlord shall render a statement ("Landlord's
Statement") in reasonable detail and according to usual accounting practices
certified by Landlord and showing for the preceding fiscal year or fraction
thereof, as the case may be, Landlord's Annual Operating Costs, and Tenant's
Proportionate Share thereof, as defined above. Tenant shall have the right to
cause Landlord's determination of Tenant's Proportionate Share of Operating
Expenses to be audited by an auditor reasonably acceptable to Landlord. If such
audit shall indicate that Landlord's determination of the foregoing is (i)
overstated, or (ii) understated, then, in the case of (i) the difference shall
be credited to Tenant's next payment of Tenant's Proportionate Share of
Operating Expenses or, after the end of the Term, Landlord shall refund the
difference to Tenant within thirty (30) days after such determination, or in the
case of (ii) Tenant shall pay to Landlord the amount of such excess within 30
days after such determination. The cost of such audit shall be paid for by
Tenant unless such audit shall indicate an overstatement of more than five
percent (5%) in which case the cost of such audit shall be paid for by Landlord.
The obligations under this Paragraph shall survive the expiration of the Term or
earlier termination of this Lease.
4.4 ELECTRICITY.
Tenant will be billed for electricity for Tenant's lights and outlet
consumption on a monthly basis based on an annual estimate of $1.00 per rentable
square foot. Should the actual average expense to Landlord per square foot for
Tenant's electricity be different, an additional charge or a credit will be made
at the end of each year's occupancy to be paid with or credited against the next
monthly charge for Tenant's electricity. Notwithstanding the foregoing, Landlord
reserves the right to assess Tenant's charge for electricity based on an
engineer's survey of Tenant's electrical usage conducted from time to time or on
the sub-metering of all or part of the Premises. Such charges for Tenant's
electricity shall be paid by Tenant as additional rent at the same time and in
the same manner as payments of Annual Rent. In addition, Tenant reserves the
right to install, at its own cost and expense, a check meter to verify Tenant's
consumption of electricity, in which case Tenant shall be billed for electricity
based on the actual readings of said meter.
Tenant covenants and agrees that its use of electric current shall not
exceed 4.0 watts per square foot of usable floor area and that its total
connected lighting load will not exceed the maximum load from time to time
permitted by applicable governmental regulations. In the event Tenant introduces
into the Premises personnel or equipment which overloads the capacity of the
Building's electrical system or in any other way interferes with the system's
ability to perform properly, supplementary systems including check meters may,
if and as needed, at Landlord's option, be provided by Landlord, at Tenant's
expense. Landlord shall not in any way be liable or responsible to Tenant for
any loss or damage or expense which Tenant
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may sustain or incur if, during the Term of this Lease, either the quantity or
character of electric current is changed or electric current is no longer
available or suitable for Tenant's requirements due to a factor or cause beyond
Landlord's control.
Landlord reserves the exclusive right to provide electric and other utility
service to the Building. Tenant may request permission from Landlord (which
consent may be withheld in its sole discretion) to arrange electric and other
utility service exclusively serving the Premises. Should such permission be
granted, however, such service shall be installed only in such locations and in
such manner as shall be specifically approved by Landlord in its sole
discretion, Tenant shall be responsible for restoration of any damage caused by
such installation and Tenant shall be responsible for removal of such
installations at the termination of this Lease. Landlord may limit Tenant's
choice of electrical or other utility providers in order to avoid proliferation
of such services to the Building or for any other reason. In no event, however,
shall Landlord be responsible for any damages or inconvenience caused by
interruption in or poor quality of electricity or other utility services
provided to the Building or the Premises unless such damages are caused by the
negligence of Landlord, its agents or employees.
4.5 CHANGE OF FISCAL YEAR.
Landlord shall have the right from time to time to change the periods of
accounting under Section 4.2 to any annual period other than a calendar year,
and upon any such change all items referred to in Section 4.2 shall be
appropriately apportioned. In all Landlord's Statements rendered under Section
4.2, amounts for periods partially within and partially without the accounting
periods shall be appropriately apportioned, and any items which are not
determinable at the time of a Landlord's Statement shall be included therein on
the basis of Landlord's estimate, and with respect thereto Landlord shall render
promptly after determination a supplemental Landlord's Statement, and
appropriate adjustment shall be made according thereto. All Landlord's
Statements shall be prepared on an accrual basis of accounting.
4.6 PAYMENTS.
All payments of Annual Rent and additional rent shall be made to Managing
Agent, or to such other person as Landlord may from time to time designate. If
any installment of Annual Base Rent or additional rent or payments due on
account of leasehold improvements is paid more than 10 days after the due date
thereof, at Landlord's election, it shall bear interest at a rate equal to the
average prime commercial rate from time to time established by the three largest
national banks in Boston, Massachusetts plus 4% per annum from such due date,
which interest shall be immediately due and payable as further additional rent.
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ARTICLE V
LANDLORD'S COVENANTS
5.1 LANDLORD'S COVENANTS DURING THE TERM.
Landlord covenants during the Term:
5.1.1 Building Services - To furnish during normal working hours heat,
air-conditioning ("HVAC") elevator service and hot and chilled water service and
after normal working hours on business days cleaning service as shown in Exhibit
D. HVAC shall be provided to maintain reasonably comfortable temperatures for
normal occupancy of the Premises in accordance with minimum ASHRAE standards and
requirements. "Normal working hours" shall mean the hours of 8:00 a.m. through
6:00 p.m. Monday through Friday and the hours of 8:00 a.m. through 1:00 p.m. on
Saturdays, and no hours on legal holidays and Sundays; provided, however, that
Tenant shall have access to the Building 24 hours a day, 365 days a year, by
means of a key or other access device to the main lobby of the Building to be
provided to Tenant by Landlord. Tenant shall pay when due all amounts and
charges for such services during hours other than normal working hours and shall
indemnify and hold harmless Landlord from and against any and all claims,
liabilities, damages, losses, costs and expenses (including reasonable
attorneys' fees) in connection therewith. Landlord is not and shall not be
required to furnish to Tenant or any other occupant of the Premises telephone or
other communication service.
5.1.2 Additional Building Services - To furnish, through Landlord's
employees or independent contractors, reasonable additional Building operation
services upon reasonable advance request of Tenant at equitable rates including
an administrative fee from time to time established by Landlord to be paid by
Tenant;
5.1.3 Repairs - Except as otherwise provided in Article VII, to make such
repairs to the roof, exterior walls, floor slabs, other structural components,
base Building systems, and common facilities of the Building as may be necessary
to keep them in serviceable condition; and
5.1.4 Tenant Directory - To include Tenant's name on the Tenant directory
maintained by Landlord in the main lobby of the Building and on the floor of the
Building on which the Premises are located, and to provide a Building standard
sign on or adjacent to the entrance door to the Premises.
5.1.5 Food Service - Landlord (or any affiliate or agent designated by
Landlord) may provide, within the Building or any building in the office park in
which the Building is located known as CambridgePark (an "Office Park
Building"), a food service of a size, type, location and serving capacity as
Landlord shall deem suitable, in its sole discretion. All losses incurred by
Landlord in operating the food
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service facility during any fiscal year and properly allocable to the Building
and other Office Park Buildings (the "Food Service Losses") shall be added to
the Landlord's Annual Operating Costs for the Building and other Office Park
Buildings for the year in which such losses were incurred for the purpose of
calculating the Annual Operating Costs Escalation pursuant to Section 4.2. All
profits realized by the Landlord in operating the food service facility during
any fiscal year and properly allocable to the Building and other Office Park
Buildings (the "Food Service Profits") shall be credited against the Landlord's
Annual Operating Costs for the Building and other Office Park Buildings for such
year. For the purposes of this Section 5.1.5, the Food Service Profits of Losses
for any year shall be calculated by deducting from the Gross Receipts of the
Food Service (as hereinafter defined) all Expenses of Operation (as hereinafter
defined). Gross Receipts of the Food Service as used herein are defined to mean
the total amount in dollars of the actual prices charged, in cash, for food and
beverages served at the facility, excluding sums collected for any sales tax or
excise tax. The Expenses of Operation of the food service shall mean all
expenses of operating the food service facility, including without limitation,
salaries, wages, employment taxes and fringe benefits, food service
administration costs, food costs, concessionaire's costs, operating costs,
equipment maintenance and repair costs, if any, plus an annual return to the
Landlord upon its investment in establishing the food service facility
(including without limitation the cost of furniture, equipment, furnishings, and
related mechanical systems) equal to fifteen percent (15%) of its investment or
$50,000, whichever is less; provided, however, the Expenses of Operation shall
exclude any amounts otherwise included in Landlord's Annual Operating Costs.
If during any six-month period, the mathematical average of the number of
luncheon meals served by the food service facility per day is fewer than 300, or
the Food Service Losses incurred by the Landlord in operating the food service
facility during such six-month period exceed $25,000, then the Landlord shall
have the right and option, in its sole discretion, to take any steps necessary
to reduce or eliminate the losses (including without limitation, modification or
termination of the food service), unless one hundred percent (100%) of the
tenants occupying the Building agree that the Landlord's Annual Operating Costs
hereunder for the purpose of calculating the Annual Operating Expense Escalation
shall include one hundred percent (100%) of the Food Service Losses, without
limitation.
Landlord reserves the right to approve Tenant's use of a food service
operator other than the Landlord's food service operator, if any. Such approval
will not be unreasonably withheld.
5.1.6 Quiet Enjoyment - That Landlord has the right to make this Lease and
that Tenant on paying the rent and performing its obligations hereunder shall
peacefully and quietly have, hold and enjoy the Premises throughout the Term
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without any manner of hindrance or molestation from Landlord or anyone claiming
under Landlord, subject however to all the terms and provisions hereof.
5.1.7 Tenant's Costs - Landlord shall reimburse Tenant promptly for all
costs, including, without implied limitation, reasonable counsel fees, incurred
by Tenant in connection with the successful enforcement by Tenant of any
obligations of Landlord under this Lease.
5.2 INTERRUPTIONS.
Landlord shall not be liable to Tenant for any compensation or reduction of
rent by reason of inconvenience or annoyance, injury, death or for loss of
business arising from power or other utility losses or shortages, air pollution
or contamination, or from the necessity of Landlord's entering the Premises for
any of the purposes in this Lease authorized, or for repairing the Premises or
any portion of the Building or the Lot or for any interruption or termination
(by reason of any cause reasonably beyond Landlord's control, including without
limitation, loss of any applicable license or government approval) of the food
service provided by Landlord pursuant to Section 5.1.5. In case Landlord is
prevented or delayed from making any repairs, alterations or improvements, or
furnishing any service or performing any other covenant or duty to be performed
on Landlord's part, by reason of any cause beyond Landlord's reasonable control,
Landlord shall not be liable to Tenant therefor, nor, except as expressly
otherwise provided in Article VII, shall Tenant be entitled to any abatement or
reduction of rent by reason thereof, nor shall the same give rise to a claim in
Tenant's favor that such failure constitutes actual or constructive total or
partial, eviction from the Premises.
Landlord reserves the right to stop any service or utility system when
necessary by reason of accident or emergency or until necessary repairs have
been completed. Except in case of emergency repairs, Landlord will give Tenant
reasonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
Landlord also reserves the right to institute such policies, programs and
measures as may be necessary, required or expedient for the conservation or
preservation of energy or energy services or as may be necessary or required to
comply with applicable codes, rules, regulations or standards.
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ARTICLE VI
TENANT'S COVENANTS
6.1 TENANT'S COVENANTS DURING THE TERM.
Tenant covenants during the Term and such further time as Tenant occupies
any part of the Premises:
6.1.1 Tenant's Payments - To pay when due (a) all Annual Rent, (b) all
taxes which may be imposed on Tenant's personal property in the Premises
(including, without limitation, Tenant's fixtures and equipment) regardless to
whomever assessed, (c) as additional rent, Tenant's proportionate share of
Annual Operating Costs, (d) all charges by public utilities for electricity,
telephone (including service inspections therefor) and other services rendered
to the Premises not otherwise required hereunder to be furnished by Landlord
without charge and not consumed in connection with any services required to be
furnished by Landlord without charge, (e) as additional rent, all costs for
Landlord's Work attributable to change orders and any work performed in the
Premises by Landlord or Tenant in excess of Landlord's Work, and (f) as
additional rent, all charges to Landlord for services rendered pursuant to
Section 5.1.2 hereof.
6.1.2 Repairs and Yielding Up - Except as otherwise provided in Article VII
and Section 5.1.3, to keep the Premises in good order, repair and condition,
reasonable wear only excepted; and at the expiration or termination of this
Lease peaceably to yield up the Premises and all alterations and additions
therein, including all telephone and data wiring installed by or at the request
of Tenant, in such order, repair and condition, first removing all goods and
effects of Tenant and any alterations and additions, the removal of which is
required by agreement or specified to be removed by Landlord pursuant to Section
3.5 and repairing all damage caused by such removal and restoring the Premises
and leaving them clean and neat.
6.1.3 Occupancy and Use - Continuously from the Commencement Date, to use
and occupy the Premises only for the Permitted Uses; not to injure or deface the
Building or the Lot; to keep the Premises clean and in a neat and orderly
condition; and not to permit in the Premises any use thereof which is improper,
offensive, contrary to law or ordinances, or liable to create a nuisance or to
create an unsafe or hazardous condition, or to invalidate or increase the
premiums for any insurance on the Building or its contents or liable to render
necessary any alteration or addition to the Building; not to dump, flush, or in
any way introduce any Hazardous Materials or any other toxic substances into the
septic, sewage or other waste disposal system serving the Premises, not to
generate, store or dispose of Hazardous Materials in or on the Premises (except
for reasonable quantities of office supplies which Tenant
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shall use, store and dispose of in compliance with applicable law), or the Lot
or dispose of Hazardous Materials from the Premises to any other location
without the prior written consent of Landlord and then only in compliance with
the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. ss.
6901 et seq., and all other applicable laws, ordinances and regulations; to
notify Landlord of any incident which would require the filing of a notice under
applicable federal, state, or local law; not to use, store or dispose of
Hazardous Materials on the Premises (except for reasonable quantities of office
supplies which Tenant shall use, store and dispose of in compliance with
applicable law), without first submitting to Landlord a list of all such
Hazardous substances and all permits required therefor and thereafter providing
to Landlord on an annual basis Tenant's certification that all such permits have
been renewed with copies of such renewed permits; and to comply with the orders
and regulations of all governmental authorities with respect to zoning,
building, fire, health and other codes, regulations, ordinances or laws
applicable to the Premises. Notwithstanding anything in this Lease to the
contrary, Landlord, and not Tenant, shall be responsible for making all
improvements or alterations to the Building which are required to cause the same
to comply with all present and future governmental laws unless the same shall be
required (a) by virtue of Tenant's specific use of the Premises or (b) in the
Premises in connection with the improvement of the Premises by Tenant, including
Tenant's Work. As used herein, "Hazardous Materials" shall mean and include, but
shall not be limited to, any petroleum product and all hazardous or toxic
substances or wastes including any asbestos-containing materials, waste oils,
solvents and chlorinated oils, polychlorinated biphenyls (PCBs), or substances
which are included under or regulated by any federal, state or local law, rule
or regulation (whether now existing or hereafter enacted or promulgated, as they
may be amended from time to time) pertaining to the environment, contamination
or clean-up (all such laws, rules and regulations being referred to collectively
as the "Environmental Laws"), including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, 42
U.S.C. ss. 9601 and regulations adopted pursuant to said Act.
6.1.4 Rules and Regulations - To comply with the Rules and Regulations set
forth in Exhibit E and all other reasonable Rules and Regulations of uniform
application hereafter made by Landlord, of which Tenant has been given notice,
for the care and use of the Building and the Lot and their facilities and
approaches, it being understood that Landlord shall not be liable to Tenant for
the failure of other tenants of the Building to conform to such Rules and
Regulations.
6.1.5 Safety Appliances - To keep the Premises equipped with all safety
appliances required by law or ordinance or any other regulation of any public
authority because of any use made by Tenant and to procure all licenses and
permits so required because of such use and, if requested by Landlord, to do any
work so required because of such use, it being understood that the foregoing
provisions shall not be construed to broaden in any way Tenant's Permitted Uses.
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6.1.6 Assignment and Subletting.
Not without the prior written consent of Landlord to assign, mortgage,
pledge, encumber, sell or transfer this Lease, in whole or in part, to make any
sublease, or to permit occupancy of the Premises or any part thereof by anyone
other than Tenant, voluntarily or by operation of law (it being understood that
in no event shall Landlord consent to any such assignment, sublease or occupancy
if the same is at a rent that is less than eighty percent (80%) of the then
applicable fair market rental rate for space in the Building); and as additional
rent, to reimburse Landlord promptly for reasonable legal and other expenses
incurred by Landlord in connection with any request by Tenant for consent to
assignment or subletting; no assignment or subletting shall affect the
continuing primary liability of Tenant (which, following assignment, shall be
joint and several with the assignee); no consent to any of the foregoing in a
specific instance shall operate as a waiver in any subsequent instance.
Notwithstanding the foregoing, Landlord's consent shall not be required for any
assignment or sublease to an entity controlling, controlled by, or in common
control with Tenant, nor to any entity that succeeds to Tenant's interest in
this Lease by reason of merger, acquisition, consolidation or reorganization;
provided, however, such successor entity shall have a net worth equal to or
greater than the net worth of Tenant as of the execution date of this Lease.
Landlord's consent to any proposed assignment or subletting is required both as
to the terms and conditions thereof, and as to the creditworthiness of the
proposed assignee or subtenant and the consistency of the proposed assignee's or
subtenant's business with other uses and tenants in the Building. In the event
that any assignee or subtenant pays to Tenant any amounts in excess of the
Annual Rent and additional rent then payable hereunder, or pro rata portion
thereof on a square footage basis for any portion of the Premises, Tenant shall
promptly pay 100% of said excess (less Tenant's costs and expenses in connection
with such assignment or sublease) to Landlord as and when received by Tenant. If
Tenant requests Landlord's consent to assign this Lease or sublet more than
forty percent (40%) of the Premises, Landlord shall have the option, exercisable
by written notice to Tenant given within 10 days after receipt of such request,
to terminate this Lease as of a date specified in such notice which shall be not
less than 30 or more than 60 days after the date of such notice, provided,
however, in the case of a proposed sublease, such termination shall apply only
to so much of the Premises as is intended to be sublet and, if six (6) months or
more of the Term of this Lease will remain after expiration of the term of such
sublease, only for the term of such sublease. Landlord may, in its sole
discretion, withhold consent to any proposed assignment or subletting to another
tenant of the Building or an affiliate of such tenant or an entity (or affiliate
of any entity) with which Landlord was negotiating for space in the Building
during the preceding eighteen (18) months.
Landlord agrees not to unreasonably withhold or delay its consent to an
assignment of this Lease or a sublease of a portion of the Premises by Tenant
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provided that (a) no event of default by Tenant exists hereunder, and no
condition exists which with the giving of notice or the passage of time, or
both, would constitute an event of default hereunder unless the same is cured
within the applicable cure period, and (b) Landlord determines that the proposed
assignee or sublessee (i) is a first-class office establishment and would use
the leased premises solely for the Permitted Uses, and (ii) has a financial
standing reasonably acceptable to Landlord, giving due regard to the amount of
space involved, as evidenced by financial statements in scope and substance
reasonably satisfactory to Landlord and in conformity with generally accepted
accounting principles and, if requested by Landlord, certified by a certified
public accountant acceptable to Landlord.
6.1.7 Indemnity - To defend, with counsel approved by Landlord, all actions
against Landlord, Managing Agent, any partner, member, trustee, stockholder,
officer, director, employee or beneficiary of Landlord or Managing Agent,
holders of mortgages secured by the Premises or the Building and Lot and any
other party having an interest in the Premises ("Indemnified Parties") with
respect to, and to pay, protect, indemnify and save harmless, to the extent
permitted by law, all Indemnified Parties from and against, any and all
liabilities, losses damages, costs, expenses (including reasonable attorneys'
fees and expenses), causes of action, suits, claims, demands or judgments of any
nature arising from or related to (i) injury to or death of any person, or
damage to or loss of property, on the Premises or on adjoining sidewalks,
streets or ways in connection with Tenant's occupancy of the Premises or
connected with the use, condition or occupancy of any of the foregoing unless
caused by the negligence of Landlord or its servants or agents, (ii) violation
of this Lease by Tenant, or (iii) any act, fault, omission, or other misconduct
of Tenant or its agents, employees, contractors, licensees, sublessees or
invitees or (iv) the use, generation, storage or disposal of Hazardous Materials
by Tenant or its agents, employees or invitees on the Premises, the Building or
Lot or any portion thereof or any surrounding area, including, without
limitation, any and all liabilities, losses, damages, costs, expenses (including
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature arising from or related to removal or other
remediation of any Hazardous Materials or precautions required to protect
against the release of Hazardous Materials by Tenant or its agents, employees,
contractors, licensees, sublessees or invitees into the environment to the
extent required by any Environmental Laws.
6.1.8 Tenant's Insurance - To maintain (a) all risk property insurance in
amounts sufficient to fully cover Tenant's improvements and all property in the
Premises which is not owned by Landlord and (b) commercial general liability
insurance on the Premises, with Landlord named as an additional insured,
indemnifying Landlord and Tenant against all claims and demands for (i) injury
to or death of any person or damage to or loss of property, on the Premises or
adjoining walks, streets or ways in connection with Tenant's occupancy of the
Premises, or connected with the use, condition or occupancy of any of the
foregoing unless caused
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by the negligence of Landlord or its servants or agents, (ii) violation of this
Lease by Tenant, or (iii) any act, fault or omission, or other misconduct of
Tenant or its agents, employees, contractors, licensees, sublessees or invitees,
in amounts which shall, at the beginning of the Term, be at least equal to the
limits set forth in Section 1.1, and from time to time during the Term, shall be
for such higher limits, if any, as are customarily carried in the area in which
the Premises are located on property similar to the Premises and used for
similar purposes, and shall be written on the "Occurrence Basis," and to furnish
Landlord with certificates thereof. Such insurance shall be effected under valid
and enforceable policies with insurers authorized to do business in
Massachusetts as stock or mutual companies that are rated in the current edition
of Best's Key Rating Guide Property and Casualty as A and as Class VII or
higher. Such policies shall name Landlord and Tenant as the insureds as their
respective interests may appear. Not later than the first to occur of (a) the
Commencement Date or (b) the commencement of any activities by Tenant in or
about the Premises and thereafter not less than 30 days prior to the expiration
dates of the expiring policies theretofore furnished pursuant to this Section
6.1.8, Tenant shall deliver to Landlord certificates of insurance issued by the
insurers evidencing all such policies in form satisfactory to Landlord,
accompanied by evidence satisfactory to Landlord of payment of the first
installment of the premiums. Each such policy shall provide that it may not be
canceled and that its form, terms or conditions may not be changed without at
least 30 days' prior written notice to each insured named therein.
6.1.9 Tenant's Worker's Compensation Insurance - To keep all of Tenant's
employees working in the Premises covered by worker's compensation insurance in
statutory amounts and to furnish Landlord with certificates thereof.
6.1.10 Landlord's Right of Entry - To permit Landlord and Landlord's agents
entry: to examine the Premises at reasonable times upon reasonable prior notice
(except in the event of an emergency) and, if Landlord shall so elect, to make
repairs or replacements; to remove, at Tenant's expense, any changes, additions,
signs, curtains, blinds, shades, awnings, aerials, or the like not consented to
in writing; and to show the Premises to prospective tenants during the nine (9)
months preceding expiration of the Term and to prospective purchasers and
mortgagees at all reasonable times upon reasonable prior notice.
6.1.11 Loading - Not to place Tenant's Property, as defined in Section
6.1.13, upon the Premises so as to exceed a rate of 50 pounds of live load per
square foot and not to move any safe, vault or other heavy equipment in, about
or out of the Premises except in such manner and at such times as Landlord shall
in each instance approve; Tenant's business machines and mechanical equipment
which cause vibration or noise that may be transmitted to the Building structure
or to any other leased space in the Building shall be placed and maintained by
Tenant in settings of
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cork, rubber, spring, or other types of vibration eliminators sufficient to
eliminate such vibration or noise.
6.1.12 Landlord's Costs - In case Landlord shall be made party to any
litigation commenced by or against Tenant or by or against any parties in
possession of the Premises or any part thereof claiming under Tenant, to pay, as
additional rent, all costs including, without implied limitation, reasonable
counsel fees incurred by or imposed upon Landlord in connection with such
litigation and, as additional rent, also to pay all such costs and fees incurred
by Landlord in connection with the successful enforcement by Landlord of any
obligations of Tenant under this Lease.
6.1.13 Tenant's Property - All the furnishings, fixtures, equipment,
effects and property of every kind, nature and description of Tenant and of all
persons claiming by, through or under Tenant which, during the continuance of
this Lease or any occupancy of the Premises by Tenant or anyone claiming under
Tenant, may be on the Premises or elsewhere in the Building or on the Lot shall
be at the sole risk and hazard of Tenant, and if the whole or any part thereof
shall be destroyed or damaged by fire, water or otherwise, or by the leakage or
bursting of water pipes, steam pipes, or other pipes, by theft, or from any
other cause, no part of said loss or damage is to be charged to or to be borne
by Landlord unless due to the negligence of Landlord.
6.1.14 Labor or Materialmen's Liens - To pay promptly when due the entire
cost of any work done on the Premises by Tenant, its agents, employees, or
independent contractors; not to cause or permit any liens for labor or materials
performed or furnished in connection therewith to attach to the Premises; and
immediately to discharge any such liens which may so attach.
6.1.15 Changes or Additions - Not to make any changes or additions to the
Premises without Landlord's prior written consent and only in accordance with
Article III hereto, provided that Tenant shall reimburse Landlord for all costs
incurred by Landlord in reviewing Tenant's proposed changes or additions, and
provided further that, in order to protect the functional integrity of the
Building, all changes and additions shall be performed by contractors selected
from a list of approved contractors prepared by Landlord from time to time.
6.1.16 Holdover - To pay to Landlord the greater of twice (a) the then fair
market rent as conclusively determined by Landlord or (b) the total of the
Annual Rent and all additional rent then applicable for each month or portion
thereof Tenant shall retain possession of the Premises or any part thereof after
the termination of this Lease, whether by lapse of time or otherwise, and also
to pay all damages sustained by Landlord on account thereof; the provisions of
this subsection shall not operate as a waiver by Landlord of the right of
reentry provided in this Lease. At the option of Landlord exercised by a written
notice given to Tenant while such holding over
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continues, such holding over shall constitute an extension of this Lease for a
period of one year.
6.1.17 Security - To indemnify, and save Landlord harmless from any claim
for injury to person or damage to property asserted by any personnel, employee,
guest, invitee or agent of Tenant which is suffered or occurs in or about the
Premises by reason of the act of any intruder or any other person in or about
the Premises.
6.1.18 Tenant Financial Statements - Tenant shall provide Landlord with
audited financial statements on an annual basis, within ninety (90) days of
Landlord's written request after the end of Tenant's fiscal year. Landlord
agrees to keep all such statements confidential and not to release them without
the prior consent of Tenant, except as otherwise required by law or compelled by
legal process.
ARTICLE VII
DAMAGE AND DESTRUCTION; CONDEMNATION
7.1 FIRE OR OTHER CASUALTY.
7.1.1 Subject to the provisions of Section 7.1.2 hereof, in the event
during the Term hereof the Premises shall be partially damaged (as distinguished
from "substantially damaged" as such term is hereinafter defined) by fire,
explosion, casualty or any other occurrence covered or as may be required to be
covered, as herein provided, by Landlord's insurance or by such casualty plus
required demolition, or by action taken to reduce the impact of any such event,
Landlord shall forthwith proceed to repair such damage and restore the Premises,
or so much thereof as was originally constructed or delivered by Landlord to
substantially its condition at the time of such fire, explosion, casualty or
occurrence, provided that Landlord shall not be obligated to expend for such
repair an amount in excess of the insurance proceeds recovered as a result of
such damage and, further provided that Tenant is not then in default of any of
its obligations under this Lease beyond any applicable cure period. Landlord
shall not be responsible for any delay which may result from any cause beyond
Landlord's reasonable control.
7.1.2 If, however, (i) the Premises should be damaged or destroyed (a) by
fire or other casualty (1) to the extent of 25% or more of the cost of
replacement, or (2) so that 25% or more of the principal area contained in the
Premises shall be rendered untenantable, or (b) by any casualty other than those
covered by insurance policies required to be maintained by Landlord under this
Lease (hereinafter "substantially damaged"), or (ii) the Premises shall be
damaged in whole or in part during the last year of the Term, or (iii) there
shall be damage to the Premises of a character as cannot reasonably be expected
to be repaired within 12 months from the date of casualty, or (iv) such
restoration involves the demolition of or repair of damage to 25% percent or
more of the Premises, or (v) applicable law requires the demolition of
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the Building or forbids the rebuilding of the damaged portion of the Building,
or (vi) such restoration requires repairs in an amount in excess of the
insurance proceeds recovered or recoverable, or (vii) Landlord's mortgagee shall
require that the insurance proceeds from such damage or destruction be applied
against the principal balance due on any mortgage, Landlord may, at its option,
either terminate this Lease or elect to repair the Premises and Landlord shall
notify Tenant as to its election within 90 days after such fire or casualty. If
Landlord elects to terminate this Lease, the Term hereof shall end on the date
specified in the notice (which shall be the end of a calendar month and not
sooner than 30 days after such election was made). If Landlord does not elect to
terminate this Lease, then Landlord shall perform such repairs set forth in
Section 7.1.3 hereof and Tenant shall perform such repairs in the Building as
set forth in Section 7.1.4 hereof, and the Term shall continue without
interruption and this Lease shall remain in full force and effect.
If Landlord has not elected to terminate this Lease and (a) if there shall
be damage to the Premises of a character as cannot (in the judgment of
Landlord's engineer) reasonably be expected to be repaired within 280 days from
the date of casualty, (b) such damage is not substantially repaired within 280
days after the date of casualty, or (c) such damage occurs during the last year
of the Term, then Tenant may, at its option, terminate this Lease provided that
Tenant's election shall be made by notice to Landlord which in the case of (a)
shall be within thirty (30) days of Landlord's delivery of the estimate of
Landlord's engineer as to the time period required for restoration, in the case
of (b) shall be made within 310 days after the date of casualty, provided that
such option to terminate shall be null and void and this Lease shall continue in
full force and effect if Landlord substantially completes such repairs within
thirty (30) days after Tenant's notice to Landlord, and in the case of (c) shall
be made within thirty (30) days after the date of casualty.
7.1.3 If Landlord or Tenant do not elect to terminate this Lease as
provided in Section 7.1.2 hereof and if Tenant is not then in default of any of
its obligations under the Lease beyond any applicable cure period provided for
herein, Landlord shall, provided any third party mortgagee of the Building makes
insurance proceeds available for restoration, reconstruct as much of the
Premises as was originally constructed by Landlord (it being understood by
Tenant that Landlord shall not be responsible for any reconstruction of
leasehold improvements, which reconstruction is the sole responsibility of
Tenant) to substantially its condition at the time of such damage, but Landlord
shall not be responsible for any delays which may result from any cause beyond
Landlord's reasonable control.
7.1.4 If Landlord or Tenant do not elect to terminate this Lease as
provided in Section 7.1.2 hereof; Tenant shall, at its own cost and expense,
repair and restore the Premises in accordance with the provisions of Section
6.1.15 hereof to the extent not required to be repaired by Landlord pursuant to
the provisions of this Section 7.1, including, but not limited to, the repairing
and/or replacement of its merchandise,
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trade fixtures, furnishings and equipment in a manner and to at least a
condition equal to that prior to its damage or destruction. Tenant agrees to
commence the performance of its work when notified by Landlord that the work to
be performed by Tenant can, in accordance with good construction practices, then
be commenced and Tenant shall complete such work as promptly thereafter as is
practicable.
7.1.5 All proceeds payable from Landlord's insurance policies with respect
to the Premises shall belong to and shall be payable to Landlord. If Landlord
does not elect to terminate this Lease as provided in Section 7.1.2 hereof,
Landlord shall disburse and apply so much of any insurance recovery as shall be
necessary against the cost to Landlord of restoration and rebuilding of
Landlord's work referred to in Section 7.1.3 hereof, subject to the prior rights
of any lessor under a ground or underlying lease covering the Building and/or
the holder of any mortgage liens against the Building.
7.1.6 In the event that the provisions of Section 7.1.1 or Section 7.1.2
shall become applicable, the Annual Rent and additional rent shall be abated or
reduced proportionately during any period in which, by reason of such damage or
destruction, there is substantial interference with the operation of the
business of Tenant in the Premises, having regard to the extent to which Tenant
may be required to discontinue its business in the Premises, and such abatement
or reduction shall continue for the period commencing with such destruction or
damage and ending with the earlier of (a) completion by Landlord of such work,
repair and/or reconstruction as Landlord is obligated to do and such additional
work, repair and/or reconstruction as is necessary to put the Premises in such
condition as Tenant requires to use the Premises for the Permitted Uses, or (b)
sixty (60) days after substantial completion by Landlord of such work, repair
and/or reconstruction as Landlord is obligated to do, provided that if Tenant
uses reasonable and diligent efforts to put the Premises in condition for
Tenant's use, such sixty (60) day period shall be extended for such period as
Tenant may reasonably require for such purpose not to exceed thirty (30) days.
7.2 EMINENT DOMAIN.
If, after the execution and before termination of this Lease, the entire
Premises shall be taken by eminent domain or destroyed by the action of any
public or quasi-public authority, or in the event of conveyance in lieu thereof,
the Term shall cease as of the day possession shall be taken by such authority,
and Tenant shall pay rent up to that date with a pro-rata refund by Landlord of
such rent and additional rent as shall have been paid in advance for a period
subsequent to the date of the taking of possession.
If less than 25% of the Premises shall be so taken or conveyed, this Lease
shall cease only with respect to the parts so taken or conveyed, as of the day
possession
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shall be taken, and Tenant shall pay rent up to that day, with an appropriate
refund by Landlord of such rent as may have been paid in advance for a period
subsequent to the date of the taking of possession, and thereafter the Annual
Rent shall be equitably adjusted. Pending agreement of such rental adjustment,
Tenant agrees to pay to Landlord the Annual Rent and additional rent in effect
immediately prior to the taking by eminent domain. Landlord shall at its expense
make all necessary repairs or alterations so as to constitute the remaining
premises a complete architectural unit.
If more than 25% of the Premises shall be so taken or conveyed, then the
Term shall cease only as respects the part so taken or conveyed, from the day
possession shall be taken, and Tenant shall pay rent to that date with an
appropriate refund by Landlord of such rent as may have been paid in advance for
a period subsequent to the date of the taking of possession, but Landlord shall
have the right to terminate this Lease upon notice to Tenant in writing within
30 days after such taking of possession. If Landlord does not elect to terminate
the Lease, all of the terms herein provided shall continue in effect except that
the Annual Rent shall be equitably adjusted, and Landlord shall make all
necessary repairs or alterations so as to constitute the remaining premises a
complete architectural unit. Notwithstanding the foregoing, if any portion of
the Premises shall be taken or conveyed and the balance of the Premises is
rendered unsuitable for Tenant's business purposes in Tenant's reasonable
judgment, this Lease shall terminate as of the date of the taking of possession.
All compensation awarded for any such taking or conveyance, whether for the
whole or a part of the Premises, shall be the property of Landlord, whether such
damages shall be awarded as compensation for diminution in the value of the
leasehold or of the fee of or underlying leasehold interest in the Premises, and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
and to any and all such compensation; provided, however, that Tenant shall be
entitled to seek a separate award for Tenant's stock, trade fixtures and
relocation expense.
In the event of any taking of the Premises or any part thereof for
temporary use, this Lease shall be and remain unaffected thereby and rent shall
not abate.
ARTICLE VIII
RIGHTS OF MORTGAGEE
8.1 PRIORITY OF LEASE.
This Lease is and shall continue to be subject and subordinate to any
presently existing mortgage or deed of trust of record covering the Lot or
Building or both (the "mortgaged premises"). The holder of any such presently
existing mortgage or deed of trust shall have the election to subordinate the
same to the rights and interests of
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Tenant under this Lease exercisable by filing with the appropriate recording
office a notice of such election, whereupon the Tenant's rights and interests
hereunder shall have priority over such mortgage or deed of trust. Landlord
agrees to deliver to Tenant a non-disturbance agreement executed by the holder
of such mortgage or deed of trust and shall use reasonable and diligent efforts
to do so within thirty (30) days after full execution of the Lease and delivery
of the Security Deposit by Tenant to Landlord.
Unless the option provided for in the next following sentence shall be
exercised, this Lease shall be superior to and shall not be subordinate to, any
mortgage, deed of trust or other voluntary lien hereafter placed on the
mortgaged premises. The holder of any such mortgage, deed of trust or other
voluntary lien shall have the option to subordinate this Lease to the same,
provided that such holder enters into an agreement with Tenant by the terms of
which the holder will agree to recognize the rights of Tenant under this Lease
and to accept Tenant as tenant of the Premises under the terms and conditions of
this Lease in the event of acquisition of title by such holder through
foreclosure proceedings or otherwise and Tenant will agree to recognize the
holder of such mortgage as Landlord in such event, which agreement shall be made
to expressly bind and inure to the benefit of the successors and assigns of
Tenant and of the holder and upon anyone purchasing the mortgaged premises at
any foreclosure sale. Any such mortgage to which this Lease shall be
subordinated may contain such terms, provisions and conditions as the holder
deems usual or customary.
8.2 RIGHTS OF MORTGAGE HOLDERS; LIMITATION OF MORTGAGEE'S LIABILITY.
The word "mortgage" as used herein includes mortgages, deeds of trust or
other similar instruments evidencing other voluntary liens or encumbrances, and
modifications, consolidations, extensions, renewals, replacements and
substitutes thereof. The word "holder" shall mean a mortgagee, and any
subsequent holder or holders of a mortgage. Until the holder of a mortgage shall
enter and take possession of the Premises for the purpose of foreclosure, such
holder shall have only such rights of Landlord as are necessary to preserve the
integrity of this Lease as security. Upon entry and taking possession of the
Premises for the purpose of foreclosure, such holder shall have all the rights
of Landlord. Notwithstanding any other provision of this Lease to the contrary,
including without limitation Section 10.4, no such holder of a mortgage shall be
liable, either as mortgagee or as assignee, to perform, or be liable in damages
for failure to perform any of the obligations of Landlord unless and until such
holder shall enter and take possession of the Premises for the purpose of
foreclosure, and such holder shall not in any event be liable to perform or for
failure to perform the obligations of Landlord under Section 3.2. Upon entry for
the purpose of foreclosure, such holder shall be liable to perform all
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of the obligations of Landlord (except for the obligations under Section 3.2),
subject to and with the benefit of the provisions of Section 10.4, provided that
a discontinuance of any foreclosure proceeding shall be deemed a conveyance
under said provisions to the owner of the equity of the Premises.
8.3 MORTGAGEE'S ELECTION.
Notwithstanding any other provision to the contrary contained in this
Lease, if prior to substantial completion of Landlord's obligations under
Article III, any holder of a first mortgage on the mortgaged premises enters and
takes possession thereof for the purpose of foreclosing the mortgage, such
holder may elect, by written notice given to Tenant and Landlord at any time
within ninety (90) days after such entry and taking of possession, not to
perform Landlord's obligations under Article III, and in such event such holder
and all persons claiming under it shall be relieved of all obligations to
perform, and all liability for failure to perform, said Landlord's obligations
under Article III, and Tenant may terminate this Lease and all its obligations
hereunder by written notice to Landlord and such holder given within thirty (30)
days after the day on which such holder shall have given its notice as
aforesaid.
8.4 NO PREPAYMENT OR MODIFICATION, ETC.
Tenant shall not pay Annual Rent, additional rent, or any other charge more
than thirty (30) days prior to the due date thereof. No prepayment of Annual
Rent, additional rent or other charge, no assignment of this Lease and no
agreement to modify so as to reduce the rent, change the Term, or otherwise
materially change the rights of Landlord under this Lease, or to relieve Tenant
of any obligations or liability under this Lease, shall be valid unless
consented to in writing by Landlord's mortgagees of record, if any.
8.5 NO RELEASE OR TERMINATION.
No act or failure to act on the part of Landlord which would entitle Tenant
under the terms of this Lease, or by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease, shall result in a release or termination
of such obligations or a termination of this Lease unless (i) Tenant shall have
first given written notice of Landlord's act or failure to act to Landlord's
mortgagees of record, if any, specifying the act or failure to act on the part
of Landlord which could or would give basis to Tenant's rights and (ii) such
mortgagees, after receipt of such notice, have failed or refused to correct or
cure the condition complained of within a reasonable time thereafter, but
nothing contained in this Section 8.5 shall be deemed to impose any obligation
on any such mortgagee to correct or cure any such condition. "Reasonable time"
as used above means and includes a reasonable time to obtain possession of the
mortgaged premises, if the mortgagee elects to do so, and a
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reasonable time to correct or cure the condition if such condition is determined
to exist.
8.6 CONTINUING OFFER.
The covenants and agreements contained in this Lease with respect to the
rights, powers and benefits of a mortgagee (particularly, without limitation
thereby, the covenants and agreements contained in this Article VIII) constitute
a continuing offer to any person, corporation or other entity, which by
accepting or requiring an assignment of this Lease or by entry or foreclosure
assumes the obligations herein set forth with respect to such mortgagee; such
mortgagee is hereby constituted a party to this Lease as an obligee hereunder to
the same extent as though its name were written hereon as such; and such
mortgagee shall be entitled to enforce such provisions in its own name. Tenant
agrees on request of Landlord to execute and deliver from time to time any
agreement which may reasonably be deemed necessary to implement the provisions
of this Article VIII.
ARTICLE IX
DEFAULT
9.1 EVENTS OF DEFAULT.
If any default by Tenant continues, in case of Annual Rent, additional rent
or any other monetary obligation to Landlord for more than five (5) days after
notice (provided that no notice shall be required if Landlord has defaulted in
any such obligation two (2) or more times in any twelve (12) month period), or
if Tenant fails to provide an estoppel certificate in accordance with Section
10.10 hereof, or if any default by Tenant continues in any other case for more
than thirty (30) days after notice and such additional time, if any, as is
reasonably necessary to cure the default if the default is of such a nature that
it cannot reasonably be cured in thirty (30) days and Tenant promptly commences
to cure such default and diligently pursues such cure without interruption to
completion; or if Tenant becomes insolvent, fails to pay its debts as they fall
due, files a petition under any chapter of the U.S. Bankruptcy Code, 11 U.S.C.
101 et seq., as it may be amended (or any similar petition under any insolvency
law of any jurisdiction); or if such petition is filed against Tenant (and the
same is not dismissed within sixty (60) days thereafter); or if Tenant proposes
any dissolution, liquidation, composition, financial reorganization or
recapitalization with creditors, makes an assignment or trust mortgage for
benefit of creditors; or if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property of Tenant (and the
same is not released within sixty (60) days thereafter); or if the leasehold
hereby created is taken on execution or other process of law in any action
against Tenant; then, and in any such case, Landlord and the agents and servants
of Landlord may, in addition to and not in derogation of any
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remedies for any preceding breach of covenant, immediately or at any time
thereafter while such default continues and without further notice, at
Landlord's election, do any one or more of the following: (1) give Tenant
written notice stating that the Lease is terminated, effective upon the giving
of such notice or upon a date stated in such notice, as Landlord may elect, in
which event the Lease shall be irrevocably extinguished and terminated as stated
in such notice without any further action, or (2) with or without process of
law, in a lawful manner enter and repossess the Premises as of Landlord's former
estate, and expel Tenant and those claiming through or under Tenant, and remove
its and their effects, without being guilty of trespass, in which event the
Lease shall be irrevocably extinguished and terminated at the time of such
entry, or (3) pursue any other rights or remedies permitted by law. Any such
termination of the Lease shall be without prejudice to any remedies which might
otherwise be used for arrears of rent or prior breach of covenant, and in the
event of such termination Tenant shall remain liable under this Lease as
hereinafter provided. Tenant hereby waives all statutory rights (including,
without limitation, rights of redemption, if any) to the extent such rights may
be lawfully waived, and Landlord, without notice to Tenant, may store Tenant's
effects and those of any person claiming through or under Tenant at the expense
and risk of Tenant and, if Landlord so elects, may sell such effects at public
auction or private sale and apply the net proceeds to the payment of all sums
due to Landlord from Tenant, if any, and pay over the balance, if any, to
Tenant.
9.2 TENANT'S OBLIGATIONS AFTER TERMINATION.
In the event that this Lease is terminated under any of the provisions
contained in Section 9.1 or shall be otherwise terminated for breach of any
obligation of Tenant, Tenant covenants to pay forthwith to Landlord, as
compensation, (i) the excess of the total rent reserved for the residue of the
Term over the rental value of the Premises for said residue of the Term and (ii)
the unamortized portion of the actual out-of-pocket costs and expenses incurred
by Landlord in completing Landlord's Work and fees and commissions paid to the
Broker, amortized on a straight-line reduction basis from 100% to 0% over the
Term of the Lease set forth in Section 1.1 hereof. In calculating the rent
reserved, there shall be included, in addition to the Annual Rent and all
additional rent, the value of all other consideration agreed to be paid or
performed by Tenant for said residue. Tenant further covenants as an additional
and cumulative obligation after any such ending to pay punctually to Landlord
all the sums and perform all the obligations which Tenant covenants in this
Lease to pay and to perform in the same manner and to the same extent and at the
same time as if this Lease had not been terminated. In calculating the amounts
to be paid by Tenant under the next foregoing covenant, Tenant shall be credited
with any amount paid to Landlord as compensation as provided in the first
sentence of this Section 9.2 and also with the net proceeds of any rents
obtained by Landlord by reletting the Premises, after deducting all Landlord's
expenses in connection with such reletting, including, without implied
limitation, all
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repossession costs, brokerage commissions, fees for legal services and expenses
of preparing the Premises for such reletting, it being agreed by Tenant that
Landlord may (i) relet the Premises or any part or parts thereof for a term or
terms which may at Landlord's option be equal to or less than or exceed the
period which would otherwise have constituted the balance of the Term and may
grant such concessions and free rent as Landlord in its sole judgment considers
advisable or necessary to relet the same and (ii) make such alterations, repairs
and decorations in the Premises as Landlord in its sole judgment considers
advisable or necessary to relet the same, and no action of Landlord in
accordance with the foregoing or failure to relet or to collect rent under
reletting shall operate or be construed to release or reduce Tenant's liability
as aforesaid.
So long as at least 12 months of the Term remain unexpired at the time of
such termination, in lieu of any other damages or indemnity and in lieu of full
recovery by Landlord of all sums payable under all the foregoing provisions of
this Section 9.2, Landlord may by written notice to Tenant, at any time after
this Lease is terminated under any of the provisions contained in Section 9.1,
or is otherwise terminated for breach of any obligation of Tenant and before
such full recovery, elect to recover and Tenant shall thereupon pay, as
liquidated damages, an amount equal to the aggregate of the Annual Rent and
additional rent accrued under Article IV in the 12 months ended next prior to
such termination plus the amount of Annual Rent and additional rent of any kind
accrued and unpaid at the time of termination and less the amount of any
recovery by Landlord under the foregoing provisions of this Section 9.2 up to
the time of payment of such liquidated damages.
Nothing contained in this Lease shall, however, limit or prejudice the
right of Landlord to prove and obtain in proceedings for bankruptcy or
insolvency by reason of the termination of this Lease, an amount equal to the
maximum allowed by any statute or rule of law in effect at the time when, and
governing the proceedings in which, the damages are to be proved, whether or not
the amount be greater, equal to, or less than the amount of the loss or damages
referred to above.
ARTICLE X
MISCELLANEOUS
10.1 NOTICE OF LEASE.
Upon request of either party, both parties shall execute and deliver, after
the Term begins, a notice of this Lease in form appropriate for recording or
registration, and if this Lease is terminated before the Term expires, an
instrument in such form acknowledging the date of termination.
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10.2 RELOCATION.
Landlord reserves the right to relocate the Premises no more than once
during the Term to comparable space within the Building, on or above the second
(2nd) floor of the Building and located on no more than two (2) consecutive
floors, by giving Tenant prior written notice of such intention to relocate. If
within thirty (30) days after receipt of such notice, Landlord and Tenant have
not agreed on the space to which the Premises are to be relocated and the timing
of such relocation, this Lease shall terminate on that date which is sixty (60)
days after the Tenant's receipt of such notice. If Landlord and Tenant do so
agree, then the Lease shall be deemed amended by deleting the description of the
original Premises and substituting thereof a description of such comparable
space. Landlord agrees that the relocated Premises shall have approximately the
same layout as the existing Premises and shall pay all reasonable out-of-pocket
relocation costs incurred by Tenant in relocating Tenant to such other space
within the Building, including, without limitation, all costs to rewire the
relocated Premises in a manner equivalent to the existing Premises.
10.3 NOTICES FROM ONE PARTY TO THE OTHER.
All notices required or permitted hereunder shall be in writing and
addressed, if to the Tenant, at Tenant's Address or such other address as Tenant
shall have last designated by notice in writing to Landlord and, if to Landlord,
at Landlord's Address or such other address as Landlord shall have last
designated by notice in writing to Tenant. Any notice shall have been deemed
duly given if mailed to such address postage prepaid, registered or certified
mail, return receipt requested, when deposited with the U.S. Postal Service, or
if delivered to such address by hand, when so delivered.
10.4 BIND AND INURE.
The obligations of this Lease shall run with the land, and this Lease shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that the Landlord named herein and
each successive owner of the Premises shall be liable only for the obligations
accruing during the period of its ownership. The obligations of Landlord shall
be binding upon the assets of Landlord which comprise the Building and the Lot
but not upon other assets of Landlord. No individual partner, member, trustee,
stockholder, officer, director, employee or beneficiary of Landlord shall be
personally liable under this Lease and Tenant shall look solely to Landlord's
interest in the Building and the Lot in pursuit of its remedies upon an event of
default hereunder, and the general assets of the individual partners, trustees,
stockholders, officers, employees or beneficiaries of Landlord shall not be
subject to levy, execution or other enforcement procedure for the satisfaction
of the remedies of Tenant.
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10.5 NO SURRENDER.
The delivery of keys to any employee of Landlord or to Landlord's agent or
any employee thereof shall not operate as a termination of this Lease or a
surrender of the Premises.
10.6 NO WAIVER, ETC.
The failure of Landlord to seek redress for violation of, or to insist upon
the strict performance of any covenant or condition of this Lease or any of the
Rules and Regulations referred to in Section 6.1.4, whether heretofore or
hereafter adopted by Landlord, shall not be deemed a waiver of such violation
nor prevent a subsequent act, which would have originally constituted a
violation, from having all the force and effect of an original violation, nor
shall the failure of Landlord to enforce any of said Rules and Regulations
against any other tenant in the Building be deemed a waiver of any such Rules or
Regulations. The receipt by Landlord of Annual Rent or additional rent with
knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach by Landlord, unless such waiver be in writing and signed
by Landlord. No consent or waiver, express or implied, by Landlord to or of any
breach of any agreement or duty shall be construed as a waiver or consent to or
of any other breach of the same or any other agreement or duty.
10.7 NO ACCORD AND SATISFACTION.
No acceptance by Landlord of a lesser sum than the Annual Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed as
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided.
10.8 CUMULATIVE REMEDIES.
The specific remedies to which Landlord may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other remedies
or means of redress to which it may be lawfully entitled in case of any breach
or threatened breach by Tenant of any provisions of this Lease. In addition to
the other remedies provided in this Lease, Landlord shall be entitled to the
restraint by injunction of the violation or attempted or threatened violation of
any of the covenants, conditions or provisions of this Lease or to a decree
compelling specific performance of any such covenants, conditions or provisions.
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10.9 LANDLORD'S RIGHT TO CURE.
If Tenant shall at any time default in the performance of any obligation
under this Lease, Landlord shall have the right, but shall not be obligated, to
enter upon the Premises and to perform such obligation, notwithstanding the fact
that no specific provision for such substituted performance by Landlord is made
in this Lease with respect to such default. In performing such obligation,
Landlord may make any payment of money or perform any other act. All sums so
paid by Landlord (together with interest at the rate of 4% per annum in excess
of the then prime commercial rate of interest being charged by the three largest
national banks in Boston, Massachusetts) and all necessary incidental costs and
expenses in connection with the performance of any such act by Landlord, shall
be deemed to be additional rent under this Lease and shall be payable to
Landlord immediately on demand. Landlord may exercise the foregoing rights
without waiving any other of its rights or releasing Tenant from any of its
obligations under this Lease.
10.10 ESTOPPEL CERTIFICATE.
Tenant agrees, from time to time, upon not less than 15 days' prior written
request by Landlord, to execute, acknowledge and deliver to Landlord a statement
in writing certifying that this Lease is unmodified and in full force and
effect; that Tenant has no defenses, offsets or counterclaims against its
obligations to pay the Annual Rent and additional rent and to perform its other
covenants under this Lease; that there are no uncured defaults of Landlord or
Tenant under this Lease (or, if there have been modifications, that this Lease
is in full force and effect as modified and stating the modifications, and, if
there are any defenses, offsets, counterclaims, or defaults, setting them forth
in reasonable detail); and the dates to which the Annual Rent, additional rent
and other charges have been paid. Any such statement delivered pursuant to this
Section 10.10 shall be in a form reasonably acceptable to and may be relied upon
by any prospective purchaser or mortgagee of premises which include the Premises
or any prospective assignee of any such mortgagee.
10.11 WAIVER OF SUBROGATION.
Any insurance carried by either party with respect to the Premises and
property therein or occurrences thereon shall include a clause or endorsement
denying to the insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrences of injury or
loss. Each party, notwithstanding any provisions of this Lease to the contrary,
hereby waives any rights of recovery against the other for injury or loss due to
hazards covered by insurance containing such clause or endorsement to the extent
of the indemnification received thereunder.
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10.12 ACTS OF GOD.
In any case where either party hereto is required to do any act, delays
caused by or resulting from Acts of God, war, civil commotion, fire, flood or
other casualty, labor difficulties, shortages of labor, materials or equipment,
government regulations, unusually severe weather, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed time or a "reasonable time," and such time shall be deemed to be
extended by the period of such delay.
10.13 BROKERAGE.
Tenant and Landlord represent and warrant that they dealt with no brokers
in connection with this transaction other than the Broker and agree to defend,
with counsel approved by the other, indemnify and save the other harmless from
and against any and all cost, expense or liability for any compensation,
commissions or charges claimed by a broker or agent, other than the Broker in
connection with this Lease. Landlord hereby agrees to pay the brokerage fees to
the Broker in connection with the execution and delivery of this Lease.
10.14 SUBMISSION NOT AN OFFER.
The submission of a draft of this Lease or a summary of some or all of its
provisions does not constitute an offer to lease or demise the Premises, it
being understood and agreed that neither Landlord nor Tenant shall be legally
bound with respect to the leasing of the Premises unless and until this Lease
has been executed by both Landlord and Tenant and a fully executed copy has been
delivered to each of them.
10.15 APPLICABLE LAW AND CONSTRUCTION.
This Lease shall be governed by and construed in accordance with the laws
of The Commonwealth of Massachusetts. If any term, covenant, condition or
provision of this Lease or the application thereof to any person or
circumstances shall be declared invalid or unenforceable by the final ruling of
a court of competent jurisdiction having final review, the remaining terms,
covenants, conditions and provisions of this Lease and their application to
persons or circumstances shall not be affected thereby and shall continue to be
enforced and recognized as valid agreements of the parties, and in the place of
such invalid or unenforceable provision, there shall be substituted a like, but
valid and enforceable provision which comports to the findings of the aforesaid
court and most nearly accomplishes the original intention of the parties.
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There are no oral or written agreements between Landlord and Tenant
affecting this Lease. This Lease may be amended, and the provisions hereof may
be waived or modified, only by instruments in writing executed by Landlord and
Tenant.
The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words "Landlord" and "Tenant"
appearing in this Lease shall be construed to mean those named above and their
respective heirs, executors, administrators, successors and assigns, and those
claiming through or under them respectively. If there be more than one tenant,
the obligations imposed by this Lease upon Tenant shall be joint and several.
10.16 AUTHORITY OF TENANT.
Tenant represents and warrants to Landlord (which representations and
warranties shall survive the delivery of this Lease) that: (a) Tenant (i) is
duly organized, validly existing and in good standing under the laws of its
state of incorporation, (ii) has the corporate power and authority to carry on
businesses now being conducted and is qualified to do business in every
jurisdiction where such qualification is necessary and (iii) has the corporate
power to execute and deliver and perform its obligations under this Lease and
(b) the execution, delivery and performance by Tenant of its obligations under
this Lease have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the corporate charter or by-laws of the Tenant or any indenture,
agreement or other instrument to which it is a party or by which it is bound.
ARTICLE XI
SECURITY DEPOSIT
Upon execution of the Lease, Tenant shall provide to Landlord at Tenant's
election either a cash deposit in the amount of $119,175.00, which amount shall
be increased to the amount of the Security Deposit prior to the payment to
Tenant of the Tenant Improvement Allowance in excess of such amount, or an
irrevocable, unconditional and transferable letter of credit in the amount of
$119,175.00, which amount shall be increased to the amount of the Security
Deposit prior to the payment to Tenant of the Tenant Improvement Allowance in
excess of such amount, and which letter of credit shall be issued by a bank or
other institution reasonably satisfactory to Landlord and in form and substance
reasonably satisfactory to Landlord, naming Landlord, its successors and assigns
as the beneficiary and expiring no less than one (1) month after the Term
Expiration Date or expiring not
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less than one (1) year after the Term Commencement Date and renewing
automatically each year (the "Letter of Credit"). Landlord shall be permitted to
draw upon the Letter of Credit in the event of (a) default by Tenant in any of
its obligations hereunder and the expiration of any applicable cure period, in
which event Landlord may draw upon all or a portion of the Letter of Credit and
apply the proceeds as described below, or (b) failure by Tenant to provide to
Landlord a replacement or substitute Letter of Credit in the amount of the
Security Deposit, and otherwise subject to the conditions set forth above, no
less than thirty (30) days prior to the expiration date of the Letter of Credit
then held by Landlord, in which event Landlord may draw upon all of the Letter
of Credit and hold the cash proceeds thereof as the Security Deposit hereunder.
The Security Deposit is being delivered by Tenant to Landlord as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of the Lease. If the Security Deposit is provided to Landlord in
cash, the Security Deposit shall be held in an account to be selected by
Landlord in its sole and absolute discretion, with no interest thereon to
Tenant. Landlord shall not have any obligation to segregate the Security Deposit
from other funds held by Landlord. Provided Tenant is not then in default under
the terms of the Lease and no default by Tenant has occurred which has not been
cured within thy applicable cure period, if any, the Security Deposit shall be
reduced (by a reduction in the amount of the Letter of Credit if the Security
Deposit is in the form of a Letter of Credit or the return of cash by Landlord
to Tenant if the Security Deposit is in the form of cash) to (a) $324,990.00 in
the 25th month of the Term of the Lease if Tenant demonstrates to Landlord's
reasonable satisfaction that Tenant has maintained liquid cash assets during
each of the four (4) immediately preceding consecutive calendar quarters of
$25,000,000 or more, or otherwise in the 37th month of the Term of the Lease,
(b) $162,495.00 in the 49th month of the Term of the Lease, and (c) zero in the
64th month of the Term of the Lease.
Landlord shall have the right, but not the obligation, from time to time
without prejudice to any other remedy Landlord may have on account thereof, to
apply the Security Deposit or any portion thereof to Landlord's damages
resulting from any default by Tenant. If all or any part of the Security Deposit
is applied to an obligation of Tenant hereunder, Tenant shall immediately upon
request by Landlord restore the Security Deposit to the amount required prior to
such application. In the event Tenant has not restored the Security Deposit to
the required amount prior to a scheduled reduction in the amount of the Security
Deposit, as provided above, then no further reduction shall be permitted in the
amount of the Security Deposit hereunder. Tenant shall not have the right to
call upon Landlord to apply all or any part of the Security Deposit to cure any
default or fulfill any obligation of Tenant, but such use shall be solely in the
discretion of Landlord. Upon conveyance by Landlord of its interest under this
Lease, the Security Deposit may be delivered by Landlord to Landlord's grantee
or transferee. Upon any such delivery, Tenant hereby releases
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Landlord herein named of any and all liability with respect to the Security
Deposit, its application and return, and Tenant agrees to look solely to such
grantee or transferee. It is further understood that this provision shall also
apply to subsequent grantees and transferees.
EXECUTED as a sealed instrument in two or more counterparts on the day and
year first above written.
LANDLORD:
CambridgePark Two Limited Partnership
By: Its Agent: Spaulding and Slye Services
Limited Partnership
By: /s/ Andy Tsao
------------------------------------
Andy Tsao
Vice President
TENANT:
Allaire Corporation
By: /s/ David A. Gerth
---------------------------------------
Name: David A. Gerth
Title: Chief Financial Officer
Hereunto duly authorized
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EXHIBIT A
That certain parcel of land with buildings thereon situated in
Cambridge, Middlesex County, Massachusetts, shown as Lot A on a plan entitled
"Subdivision Plan of Land Cambridge, Mass." Scale 1" - 60', dated February 27,
1985, prepared by Harry R. Feldman, Inc. recorded with Middlesex South Registry
of Deeds as Plan No. 1038 of 1985 more particularly bounded and described as
follows:
Northerly by CambridgePark Drive, four hundred seventy-three and 70/100
(473.70) feet;
Easterly by Lot B as shown on said plan, two hundred sixty-two and 50/100
(262.50) feet;
Southerly by said Lot B, sixteen and 70/100 (16.70) feet;
Easterly again by said Lot B, one hundred ten (110.00) feet;
Southerly again by said Lot B, by three lines of two hundred twenty-two
and 24/100 (222.24) feet, two hundred eighteen and 12/100 (218.12) feet and
twenty-three and 28/100 (23.28) feet; and
Westerly by said Lot B, two hundred ninety-five and 15/100 (295.15) feet.
Containing according to said plan 158,215 square feet.
<PAGE>
EXHIBIT B-1
[Schematic drawing of Third Floor -- 150 CambridgePark]
<PAGE>
EXHIBIT B-2
[Schematic drawing of Second Floor -- 150 CambridgePark]
<PAGE>
EXHIBIT C
(Intentionally Omitted)
<PAGE>
EXHIBIT D
LANDLORD'S SERVICES
I. CLEANING
A. General
1. All cleaning work will be performed between 8 a.m. and 12 midnight,
Monday through Friday, unless otherwise necessary for stripping,
waxing, etc.
2. Abnormal waste removal (e.g., computer installation paper, bulk
packaging, wood or cardboard crates, refuse from cafeteria
operation, etc.) shall be Tenant's responsibility.
B. Daily Operations (5 times per week)
1. Tenant Areas
a. Empty and clean all waste receptacles; wash receptacles as
necessary.
b. Vacuum all rugs and carpeted areas.
c. Empty, damp-wipe and dry all ashtrays.
2. Lavatories
a. Sweep and wash floors with disinfectant.
b. Wash both sides of toilet seats with disinfectant.
c. Wash all mirrors, basins, bowls, urinals.
d. Spot clean toilet partitions.
e. Empty and disinfect sanitary napkin disposal receptacles.
f. Refill toilet tissue, towel, soap, and sanitary napkin
dispensers.
3. Public Areas
a. Wipe down entrance doors and clean glass (interior and
exterior).
b. Vacuum elevator carpets and wipe down doors and walls.
c. Clean water coolers.
C. Operations as Needed (but not less than every other day)
1. Tenant and Public Areas
a. Buff all resilient floor areas.
D. Weekly Operations
1. Tenant Areas, Lavatories, Public Areas
a. Hand-dust and wipe clean all horizontal surfaces with treated
cloths to include furniture, office equipment, window sills,
door ledges, chair rails, baseboards, convector tops, etc.,
within normal reach.
b. Remove finger marks from private entrance doors, light switches,
and doorways.
c. Sweep all stairways.
D-1
<PAGE>
E. Monthly Operations
1. Tenant and Public Areas
a. Thoroughly vacuum seat cushions on chairs, sofas, etc.
b. Vacuum and dust grillwork.
2. Lavatories
a. Wash down interior walls and toilet partitions.
F. As Required and Weather Permitting
1. Entire Building
a. Clean inside of all windows.
b. Clean outside of all windows.
G. Yearly
1. Public Areas
a. Strip and wax all resilient tile floor areas.
II. HEATING, VENTILATING, AND AIR CONDITIONING
1. Heating, ventilating, and air conditioning as required to provide
reasonably comfortable temperatures for normal occupancy in
accordance with minimum ASHRAE standards and requirements for normal
business day occupancy (excepting holidays); Monday through Friday
from 8:00 a.m. to 6:00 p.m. and Saturday from 8:00 a.m. to 1:00 p.m.
2. Maintenance of any additional or special air conditioning equipment
and the associated operating cost will be at Tenant's expense, which
is estimated at $50 per hour.
III. WATER
Hot water for lavatory purposes and cold water for drinking,
lavatory and toilet purposes, and cold water for tenant's kitchen
and tenant's hot water heater (tenant is to supply hot water
heater).
IV. ELEVATORS (if Building is Elevatored)
Elevators for the use of all tenants and the general public for
access to and from all floors of the Building. Programming of
elevators (including, but not limited to, service elevators) shall
be as Landlord from time to time determines best for the Building as
a whole.
V. RELAMPING OF LIGHT FIXTURES
Tenant will reimburse Landlord for the cost of lamps, ballasts and
starters and the cost of replacing same within the Premises.
VI. CAFETERIA AND VENDING INSTALLATIONS
D-2
<PAGE>
1. Any space to be used primarily for lunchroom or cafeteria operation
shall be Tenant's responsibility to keep clean and sanitary, it being
understood that Landlord's approval of such use must be first obtained
in writing.
2. Vending machines or refreshment service installations by Tenant must
be approved by Landlord in writing and shall be restricted in use to
employees and business callers. All cleaning necessitated by such
installations shall be at Tenant's expense.
VII. ELECTRICITY
A. Landlord, at Landlord's expense, shall furnish electrical energy
required for lighting, electrical facilities, equipment, machinery,
fixtures, and appliances used in or for the benefit of Premises, in
accordance with the provisions of the Lease of which this Exhibit is
part.
B. Tenant shall not, without prior written notice to Landlord in each
instance, connect to the Building electric distribution system any
fixtures, appliances or equipment other than normal office machines
such as personal computers, desk-top calculators and typewriters, or
any fixtures, appliances or equipment which Tenant on a regular basis
operates beyond normal building operating hours. In the event of any
such connection, Tenant agrees to an increase in the ANNUAL ESTIMATED
ELECTRICAL COST TO THE PREMISES and a corresponding increase in Annual
Rent by an amount which will reflect the cost to Landlord of the
additional electrical service to be furnished by Landlord, such
increase to be effective as of the date of any such installation. If
Landlord and Tenant cannot agree thereon, such amount shall be
conclusively determined by a reputable independent electrical engineer
or consulting firm to be selected by Landlord and paid equally by both
parties, and the cost to Landlord will be included in Landlord's
Operating Costs provided in Section 4.2 hereof.
C. Tenant's use of electrical energy in the Premises shall not at any
time exceed the capacity of any of the electrical conductors or
equipment in or otherwise serving Tenant's Space. In order to insure
that such capacity is not exceeded and to avert possible adverse
effect upon the Building electric service, Tenant shall not, without
prior written notice to Landlord in each instance, connect to the
Building electric distribution system any fixtures, appliances or
equipment which operate on a voltage in excess of 120 volts nominal or
make any alteration or addition to the electric system of Tenant's
Space. Unless Landlord shall reasonably object to the connection of
any such fixtures, appliances or equipment, all additional risers or
other equipment required therefor shall be provided by Landlord, and
the cost thereof shall be paid by Tenant upon Landlord's demand. In
the event of any such connection, Tenant agrees to an increase in the
ANNUAL ESTIMATED
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ELECTRICAL COST TO THE PREMISES, such increase to be effective as of
the date of any such connection. If Landlord and Tenant cannot agree
thereon, such amount shall be conclusively determined by a reputable
independent electrical engineer or consulting firm to be selected by
Landlord and paid equally by both parties, and the cost to Landlord
will be included in Landlord's Operating Costs provided in Section 4.2
hereof.
D. If at any time after the date of this Lease, the rates at which
Landlord purchases electrical energy from the public utility supplying
electric service to the Building, or any charges incurred or taxes
payable by Landlord in connection therewith, shall be increased or
decreased, the ANNUAL ESTIMATED ELECTRICAL COST TO THE PREMISES shall
be increased or decreased, as the case may be, by an amount equal to
the estimated increase or decrease, as the case may be, in Landlord's
cost of furnishing the electricity referred to in Paragraph A above as
a result of such increase or decrease in rates, charges, or taxes. If
Landlord and Tenant cannot agree thereon, such amount shall be
conclusively determined by a reputable independent electrical engineer
or consulting firm to be selected by Landlord and paid equally by both
parties, and the cost to Landlord will be included in Landlord's
Operating Costs as provided in Section 4.2 hereof. Any such increase
or decrease shall be effective as of the date of the increase or
decrease in such rate, charge or taxes.
E. Landlord may, at any time, elect to discontinue the furnishing of
electrical energy. In the event of any such election by Landlord: (1)
Landlord agrees to give reasonable advance notice of any such
discontinuance to Tenant; (2) Landlord agrees to permit Tenant to
receive electrical service directly from the public utility supplying
service to the Building and to permit the existing feeders, risers,
wiring and other electrical facilities serving the Premises to be used
by Tenant and/or such public utility for such purpose to the extent
they are suitable and safely capable; (3) Landlord agrees to pay such
charges and costs, if any, as such public utility may impose in
connection with the installation of Tenant's meters and to make or, at
such public utility's election, to pay for such other installations as
such public utility may require, as a condition of providing
comparable electrical service to Tenant; and (4) Tenant shall
thereafter pay, directly to the utility furnishing the same, all
charges for electrical services to the Premises.
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EXHIBIT E
RULES AND REGULATIONS
The following rules and regulations have been formulated for the safety and
well-being of all tenants of the Building and to insure compliance with
governmental and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and undisturbed occupancy of its premises in the Building. Any continuing
violation of these rules and regulations by Tenant shall constitute a default by
Tenant under the Lease.
Landlord may, upon request of any tenant, waive the compliance by such
tenant of any of the following rules and regulations, provided that (i) no
waiver shall be effective unless signed by Landlord's authorized agent, (ii) any
such waiver shall not relieve such tenant from the obligation to comply with
such rule or regulation in the future unless otherwise agreed to by Landlord,
(iii) no waiver granted to any tenant shall relieve any other tenant from the
obligation of complying with these rules and regulations, unless such other
tenant has received a similar written waiver from the Landlord, and (iv) any
such waiver shall not relieve Tenant from any liability to Landlord for any loss
or damage occasioned as a result of Tenant's failure to comply with any rule or
regulation
1. The entrances, lobbies, passages, corridors, elevators, halls, courts,
sidewalks, vestibules, and stairways shall not be encumbered or
obstructed by Tenant, Tenant's agents, servants, employees, licensees
or visitors or used by them for any purposes other than ingress or
egress to and from the Premises. Landlord shall have the right to
control and operate portions of the Building and the facilities
furnished for common use of the tenants in such manner as Landlord
deems best for the benefit of the tenants generally.
2. The moving in or out of all safes, freight, furniture, or bulky matter
of any description shall take place during the hours which Landlord
may determine from time to time. Landlord reserves the right to
inspect all freight and bulky matter to be brought into the Building
and to exclude from the Building all freight and bulky matter which
violates any of these Rules and Regulations or the Lease of which
these Rules and Regulations are a part. Landlord reserves the right to
have Landlord's structural engineer review Tenant's floor loads on the
Premises at Tenant's expense.
3. Tenant, or the employees, agents, servants, visitors or licensees of
Tenant shall not at any time place waste or discard any rubbish,
paper,
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articles, or objects of any kind whatsoever outside the doors of the
Premises or in the corridors or passageways of the Building. No
animals or birds shall be brought or kept in or about the Building.
Bicycles shall not be permitted in the Building; provided that
Landlord shall supply outdoor bicycle racks where bicycles may be
secured.
4. Tenant shall not place objects against glass partitions or doors or
windows or adjacent to any common space which would be unsightly from
the Building corridors or from the exterior of the Building and will
promptly remove the same upon notice from Landlord.
5. Tenant shall not make noises, cause disturbances, create vibrations,
odors (other than ordinarily acceptable tenant kitchen odors in the
building) or noxious fumes or use or operate any electric or
electrical devices or other devices that emit sound waves or are
dangerous to other tenants and occupants of the Building or that would
interfere with the operation of any device or equipment or radio or
television broadcasting or reception from or within the Building or
elsewhere, or with the operation of roads or highways in the vicinity
of the Building, and shall not place or install any projections,
antennae, aerials, or similar devices inside or outside of the
Premises, without the prior written approval of Landlord.
6. Tenant may not (without Landlord's approval therefor, which approval
will be signified on Tenant's Plans submitted pursuant to the Lease)
and Tenant shall not permit or suffer anyone to: (a) cook in the
Premises except as accessory to the use of a coffee room/kitchenette
containing a microwave oven; (b) place vending or dispensing machines
of any kind in or about the Premises; (c) at any time sell, purchase
or give away, or permit the sale, purchase, or gift of food in any
form.
7. Tenant shall not: (a) use the Premises for lodging, manufacturing or
for any immoral or illegal purposes; (b) use the Premises to engage in
the manufacture or sale of, or permit the use of spirituous,
fermented, intoxicating or alcoholic beverages on the Premises; (c)
use the Premises to engage in the manufacture or sale of, or permit
the use of, any illegal drugs on the Premises.
8. No awning or other projections (including antennae) shall be attached
to the outside walls or windows. No curtains, blinds, shades, screens
or signs other than those furnished by Landlord shall be attached to,
hung in, or used in connection with any window or door of the Premises
without prior written consent of Landlord.
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9. No signs, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or
inside of the Premises if visible from outside of the Premises.
Interior signs on doors shall be painted or affixed for Tenant by
Landlord or by sign painters first approved by Landlord at the expense
of Tenant and shall be of a size, color and style acceptable to
Landlord.
10. Tenant shall not use the name of the Building or use pictures or
illustrations of the Building in advertising or other publicity
without prior written consent of Landlord. Landlord shall have the
right to prohibit any advertising by Tenant which, in Landlord's
opinion, tends to impair the reputation of the Building or its
desirability for offices, and upon written notice from Landlord,
Tenant will refrain from or discontinue such advertising.
11. Door keys for doors in the Premises will be furnished at the
Commencement of the Lease by Landlord. Tenant shall not affix
additional locks on doors and shall purchase duplicate keys only from
Landlord and will provide to Landlord the means of opening of safes,
cabinets, or vaults left on the Premises. In the event of the loss of
any keys so furnished by Landlord, Tenant shall pay to Landlord the
cost thereof. Each tenant shall, upon the termination of its tenancy,
restore to Landlord all keys of offices, storage and toilet rooms
either furnished to, or otherwise procured by, such tenant.
12. Tenant shall cooperate and participate in all security programs
affecting the Building.
13. Tenant assumes full responsibility for protecting its space from
theft, robbery and pilferage, which includes keeping doors locked and
other means of entry to the Premises closed and secured.
14. Tenant shall not make any room-to-room canvass to solicit business
from other tenants in the Building, and shall not exhibit, sell or
offer to sell, use, rent or exchange any item or services in or from
the Premises unless ordinarily embraced within Tenant's use of the
Premises as specified in its Lease. Canvassing, soliciting and
peddling in the Building are prohibited and Tenant shall cooperate to
prevent the same. Peddlers, solicitors and beggars shall be reported
to the Management Office.
15. Tenant shall not mark, paint, drill into, or in any way deface any
part of the Building or Premises. No boring, driving of nails or
screws (except for picture hanging, etc.), cutting or stringing of
wires shall be
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permitted, except with the prior written consent of Landlord, and as
Landlord may direct. Tenant shall not construct, maintain, use or
operate within their respective premises any electrical device, wiring
or apparatus in connection with a loud speaker system or other sound
system, except as reasonably required as part of a communication
system approved in writing by Landlord, prior to the installation
thereof. Tenant shall not install any resilient tile or similar floor
covering in the Premises except with the prior written approval of
Landlord. The use of cement or other similar adhesive material is
expressly prohibited.
16. Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and shall refrain from
attempting to adjust controls. Tenant shall keep corridor doors closed
except when being used for access.
17. The water and wash closets and other plumbing fixtures shall not be
used for any purposes other than those for which they were
constructed, and no sweepings, rubbish, rags, or other substances
shall be thrown therein. All damage resulting from misuse of said
fixtures shall be borne by the tenant who, or whose servant,
employees, agents, licensees, invitees, customers or guests shall have
caused the same.
18. Building employees shall not be required to perform, and shall not be
requested by any tenant or occupant to perform, any work outside of
their regular duties, unless under specific instructions from the
office of the Managing Agent of the Building. The requirements of
tenants will be attended to only upon application to Landlord, and any
special requirements shall be billed to Tenant (and paid when the next
installment of rent is due) in accordance with the schedule of charges
maintained by Landlord from time to time or at such charge as is
agreed upon in advance by Landlord and Tenant.
19. Tenant may request heating and/or air conditioning during other
periods in addition to normal working hours by submitting its request
in writing to the office of the Managing Agent of the Building no
later than 2:00 p.m. the preceding work day (Monday through Friday) on
forms available from the office of the Managing Agent. The request
shall clearly state the start and stop hours of the "off-hour"
service. Tenant shall submit to the Building Manager a list of
personnel authorized to make such request. The Tenant shall be charged
for such operation in the form of additional rent; such charges are to
be
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determined by the Managing Agent and shall be fair and reasonable and
reflect the additional operating costs involved.
20. Tenant covenants and agrees that its use of the Premises shall not
cause a discharge of more than the gallonage per foot of Premises
Design Floor Area per day of sanitary (non-industrial) sewage allowed
under the sewage discharge permit for the Building. Discharges in
excess of that amount, and any discharge of industrial sewage, shall
only be permitted if Tenant, at its sole expense, shall have obtained
all necessary permits and licenses therefor, including without
limitation permits from state and local authorities having
jurisdiction thereof. Tenant shall submit to Landlord on December 31
of each year of the Term of this Lease a statement, certified by an
authorized officer of Tenant, which contains the following
information: name of all chemicals, gases, and hazardous substances,
used, generated, or stored on the Premises; type of substance (liquid,
gas or granular); quantity used, stored or generated per year; method
of disposal; permit number, if any, attributable to each substance,
together with copies of all permits for such substances; and permit
expiration date for each substance. No flammable, combustible or
explosive fluid, chemical or substance shall be brought into or kept
upon the Premises, the Building or the Lot (other than those fluids or
chemicals customarily used by tenants of other first-class office
buildings in connection with office purposes and then only those types
and quantities permitted under Landlord's policies of insurance for
the Building).
21. Landlord reserves the right to exclude from the Building at all times
any person who is not known or does not properly identify himself to
the Building management. Landlord may, at its option, require all
persons admitted to or leaving the Building between the hours of 6:00
p.m. and 8:00 a.m., Monday through Friday, and at any hour on
Saturdays, Sundays and legal holidays, to register. Each tenant shall
be responsible for all persons for whom it authorizes entry into the
Building, and shall be liable to Landlord for all acts or omissions of
such persons.
22. Landlord reserves the right to inspect all freight to be brought into
the Project and to exclude from the Project all freight which violates
any of these rules and regulations. There shall not be used in any
space or in the common halls of the Building, either by any tenant or
by jobbers or others in the delivery or receipt of merchandise, any
hand trucks, except those equipped with rubber tires and side guards.
E-5
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of March 26, 1998, by
and between SILICON VALLEY BANK, a California-chartered bank, with its principal
place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a
loan production office located at Wellesley Office Park, 40 William Street,
Suite 350, Wellesley, Massachusetts 02181, doing business under the name
"Silicon Valley East" ("Bank") and ALLAIRE CORPORATION, a Delaware corporation
with its principal place of business at One Alewife Center, Cambridge,
Massachusetts 02140 ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement, the following terms shall have
the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the
rendering of services by Borrower, whether or not earned by performance,
and any and all credit insurance, guaranties, and other security therefor,
as well as all merchandise returned to or reclaimed by Borrower and
Borrower's Books relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns or
controls directly or indirectly such Person, any Person that controls or is
controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, partners and, for any Person
that is a limited liability company, such Persons, managers and members.
"Agreement" means this Loan and Security Agreement.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency
Proceeding) whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's
assets or liabilities, the Collateral, business operations or financial
condition; and all computer programs, or tape files, and the equipment,
containing such information.
"Borrowing Base" means an amount equal to Eighty percent (80%) of
Eligible Accounts as determined by Bank with reference to the most recent
Borrowing Base Certificate delivered by Borrower.
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"Business Day" means any day that is not a Saturday, Sunday, or other
day on which banks in the State of California are authorized or required to
close.
"Closing Date" means the date of this Agreement.
"Code" means the Massachusetts Uniform Commercial Code.
"Collateral" means the property described on Exhibit A attached
hereto.
"Committed Revolving Line" means a credit extension of up to Two
Million Dollars ($2,000,000.00).
"Contingent Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to
(i) any indebtedness, lease, dividend, letter of credit or other obligation
of another, including, without limitation, any such obligation directly or
indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determined amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect
thereof as determined by such Person in good faith; provided, however, that
such amount shall not in any event exceed the maximum amount of the
obligations under the guarantee or other support arrangement.
"Credit Extension" means each Advance, Letter of Credit, or any other
extension of credit by Bank for the benefit of Borrower hereunder.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on
the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding
Credit Extensions made under this Agreement, including all Indebtedness
that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable
at the option of Borrower or any Subsidiary to a date more than one year
from the date of determination, but excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4. Unless
otherwise agreed to by Bank in writing, Eligible Accounts shall not include
the following:
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates known to Borrower, whose total obligations to Borrower
exceed twenty-five percent (25%) of all Accounts, to the extent such
obligations exceed the aforementioned percentage, except as approved
in writing by Bank;
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<PAGE>
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States, with the
exception of such foreign accounts as approved in writing by the Bank;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department,
agency, or instrumentality thereof, except for those Accounts of the
United States or any department, agency or instrumentality thereof as
to which the payee has assigned its rights to payment thereof to Bank
and the assignment has been acknowledged, pursuant to the Assignment
of Claims Act of 1940, as amended (31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the
account debtor (sometimes referred to as "contra" accounts, e.g.
accounts payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional equipment,
or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the account debtor may be
conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such dispute
or claim), or is known to Borrower to be subject to any Insolvency
Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably determines
to be doubtful.
"Equipment" means all present and future machinery, equipment, tenant
improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds
and letters of credit, (b) all obligations evidenced by notes, bonds,
debentures or similar instruments, (c) all capital lease obligations and
(d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or against
any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which Borrower
has any interest, including merchandise, raw materials, parts, supplies,
packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service,
of every kind and description now or at any time hereafter owned by or in
the custody or possession, actual or constructive,
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<PAGE>
of Borrower, including such inventory as is temporarily out of its custody
or possession or in transit and including any returns upon any accounts or
other proceeds, including insurance proceeds, resulting from the sale or
disposition of any of the foregoing and any documents of title representing
any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance
or capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"Letter of Credit" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section 2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated from time to
time.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay
the Obligations or otherwise perform its obligations under the Loan
Documents.
"Maturity Date" means the date which is one (1) year from the Closing
Date.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owed to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after
the commencement of an Insolvency Proceeding and including any debt,
liability, or obligation owing from Borrower to others that Bank may have
obtained by assignment or otherwise.
"Payment Date" means the first calendar day of each month commencing
on the first such date after the Closing Date and ending on the Maturity
Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under this
Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
(d) Indebtedness to trade creditors incurred in the ordinary
course of business, including, without limitation, license fees and
royalty payments due in the ordinary course of Borrower's business;
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(e) Indebted in the amount of $2,000,000.00 in connection with an
equipment loan with Phoenix Growth Capital on terms and conditions
acceptable to Bank.
(f) In addition to the foregoing, Indebtedness in the amount of
$250,000.00 incurred to purchase Equipment not financed by the Bank;
(g) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State
thereof maturing within one (1) year from the date of acquisition
thereof, (ii) commercial paper maturing no more than one (1) year from
the date of creation thereof and currently having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by
Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, provided the
same have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of
such Equipment or indebtedness incurred solely for the purpose of
financing the acquisition of such Equipment, or (ii) existing on such
equipment at the time of its acquisition;
(e) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described
in clauses (a) through (c) above, provided that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental
agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities
of fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
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"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business
entity of which more than fifty percent (50%) of the voting stock or other
equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the consolidated
total assets of Borrower and its Subsidiaries minus, without duplication,
(i) the sum of any amounts attributable to (a) goodwill, (b) intangible
items such as unamortized debt discount and expense, patents, trade and
service marks and names, copyrights and research and development expenses
except prepaid expenses, and (c) all reserves not already deducted from
assets, and (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should,
in accordance with GAAP be classified as liabilities on the consolidated
balance sheet of Borrower, including in any event all Indebtedness, but
specifically excluding Subordinated Debt.
1.2 Accounting and Other Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all calculations
and determinations made hereunder shall be made in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 Credit Extensions. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of such Credit Extensions
at rates in accordance with the terms hereof.
2.1.1 (a) Subject to and upon the terms and conditions of this Agreement,
Bank agrees to make Advances to Borrower in an aggregate outstanding amount not
to exceed (i) the Committed Revolving Line or the Borrowing Base, whichever is
less, minus (ii) the face amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit). Subject to the terms and conditions
of this Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid
and reborrowed at any time during the term of this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify Bank
by facsimile transmission or telephone no later than 3:00 p.m. Pacific time, on
the Business Day that the Advance is to be made. Each such notification shall be
promptly confirmed by a Payment/Advance Form in substantially the form of
Exhibit B hereto. Bank is authorized to make Advances under this Agreement,
based upon instructions received from a Responsible Officer or a designee of a
Responsible Officer, or without instructions if in Bank's discretion such
Advances are necessary to meet Obligations which have become due and remain
unpaid. Bank shall be entitled to rely on any telephonic notice given by a
person who Bank reasonably believes to be a Responsible Officer or a designee
thereof, and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the amount
of Advances made under this Section 2.1 to Borrower's deposit account.
(c) The Committed Revolving Line shall terminate on the Maturity
Date, at which time all Advances under this Section 2.1 and other amounts due
under this Agreement (except as otherwise expressly specified herein) shall be
immediately due and payable.
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2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, Bank agrees
to issue or cause to be issued Letters of Credit for the account of Borrower in
an aggregate outstanding face amount not to exceed (i) the lesser of the
Committed Revolving Line or the Borrowing Base, minus (ii) the then outstanding
principal balance of the Advances; provided that the face amount of outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit and any
Letter of Credit Reserve) shall not in any case exceed Eight Hundred Thousand
Dollars ($800,000.00). Each Letter of Credit shall have an expiry date no later
the Maturity Date. All Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter of Credit
Agreement.
(b) The obligation of Borrower to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all circumstances whatsoever.
Borrower shall indemnify, defend, protect, and hold Bank harmless from any loss,
cost, expense or liability, including, without limitation, reasonable attorneys'
fees, arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit payable in
a currency other than United States Dollars. If a demand for payment is made
under any such Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in United
States currency at the then prevailing rate of exchange in San Francisco,
California, for sales of that other currency for cable transfer to the country
of which it is the currency.
(d) Upon the issuance of any letter of credit payable in a currency
other than United States Dollars, Bank shall create a reserve under the
Committed Revolving Line for letters of credit against fluctuations in currency
exchange rates, in an amount equal to ten percent (10%) of the face amount of
such letter of credit. The amount of such reserve may be amended by Bank from
time to time to account for fluctuations in the exchange rate. The availability
of funds under the Committed Revolving Line shall be reduced by the amount of
such reserve for so long as such letter of credit remains outstanding.
2.2 Overadvances. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1 or 2.1.2 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii)
the Borrowing Base, Borrower shall immediately pay to Bank, in cash, the amount
of such excess.
2.3 Interest Rates, Payments, and Calculations.
(a) Interest Rate. Except as set forth in Section 2.3(b), any Advances
shall bear interest, on the average daily balance thereof, at a per annum rate
equal to One percentage point (1.00%) above the Prime Rate.
(b) Default Rate. All Obligations shall bear interest, from and after
the occurrence of an Event of Default, at a rate equal to three (3) percentage
points above the interest rate applicable immediately prior to the occurrence of
the Event of Default.
(c) Payments. Interest hereunder shall be due and payable on each
Payment Date. Borrower hereby authorizes Bank to debit any accounts with Bank,
including, without limitation, Account Number 3300042616 for payments of
principal and interest due on the Obligations and any other amounts owing by
Borrower to Bank. Bank will notify Borrower of all debits which Bank has made
against Borrower's accounts. Any such debits against Borrower's accounts in no
way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) Computation. In the event the Prime Rate is changed from time to
time hereafter, the applicable rate of interest hereunder shall be increased or
decreased effective as of 12:01 a.m. on the day the Prime
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Rate is changed, by an amount equal to such change in the Prime Rate. All
interest chargeable under the Loan Documents shall be computed on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
2.4 Crediting Payments. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the occurrence
of an Event of Default, the receipt by Bank of any wire transfer of funds,
check, or other item of payment, whether directed to Borrower's deposit account
with Bank or to the Obligations or otherwise, shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment in
respect of the Obligations unless such payment is of immediately available
federal funds or unless and until such check or other item of payment is honored
when presented for payment. Notwithstanding anything to the contrary contained
herein, any wire transfer or payment received by Bank after 12:00 noon Pacific
time shall be deemed to have been received by Bank as of the opening of business
on the immediately following Business Day. Whenever any payment to Bank under
the Loan Documents would otherwise be due (except by reason of acceleration) on
a date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
2.5 Fees. Borrower shall pay to Bank the following:
(a) Committed Revolving Line Facility Fee. As compensation for the
Bank's maintenance of sufficient funds available for such purpose, the Bank
shall have earned a Committed Revolving Line Facility Fee (so referred to
herein), which fee shall be due on the Closing Date, in an amount equal to
Ten Thousand Dollars ($10,000.00). The Borrower shall not be entitled to
any credit, rebate or repayment of any Committed Revolving Line Facility
Fee previously earned by the Bank pursuant to this Section notwithstanding
any termination of the within Agreement, or suspension or termination of
the Bank's obligation to make loans and advances hereunder;
(b) Financial Examination and Appraisal Fees. Bank's reasonable and
customary fees and out-of-pocket expenses for Bank's audits of Borrower's
Accounts, and for each appraisal of Collateral and financial analysis and
examination of Borrower performed from time to time by Bank or its agents;
(c) Bank Expenses. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the
date hereof, including reasonable attorneys' fees and expenses, and, after
the date hereof, all Bank Expenses, including reasonable attorneys' fees
and expenses, as and when they become due.
2.6 Additional Costs. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the compliance
with any guideline or request of any central bank or other governmental
authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of principal or
interest or any other amounts payable hereunder by Borrower or otherwise
with respect to the transactions contemplated hereby (except for taxes on
the overall net income of Bank imposed by the United States of America or
any political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
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and the result of any of the foregoing is to increase the cost to Bank,
reduce the income receivable by Bank or impose any expense upon Bank with
respect to any loans, Bank shall notify Borrower thereof. Borrower agrees
to pay to Bank the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is incurred
or determined, upon presentation by Bank of a statement of the amount and
setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7 Term. Except as otherwise set forth herein, this Agreement shall become
effective on the Closing Date and, subject to Section 12.7, shall continue in
full force and effect for a term ending on the Maturity Date. Notwithstanding
the foregoing, Bank shall have the right to terminate its obligation to make
Credit Extensions under this Agreement immediately and without notice upon the
occurrence and during the continuance of an Event of Default. Notwithstanding
termination of this Agreement, Bank's lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
3. CONDITIONS OF LOANS
3.1 Conditions Precedent to Initial Credit Extension. The obligation of
Bank to make the initial Credit Extension is subject to the condition precedent
that Bank shall have received, in form and substance satisfactory to Bank, the
following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) a negative pledge agreement covering intellectual property
(d) an opinion of Borrower's counsel;
(e) financing statements (Forms UCC-1);
(f) insurance certificate;
(g) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(h) Certificate of Foreign Qualification (if applicable); and
(i) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 Conditions Precedent to all Credit Extensions. The obligation of Bank
to make each Credit Extension, including the initial Credit Extension, is
further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided in
Section 2.1; and
(b) the representations and warranties contained in Section 5 shall be
true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension. The
making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the
accuracy of the facts referred to in this Section 3.2(b).
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4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired or
arising Collateral in order to secure prompt payment of any and all Obligations
and in order to secure prompt performance by Borrower of each of its covenants
and duties under the Loan Documents. Except as set forth in the Schedule, such
security interest constitutes a valid, first priority security interest in the
presently existing Collateral, and will constitute a valid, first priority
security interest in Collateral acquired after the date hereof. Borrower
acknowledges that Bank may place a "hold" on any Deposit Account pledged as
Collateral to secure the Obligations. Notwithstanding termination of this
Agreement, Bank's Lien on the Collateral shall remain in effect for so long as
any Obligations are outstanding.
4.2 Delivery of Additional Documentation Required. Borrower shall from time
to time execute and deliver to Bank, at the request of Bank, all Negotiable
Collateral, all financing statements and other documents that Bank may
reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 Right to Inspect. Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to make
copies thereof and to check, test, and appraise the Collateral in order to
verify Borrower's financial condition or the amount, condition of, or any other
matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 Due Organization and Qualification. Borrower and each Subsidiary is a
corporation duly existing and in good standing under the laws of its state of
incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 Due Authorization: No Conflict. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound, which
breach or default would have a Material Adverse Effect. Borrower is not in
default under any agreement to which it is a party or by which it is bound,
which default could have a Material Adverse Effect.
5.3 No Prior Encumbrances. Borrower has good and indefeasible title to the
Collateral, free and clear of Liens, except for Permitted Liens.
5.4 Bona Fide Eligible Accounts. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the account
debtor's agent for immediate shipment to and unconditional acceptance by the
account debtor. Borrower has not received notice of actual or imminent
Insolvency Proceeding of any account debtor whose accounts are included in any
Borrowing Base Certificate as an Eligible Account.
5.5 Merchantable Inventory. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
5.6 Name: Location of Chief Executive Office. Except as disclosed in the
Schedule, Borrower has not done business and will not without at least thirty
(30) days prior written notice to Bank do business under any name other than
that specified on the signature page hereof. The chief executive office of
Borrower is located at the address indicated in Section 10 hereof.
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5.7 Litigation. Except as set forth in the Schedule, there are no actions
or proceedings pending, or, to Borrower's knowledge, threatened by or against
Borrower or any Subsidiary before any court or administrative agency in which an
adverse decision could have a Material Adverse Effect or a material adverse
effect on Borrower's interest or Bank's security interest in the Collateral.
5.8 No Material Adverse Change in Financial Statements. All consolidated
financial statements related to Borrower and any Subsidiary that have been
delivered by Borrower to Bank fairly present in all material respects Borrower's
consolidated financial condition as of the date thereof and Borrower's
consolidated results of operations for the period then ended. There has not been
a material adverse change in the consolidated financial condition of Borrower
since the date of the most recent of such financial statements submitted to Bank
on or about the Closing Date.
5.9 Solvency. Borrower is able to pay its debts (including trade debts) as
they mature.
5.10 Regulatory Compliance. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event has occurred resulting from Borrower's failure to
comply with ERISA that is reasonably likely to result in Borrower's incurring
any liability that could have a Material Adverse Effect. Borrower is not an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act of 1940. Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations G, T and U of the Board of Governors of the Federal
Reserve System). Borrower has complied with all the provisions of the Federal
Fair Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a Material
Adverse Effect.
5.11 Environmental Condition. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to
Borrower's knowledge, by previous owners or operators, in the disposal of, or to
produce, store, handle, treat, release, or transport, any hazardous waste or
hazardous substance other than in accordance with applicable law; to Borrower's
knowledge, none of Borrower's properties or assets has ever been designated or
identified in any manner pursuant to any environmental protection statute as a
hazardous waste or hazardous substance disposal site, or a candidate for closure
pursuant to any environmental protection statute; no lien arising under any
environmental protection statute has attached to any revenues or to any real or
personal property owned by Borrower or any Subsidiary; and neither Borrower nor
any Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
5.12 Taxes. Borrower and each Subsidiary has filed or caused to be filed
all tax returns required to be filed on a timely basis, and has paid, or has
made adequate provision for the payment of, all taxes reflected therein.
5.13 Subsidiaries. Borrower does not own any stock, partnership interest or
other equity securities of any Person, except for Permitted Investments.
5.14 Government Consents. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted and
the absence of which would have a Material Adverse Effect.
5.15 Full Disclosure. No representation, warranty or other statement made
by Borrower in any certificate or written statement furnished to Bank contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained in such certificates or
statements not misleading.
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6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to make
a Credit Extension hereunder, Borrower shall do all of the following:
6.1 Good Standing. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 Government Compliance. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Bank's Lien on the Collateral.
6.3 Financial Statements, Reports, Certificates. Borrower shall deliver to
Bank: (a) as soon as available, but in any event within thirty (30) days after
the end of each month, commencing one (1) month following the Closing Date, a
company prepared consolidated balance sheet and income statement covering
Borrower's consolidated operations during such period, in a form and certified
by an officer of Borrower reasonably acceptable to Bank; (b) as soon as
available, but in any event within one hundred twenty (120) days after the end
of Borrower's fiscal year, audited consolidated financial statements of Borrower
prepared in accordance with GAAP, consistently applied, together with an
unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank; (c) promptly upon receipt
of notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (d) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
Within fifteen (15) days after the last day of each month (or portion
thereof) during which there are any Advances outstanding under the Committed
Revolving Line, Borrower shall deliver to Bank a Borrowing Base Certificate
signed by a Responsible Officer in substantially the form of Exhibit C hereto,
together with aged listings of accounts receivable, provided however that the
Borrowing Base Certificate shall be delivered only in the event that the
Borrower has requested Advances under the Committed Revolving Line.
Within thirty (30) days after the last day of each month commencing with
the month following the Closing Date, Borrower shall deliver to Bank with the
monthly financial statements a Compliance Certificate signed by a Responsible
Officer in substantially the form of Exhibit D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense (subject to Section 2.5(c)), provided that such
audits will be conducted (i) no more often than every twelve (12) months, and
(ii) only in the event that aggregate Advances made by the Bank to the Borrower
exceed Five Hundred Thousand Dollars ($500,000.00), unless an Event of Default
has occurred and is continuing.
6.4 Inventory; Returns. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances, if
any, as between Borrower and its account debtors shall be on the same basis and
in accordance with the usual customary practices of Borrower, as they exist at
the time of the execution and delivery of this Agreement. Borrower shall
promptly notify Bank of all returns and recoveries and of all disputes and
claims, where the return, recovery, dispute or claim involves more than Fifty
Thousand Dollars ($50,000).
6.5 Taxes. Borrower shall make, and shall cause each Subsidiary to make,
due and timely payment or deposit of all material federal, state, and local
taxes, assessments, or contributions required of it by law, and will execute and
deliver to Bank, on demand, appropriate certificates attesting to the payment or
deposit thereof; and
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Borrower will make, and will cause each Subsidiary to make, timely payment or
deposit of all material tax payments and withholding taxes required of it by
applicable laws, including, but not limited to, those laws concerning F.I.C.A.,
F.U.T.A., state disability, and local, state, and federal income taxes, and
will, upon request, furnish Bank with proof satisfactory to Bank indicating that
Borrower or a Subsidiary has made such payments or deposits; provided that
Borrower or a Subsidiary need not make any payment if (i) the amount or validity
of such payment is contested in good faith by appropriate proceedings, (ii)
Borrower or Subsidiary, as the case may be, has established proper reserves (to
the extent required by GAAP) and (iii) no lien other than a Permitted Lien
results.
6.6 Insurance.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses
similar to Borrower's.
(b) All such policies of insurance shall be in such form, with such
companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Bank, showing Bank as an additional
loss payee thereof and all liability insurance policies shall show the Bank
as an additional insured, and shall specify that the insurer must give at
least twenty (20) days notice to Bank before canceling its policy for any
reason. At Bank's request, Borrower shall deliver to Bank certified copies
of such policies of insurance and evidence of the payments of all premiums
therefor. All proceeds payable under any such policy shall, at the option
of Bank, be payable to Bank to be applied on account of the Obligations.
6.7 Principal Depository. Other than accounts established in connection
with Borrower's Permitted Investments, Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 Quick Ratio. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities of at least 1.0
to 1.0. For calculation purposes of this Section 6.8, Current Liabilities shall
(i) exclude "deferred maintenance revenue" and (ii) include all Credit
Extensions under this Loan and Security Agreement.
6.9 Tangible Net Worth. Borrower shall maintain, as of the last day of each
calendar month commencing with the month following the Closing Date, a Tangible
Net Worth of not less than (i) One Million Five Hundred Thousand Dollars
($1,500,000.00) for the months ending January 31, 1998 through March 31, 1998,
(ii) Two Hundred Thousand Dollars ($200,000.00) for the months ending April 30,
1998 through September 30, 1998, and (iii) One Million Five Hundred Thousand
Dollars ($1,500,000.00) for the months ending October 31, 1998 and as of the
last day of each calendar month thereafter.
6.10 Further Assurances. At any time and from time to time Borrower shall
execute and deliver such further instruments and take such further action as may
reasonably be requested by Bank to effect the purposes of this Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any Advances,
Borrower will not, without the Bank's prior written approval, do any of the
following:
7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer, all
or any part of its business or property, other than Transfers: (i) of inventory
in the ordinary course of business, (ii) of non-exclusive licenses for the use
of the property of Borrower or
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its Subsidiaries in the ordinary course of business; (iii) that constitute
payment of normal and usual operating expenses in the ordinary course of
business; or (iv) of worn-out or obsolete Equipment.
7.2 Changes in Business, Ownership, or Management, Business Locations.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a material change in Borrower's ownership or management. Borrower will
not, without at least thirty (30) days prior written notification to Bank, issue
any equity (other than in conjunction with stock-based awards granted under the
Borrower's 1997 Stock Incentive Plan) relocate its chief executive office or add
any new offices or business locations.
7.3 Mergers or Acquisitions. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person unless: (i)
there is no Event of Default hereunder, and (ii) that such merger, consolidation
or acquisition will not result, on a prospective basis, in the breach of any of
the covenants, terms and conditions hereunder, and (iii) that such merger,
consolidation or acquisition is in the same or similar line of business as the
Borrower, and (iv) the aggregate purchase price for such transaction(s) will be
a maximum amount of $1,000,000.00, and (v) the Borrower is the surviving legal
entity, and (vi) the Borrower does not assume any indebtedness (either direct or
contingent) in connection with such transaction, with the exception of
promissory notes payable to Persons who have sold assets to Borrower, provided
such promissory notes are subordinated in form and substance acceptable to Bank.
7.4 Indebtedness. Create, incur, assume or be or remain liable with respect
to any Indebtedness, or permit any Subsidiary so to do, other than Permitted
Indebtedness.
7.5 Encumbrances. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.6 Distributions. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock (other than distributions and payments made in conjunction with
stock-based awards granted under the Borrower's 1997 Stock Incentive Plan).
7.7 Investments. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower except
for transactions that are in the ordinary course of Borrower's business, upon
fair and reasonable terms that are no less favorable to Borrower than would be
obtained in an arm's length transaction with a nonaffiliated Person.
7.9 Subordinated Debt. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without Bank's
prior written consent.
7.10 Inventory. Store the Inventory with a bailee, warehouseman, or similar
party unless Bank has received a pledge of any warehouse receipt covering such
Inventory. Except for Inventory sold in the ordinary course of business and
except for such other locations as Bank may approve in writing, Borrower shall
keep the Inventory only at the location set forth in Section 10 hereof and such
other locations of which Borrower gives Bank prior written notice and as to
which Borrower signs and files a financing statement where needed to perfect
Bank's security interest.
7.11 Compliance. Become an "investment company" or a company controlled by
an "investment company," within the meaning of the Investment Company Act of
1940, or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying
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<PAGE>
margin stock, or use the proceeds of any Advance for such purpose; fail to meet
the minimum funding requirements of ERISA; permit a Reportable Event or
Prohibited Transaction, as defined in ERISA, to occur; fail to comply with the
Federal Fair Labor Standards Act or violate any other law or regulation, which
violation could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral; or permit any
of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 Payment Default. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections 6.3,
6.5, 6.6, 6.7, 6.8 or 6.9 or violates any of the covenants contained in
Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe any
other material term, provision, condition, covenant, or agreement contained
in this Agreement, in any of the Loan Documents, or in any other present or
future agreement between Borrower and Bank and as to any default under such
other term, provision, condition, covenant or agreement that can be cured,
has failed to cure such default within ten (10) days after the occurrence
thereof; provided, however, that if the default cannot by its nature be
cured within the ten (10) day period or cannot after diligent attempts by
Borrower be cured within such ten (10) day period, and such default is
likely to be cured within a reasonable time, then Borrower shall have an
additional reasonable period (which shall not in any case exceed thirty
(30) days) to attempt to cure such default, and within such reasonable time
period the failure to have cured such default shall not be deemed an Event
of Default (provided that no Advances will be required to be made during
such cure period);
8.3 Material Adverse Change. If there (i) occurs a material adverse change
in the business, operations, or condition (financial or otherwise) of the
Borrower, or (ii) is a material impairment of the prospect of repayment of any
portion of the Obligations or (iii) is a material impairment of the value or
priority of Bank's security interests in the Collateral;
8.4 Attachment. If any material portion of Borrower's assets is attached,
seized, subjected to a writ or distress warrant, or is levied upon, or comes
into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentally thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Credit Extensions will be required to be made during such cure period);
8.5 Insolvency. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is commenced
against Borrower and is not dismissed or stayed within 30 days (provided that no
Advances will be made prior to the dismissal of such Insolvency Proceeding);
8.6 Other Agreements. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by such
third party or parties, whether or not exercised, to accelerate the maturity
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<PAGE>
of any Indebtedness in an amount in excess of One Hundred Thousand Dollars
($100,000) or that could have a Material Adverse Effect;
8.7 Subordinated Debt. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 Judgments. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions will
be made prior to the satisfaction or stay of such judgment); or
8.9 Misrepresentations. If any material misrepresentation or material
misstatement exists at the time made in any warranty or representation set forth
herein or in any certificate or writing delivered to Bank by Borrower or any
Person acting on Borrower's behalf pursuant to this Agreement or to induce Bank
to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the continuance of
an Event of Default, Bank may, at its election, without notice of its election
and without demand, do any one or more of the following, all of which are
authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement, by
any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable
without any action by Bank);
(b) Demand that Borrower (i) deposit cash with Bank in an amount equal
to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of
Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable
over the remaining term of the Letters of Credit;
(c) Cease advancing money or extending credit to or for the benefit of
Borrower under this Agreement or under any other agreement between Borrower
and Bank;
(d) Settle or adjust disputes and claims directly with account debtors
for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Without notice to or demand upon Borrower, make such payments and
do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to
Bank as Bank may designate. Borrower authorizes Bank to enter the premises
where the Collateral is located, to take and maintain possession of the
Collateral, or any part of it, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in Bank's determination appears to
be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's
premises, Borrower hereby grants Bank a license to enter such premises and
to occupy the same, without charge;
(f) Without notice to Borrower set off and apply to the Obligations
any and all (i) balances and deposits of Borrower held by Bank, or (ii)
indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell (in the manner provided for herein)
the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
9.1, to use, without charge, Borrower's labels,
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<PAGE>
patents, copyrights, mask works, rights of use of any name, trade secrets,
trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in
completing production of, advertising for sale, and selling any Collateral
and, in connection with Bank's exercise of its rights under this Section
9.1, Borrower's rights under all licenses and all franchise agreements
shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to
the Obligations in whatever manner or order it deems appropriate;
(i) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(j) Any deficiency that exists after disposition of the Collateral as
provided above will be paid immediately by Borrower.
9.2 Power of Attorney. Effective only upon the occurrence and during the
continuance of an Event of Default, Borrower hereby irrevocably appoints Bank
(and any of Bank's designated officers, or employees) as Borrower's true and
lawful attorney to: (a) send requests for verification of Accounts or notify
account debtors of Bank's security interest in the Accounts; (b) endorse
Borrower's name on any checks or other forms of payment or security that may
come into Bank's possession; (c) sign Borrower's name on any invoice or bill of
lading relating to any Account, drafts against account debtors, schedules and
assignments of Accounts, verifications of Accounts, and notices to account
debtors; (d) make, settle, and adjust all claims under and decisions with
respect to Borrower's policies of insurance; and (e) settle and adjust disputes
and claims respecting the accounts directly with account debtors, for amounts
and upon terms which Bank determines to be reasonable; provided Bank may
exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Bank as Borrower's attorney in fact, and each and
every one of Bank's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Bank's obligation to provide advances hereunder is terminated.
9.3 Accounts Collection. Upon the occurrence and during the continuance of
an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in trust
all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 Bank Expenses. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement, then Bank may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves under the
Committed Revolving Line as Bank deems necessary to protect Bank from the
exposure created by such failure; or (c) obtain and maintain insurance policies
of the type discussed in Section 6.6 of this Agreement, and take any action with
respect to such policies as Bank deems prudent. Any amounts so paid or deposited
by Bank shall constitute Bank Expenses, shall be immediately due and payable,
and shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 Bank's Liability for Collateral. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable or
responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage
thereto occurring or arising in any manner or fashion from any cause; (c) any
diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. All risk of
loss, damage or destruction of the Collateral shall be borne by Borrower.
9.6 Remedies Cumulative. Bank's rights and remedies under this Agreement,
the Loan Documents, and all other agreements shall be cumulative. Bank shall
have all other rights and remedies not expressly set forth herein
-17-
<PAGE>
as provided under the Code, by law, or in equity. No exercise by Bank of one
right or remedy shall be deemed an election, and no waiver by Bank of any Event
of Default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 Demand; Protest. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, nonpayment at maturity, release, compromise, settlement, extension, or
renewal of accounts, documents, instruments, chattel paper, and guarantees at
any time held by Bank on which Borrower may in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by any
party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt requested,
or by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower Allaire Corporation.
One Alewife Center
Cambridge, Massachusetts 02140
Attn: Chief Financial Officer
FAX: (617) 497-7477
with a copy to: Allaire Corporation.
One Alewife Center
Cambridge, Massachusetts 02140
Attn: General Counsel
FAX: (617) 497-7477
If to Bank Silicon Valley Bank
40 William Street
Wellesley, Massachusetts 02181
Attn: Ms. Pamela J. Aldsworth, Vice President
FAX: (781) 431-9906
with a copy to: Riemer & Braunstein
Three Center Plaza
Boston, Massachusetts 02108
Attn: David A. Ephraim, Esquire
FAX: (617) 723-6831
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE; JURY WAIVER
The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION, SUIT,
OR PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER,
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<PAGE>
THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS JURISDICTION OF THE COURTS AND
VENUE IN SANTA CLARA COUNTY, CALIFORNIA.
BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall bind and inure to the
benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Bank's prior written consent, which consent
may be granted or withheld in Bank's sole discretion. Bank shall have the right
without the consent of or notice to Borrower to sell, transfer, negotiate, or
grant participation in all or any part of, or any interest in, Bank's
obligations, rights and benefits hereunder.
12.2 Indemnification. Borrower shall, indemnify, defend, protect and hold
harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by the Loan Documents;
and (b) all losses or Bank Expenses in any way suffered, incurred, or paid by
Bank as a result of or in any way arising out of, following, or consequential to
transactions between Bank and Borrower whether under the Loan Documents, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Bank's gross negligence, willful misconduct, or
commercial unreasonableness, each as determined by a final court of complete
jurisdiction.
12.3 Time of Essence. Time is of the essence for the performance of all
obligations set forth in this Agreement.
12.4 Severability of Provisions. Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of
determining the legal enforceability of any specific provision.
12.5 Amendments in Writing, Integration. This Agreement cannot be amended
or terminated except by a writing signed by Borrower and Bank. All prior
agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 Survival. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to actions that may be brought against Bank have run.
12.8 Confidentiality. In handling any confidential information Bank shall
exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality
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<PAGE>
of any non-public information thereby received or received pursuant to this
Agreement except that disclosure of such information may be made (i) to the
subsidiaries or affiliates of Bank in connection with their present or
prospective business relations with Borrower, (ii) to prospective transferees or
purchasers of any interest in the Loans, provided that they have entered into a
comparable confidentiality agreement in favor of Borrower and have delivered a
copy to Borrower, (iii) as required by law, regulations, rule or order,
subpoena, judicial order or similar order, (iv) as may be required in connection
with the examination, audit or similar investigation of Bank, and (v) as Bank
may deem appropriate in connection with the exercise of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Bank when
disclosed to Bank, or becomes part of the public domain after disclosure to Bank
through no fault of Bank; or (b) is disclosed to Bank by a third party, provided
Bank does not have actual knowledge that such third party is prohibited from
disclosing such information.
12.9 Countersignature. This Agreement shall become effective only when it
shall have been executed by Borrower and Bank (provided, however, in no event
shall this Agreement become effective until signed by an officer of Bank in
California).
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
ALLAIRE CORPORATION
By: /s/ David A. Gerth
-------------------------------------------
Title: Chief Financial Officer
-------------------------------------------
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By: /s/ Andy Tsao
-------------------------------------------
Name: Andy Tsao
-------------------------------------------
Title: Vice President
-------------------------------------------
SILICON VALLEY BANK
By: /s/ Michelle Giannini
------------------------------------------
Name: Michelle Giannini
------------------------------------------
Title: Assistant Vice President
------------------------------------------
(Signed in Santa Clara County, California)
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<PAGE>
SCHEDULE
This SCHEDULE relates to the Loan and Security Agreement between Silicon Valley
Bank ("Bank") and Allaire Corporation ("Borrower"). Capitalized terms not
otherwise defined in this Schedule shall have the meanings given in the
Agreement.
Permitted Indebtedness (Definition)
The following Allaire international distributors purchase products from Borrower
for redistribution under arrangements that provide for standard, ordinary
course, rights to return products from inventory.
East Coast Software Interop
Internet 2000 GMBH IT WAY spa
Internet 2000 Switzerland Intranesis
Unipalm NetSource
Softline GMBH Mitsubishi
Internet Media Services Otsuka Shokai
Tempest A/S Collabnet
AB Computers LeeTide
Alpha Media
For purposes of clause (d) of definition of the term "Eligible Accounts" in the
Agreement, Accounts in which any of the foregoing international distributors are
the account debtor are deemed to be approved by the Bank.
Permitted Indebtedness (Definition)
Indebtedness to Comdisco, Inc., incurred in connection with Borrower's current
equipment lease facility.
Indebtedness associated with current construction of leasehold improvements in
its principal offices.
Permitted Investments (Definition)
Investments made from time to time by Morgan Stanley under its cash management
arrangement with Borrower.
Borrower's $124,740 CD with Bank to cover existing standby letter of credit.
Permitted Liens (Definition)/Prior Security Interests (Sec. 4.1)/Litigation
(Sec. 5.7/Taxes (5.12)
Liens filed by Comdisco, Inc. in conjunction with Borrower's current equipment
lease facility.
Mechanics and similar liens filed in conjunction with the construction of
leasehold improvements in its principal offices.
Texas has claimed that Allaire Corporation is responsible for the collection of
sales tax for all software sales made into the state of Texas. (The state claims
that software sales are akin to leasing and that even though we have no physical
presence in the state we are deemed to have "nexus"). Allaire believes that the
state is incorrect and that we do not have a responsibility to collect sales
tax.
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and
all attachments, accessories, accessions, replacements, substitutions,
additions, and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above,
and Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, claims, literature, reports, catalogs, income
tax refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods, the licensing of
technology or the rendering of services by Borrower, whether or not earned
by performance, and any and all credit insurance, guaranties, and other
security therefor, as well as all merchandise returned to or reclaimed by
Borrower and Borrower's Books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrower's Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents,
trademarks, servicemarks and applications therefor; any trade secret rights,
including any rights to unpatented inventions, know-how, operating manuals,
license rights and agreements and confidential information, now owned or
hereafter acquired; or any claims for damages by way of any past, present and
future infringement of any of the foregoing.
<PAGE>
EXHIBIT B
---------
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., P.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: ________________________
FAX#: (408) ________________ TIME: ________________________
FROM: ALLAIRE CORPORATION
FROM: _____________________________________________________________________
AUTHORIZED SIGNER'S NAME
___________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE: ____________________________________________________________________
FROM ACCOUNT #______________________ TO ACCOUNT #_______________________
- --------------------------------------------------------------------------------
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
- -------------------------- ---------------------
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
OTHER INSTRUCTIONS:
- --------------------------------------------------------------------------------
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
- --------------------------------------------------------------------------------
BANK USE ONLY:
TELEPHONE REQUEST:
------------------
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
___________________________
Authorized Requester
___________________________________
Authorized Signature (Bank)
Phone #____________________________
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Allaire Corporation. Bank: Silicon Valley Bank
Commitment Amount: $2,000,000.00
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ________ $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 50% over 90 day accounts $___________
6. Concentration Limits $___________
7. Foreign Accounts $___________
8. Ineligible Governmental Accounts $___________
9. Contra Accounts $___________
10. Promotion or Demo Accounts $___________
11. Intercompany/Employee Accounts $___________
12. Other (please explain on reverse) $___________
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
14. Eligible Accounts (#3 minus #13) $___________
15. LOAN VALUE OF ACCOUNTS (80% of #14) $___________
BALANCES
16. Maximum Loan Amount $___________
17. Total Funds Available [Lesser of #16 or #15] $___________
18. Present balance owing on Line of Credit $___________
19. Outstanding under Sublimits ( ) $___________
20. RESERVE POSITION (#17 minus #18 and #19) $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Loan and
Security Agreement between the undersigned and Silicon Valley Bank.
COMMENTS: ================================
BANK USE ONLY
Received By:
-------------------
Date:
--------------------------
Reviewed By:
-------------------
Compliance Status: Yes / No
ALLAIRE CORPORATION
================================
By:
---------------------
Authorized Signer
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: ALLAIRE CORPORATION
The undersigned authorized officer of Allaire Corporation hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrower and Bank (the "Agreement"), (i) Borrower is in complete
compliance for the period ending _________ with all required covenants except as
noted below and (ii) all representations and warranties of Borrower stated in
the Agreement are true and correct in all material respects as of the date
hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of determination
that Borrower is not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
Please indicate compliance status by circling Yes/No under "Complies"
column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C>
Monthly financial statements and CC Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 120 days Yes No
A/R and BBC Monthly within 15 days Yes No
</TABLE>
<TABLE>
<CAPTION>
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Tangible Net Worth: $1,500,000 $_______ Yes No
(through 3/31/98)
$200,000 $_______ Yes No
(from 4/1/98 to 9/30/98)
$1,500,000 $_______ Yes No
(from and after 10/1/98)
Quick Ratio 1.0:1.0 $_______ Yes No
</TABLE>
Comments Regarding Exceptions: ================================
BANK USE ONLY
Received By:
-------------------
Date:
--------------------------
Reviewed By:
-------------------
Compliance Status: Yes / No
Sincerely,
================================
Allaire Corporation
_____________________ Date: _______________
SIGNATURE
_____________________
TITLE
NEGATIVE PLEDGE AGREEMENT
This Negative Pledge Agreement is made as of March 26, 1998, by and between
ALLAIRE CORPORATION ("Borrower") and SILICON VALLEY BANK, a California-chartered
bank, with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, Massachusetts 02181, doing
business under the name "Silicon Valley East" ("Bank").
In connection with, among other documents, the Loan and Security Agreement
(the "Loan Documents") being concurrently executed herewith between Borrower and
Bank, Borrower agrees as follows:
1. Except for the granting of licenses by Borrower in the ordinary course
of business, Borrower shall not sell, transfer, assign, mortgage,
pledge, lease, grant a security interest in, or encumber any of
Borrower's Intellectual Property, including, without limitation, the
following:
(a) Any and all Copyright rights, Copyright applications, copyright
registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or
hereafter existing, created, acquired or held;
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now
or hereafter existing, created, acquired or held;
(d) All Mask Works or similar rights available for the protection of
semiconductor chips;
(e) All Patents, Patent applications and like protections including,
without limitation, improvements, divisions, continuations,
renewals, reissues, extensions and continuations-in-part of the
same, including without limitation the Patents and Patent
applications;
(f) Any Trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Borrower
connected with and symbolized by such Trademarks, including
without limitation;
(g) Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the
right, but not the obligation, to sue for and collect such
damages for said use or infringement of the intellectual property
rights identified above;
(h) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works and all license fees and
royalties arising from such use to the extent permitted by such
license or rights; and
(i) All amendments, extensions, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
<PAGE>
(j) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing;
2. It shall be an event of default under the Loan Documents between
Borrower and Bank if there is a breach of any term of this Negative
Pledge Agreement.
3. As used herein,
(a) "Intellectual Property" means:
(i) Copyrights, Trademarks, Patents, and Mask Works;
(ii) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software
products now or hereafter existing, created, acquired or
held;
(iii)Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or
held;
(iv) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above,
with the right, but not the obligation, to sue for and
collect such damages for said use or infringement of the
intellectual property rights identified above;
(v) All licenses or other rights to use any of the Copyrights,
Patents, Trademarks, or Mask Works, and all license fees and
royalties arising from such use to the extent permitted by
such license or rights;
(vi) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
(vii) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any
indemnity or warranty payable in respect of any of the
foregoing.
(b) "Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in
each work or authorship and derivative work thereof, whether
published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created,
acquired or held.
(c) "Mask Works" means all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter
acquired;
(d) "Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and
continuations-in-part of the same.
(e) "Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of
the same and like protections, and the entire goodwill of the
business of Borrower connected with and symbolized by such
trademarks.
4. Capitalized terms used but not otherwise defined herein shall have the
same meaning as in the Loan Documents.
<PAGE>
5. The laws of the Commonwealth of Massachusetts shall apply to this
Agreement. BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH
OF MASSACHUSETTS IN ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND,
AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS AGREEMENT;
PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS, BORROWER ACCEPTS
JURISDICTION OF THE COURTS AND VENUE IN SANTA CLARA COUNTY,
CALIFORNIA.
6. This Agreement shall become effective only when it shall have been
executed by Borrower and Bank (provided, however, in no event shall
this Agreement become effective until signed by an officer of Bank in
California).
BORROWER:
ALLAIRE CORPORATION
By: /s/ David A. Gerth
-------------------------------------------
Name: David A. Gerth
-------------------------------------------
Title: Chief Financial Officer
-------------------------------------------
BANK:
SILICON VALLEY BANK, d/b/a
SILICON VALLEY EAST
By: /s/ Andy Tsao
-------------------------------------------
Name: Andy Tsao
-------------------------------------------
Title: Vice President
-------------------------------------------
SILICON VALLEY BANK
By: /s/ Michelle Giannini
------------------------------------------
Name: Michelle Giannini
------------------------------------------
Title: Assistant Vice President
------------------------------------------
(Signed in Santa Clara, California)
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of August 6, 1998, by
and between Allaire Corporation ("Borrower") and Silicon Valley Bank, a
California-chartered bank doing business as "Silicon Valley East" ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement dated March 26, 1998, as may be
amended (the "Loan Agreement"). The Loan Agreement provides for, among other
things, a Committed Revolving Line in the original principal amount of Two
Million Dollars ($2,000,000.00). Capitalized terms used but not otherwise
defined herein shall have the same meanings as set forth in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the Indebtedness is secured
by the Collateral as defined in the Loan Agreement. Additionally, Borrower has
agreed with Bank not to further encumber any of its intellectual property
pursuant to a Negative Pledge Agreement dated March 26, 1998.
Hereinafter, the above-described security documents, together with all
other documents securing payment of the Note (and other notes executed by
Borrower in favor of Bank) shall be referred to as the "Security Documents."
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
-------------------------------
A. Modification(s) to Loan Agreement.
----------------------------------
1. Notwithstanding anything to the contrary provided in Sections 6.7,
6.8 and 6.9, Bank shall not test the covenants provided therein
through the month ending October 31, 1998. Accordingly, beginning
with the month ending November 30, 1998, Bank shall resume testing
such covenants. Additionally, Bank further reserves the right to
amend such covenants in any manner as Bank may deem appropriate.
2. The following Section 6.11 is hereby incorporated into the Loan
Agreement, as follows:
<PAGE>
6.11 Equity Event.
-------------
Borrower shall complete an initial public offering of its common
stock or receive a minimum of $5,000,000.00 in new equity from the
sale of its stock on or before November 30, 1998.
3. Section 8.2 entitled "Covenant Default" is hereby amended to
include Section 6.11.
B. Waiver of Financial Covenant Defaults.
--------------------------------------
1. Bank hereby waives Borrower's existing default under the Loan
Agreement by virtue of Borrower's failure to comply with the Quick
Ratio and Tangible Net Work covenants as of the months ended May
31, 1998 and June 30, 1998. Bank's waiver of Borrower's compliance
of these covenants shall apply only to the foregoing periods.
Accordingly, Borrower shall be in compliance with these covenants
beginning with the month ending November 30, 1998.
Bank's agreement to waive the above-described default (1) in no
way shall be deemed an agreement by the Bank to waive Borrower's
compliance with the above-described covenants as of all other
dates and (2) shall not limit or impair the Bank's right to demand
strict performance of these covenants as of all other dates and
(3) shall not limit or impair the Bank's right to demand strict
performance of all other covenants as of any date.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has
no defenses against the obligations to pay any amounts under the indebtedness.
6. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents, unless the party is expressly released by Bank in writing. No
maker, endorser, or guarantor will be released by
-2-
<PAGE>
virtue of this Loan Modification Agreement. The terms of this Paragraph apply no
only to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
7. JURISDICTION/VENUE. Borrower accepts for itself and in connection with
its properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
8. COUNTERSIGNATURE. This Loan Modification Agreement shall become
effective only when it shall have been executed by Borrower and Bank (provided,
however, in no event shall this Loan Modification Agreement become effective
until signed by an officer of Bank in California).
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALLAIRE CORPORATION SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ David A. Gerth By: /s/ Pamela Aldsworth
--------------------------- ------------------------------------
Name: David A. Gerth Name: Pamela Aldsworth
------------------------- ----------------------------------
Title: CFO Title: Vice President
------------------------- ---------------------------------
SILICON VALLEY BANK
By: /s/ Heidi Fetty
------------------------------------
Name: Heidi Fetty
----------------------------------
Title: Documentation Officer
---------------------------------
(Signed at Santa Clara County, CA)
-3-
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of December 9, 1998, by
and between Allaire Corporation ("Borrower") and Silicon Valley Bank, a
California-chartered bank doing business as "Silicon Valley East" ("Bank").
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may
be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to, among
other documents, a Loan and Security Agreement dated March 26, 1998, as may be
amended (the "Loan Agreement"). The Loan Agreement provides for, among other
things, a Committed Revolving Line in the original principal amount of Two
Million Dollars ($2,000,000.00). Capitalized terms used but not otherwise
defined herein shall have the same meanings as set forth in the Loan Agreement.
Hereinafter, all indebtedness owing by Borrower to Bank shall be referred
to as the "Indebtedness."
2. DESCRIPTION OF COLLATERAL: Repayment of the Indebtedness is secured
by the Collateral as defined in the Loan Agreement. Additionally, Borrower has
agreed with Bank not to further encumber any of its intellectual property
pursuant to a Negative Pledge Agreement dated March 26, 1998.
Hereinafter, the above-described security documents, together with all
other documents securing payment of the Note (and other notes executed by
Borrower in favor of Bank) shall be referred to as the "Security Documents."
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the Indebtedness shall be referred to as the "Existing
Loan Documents."
3. DESCRIPTION OF CHANGE IN TERMS.
-------------------------------
A. Modification(s) to Loan Agreement.
----------------------------------
1. The following defined terms set forth in Section 1.1 entitled "Definitions"
are hereby amended and/or incorporated to read as follows:
"Equity Event" means (i) Borrower's completion on an initial public offering
("IPO") of its common stock or (ii) Borrower's receipt of new equity from
the sale of its stock in an amount satisfactory to Bank on or before the
Maturity Date.
"Maturity Date" means the earlier of (i) March 26, 1999 or (ii) the Equity
Event.
2. Notwithstanding anything to the contrary provided in Sections 6.7, 6.8 and
6.9, Bank shall not test the covenants provided therein beginning November
1, 1998 through the Maturity Date. Additionally, Bank further reserves the
right to amend such covenants in any manner as Bank may deem appropriate.
<PAGE>
3. Section 6.11 entitled "Equity Event" is hereby deleted in its entirety.
4. Section 8.2 entitled "Covenant Default" is hereby amended in part to delete
any and all references to Section 6.11.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended
wherever necessary to reflect the changes described above.
5. PAYMENT OF LOAN FEE. Borrower shall pay to Bank a fee in the amount of
Twenty Two Thousand Five Hundred and 00/100 Dollars ($22,500.00) (the "Loan
Fee"), plus all out-of-pocket expenses.
6. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has
no defenses against the obligations to pay any amounts under the indebtedness.
7. CONTINUING VALIDITY. Borrower understands and agrees that in modifying
the existing Indebtedness, Bank is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Bank's agreement to modifications to the existing Indebtedness pursuant to this
Loan Modification Agreement in no way shall obligate Bank to make any future
modifications to the Indebtedness. Nothing in this Loan Modification Agreement
shall constitute a satisfaction of the Indebtedness. It is the intention of Bank
and Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents, unless the party is expressly released by Bank in writing. No
maker, endorser, or guarantor will be released by
-2-
<PAGE>
virtue of this Loan Modification Agreement. The terms of this Paragraph apply no
only to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
8. JURISDICTION/VENUE. Borrower accepts for itself and in connection with
its properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Bank cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
9. COUNTERSIGNATURE. This Loan Modification Agreement shall become
effective only when it shall have been executed by Borrower and Bank (provided,
however, in no event shall this Loan Modification Agreement become effective
until signed by an officer of Bank in California).
10. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon payment of the Loan Fee.
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: BANK:
ALLAIRE CORPORATION SILICON VALLEY BANK, doing
business as SILICON VALLEY EAST
By: /s/ David A. Gerth By: /s/ J.C. Maynard
--------------------------- ------------------------------------
Name: David A. Gerth Name: J.C. Maynard
------------------------- ----------------------------------
Title: CFO Title: Senior Vice President
------------------------- ---------------------------------
SILICON VALLEY BANK
By: /s/ Heidi Fetty
------------------------------------
Name: Heidi Fetty
----------------------------------
Title: Documentation Officer
---------------------------------
(Signed at Santa Clara County, CA)
-3-
SENIOR LOAN AND SECURITY AGREEMENT NO. 0161
THIS SENIOR LOAN AND SECURITY AGREEMENT NO. 0161 (this "Security Agreement") is
dated as of May 1, 1998 between ALLAIRE CORPORATION, a Delaware corporation
("Borrower") and PHOENIX LEASING INCORPORATED, a California corporation
("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed $2,000,000 in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower
(each, a "Loan" and collectively, the "Loans"). Such borrowings shall be
evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first priority security interest in
certain of its equipment, machinery, fixtures, other items and intangibles,
including but not limited to furniture, fixtures, personal computers, telephone,
communications and other equipment, and also certain software and leasehold
improvements and other items generally considered fungible or expendable ("Soft
Costs") whether now owned by Borrower or hereafter acquired, and all
substitutions and replacements of and additions, improvements, accessions and
accumulations to said equipment, machinery and fixtures and other items,
together with all rents, issues, income, profits and proceeds therefrom
(collectively, the "Collateral") which is described on the Note attached hereto
or any subsequently-executed Note entered into by Lender and Borrower and which
incorporates this Security Agreement by reference.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the
date set forth above and shall continue thereafter and be in effect so long as
and at any time any Note entered into pursuant to this Security Agreement is in
effect. The Term and monthly payment amount payable with respect to each item of
Collateral shall be as set forth in and as stated in the respective Note(s). The
terms of each Note hereto are subject to all conditions and provisions of this
Security Agreement as it may at any time be amended. Each Note shall constitute
a separate and independent Loan and contractual obligation of Borrower and shall
incorporate the terms and conditions of this Security Agreement and any
additional provisions contained in such Note. In the event of a conflict between
the terms and conditions of this Security Agreement and any provisions of such
Note, the provisions of such Note shall prevail with respect to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be
canceled or terminated except as expressly provided herein. Borrower agrees that
its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such rent and other sums, are absolute and unconditional and are not subject
to any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims which
Borrower may have against Lender, any assignee, the manufacturer or seller of
the Collateral, or against any person for any reason whatsoever.
SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and
conditions of this Security Agreement and so long as no Event of Default or
event which with the giving of notice or passage of
1
<PAGE>
time, or both, could become an Event of Default has occurred or is continuing,
Lender hereby agrees to make one or more senior secured Loans to Borrower,
subject to the following conditions: (i) each Loan shall be evidenced by a Note;
(ii) the total principal amount of the Loans shall not exceed $2,000,000 in the
aggregate (the "Commitment") provided that no more than 10% of the amount of the
utilized Commitment may be used to finance Soft Costs; (iii) at the time of each
Loan, no Event of Default or event which with the giving of notice or passage of
time, or both, could become an Event of Default shall have occurred and be
continuing, as reasonably determined by Lender, and certified by Borrower; (iv)
the amount of each Loan shall be at least $25,000 except for a final Loan which
may be less than $25,000; (v) Lender shall not be obligated to make any Loan
after December 31, 1998; (vi) for each Loan, Borrower shall present to Lender a
list of proposed Collateral for approval by Lender in its reasonable discretion
taking into consideration Lender's commitment to finance the types of Collateral
described in Recital B above; (vii) for each Loan, Borrower shall have provided
Lender with each of the closing documents described in Exhibit A hereto (which
documents shall be in form and substance reasonably acceptable to Lender);
(viii) Borrower is performing materially according to its business plan referred
to as "Allaire Corporation, 3 year Business Model-Operating Statement, Balance
Sheet, Statement of Cash Flows" dated March 20, 1998 viable through December
31, 1998 (the "Business Plan"), as may be amended from time to time in form and
substance acceptable to Lender; (ix) there shall be no material adverse change
in Borrower's condition, financial or otherwise, that would materially impair
the ability of Borrower to meet its payment and other obligations under this
Loan (a "Material Adverse Effect") as reasonably determined by Lender, and
Borrower so certifies, from (yy) the date of the most recent financial
statements delivered by Borrower to Lender to (zz) the date of the proposed
Loan; (x) Borrower shall use the proceeds of all Loans hereunder to purchase or
reimburse the purchase of Collateral; (xi) at the time of each Loan, Borrower
has reimbursed Lender for all UCC filing and search costs, inspection and
labeling costs, and appraisal fees, if any; (xii) all Collateral has been marked
and labeled by Lender or Lender's agent; and (xiii) Lender has received in form
and substance acceptable to Lender: (a) Borrower's interim financial statements
signed by a financial officer of Borrower, (b) prior to the first funding,
evidence of Borrower's $4,520,000 cash position as of February 28, 1998 which
Lender acknowledges as received; and (c) complete copies of the Borrower's audit
reports for its most recent fiscal year, which shall include at least Borrower's
balance sheet as of the close of such year, and Borrower's statement of income
and retained earnings and of changes in financial position for such year,
prepared on a consolidated basis and certified by independent public
accountants. Such certificate shall not be qualified or limited because of
restricted or limited examination by such accountant of any material portion of
the company's records. Such reports shall be prepared in accordance with
generally accepted accounting principles and practices consistently applied.
(b) The Notes. Each Loan shall be evidenced by a Note which may not be
prepaid in whole or in part. Each Note shall bear interest and be payable at the
times and in the manner provided therein. Following payment of the Indebtedness
related to each Note, Lender shall promptly return such Note, marked "canceled,"
to Borrower.
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i) the
payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender (the "Obligations").
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly qualified during
the term of each Loan in each state where necessary to carry on its present
business and operations, including the jurisdiction(s) where the Collateral will
be located as specified on each
2
<PAGE>
Exhibit A to each Note, except where failure to be so qualified would not have a
Material Adverse Effect; (b) it has full authority to execute and deliver this
Security Agreement and the Notes and perform the terms hereof and thereof, and
this Security Agreement and the Notes have been duly authorized, executed and
delivered and constitute valid and binding obligations of Borrower enforceable
in accordance with their terms except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting the enforcement of creditors' rights generally, and except for
judicial limitations on the enforcement of the remedy of specific enforcement
and other equitable remedies; (c) the execution and delivery of this Security
Agreement and the Notes will not contravene any law, regulation or judgment
affecting Borrower or result in any breach of any material agreement or other
instrument binding on Borrower, which breach would have a Material Adverse
Effect; (d) no consent of Borrower's shareholders or holder of any indebtedness,
or filing with, or approval of, any governmental agency or commission, which has
not already been obtained or performed, as appropriate, is a condition to the
performance of the terms of this Security Agreement or the Notes; (e) there is
no action or proceeding pending or threatened against Borrower before any court
or administrative agency which might have a Material Adverse Effect on the
business, financial condition or operations of Borrower; (f) at the time any
Loan is made hereunder, Borrower owns and will keep all of the Collateral free
and clear of all liens, claims and encumbrances, and, except for this Security
Agreement, there is no deed of trust, mortgage, security agreement or other
third party interest against any of the Collateral other than such interest as
may be contemplated in an intercreditor agreement to which the Lender is a
party; (g) at the time any Loan is made hereunder, Borrower has good and
marketable title to the Collateral; (h) at the time any Loan is made hereunder,
all Collateral has been received, installed and is ready for use and is
satisfactory in all respects for the purposes of this Security Agreement; (i)
the Collateral is, and will remain at all times under applicable law, removable
personal property, which is free and clear of any lien or encumbrance except in
favor of Lender, notwithstanding the manner in which the Collateral may be
attached to any real property other than such lien or encumbrance as may be
contemplated in an intercreditor agreement to which the Lender is a party; (j)
all credit and financial information submitted to Lender herewith or at any
other time is and will at the time given be true and correct in all material
respects; and (k) the security interest granted to Lender hereunder is a first
priority security interest.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be located
at the address (the "Collateral Location") shown on Exhibit A to each Note and
shall not be moved without Lender's prior written consent which location shall
in all events be within the United States. All of the records regarding the
Collateral shall be located at One Alewife Center, Cambridge, MA 02140, or such
other location of which Borrower has given notice to Lender in accordance with
this Security Agreement. Lender shall have the right to inspect Collateral,
including records relating thereto, and Borrower's books and records at any
time, no more than twice per calendar year, except in the event of a Default
hereunder (upon reasonable notification) during regular business hours, such
books and records to be maintained in accordance with generally accepted
accounting principles. Borrower shall be responsible for all labor, material and
freight charges incurred in connection with any removal or relocation of
Collateral which is requested by Borrower and consented to by Lender, as well as
for any charges due to the installation or moving of the Collateral. Payments
under the Notes and under this Security Agreement shall continue during any
period in which the Collateral is in transit during a relocation. During
Borrower's regular business hours and upon at least two days' notice to
Borrower, Lender or its agent shall mark and label Collateral, which labels (to
be provided by Lender) shall state that such Collateral is subject to a security
interest of Lender, and Borrower shall keep such labels on the Collateral as so
labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) General. Borrower will reasonably permit
Lender to inspect each item of Collateral and its maintenance records during
Borrower's regular business hours. Borrower
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will at its sole expense comply with all applicable laws, rules, regulations,
requirements and orders with respect to the use, maintenance, repair, condition,
storage and operation of each item of Collateral the noncompliance with which
would have a Material Adverse Effect. Any addition or improvement that is so
required or cannot be so removed will immediately become Collateral of Lender.
(b) With respect to any Collateral, Borrower will at its sole expense maintain
and service and repair any damage to each item of Collateral in a manner
consistent with prudent industry practice and Borrower's own practice so that
such item of Collateral is at all times (i) in the same condition as when
delivered to Borrower, except for ordinary wear and tear, and (ii) in good
operating order for the function intended by its manufacturer's warranties and
recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." No later than the first payment date following such
Casualty Occurrence, or, if there is no such payment date, no later than thirty
(30) days after such Casualty Occurrence, Borrower shall, at its election,
either: (a) repair the Collateral returning it to good operating condition, or
(b) replace the Collateral with Collateral acceptable to Lender in its
reasonable discretion, in good condition and repair taking all steps required by
Lender to perfect Lender's first priority security interest therein, which
replacement Collateral shall be subject to the terms of this Security Agreement,
or (c) on the first day payment is due on any Note following the Casualty
Occurrence, or if there is no such payment date, thirty (30) days after such
Casualty Occurrence, pay to Lender an amount equal to the Balance Due (as
defined below) for each lost or damaged item of Collateral. The Balance Due for
each such item is the sum of: (i) all amounts for each item which may be then
due or accrued to the payment date, plus (ii) as of such payment date, an amount
equal to the product of the fraction specified below times the sum of all
remaining payments under the respective Note, including the amount of any
mandatory or optional payment required or permitted to be paid by Borrower to
Lender at the maturity of the Note. The numerator of the fraction shall be the
collateral value (as set forth on the applicable Note) of the item and the
denominator shall be the aggregate collateral value of all items under the Note.
Upon the making of such payments, Lender shall release such item of Collateral
from its lien hereunder.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured
against all risks of physical loss for at least the replacement value of the
Collateral (including, in the case of Collateral which is vehicles,
comprehensive and collision coverage) and in no event for less than the amount
payable following a Casualty Occurrence (as provided in Section 9). Such
insurance shall provide for a loss payable endorsement to Lender and/or any
assignee of Lender. Borrower shall maintain commercial general liability
insurance, including products liability and completed operations coverage, with
respect to loss or damage for personal injury, death or property damage in an
amount not less than $2,000,000 in the aggregate, (and in the case of Collateral
which is vehicles, in an amount not less than $1,000,000 covering bodily injury
and property damage in a combined single limit) naming Lender and/or Lender's
assignee as additional insured. Such insurance shall contain insurer's agreement
to give thirty (30) days' advance written notice to Lender before cancellation
or material change of any policy of insurance. Borrower will provide Lender and
any assignee of Lender with a certificate of insurance from the insurer
evidencing Lender's or such assignee's interest in the policy of insurance. Such
insurance shall cover any Casualty Occurrence to any unit of Collateral.
Notwithstanding anything in Section 9 or this Section 10 to the contrary, this
Security Agreement and Borrower's obligations hereunder shall remain in full
force and effect with respect to any unit of Collateral which is not subject to
a Casualty Occurrence. If Borrower fails to provide or maintain insurance as
required herein, Lender shall have the right, but shall not be obligated, to
obtain such insurance. In that event, Borrower shall pay to Lender the cost
thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
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Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; provided, however, Borrower may contest the same in
good faith so long as no payment default by Borrower has occurred and is
continuing; (b) comply with all applicable material governmental laws, rules and
regulations relating to its business and the Collateral where a failure to
comply would have a Material Adverse Effect; (c) take no action to adversely
affect Lender's security interest in the Collateral as a first and prior
perfected security interest; (d) furnish Lender with its annual audited
financial statements within one hundred twenty (120) days following the end of
Borrower's fiscal year, unaudited quarterly financial statements within
forty-five (45) days after the end of each fiscal quarter, and within thirty
(30) days of the end of each month a financial statement for that month prepared
by Borrower, and including an income statement and balance sheet, all of which
shall be certified by an officer of Borrower as true and correct and shall be
prepared in accordance with generally accepted accounting principles
consistently applied, and such other information as Lender may reasonably
request; and (e) promptly (but in no event more than five (5) days after the
occurrence of such event) notify Lender of any change in Borrower's condition
during the commitment period which constitutes a Material Adverse Effect, and of
the occurrence of any Event of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses (including reasonable
attorneys' fees and expenses), imposed upon or incurred by or asserted against
Lender or any assignee of Lender by Borrower or any third party by reason of the
occurrence or existence (or alleged occurrence or existence) of any act or event
relating to or caused by any portion of the Collateral, or its purchase,
acceptance, possession, use, maintenance or transportation, including without
limitation, consequential or special damages of any kind, any failure on the
part of Borrower to perform or comply with any of the terms of this Security
Agreement or any Note, claims for latent or other defects, claims for patent,
trademark or copyright infringement and claims for personal injury, death or
property damage, including those based on Lender's negligence or strict
liability in tort and excluding only those based on Lender's gross negligence or
willful misconduct. In the event that any action, suit or proceeding is brought
against Lender by reason of any such occurrence, Borrower, upon Lender's
request, will, at Borrower's expense, resist and defend such action, suit or
proceeding or cause the same to be resisted and defended by counsel designated
and approved by Lender. Borrower's obligations under this Section 12 shall
survive the payment in full of all the Indebtedness and the performance of all
Obligations with respect to acts or events occurring or alleged to have occurred
prior to the payment in full of all the Indebtedness and the performance of all
Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the Collateral, (b) the exportation, importation,
registration, purchase, ownership, delivery, leasing, financing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (c) the rentals, receipts, or earnings arising
from the Collateral, or any disposition of the rights to such rentals, receipts,
or earnings, (d) any payment pursuant to this Security Agreement or the Notes,
or (e) this Security Agreement, the Notes or any transaction or any part hereof
or thereof
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SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN,
TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT,
ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (b) LEASE OR LEND COLLATERAL
OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES,
CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER
ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY EXCEPT
TO A SUCCESSOR IN INTEREST TO ALL OR SUBSTANTIALLY ALL OF THE BUSINESS OF
BORROWER; PROVIDED, HOWEVER, THAT, THE FINANCIAL CONDITION OF SUCH SUCCESSOR IS
GREATER THAN OR EQUAL TO BORROWER AS DETERMINED IN GOOD FAITH BY LENDER AND THE
SUCCESSOR'S BUSINESS AND ITS MAJOR INVESTORS ARE REASONABLY ACCEPTABLE TO
LENDER. LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS
SECURITY INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE
OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO
BORROWER. If Borrower is given notice of such assignment it agrees to
acknowledge receipt thereof in writing and Borrower shall execute such
additional documentation as Lender's assignee and/or secured party shall
reasonably require at Lender's expense. Each such assignee and/or secured party
shall have all of the rights, but (except as provided in this Section 15) none
of the obligations, of Lender under this Security Agreement, unless such
assignee or secured party expressly agrees to assume such obligations in
writing. Borrower shall not assert against any assignee and/or secured party any
defense, counterclaim or offset that Borrower may have against Lender.
Notwithstanding any such assignment, and providing no Event of Default has
occurred and is continuing, Lender, or its assignees, secured parties, or their
agents or assigns, shall not interfere with Borrower's right to quietly enjoy
use of Collateral subject to the terms and conditions of this Security
Agreement. Subject to the foregoing, the Notes and this Security Agreement shall
inure to the benefit of, and are binding upon, the successors and assignees of
the parties hereto. Borrower acknowledges that any such assignment by Lender
will not change Borrower's duties or obligations under this Security Agreement
and the Notes or increase any burden or risk on Borrower.
SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or
conditions shall constitute an "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
tenth (lOth) day after the same is due; (ii) Borrower's failure to comply after
being provided with notice and a reasonable period in which to cure if cure is
possible with its material obligations under Section 10 or Section 15; (iii) any
representation or warranty of Borrower made in this Security Agreement or the
Notes or in any other agreement, statement or certificate furnished to Lender in
connection with this Security Agreement or the Notes shall prove to have been
incorrect in any material respect when made or given; (iv) Borrower's failure to
comply with or perform any material term, covenant or condition of this Security
Agreement or any Note or under any other agreement between Borrower and Lender
or under any lease or mortgage of real property covering the location of the
Collateral if such failure to comply or perform is not cured by Borrower within
thirty (30) days after Borrower knows of the noncompliance or nonperformance or
notice from Lender or such longer period that Borrower is diligently attempting
to effect such cure; (v) seizure of any of the Collateral under legal process;
(vi) the filing by or against Borrower or any guarantor under any guaranty
executed in connection with this Security Agreement ("Guarantor") of a petition
for reorganization or liquidation under the Bankruptcy Code or any amendment
thereto or under any other insolvency law providing for the relief of debtors;
(vii) the voluntary or involuntary making of an assignment of a substantial
portion of its assets by Borrower or by any Guarantor for
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the benefit of its creditors, the appointment of a receiver or trustee for
Borrower or any Guarantor or for any of Borrower's or Guarantor's assets, the
institution by or against Borrower or any Guarantor of any formal or informal
proceeding for dissolution, liquidation, settlement of claims against or winding
up of the affairs of Borrower or any Guarantor provided that in the case of all
such involuntary proceedings, same are not dismissed within sixty (60) days
after commencement; (viii) the making by Borrower or by any Guarantor of a
transfer of all or a material portion of Borrower's or Guarantor's assets or
inventory not in the ordinary course of business; or (ix) any default or breach
by any Guarantor of any of the terms of its guaranty to Lender in connection
with this Security Agreement.
(b) Remedies. If any Event of Default has occurred, Lender may in its sole
discretion exercise one or more of the following remedies with respect to any or
all of the Collateral: (i) declare due any or all of the aggregate sum of all
remaining payments under the Notes, including the amount of any mandatory or
optional payment required or permitted to be paid by Borrower to Lender at the
maturity of the Notes ("Remaining Payments"); (ii) proceed by appropriate court
action or actions either at law or in equity to enforce Borrower's performance
of the applicable covenants of the Notes and this Security Agreement or to
recover all damages and expenses incurred by Lender by reason of an Event of
Default; (iii) except as provided by law, without court order or prior demand,
enter upon the premises where the Collateral is located and take immediate
possession of and remove it without liability of Lender to Borrower or any other
person or entity; (iv) terminate this Security Agreement and sell the Collateral
at public or private sale, or otherwise dispose of, hold, use or lease any or
all of the Collateral in a commercially reasonable manner; or (v) exercise any
other right or remedy available to it under applicable law. If Lender has
declared due any or all of the Remaining Payments, Borrower will pay immediately
to Lender, without duplication, (A) the Remaining Payments, (B) all amounts
which may be then due or accrued, and (C) all other amounts due under this
Security Agreement and under the Notes (Lender's Return, as referred to below,
means the amounts described in clauses (A), (B) and (C) above). The net proceeds
of any sale or lease of such Collateral will be credited against Lender's
Return. The net proceeds of a sale of the Collateral pursuant to this Section
16(b) is defined as the sales price of the Collateral less selling expenses,
including, without limitation, costs of remarketing the Collateral and all
refurbishing costs and commissions paid with respect to such remarketing. The
net proceeds of a lease of the Collateral pursuant to this Section 16(b) is
defined as the amount equal to the monthly payments due under such lease
(discounted at 6% per annum compounded monthly on the basis of a 360 day year
(the "Discount Rate") plus the residual value of the Collateral at the end of
the basic term of such lease, as reasonably determined by Lender, and discounted
at the Discount Rate.
Borrower agrees to pay all reasonable out-of-pocket costs of Lender incurred in
enforcement of this Security Agreement, the Notes or any instrument or agreement
required under this Security Agreement, including, but not limited to reasonable
attorneys' fees and litigation expenses and fees of collection agencies ("Remedy
Expenses"). At Lender's request, Borrower shall assemble the Collateral and make
it available to Lender at such time and location as Lender may reasonably
designate. Borrower waives any right it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or the
Notes are immediately due and payable and Lender's taking possession of any or
all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
(c) Application of Proceeds. The proceeds of any sale of all or any part of
the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expenses of suit or
foreclosure, if any, and of the
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sale, if any, including, without limitation, refurbishing costs, costs of
remarketing and commissions related to remarketing, all Remedy Expenses, all
expenses, liabilities and advances incurred or made pursuant to this Security
Agreement or any Note by Lender in connection with foreclosure, suit, sale or
enforcement of this Security Agreement or the Notes, and taxes, assessments or
liens superior to Lender's security interest granted by this Security Agreement;
Second, to the payment of all other amounts not described in item
Third below due under this Security Agreement and all Notes;
Third, to pay Lender an amount equal to Lender's Return, to the extent
not previously paid by Borrower; and
Fourth, to the payment of any surplus to Borrower or to whomever may
lawfully be entitled to receive it.
(d) Effect of Delay; Waiver; Foreclosure on Collateral. No delay or
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial, by
Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered as
a result of the Event of Default. The giving, taking or enforcement of any other
or additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies exercised hereunder or thereunder.
Lender shall not be required first to foreclose on the Collateral prior to
bringing an action against Borrower for sums owed to Lender under this Security
Agreement or under any Note.
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 8% of any
payment owed Lender by Borrower which is not paid when due (taking into account
applicable grace periods), for every month such payment is not paid when due,
but in no event an amount greater than the highest rate permitted by applicable
law. If such amounts have not been received by Lender at Lender's place of
business or by Lender's designated agent by the date such amounts are due under
this Security Agreement or the Notes, Lender shall bill Borrower for such
charges. Borrower acknowledges that invoices for amounts due hereunder or under
the Notes are sent by Lender for Borrower's convenience only. Borrower's
non-receipt of an invoice will not relieve Borrower of its obligation to make
payments hereunder or under the Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any material act required hereunder (including, but not limited to,
maintenance of any insurance required by Section 10), then Lender may, but shall
not be required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all reasonable costs and expenses incurred in connection with
the performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower hereby appoints Lender (and each of
Lender's officers, employees or agents designated by Lender) with full power of
substitution by Lender, as Borrower's attorney, with power to execute and
deliver on Borrower's behalf, financing statements and other documents necessary
to perfect and/or give notice of Lender's security interest in any of the
Collateral. Notwithstanding the above, Borrower will, upon Lender's request,
execute all financing statements pursuant to the Uniform Commercial Code and all
such other documents reasonably requested by Lender to perfect Lender's security
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interests hereunder. Borrower authorizes Lender to file financing statements
signed only by Lender (where such authorization is permitted by law) at all
places where Lender deems necessary.
SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of Collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs and
expenses including reasonable attorney's fees and the fees of collection
agencies, incurred by Lender (a) in enforcing any of the terms, conditions or
provisions hereof and related to the exercise of its remedies, and (b) in
connection with any bankruptcy or post-judgment proceeding, whether or not suit
is filed and, in each and every action, suit or proceeding, including any and
all appeals and petitions therefrom.
SECTION 23. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be
made to the Collateral without Lender's prior written consent, which shall not
be given for changes that will affect the reliability and utility of the
Collateral or which cannot be removed without damage to the Collateral, or which
in any way affect the value of the Collateral for purposes of resale or lease.
All attachments and improvements to the Collateral shall be deemed to be
"Collateral" for purposes of the Security Agreement, and a first priority
security interest therein shall immediately vest in Lessor.
SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement will
be marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original of
each Note and it shall be marked "Original," and all other counterparts will be
duplicates. To the extent, if any, that any Notes to this Security Agreement
constitutes chattel paper (or as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction) no security interest in any
Note(s) may be created in any documents other than the "Original."
SECTION 25. COMMITMENT FEE. Borrower has paid to Lender a commitment fee ("Fee")
of $20,000. The Fee shall be applied by Lender first to reimburse Lender for all
out-of-pocket UCC and other search costs, inspections and labeling costs and
appraisal fees, if any, incurred by Lender, and then proportionally to the first
monthly payment for each Note hereunder in the proportion that the Collateral
value for such Note bears to Lender's entire commitment. However, the portion of
the Fee which is not applied to such monthly payments shall be non-refundable
except if Lender defaults in its obligation to fund Loans pursuant to Section 3.
SECTION 26. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service (including overnight service)
and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, Attention: Asset Management and to Borrower at One
Alewife Center, Cambridge, MA 02140, Attention: Steve Cromwell, Controller.
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SECTION 27. MISCELLANEOUS. (a) Borrower shall provide Lender with such corporate
resolutions, financial statements and other documents as Lender shall reasonably
request from time to time. (b) Borrower represents that the Collateral hereunder
is used solely for business purposes. (c) Time is of the essence with respect to
this Security Agreement. (d) Borrower acknowledges that Borrower has read this
Security Agreement and the Notes, understands them and agrees to be bound by
their terms and further agrees that this Security Agreement and the Notes
constitute the entire agreement between Lender and Borrower with respect to the
subject matter hereof and supersede all previous agreements, promises, or.
representations. (e) This Security Agreement and the Notes may not be changed,
altered or modified except by an instrument signed by an officer or authorized
representative of Lender and Borrower. (f) Any failure of Lender to require
strict performance by Borrower or any waiver by Lender of any provision herein
or in a Note shall not be construed as a consent or waiver of any other breach
of the same or any other provision. (g) If any provision of this Security
Agreement or any Note is held invalid, such invalidity shall not affect any
other provisions hereof or thereof. (h) The obligations of Borrower to pay the
Indebtedness and perform the Obligations shall survive the expiration or earlier
termination of this Security Agreement and each Note until all Obligations of
Borrower to Lender have been met and all liabilities of Borrower to Lender and
any assignee have been paid in full. (i) Borrower will notify Lender at least 30
days before changing its name, principal place of business or chief executive
office. (j) Borrower will, at its expense, promptly execute and deliver to
Lender such documents and assurances (including financing statements) and take
such further action as Lender may reasonably request in order to carry out the
intent of this Security Agreement and Lender's rights and remedies.
SECTION 28. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
the Notes shall be deemed to have been negotiated, entered into and performed in
the State of California and it is understood and agreed that the validity of
this Security Agreement and of any of the terms and provisions, of the Security
Agreement and Notes, as well as the rights and duties of Lender and Borrower,
shall be construed pursuant to and in accordance with the laws of the State of
California, without giving effect to conflicts of law principles. It is agreed
that exclusive jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement and each Note shall be in
the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco. BORROWER, TO THE
EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY
ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY
SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 29. ADDITIONAL INTEREST COMPENSATION: (a) General. Borrower shall be
required to choose a final payment or Note extension election ("Additional
Interest Compensation") at the expiration of the first Note's term. Borrower
shall provide written notice of its election to Lender at least 90 days prior to
the end of the term of the first Note. That choice shall be an election of
Borrower's additional interest compensation election for all, but not less than
all, of the Collateral under all Notes under the Security Agreement.
In the event Borrower does not provide 90 days' prior written notice of its
election, Borrower shall be deemed to have elected Election No. 2.
(b) End of Loan Position Elections. As Additional Interest Compensation,
Borrower shall be required to:
Election No. 1: Make a final payment equal to 15% of the Note's original
principal amount.
Election No. 2: Extend the Note's term for an additional 6 months ("Extended
Term") for a monthly rate of 3.155% of the Note's original principal amount. At
the expiration of the Extended Term, provided no Event of
10
<PAGE>
Default has occurred and is continuing, no further payments shall be due under
the Note and all Lender's right, title and interest in the Collateral will
transfer to Borrower.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
PHOENIX LEASING INCORPORATED ALLAIRE CORPORATION
By: /s/ Gregory D. Kilian By: /s/ David A. Gerth
------------------------ -------------------------
Name: Gregory D. Kilian Name (Print): David A. Gerth
------------------------ -----------------
Title: Assistant Vice President Title: Chief Financial Officer
------------------------ ------------------------
HEADQUARTERS LOCATION:
-------------------------------
One Alewife Center
Cambridge, MA 02140
County of Middlesex
EXHIBITS AND SCHEDULES:
-------------------------------
Exhibit A -- Closing Memorandum
11
<PAGE>
EXHIBIT A TO
SENIOR LOAN AND SECURITY AGREEMENT NO. 0161
DATED May 1, 1998
CLOSING MEMORANDUM
------------------
1* Duly executed Senior Loan and Security Agreement.
2. Duly executed Senior Security Promissory Note with A Collateral description
attached.
3. Insurance certificates reflecting coverage required under Section 10 of the
Senior Loan and Security Agreement.
4.* Resolutions of Borrower's board of directors.
5. Real Property Waiver.**
6. UCC-1 Financing Statements with respect to the Collateral.
7. UCC search (Lender will obtain).
8. Certificate of Chief Financial Officer stating that (i) there are no liens,
charges, security interests or other encumbrances that may affect Lender's
right, title and interest in the Collateral and there are no WCC-1
financing statements filed or in the process of being filed against any of
the Collateral, (ii) Borrower is performing according to Borrower's
business plan, (iii) no change which is a Material Adverse Effect has
occurred in the financial condition of Borrower, (iv) no default has
occurred, and (v) the representations and warranties in Section 5 of the
Senior Loan and Security Agreement are true and correct as if made on the
date of the Loan.
9.* Certificate from the Secretary of State of Borrower's state of
incorporation, and from the state in which Borrower's chief executive
office is located, if different, stating the Borrower is in good standing
or is authorized to transact business, as the case may be, dated not more
than thirty days prior to the first Loan (Lender will obtain).
10.* Borrower's Business Plan.
11. Borrower's most recent financial statements.
12. List of proposed Collateral.
13. Purchase documentation verifying Borrower's ownership of equipment.
14. See Section 3 of the Senior Loan and Security Agreement for additional
conditions to closing.
15. Intercreditor Agreement, if applicable.
* First Loan only.
** Required if any Equipment is a fixture, i.e., attached to real property, or
located in certain states.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of Series A Convertible Preferred Stock of
ALLAIRE CORP.
Originally Dated as of December 30, 1996 (the "Effective Date")
Re-Issued as of August 21, 1998
WHEREAS, Allaire Corp., a Minnesota corporation (the "Company") entered
into a Master Lease Agreement dated as of December 30, 1996, Equipment Schedule
No. VL-1 dated as of December 30, 1996, and related Summary Equipment Schedules
(collectively, the "Leases") with Comdisco, Inc., a Delaware corporation (the
"Warrantholder"); and
WHEREAS, in consideration for such Leases, the Company entered into a
Warrant Agreement dated as of December 30, 1996 (the "Original Warrant
Agreement"), whereby the Company granted the Warrantholder the right to
purchase 17,699 shares of its Series A Convertible Preferred Stock; and
WHEREAS, pursuant to and in accordance with the Original Warrant
Agreement, the Warrantholder has transferred to Gregory Stento, effective as of
August 21, 1998, the Warrantholder's rights under the Original Warrant Agreement
with respect to the purchase of 1,970 shares of the Company's Series A
Convertible Preferred Stock (the "Warrant Transfer"); and
WHEREAS, the Company and the Warrantholder acknowledge the Warrant Transfer
and, accordingly, the Company is reissuing, as of August 21, 1998, the Warrant
provided for in the Original Warrant Agreement, and the Company and the
Warrantholder are entering into this Warrant Agreement to reflect the Warrant
Transfer and the Warrantholder's right to purchase 15,729 shares of Series A
Convertible Preferred Stock ("Preferred Stock");
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
-----------------------------------------------
(a) The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, Fifteen Thousand Seven Hundred
Twenty-Nine (15,729) fully paid and non-assessable shares of the Company's
Preferred Stock at a purchase price of $4.52 per share (the "Exercise Price").
The number and Exercise Price of such shares are subject to adjustment as
provided in Section 8 hereof.
(b) Upon mandatory conversion of the Preferred Stock pursuant to the terms
set forth in the Company's Certificate of Incorporation, as amended (the
"Mandatory Conversion"), the Warrantholder shall thereafter be entitled to
receive, upon exercise of the Warrant, the number of shares of Common Stock
<PAGE>
equivalent to that which would have been issuable if the Warrantholder had
exercised the Warrant immediately prior to the Mandatory Conversion. In any
such case, appropriate adjustment (as determined by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
Agreement with respect to the rights and interest of the Warrantholder after
the Mandatory Conversion to the end that the provision of this Warrant
Agreement (including adjustments of the Exercise Price and number of shares of
Common Stock purchasable) shall be applicable to the greatest extent possible.
2. TERM OF THE WARRANT AGREEMENT.
------------------------------
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years from the Effective Date or (ii) five (5) years from the effective
date of the Company's initial public offering, whichever is shorter.
3. EXERCISE OF THE PURCHASE RIGHTS.
--------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form
attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and
executed. Promptly upon receipt of the Notice of Exercise and the payment of
the purchase price in accordance with the terms set forth below, and in no event
later than twenty-one (21) days thereafter, the Company shall issue to the
Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the acknowledgment of exercise in the form attached
hereto as Exhibit II (the "Acknowledgment of Exercise") indicating the number
of shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock.
(i) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value per share shall be the product of (x) the
initial "Price to Public" specified in the final prospectus with respect
to the offering and (y) the number of shares of Common Stock into which
each share of Preferred Stock is convertible at the time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
2
<PAGE>
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the product of (x) the average of the closing prices
over a twenty-one (21) day period ending three days before the day
the current fair market value of the securities is being determined
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the product of (x) the average of the closing bid and
asked prices quoted on the NASDAQ system (or similar system) over the
twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined and
(y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market,
the current fair market value of Preferred Stock shall be the product of
(x) the highest price per share which the Company could obtain from a
willing buyer (not a current employee or director) for shares of Common
Stock sold by the Company, from authorized but unissued shares, as
determined in good faith by its Board of Directors and (y) the number of
shares of Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise, unless the Company shall become
subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the fair market
value of Preferred Stock shall be deemed to be the value received by the
holders of the Company's Preferred Stock on a common equivalent basis
pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number
of shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
----------------------
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law,), or listing on any domestic securities exchange,
before such shares may be issued upon exercise (except to the extent that the
imposition of such requirement is due to inaccuracy, either on the Effective
Date or at the time of exercise, in the Warrantholder's representations and
warranties herein), the Company will, at its expense and as expeditiously as
possible, use its best efforts to cause such shares to be duly registered,
listed or approved for listing on such domestic securities exchange, as the case
may be.
5. NO FRACTIONAL SHARES OR SCRIP.
------------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
-------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
3
<PAGE>
7. WARRANTHOLDER REGISTRY.
-----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
------------------
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of Preferred Stock or other securities of the successor corporation
resulting from such Merger Event, equivalent to that which would have been
issuable if Warrantholder had exercised this Warrant immediately prior to the
Merger Event. In any such case, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant Agreement with respect to the rights and interest
of the Warrantholder after the Merger Event to the end that the provisions of
this Warrant Agreement (including adjustments of the Exercise Price and number
of shares of Preferred Stock purchasable) shall be applicable to the greatest
extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total
cost of equipment leased pursuant to the Leases exceeds $1,000,000,
Warrantholder shall have the right to purchase from the Company, at the Exercise
Price (adjusted as set forth herein), an additional number of shares, which
number
4
<PAGE>
shall be determined by (i) multiplying the amount by which the
Warrantholder's total equipment cost exceeds $1,000,000 by 8%, and (ii) dividing
the product thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Article of Incorporation and Statement of Designation for the Preferred Stock,
as the same may be amended from time to time, a true and complete copy of which
is attached hereto as Exhibit _ (the "Charter"). The Company shall promptly
provide the Warrantholder with any restatement, amendment, modification or
waiver of the Charter. The Company shall provide Warrantholder with prior
written notice of any issuance of its stock or other equity security to occur
after the Effective Date of this Warrant, which notice shall include (a) the
price at which such stock or security is to be sold, (b) the number of shares to
be issued, and (c) such other information as necessary for Warrantholder to
determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
---------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever, provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
5
<PAGE>
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws.
(e) Insurance. The Company has in full force and effect insurance policies,
with extended coverage, insuring the Company and its property and business
against such losses and risks, and in such amounts, as are customary for
corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(g) Compliance with Rule 144. At the written request of the Warrantholder,
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
---------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
6
<PAGE>
(c) Disposition Warrantholder's Rights. In no event will the Warrantholder
make a disposition of any of its rights to acquire Preferred Stock or Preferred
Stock issuable upon exercise of such rights unless and until (i) it shall have
notified the Company of the proposed disposition, and (ii) if requested by the
Company, it shall have furnished the Company with an opinion of counsel (which
counsel may either be inside or outside counsel to the Warrantholder)
satisfactory to the Company and its counsel to the effect that (A) appropriate
action necessary for compliance with the 1933 Act has been taken, or (B) an
exemption from the registration requirements of the 1933 Act is available.
Notwithstanding the foregoing, the restrictions imposed upon the transferability
of any of its rights to acquire Preferred Stock or Preferred Stock issuable on
the exercise of such rights do not apply to transfers from the beneficial owner
of any of its aforementioned securities to its nominee or from such nominee to
its beneficial owner, and shall terminate as to any particular share of
Preferred Stock when (1) such security shall have been effectively registered
under the 1933 Act and sold by the holder thereof in accordance with such
registration or (2) such security shall have been sold without registration in
compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment. and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration, The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. REGISTRATION RIGHTS AGREEMENT.
------------------------------
The Warrantholder shall be entitled to the registration rights afforded to,
and be subject to the obligations of, other holders of the Series A Convertible
Preferred Stock pursuant to that certain Registration Rights Agreement dated
June 18, 1996, a copy of which has been provided to the Warrantholder. As soon
as practicable following the execution of this Agreement, such Registration
Rights Agreement shall be amended to add the Warrantholder as a party.
12. TRANSFERS.
----------
Subject to the terms and conditions contained in Section 10 hereof and the
restrictive legend first set forth above, this Warrant Agreement and all rights
hereunder are transferable in whole or in part by the Warrantholder and any
successor transferee, provided, however, in no event shall the number of
transfers of the rights and interests in all of the Warrants exceed three (3)
transfers. The transfer shall be recorded on the books of the Company upon
receipt by the Company of a notice of transfer in the form attached hereto as
7
<PAGE>
Exhibit III (the "transfer Notice"), at its principal offices and the payment to
the Company of all transfer taxes and other governmental charges imposed on such
transfer.
13. MISCELLANEOUS.
--------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Group, cc: Legal Department, attention: General Counsel, (and/or, if by
facsimile, (847) 518-5465 and (847) 518-5088) and (ii) to the Company at One
Alewife Center, Third Floor, Cambridge, Massachusetts 02140, attention: Joe
Baker (and/or if by facsimile, (617) 761-2001) or at such other address as any
such party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties. covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by a
written instrument signed by the Company and by the Warrantholder.
8
<PAGE>
(k) Additional Documents. The Company, upon execution of this
Warrant Agreement, shall provide the Warrantholder with certified resolutions
with respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents
as the Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: ALLAIRE CORP.
By: /s/ David Gerth
-------------------------------
Title: Chief Financial Officer
------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ John J. Vosecly
------------------------------
Title: Executive Vice President & CFO
-------------------------------
9
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To: ________________________________
(1) The undersigned Warrantholder hereby elects to purchase __________________
shares of the Series A Convertible Preferred Stock of Allaire Corp.,
pursuant to the terms of the Warrant Agreement dated the 21st day of
August, 1998 (the "Warrant Agreement") between Allaire Corp. and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series A Convertible Preferred
Stock of Allaire Corp., the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series A Convertible Preferred Stock in the name of the undersigned or in
such other name as is specified below.
___________________________________
(Name)
___________________________________
(Address)
Warrantholder: COMDISCO, INC.
By: _______________________________
Title:_____________________________
Date: _____________________________
10
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned _________________________, hereby acknowledge receipt of
the "Notice of Exercise" from Comdisco, Inc., to purchase _____ shares of the
Series A Convertible Preferred Stock of Allaire Corp., pursuant to the terms of
the Warrant Agreement, and further acknowledges that ______________ shares
remain subject to purchase under the terms of the Warrant Agreement.
Company:
By:__________________________
Title:_______________________
Date: _______________________
11
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
______________________________________________________________________________
(Please Print)
whose address is______________________________________________________________
______________________________________________________________________________
Dated _______________________________________
Holder's Signature ___________________________
Holder's Address______________________________
______________________________________________
Signature Guaranteed: ______________________________________________________
NOTE: The signature to this Transfer Notice must correspond with the name
as it appears on the face of the Warrant Agreement, without alteration
or enlargement or any change whatever. Officers of corporations and
those acting in a fiduciary or other representative capacity should
file proper evidence of authority to assign the foregoing Warrant
Agreement.
12
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL)
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS.
WARRANT AGREEMENT
To Purchase Shares of Series A Convertible Preferred Stock of
ALLAIRE CORP.
Originally Dated as of December 30, 1996 (the "Effective Date")
Re-Issued as of August 21, 1998
WHEREAS, Allaire Corp., a Minnesota corporation (the "Company'),
entered into a Warrant Agreement dated as of December 30, 1996 (the "Original
Warrant Agreement") with Comdisco, Inc. (the "Original Warrantholder"), whereby
the Company granted the Original Warrantholder the right to purchase 17,699
shares of the Company's Series A Convertible Preferred Stock; and
WHEREAS, pursuant to and in accordance with the Original Warrant
Agreement, the Original Warrantholder has transferred to Gregory Stento (the
"Warrantholder"), effective as of August 21, 1998, the Original Warrantholder's
rights under the Original Warrant Agreement with respect to the purchase of
1,970 shares of the Company's Series A Convertible Preferred Stock (the "Warrant
Transfer"); and
WHEREAS, the Company and the Warrantholder acknowledge the Warrant
Transfer and, accordingly, are entering into this Warrant Agreement to reflect
the Warrant Transfer and the Warrantholder's right to purchase 1,970 shares of
its Series A Convertible Preferred Stock ("Preferred Stock");
NOW, THEREFORE, in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
-----------------------------------------------
(a) The Company hereby grants to the Warrantholder, and the
Warrantholder is entitled, upon the terms and subject to the conditions
hereinafter set forth, to subscribe to and purchase, from the Company One
Thousand Nine Hundred Seventy (1,970) fully paid and non-assessable shares of
the Company's Preferred Stock at a purchase price of $4.52 per share (the
"Exercise Price"). The number and Exercise Price of such shares are subject to
adjustment as provided in Section 8 hereof.
(b) Upon mandatory conversion of the Preferred Stock pursuant to the
terms set forth in the Company's Certificate of Incorporation, as amended (the
"Mandatory Conversion"), the Warrantholder shall thereafter be entitled to
receive, upon exercise of the Warrant, the number of shares of Common Stock
equivalent to that which would have been issuable if the Warrantholder had
exercised the Warrant immediately prior to the Mandatory Conversion. In any such
case, appropriate adjustment (as determined by the Company's Board of Directors)
shall be made in the application of the provisions of this Warrant Agreement
with respect to the rights and interest of the Warrantholder after the Mandatory
Conversion to the end that the provision of this Warrant Agreement (including
adjustments of the Exercise Price and number of shares of Common Stock
purchasable) shall be applicable to the greatest extent possible.
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<PAGE>
2. TERM OF THE WARRANT AGREEMENT.
------------------------------
Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years from the Effective Date or (ii) five (5) years from the effective
date of the Company's initial public offering, whichever is shorter.
3. EXERCISE OF THE PURCHASE RIGHTS.
---------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise"), duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the acknowledgment of exercise in the form attached hereto as Exhibit II
(the "Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Preferred Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of
Preferred Stock shall mean with respect to each share of Preferred Stock:
(i) if the exercise is in connection with an initial pubic offering of
the Company's Common Stock, and if the Company's Registration
Statement relating to such public offering has been declared effective
by the SEC, then the fair market value per share shall be the product
of (x) the initial "Price to Public" specified in the final prospectus
with respect to the offering and (y) the number of shares of Common
Stock into which each share of Preferred Stock is convertible at the
time of such exercise;
(ii) if this Warrant is exercised after, and not in connection with
the Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the product of (x) the average of the
closing prices over a twenty-one (21) day period ending three
days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise; or
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<PAGE>
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the product of (x) the average of the
closing bid and asked prices quoted on the NASDAQ system (or
similar system) over the twenty-one (21) day period ending three
days before the day the current fair market value of the
securities is being determined and (y) the number of shares of
Common Stock into which each share of Preferred Stock is
convertible at the time of such exercise;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter
market, the current fair market value of Preferred Stock shall be the
product of (x) the highest price per share which the Company could
obtain from a willing buyer (not a current employee or director) for
shares of Common Stock sold by the Company, from authorized but
unissued shares, as determined in good faith by its Board of Directors
and (y) the number of shares of Common Stock into which each share of
Preferred Stock is convertible at the time of such exercise, unless
the Company shall become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Preferred Stock shall be
deemed to be the value received by the holders of the Company's
Preferred Stock on a common equivalent basis pursuant to such merger
or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
----------------------
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law), or listing on any
domestic securities exchange, before such shares may be issued upon exercise
(except to the extent that the imposition of such requirement is due to
inaccuracy, either on the Effective Date or at the time of exercise, in the
Warrantholder's representations and warranties herein), the Company will, at its
expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
------------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
-------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
-----------------------
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
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<PAGE>
8. ADJUSTMENT RIGHTS.
-------------------
The purchase price per share and the number of shares of Preferred
Stock purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be a capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or the sale
of all or substantially all of the Company's properties and assets to any other
person (hereinafter referred to as a "Merger Event"), then, as a part of such
Merger Event, lawful provision shall be made so that the Warrantholder shall
thereafter be entitled to receive, upon exercise of the Warrant, the number of
shares of Preferred Stock or other securities of the successor corporation
resulting from such Merger Event, equivalent to that which would have been
issuable if Warrantholder had exercised this Warrant immediately prior to the
Merger Event. In any such case, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant Agreement with respect to the rights and interest
of the Warrantholder after the Merger Event to the end that the provisions of
this Warrant Agreement (including adjustments of the Exercise Price and number
of shares of Preferred Stock purchasable) shall be applicable to the greatest
extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Article of Incorporation and Statement of Designation for the Preferred Stock,
as the same may be amended from time to time, a true and complete copy of which
is attached hereto as Exhibit _ (the "Charter"). The Company shall promptly
provide the Warrantholder with any restatement, amendment, modification or
waiver of the Charter. The Company shall provide Warrantholder with prior
written notice of any issuance of its stock or other equity security to occur
after the Effective Date of this Warrant, which notice shall include (a) the
price at which such stock or security is to be sold, (b) the number of shares to
be issued, and (c) such other information as necessary for Warrantholder to
determine if a dilutive event has occurred.
-4-
<PAGE>
(f) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; (iv) there shall be an initial public offering; or (v) there shall be any
voluntary dissolution, liquidation or winding up of the Company; then, in
connection with each such event, the Company shall send to the Warrantholder:
(A) at least twenty (20) days' prior written notice of the date on which the
books of the Company shall close or a record shall be taken for such dividend,
distribution, subscription rights (specifying the date on which the holders of
Preferred Stock shall be entitled thereto) or for determining rights to vote in
respect of such Merger Event, dissolution, liquidation or winding up; (B) in the
case of any such Merger Event, dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date when the same shall take
place (and specifying the date on which the holders of Preferred Stock shall be
entitled to exchange their Preferred Stock for securities or other property
deliverable upon such Merger Event, dissolution, liquidation or winding up); and
(C) in the case of a public offering, the Company shall give the Warrantholder
at least twenty (20) days' written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i)
the event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (f) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
---------------------------------------------------------
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever, provided, however, that
the Preferred Stock issuable pursuant to this Warrant Agreement may be subject
to restrictions on transfer under state and/or Federal securities laws. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended. The issuance of certificates for
shares of Preferred Stock upon exercise of the Warrant Agreement shall be made
without charge to the Warrantholder for any issuance tax in respect thereof, or
other cost incurred by the Company in connection with such exercise and the
related issuance of shares of Preferred Stock. The Company shall not be required
to pay any tax which may be payable in respect of any transfer involved and the
issuance and delivery of any certificate in a name other than that of the
Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and this Warrant Agreement is not
inconsistent with the Company's Charter or Bylaws, does not contravene any law
or governmental rule, regulation or order applicable to it, does not and will
not contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and this Warrant Agreement constitutes a legal, valid and binding
agreement of the Company, enforceable in accordance with its terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this
-5-
<PAGE>
Warrant Agreement, except for the filing of notices pursuant to Regulation D
under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the applicable state
securities laws.
(g) Compliance with Rule 144. At the written request of the
Warrantholder, who proposes to sell Preferred Stock issuable upon the exercise
of the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
---------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to
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<PAGE>
the Warrantholder at its request by the staff of the Securities and Exchange
Commission or a ruling shall have been issued to the Warrantholder at its
request by such Commission stating that no action shall be recommended by such
staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Preferred Stock pursuant to this Warrant Agreement, or (ii)
the Preferred Stock issuable upon exercise of the right to purchase, it may be
required to hold such securities for an indefinite period. The Warrantholder
also understands that any sale of its rights of the Warrantholder to purchase
Preferred Stock or Preferred Stock which might be made by it in reliance upon
Rule 144 under the 1933 Act may be made only in accordance with the terms and
conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor"
within the meaning of the Securities and Exchange Rule 501 of Regulation D, as
presently in effect.
11. REGISTRATION RIGHTS AGREEMENT.
------------------------------
The Warrantholder shall be entitled to the registration rights afforded
to, and be subject to the obligations of, other holders of the Series A
Convertible Preferred Stock pursuant to that certain Registration Rights
Agreement dated June 18, 1996, a copy of which has been provided to the
Warrantholder. As soon as practicable following the execution of this Agreement,
such Registration Rights Agreement shall be amended to add the Warrantholder as
a party.
12. TRANSFERS.
----------
Subject to the terms and conditions contained in Section 10 hereof and
the restrictive legend first set forth above, this Warrant Agreement and all
rights hereunder are transferable in whole or in part by the Warrantholder and
any successor transferee, provided, however, in no event shall the number of
transfers of the rights and interests in all of the Warrants exceed three (3)
transfers. The transfer shall be recorded on the books of the Company upon
receipt by the Company of a notice of transfer in the form attached hereto as
Exhibit III (the "Transfer Notice"), at its principal offices and the payment to
the Company of all transfer taxes and other governmental charges imposed on such
transfer.
13. MISCELLANEOUS.
--------------
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
-7-
<PAGE>
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant 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.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 49 Tanglewood Road, Wellesley MA 02481, attention: Gregory Stento and (ii) to
the Company at One Alewife Center, Third Floor, Cambridge, Massachusetts 02140,
attention: Joe Baker (and/or if by facsimile, (617) 761-2001) or at such other
address as any such party may subsequently designate by written notice to the
other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of
this Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
-8-
<PAGE>
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. The Company shall
also supply such other documents as the Warrantholder may from time to time
reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Company: ALLAIRE CORP.
By: /s/ David Gerth
--------------------------------
Title: Chief Financial Officer
--------------------------------
Warrantholder: GREGORY STENTO
By: /s/ Gregory Stento
--------------------------------
Title:
--------------------------------
-9-
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
To:
--------------------------------
(1) The undersigned Warrantholder hereby elects to purchase ____ shares of the
Series A Convertible Preferred Stock of Allaire Corp., pursuant to the
terms of the Warrant Agreement dated the 21st day of August, 1998 (the
"Warrant Agreement") between Allaire Corp. and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Series A Convertible Preferred
Stock of Allaire Corp., the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Series A Convertible Preferred Stock in the name of the undersigned or in
such other name as is specified below.
- ------------------------------
(Name)
- ------------------------------
(Address)
Warrantholder: GREGORY STENTO
By:
---------------------------
Title:
------------------------
Date:
-------------------------
-10-
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned _____________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Gregory Stento, to purchase ___ shares
of the Series A Convertible Preferred Stock of Allaire Corp., pursuant to the
terms of the Warrant Agreement, and further acknowledges that _____ shares
remain subject to purchase under the terms of the Warrant Agreement.
Company:
By:
----------------------------------
Title:
------------------------------
Date:
------------------------------
-11-
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this
form and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- -------------------------------------------------------------------------
(Please Print)
whose address is
---------------------------------------------------------
- -------------------------------------------------------------------------
Dated
--------------------------------------------
Holder's Signature
-------------------------------
Holder's Address
----------------------------------
--------------------------------------------------
Signature Guaranteed:
--------------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with
the name as it appears on the face of the Warrant Agreement,
without alteration or enlargement or any change whatever.
Officers of corporations and those acting in a fiduciary or
other representative capacity should file proper evidence of
authority to assign the foregoing Warrant Agreement.
-12-
WARRANT
To Subscribe for and Purchase Common Stock of
ALLAIRE CORP.
THIS CERTIFIES THAT, for value received, Polaris Venture Partners, L.P.
(herein called Purchaser) or registered assigns is entitled to subscribe for
and purchase from Allaire Corp. (herein called the Company), a corporation
organized and existing under the laws of the State of Minnesota, at the price
specified below (subject to adjustment as noted below) at any time from and
after the Second Closing Date (as hereinafter defined) to and including March 7,
2002 or, if no Second Closing Date shall have occurred by March 7, 1998, at any
time from and after March 7, 1998, the number of fully paid and nonassessable
shares of the Company's Common Stock specified below (subject to adjustment as
noted below). This Warrant has been issued in connection with the purchase from
the Company by Purchaser of a 10% Convertible Subordinated Note due March 7,
1999 of the Company (the Bridge Note) in the principal amount of $238,412 (the
Principal Amount).
The number of shares of Common Stock which are purchasable under this
Warrant (subject to adjustment as noted below) shall be equal to 10% of the
quotient obtained by dividing (1) the Principal Amount by (2) the initial
warrant purchase price (as defined below).
The initial warrant purchase price (subject to further adjustment as
noted below) shall be equal to the price per share received by the Company upon
the closing of the first sale by the Company for cash of Second Round Preferred
Stock following the issuance of the Bridge Note (such closing hereinafter
referred to as the Second Round Closing ), in which the net proceeds to the
Company are in excess of $1,000,000; provided, however, that if no Second Round
Closing shall have occurred by March 7, 1998, the initial warrant purchase price
shall be $6.00. As used herein, Second Round Preferred Stock shall have the
meaning given to such term in the form of Bridge Note.
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise, in the form
attached hereto, delivered to the Company prior to the intended date of exercise
and by the surrender of this Warrant (properly endorsed if required) at the
principal office of the Company and upon payment to it by check of the purchase
price for such shares in lawful money of the United States. The Company agrees
that the shares so purchased shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. Subject to the provisions of the next succeeding paragraph,
certificates for the shares of stock so purchased shall be delivered to the
holder hereof within a reasonable time, not exceeding 10 days, after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the number of shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof and the restrictive legend under the heading
Restriction on Transfer below.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance,
be duly authorized and issued, fully paid and nonassessable. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized,
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares of
its Common Stock to provide for the exercise of the rights represented by this
Warrant.
<PAGE>
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the Price
Determination Date, be subject to adjustment from time to time as hereinafter
provided. The warrant purchase price shall, in addition, from and after the date
of the Second Round Closing, be subject to such additional protective
adjustments as may be set forth in the description of rights and preferences
applicable to the Second Round Preferred Stock contained in the Company's
charter documents. Upon each adjustment of the warrant purchase price, the
holder of this Warrant shall thereafter be entitled to purchase, at the warrant
purchase price resulting from such adjustment, the number of shares obtained by
multiplying the warrant purchase price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment and dividing the product thereof by the warrant purchase
price resulting from such adjustment. For purposes of this Warrant, the term
Price Determination Date shall mean the date of the Second Round Closing, or, if
no Second Round closing shall have occurred prior to March 7, 1998, the term
Price Determination Date shall mean the date of the issuance of this Warrant.
(b) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(c) below) or any obligations or any shares of stock of the Company which are
convertible into or exchangeable for Common Stock (any of such obligations or
shares of stock being hereinafter called Convertible Securities ), or in any
rights or options to purchase Common Stock or Convertible Securities, or (ii)
declare any other dividend or make any other distribution upon the Common Stock
payable otherwise than out of earnings or earned surplus, then thereafter the
holder of this Warrant upon the exercise hereof will be entitled to receive the
number of shares of Common Stock to which such holder shall be entitled upon
such exercise, and, in addition and without further payment therefor, each
dividend described in clause (i) above and each dividend or distribution
described in clause (ii) above which such holder would have received by way of
dividends or distributions if continuously since the Price Determination Date
such holder (x) had been the record holder of the number of shares of Common
Stock then received, and (y) had retained all dividends or distributions in
stock or securities (including Common Stock or Convertible Securities, and any
rights or options to purchase any Common Stock or Convertible Securities)
payable in respect of such Common Stock or in respect of any stock or securities
paid as dividends or distributions and originating directly or indirectly from
such Common Stock. For the purposes of the foregoing, a dividend or distribution
other than in cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend or distribution as determined by the
Board of Directors of the Company.
(c) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(d) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or sale of all or substantially all of its assets to another
corporation (any such reorganization, reclassification, consolidation, merger or
sale being hereinafter called an Event ) shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, unless lawful and
adequate provision shall have been made whereby the holder hereof shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock of the Company equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had the Event not
taken place, the Board of Directors of the Company shall declare, at least
twenty days prior to the actual effective date of the Event, and provide written
notice to the holder hereof of the declaration, that this Warrant shall be
canceled at the
<PAGE>
time of, or immediately prior to the occurrence of, the Event (unless it shall
have been exercised prior to the occurrence of the Event) in exchange for
payment to the holder hereof, within twenty days after the Event, of cash equal
to the amount (if any), for each share of Common Stock issuable upon exercise of
this Warrant, by which the Event Proceeds per share of Common Stock (as
hereinafter defined) exceeds the purchase price per share of Common Stock under
this Warrant. In the event of a declaration pursuant to this paragraph (d), this
Warrant, if not exercised prior to the Event, shall be canceled at the time of,
or immediately prior to, the Event, as provided in the declaration, subject to
the payment obligations of the Company provided in this paragraph (d). For
purposes of this paragraph (d), if the Event shall occur prior to both the date
of Second Round Closing and March 7, 1998, then the Price Determination Date
shall be deemed to be March 7, 1997, and the initial warrant purchase price
shall be deemed to be $6.00 per share. Also for purposes of this paragraph (d),
Event Proceeds per share of Common Stock shall mean the cash plus the fair
market value, as determined in good faith by the Board of Directors of the
Company, of the non-cash consideration to be received per share of Common Stock
by the shareholders of the Company upon the occurrence of the Event. If
provision shall be made, pursuant to this paragraph (d), for the right of the
holder hereof to purchase and receive stock, securities or assets of any
successor corporation (other than the Company) upon the occurrence of any Event,
then such successor corporation shall assume, by written instrument executed and
mailed to the registered holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase.
(e) Upon any adjustment of the warrant purchase price, then and in each
such case the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(f) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in accordance
with the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, as necessary or
appropriate to protect such holder's rights, subject to such holder's consent.
(g) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon such
exercise) in respect of such fraction.
5. As used herein, the term Common Stock shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to this Warrant shall include
shares designated as Common Stock of the Company on the date of original issue
of this Warrant or, in the case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in paragraph 4(d)
above.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
7.
(a) The holder of this Warrant acknowledges that neither this
Warrant nor any of the shares of Common Stock issuable upon exercise hereof have
been registered under the Securities Act of 1933, as amended (the Act ), or any
state securities laws and that this Warrant or such shares of Common Stock may
only be transferred in accordance with this Paragraph 7. The holder of this
Warrant, by acceptance hereof, represents that it has acquired this Warrant for
investment and not with a view to distribution of this Warrant or the shares of
Common Stock issuable upon exercise hereof within the meaning of the Act and the
rules and regulations thereunder.
<PAGE>
(b) The holder of this Warrant, by acceptance hereof, agrees
to give written notice to the Company before exercising or transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock
issuable or issued upon the exercise hereof, of such holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Such
holder shall also provide the Company with an opinion of counsel satisfactory to
the Company to the effect that the proposed exercise or transfer of this Warrant
or transfer of shares may be effected without registration or qualification
under the Act and any applicable state securities laws of this Warrant and the
shares of Common Stock issuable or issued upon the exercise hereof. Upon receipt
of such written notice and opinion by the Company, such holder shall be entitled
to exercise this Warrant in accordance with its terms, or to transfer this
Warrant, or to transfer shares of Common Stock issuable or issued upon the
exercise of this Warrant, all in accordance with the terms of the notice
delivered by such holder to the Company, provided that an appropriate legend
respecting the aforesaid restrictions on transfer may be endorsed on this
Warrant or the certificates for such shares. In the event of a proposed transfer
of this Warrant, prior to the transfer the proposed transferee shall execute and
deliver to the Company a warrant transfer letter in the form attached hereto.
8. Subject to the provisions of paragraph 7 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, at the principal
office of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant properly endorsed. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees that
the bearer of this Warrant, when endorsed, may be treated by the Company and all
other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding; but until such transfer on such books, the Company
may treat the registered holder hereof as the owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of like
tenor representing in the aggregate the right to subscribe for and purchase the
number of shares which may be subscribed for and purchased hereunder, each of
such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
10. The holder of this Warrant shall have rights to have the shares of
Common Stock purchased upon exercise included on registration statements filed
by the Company under the Act and shall be subject to limitations to have such
shares so included and shall be obligated to provide the Company with
indemnification with regards to such registration, all as set forth in that
certain Registration Rights Agreement dated as of June 18 1996 by and among the
Company and (among others) the initial holder of this Warrant. As used herein,
Initial Public Offering shall mean the first public offering by the Corporation
of shares of Common Stock registered under the Act, giving rise to registration
rights under Section 4 of such Registration Rights Agreement.
11. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the Commonwealth
of Massachusetts.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer and this Warrant to be dated as of March 7, 1997.
ALLAIRE CORP.
By: /s/ David J. Orfao
------------------
Its: -------------
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i) the
opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Federal Securities Act of 1933 and
all applicable state securities laws or (ii) such registration.
<PAGE>
ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ____________________________________________________________________ this
Warrant, and appoints ____________________________________________________ to
transfer this Warrant on the books of Allaire Corp. with the full power of
substitution in the premises.
Dated: ___________________________________
In the presence of: ___________________________________
___________________________________
(Signature must conform in all respects to the name of the holder as specified
on the face of this Warrant without any alteration or change whatsoever, and the
signature must be guaranteed in the usual manner)
<PAGE>
FORM OF WARRANT TRANSFER LETTER
To: Allaire Corp.
Ladies and Gentlemen:
The undersigned is a proposed transferee of the warrant (the Warrant )
to purchase ____________________ shares of Common Stock ( Common Stock ), of
Allaire Corp., a Minnesota corporation (the Company ), currently registered in
the name of ____________________. In order to induce the Company to consent to
the transfer of the Warrant, the undersigned hereby represents, warrants and
agrees as follows:
1. The undersigned acknowledges that neither the Warrant nor any of the
shares of Common Stock issuable upon exercise thereof have been registered under
the Securities Act of 1933, as amended (the Act ), or any state securities laws
and that, accordingly, the Warrant and such shares of Common Stock may only be
transferred in accordance with the terms of paragraph 7 of the Warrant.
2. The undersigned is acquiring the Warrant for investment and not with
a view to distribution of the Warrant or the shares of Common Stock issuable
upon exercise thereof within the meaning of the Act and the rules and
regulations thereunder.
3. The undersigned is an accredited investor as defined in Rule 501(a)
of Regulation D promulgated under the Act.
Signature ____________________________________
Address ______________________________________
Date _________________________________________
<PAGE>
FORM OF EXERCISE NOTICE
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: Allaire Corp. (the Company)
The undersigned ___________________________________________
Please insert Social Security or other
identifying number of Subscriber:
______________________________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ______________________ shares of the
Common Stock provided for therein and tenders payment herewith to the order of
the Company in the amount of $______________________, such payment being made as
provided on the face of this Warrant.
In order to induce the Company to consent to the exercise of this
Warrant, the undersigned hereby represents, warrants and agrees as follows:
1.The undersigned acknowledges that neither this Warrant nor any of the
shares of Common Stock issuable upon exercise hereof have been registered under
the Securities Act of 1933, as amended (the Act), or any state securities laws
and that, accordingly, this Warrant may be exercised and the shares of Common
Stock issued pursuant to this exercise may only be transferred in accordance
with the terms of paragraph 7 of this Warrant.
2.The undersigned is acquiring the shares of Common Stock issued
pursuant to this exercise for investment and not with a view to distribution of
such shares within the meaning of the Act and the rules and regulations
thereunder.
3.The undersigned is an accredited investor as defined in Rule 501(a)
of Regulation D promulgated under the Act.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: _______________________________________________________________________
Address: ___________________________________________________________________
Deliver to: _________________________________________________________________
Address: ____________________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated below.
Address: _____________________________________________________________________
Signature ____________________________________
(Signature must conform in all respects to the name of the holder as written
specified on the face of this Warrant without any alteration or change
whatsoever)
Dated: ____________________
WARRANT
To Subscribe for and Purchase Common Stock of
ALLAIRE CORP.
THIS CERTIFIES THAT, for value received, Polaris Venture Partners
Founders Fund, L.P. (herein called "Purchaser") or registered assigns is
entitled to subscribe for and purchase from Allaire Corp. (herein called the
"Company"), a corporation organized and existing under the laws of the State of
Minnesota, at the price specified below (subject to adjustment as noted below)
at any time from and after the Second Closing Date (as hereinafter defined) to
and including March 7, 2002 or, if no Second Closing Date shall have occurred by
March 7, 1998, at any time from and after March 7, 1998, the number of fully
paid and nonassessable shares of the Company's Common Stock specified below
(subject to adjustment as noted below). This Warrant has been issued in
connection with the purchase from the Company by Purchaser of a 10% Convertible
Subordinated Note due March 7, 1999 of the Company (the "Bridge Note") in the
principal amount of $13,588 (the "Principal Amount").
The number of shares of Common Stock which are purchasable under this
Warrant (subject to adjustment as noted below) shall be equal to 10% of the
quotient obtained by dividing (1) the Principal Amount by (2) the initial
warrant purchase price (as defined below).
The initial warrant purchase price (subject to further adjustment as
noted below) shall be equal to the price per share received by the Company upon
the closing of the first sale by the Company for cash of Second Round Preferred
Stock following the issuance of the Bridge Note (such closing hereinafter
referred to as the "Second Round Closing"), in which the net proceeds to the
Company are in excess of $1,000,000; provided, however, that if no Second Round
Closing shall have occurred by March 7, 1998, the initial warrant purchase price
shall be $6.00. As used herein, "Second Round Preferred Stock" shall have the
meaning given to such term in the form of Bridge Note.
This Warrant is subject to the following provisions, terms and
conditions:
1. The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, by written notice of exercise, in the form
attached hereto, delivered to the Company prior to the intended date of exercise
and by the surrender of this Warrant (properly endorsed if required) at the
principal office of the Company and upon payment to it by check of the purchase
price for such shares in lawful money of the United States. The Company agrees
that the shares so purchased shall be and are deemed to be issued to the holder
hereof as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. Subject to the provisions of the next succeeding paragraph,
certificates for the shares of stock so purchased shall be delivered to the
holder hereof within a reasonable time, not exceeding 10 days, after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the number of shares, if any,
with respect to which this Warrant shall not then have been exercised shall also
be delivered to the holder hereof within such time.
2. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof and the restrictive legend under the heading
"Restriction on Transfer" below.
3. The Company covenants and agrees that all shares which may be issued
upon the exercise of the rights represented by this Warrant will, upon issuance,
be duly authorized and issued, fully paid and nonassessable. The Company further
covenants and agrees that during the period within which the rights
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<PAGE>
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon exercise of
the subscription rights evidenced by this Warrant, a sufficient number of shares
of its Common Stock to provide for the exercise of the rights represented by
this Warrant.
4. The above provisions are, however, subject to the following:
(a) The warrant purchase price shall, from and after the Price
Determination Date, be subject to adjustment from time to time as hereinafter
provided. The warrant purchase price shall, in addition, from and after the date
of the Second Round Closing, be subject to such additional protective
adjustments as may be set forth in the description of rights and preferences
applicable to the Second Round Preferred Stock contained in the Company's
charter documents. Upon each adjustment of the warrant purchase price, the
holder of this Warrant shall thereafter be entitled to purchase, at the warrant
purchase price resulting from such adjustment, the number of shares obtained by
multiplying the warrant purchase price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto immediately prior
to such adjustment and dividing the product thereof by the warrant purchase
price resulting from such adjustment. For purposes of this Warrant, the term
"Price Determination Date" shall mean the date of the Second Round Closing, or,
if no Second Round closing shall have occurred prior to March 7, 1998, the term
"Price Determination Date" shall mean the date of the issuance of this Warrant.
(b) In case the Company shall (i) declare a dividend upon the Common
Stock payable in Common Stock (other than a dividend declared to effect a
subdivision of the outstanding shares of Common Stock, as described in paragraph
(c) below) or any obligations or any shares of stock of the Company which are
convertible into or exchangeable for Common Stock (any of such obligations or
shares of stock being hereinafter called "Convertible Securities"), or in any
rights or options to purchase Common Stock or Convertible Securities, or (ii)
declare any other dividend or make any other distribution upon the Common Stock
payable otherwise than out of earnings or earned surplus, then thereafter the
holder of this Warrant upon the exercise hereof will be entitled to receive the
number of shares of Common Stock to which such holder shall be entitled upon
such exercise, and, in addition and without further payment therefor, each
dividend described in clause (i) above and each dividend or distribution
described in clause (ii) above which such holder would have received by way of
dividends or distributions if continuously since the Price Determination Date
such holder (x) had been the record holder of the number of shares of Common
Stock then received, and (y) had retained all dividends or distributions in
stock or securities (including Common Stock or Convertible Securities, and any
rights or options to purchase any Common Stock or Convertible Securities)
payable in respect of such Common Stock or in respect of any stock or securities
paid as dividends or distributions and originating directly or indirectly from
such Common Stock. For the purposes of the foregoing, a dividend or distribution
other than in cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are charged an amount
equal to the fair value of such dividend or distribution as determined by the
Board of Directors of the Company.
(c) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the warrant purchase
price in effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Common Stock of the
Company shall be combined into a smaller number of shares, the warrant purchase
price in effect immediately prior to such combination shall be proportionately
increased.
(d) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or sale of all or substantially all of its assets to another
corporation (any such reorganization, reclassification, consolidation, merger or
sale being hereinafter called an "Event") shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for Common Stock, then, unless lawful and
adequate provision shall have been made whereby the holder hereof shall
thereafter have the right to purchase and receive, upon the basis and upon the
terms and conditions specified in this Warrant and in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of Common Stock of the Company equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby had the Event not
taken place, the Board of Directors of the Company shall declare, at least
twenty days prior to the actual effective date of the Event,
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<PAGE>
and provide written notice to the holder hereof of the declaration, that this
Warrant shall be canceled at the time of, or immediately prior to the occurrence
of, the Event (unless it shall have been exercised prior to the occurrence of
the Event) in exchange for payment to the holder hereof, within twenty days
after the Event, of cash equal to the amount (if any), for each share of Common
Stock issuable upon exercise of this Warrant, by which the Event Proceeds per
share of Common Stock (as hereinafter defined) exceeds the purchase price per
share of Common Stock under this Warrant. In the event of a declaration pursuant
to this paragraph (d), this Warrant, if not exercised prior to the Event, shall
be canceled at the time of, or immediately prior to, the Event, as provided in
the declaration, subject to the payment obligations of the Company provided in
this paragraph (d). For purposes of this paragraph (d), if the Event shall occur
prior to both the date of Second Round Closing and March 7, 1998, then the Price
Determination Date shall be deemed to be March 7, 1997, and the initial warrant
purchase price shall be deemed to be $6.00 per share. Also for purposes of this
paragraph (d), "Event Proceeds per share of Common Stock" shall mean the cash
plus the fair market value, as determined in good faith by the Board of
Directors of the Company, of the non-cash consideration to be received per share
of Common Stock by the shareholders of the Company upon the occurrence of the
Event. If provision shall be made, pursuant to this paragraph (d), for the right
of the holder hereof to purchase and receive stock, securities or assets of any
successor corporation (other than the Company) upon the occurrence of any Event,
then such successor corporation shall assume, by written instrument executed and
mailed to the registered holder hereof at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase.
(e) Upon any adjustment of the warrant purchase price, then and in each
such case the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the registered holder of this Warrant at the
address of such holder as shown on the books of the Company, which notice shall
state the warrant purchase price resulting from such adjustment and the increase
or decrease, if any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based.
(f) If any event occurs as to which in the opinion of the Board of
Directors of the Company the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the holder of this Warrant or of Common Stock in accordance
with the essential intent and principles of such provisions, then the Board of
Directors shall make an adjustment in the application of such provisions, in
accordance with such essential intent and principles, as necessary or
appropriate to protect such holder's rights, subject to such holder's consent.
(g) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment (which may be
effected as a reduction of the amount to be paid by the holder hereof upon such
exercise) in respect of such fraction.
5. As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized Common Stock and shall also include any capital
stock of any class of the Company hereafter authorized which shall not be
limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the Company;
provided that the shares purchasable pursuant to this Warrant shall include
shares designated as Common Stock of the Company on the date of original issue
of this Warrant or, in the case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in paragraph 4(d)
above.
6. This Warrant shall not entitle the holder hereof to any voting
rights or other rights as a stockholder of the Company.
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<PAGE>
7.
(a) The holder of this Warrant acknowledges that neither this
Warrant nor any of the shares of Common Stock issuable upon exercise hereof have
been registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws and that this Warrant or such shares of Common Stock may
only be transferred in accordance with this Paragraph 7. The holder of this
Warrant, by acceptance hereof, represents that it has acquired this Warrant for
investment and not with a view to distribution of this Warrant or the shares of
Common Stock issuable upon exercise hereof within the meaning of the Act and the
rules and regulations thereunder.
(b) The holder of this Warrant, by acceptance hereof, agrees
to give written notice to the Company before exercising or transferring this
Warrant, in whole or in part, or transferring any shares of Common Stock
issuable or issued upon the exercise hereof, of such holder's intention to do
so, describing briefly the manner of any proposed exercise or transfer. Such
holder shall also provide the Company with an opinion of counsel satisfactory to
the Company to the effect that the proposed exercise or transfer of this Warrant
or transfer of shares may be effected without registration or qualification
under the Act and any applicable state securities laws of this Warrant and the
shares of Common Stock issuable or issued upon the exercise hereof. Upon receipt
of such written notice and opinion by the Company, such holder shall be entitled
to exercise this Warrant in accordance with its terms, or to transfer this
Warrant, or to transfer shares of Common Stock issuable or issued upon the
exercise of this Warrant, all in accordance with the terms of the notice
delivered by such holder to the Company, provided that an appropriate legend
respecting the aforesaid restrictions on transfer may be endorsed on this
Warrant or the certificates for such shares. In the event of a proposed transfer
of this Warrant, prior to the transfer the proposed transferee shall execute and
deliver to the Company a warrant transfer letter in the form attached hereto.
8. Subject to the provisions of paragraph 7 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, at the principal
office of the Company by the holder hereof in person or by duly authorized
attorney, upon surrender of this Warrant properly endorsed. Each taker and
holder of this Warrant, by taking or holding the same, consents and agrees that
the bearer of this Warrant, when endorsed, may be treated by the Company and all
other persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented by this
Warrant, or to the transfer hereof on the books of the Company, any notice to
the contrary notwithstanding; but until such transfer on such books, the Company
may treat the registered holder hereof as the owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
holder hereof at the principal office of the Company, for new Warrants of like
tenor representing in the aggregate the right to subscribe for and purchase the
number of shares which may be subscribed for and purchased hereunder, each of
such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said holder hereof at the time of
such surrender.
10. The holder of this Warrant shall have rights to have the shares of
Common Stock purchased upon exercise included on registration statements filed
by the Company under the Act and shall be subject to limitations to have such
shares so included and shall be obligated to provide the Company with
indemnification with regards to such registration, all as set forth in that
certain Registration Rights Agreement dated as of June 18 1996 by and among the
Company and (among others) the initial holder of this Warrant. As used herein,
"Initial Public Offering" shall mean the first public offering by the
Corporation of shares of Common Stock registered under the Act, giving rise to
registration rights under Section 4 of such Registration Rights Agreement.
11. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the Commonwealth
of Massachusetts.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer and this Warrant to be dated as of March 7, 1997.
ALLAIRE CORP.
By /s/ David J. Orfao
----------------------------------
Its
-------------------------------
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i) the
opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Federal Securities Act of 1933 and
all applicable state securities laws or (ii) such registration.
Polaris Bridge Warrant (Founders Fund Final).doc
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<PAGE>
ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ___________________________________________________________ this
Warrant, and appoints ____________________________________________________ to
transfer this Warrant on the books of Allaire Corp. with the full power of
substitution in the premises.
Dated: ___________________________________
In the presence of: ___________________________________
----------------------------------------
(Signature must conform in all respects
to the name of the holder as specified
on the face of this Warrant without any
alteration or change whatsoever, and the
signature must be guaranteed in the
usual manner)
Polaris Bridge Warrant (Founders Fund Final).doc
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<PAGE>
FORM OF WARRANT TRANSFER LETTER
To: Allaire Corp.
Ladies and Gentlemen:
The undersigned is a proposed transferee of the warrant (the "Warrant")
to purchase ____________________ shares of Common Stock ("Common Stock"), of
Allaire Corp., a Minnesota corporation (the "Company"), currently registered in
the name of ____________________. In order to induce the Company to consent to
the transfer of the Warrant, the undersigned hereby represents, warrants and
agrees as follows:
1. The undersigned acknowledges that neither the Warrant nor any of the
shares of Common Stock issuable upon exercise thereof have been registered under
the Securities Act of 1933, as amended (the "Act"), or any state securities laws
and that, accordingly, the Warrant and such shares of Common Stock may only be
transferred in accordance with the terms of paragraph 7 of the Warrant.
2. The undersigned is acquiring the Warrant for investment and not with
a view to distribution of the Warrant or the shares of Common Stock issuable
upon exercise thereof within the meaning of the Act and the rules and
regulations thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
Signature ____________________________________
Address ______________________________________
Date _________________________________________
Polaris Bridge Warrant (Founders Fund Final).doc
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<PAGE>
FORM OF EXERCISE NOTICE
To be Executed by the Holder of this Warrant if such Holder
Desires to Exercise this Warrant in Whole or in Part:
To: Allaire Corp. (the "Company")
The undersigned ___________________________________________
Please insert Social Security or other
identifying number of Subscriber:
_________________________________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ______________________ shares of the
Common Stock provided for therein and tenders payment herewith to the order of
the Company in the amount of $______________________, such payment being made as
provided on the face of this Warrant.
In order to induce the Company to consent to the exercise of this
Warrant, the undersigned hereby represents, warrants and agrees as follows:
1. The undersigned acknowledges that neither this Warrant nor any of
the shares of Common Stock issuable upon exercise hereof have been registered
under the Securities Act of 1933, as amended (the "Act"), or any state
securities laws and that, accordingly, this Warrant may be exercised and the
shares of Common Stock issued pursuant to this exercise may only be transferred
in accordance with the terms of paragraph 7 of this Warrant.
2. The undersigned is acquiring the shares of Common Stock issued
pursuant to this exercise for investment and not with a view to distribution of
such shares within the meaning of the Act and the rules and regulations
thereunder.
3. The undersigned is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Act.
The undersigned requests that certificates for such shares of
Common Stock be issued as follows:
Name: ________________________________________________________________________
Address: _____________________________________________________________________
Deliver to: __________________________________________________________________
Address: _____________________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated below.
Address: _____________________________________________________________________
Signature _____________________________
(Signature must conform in all respects
to the name of the holder as written
specified on the face of this Warrant
without any alteration or change
whatsoever)
Dated: ____________________
Polaris Bridge Warrant (Founders Fund Final).doc
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
May 15, 1997
To each of the persons and entities listed on Schedule I hereto:
Ladies and Gentlemen:
Whereas you have purchased or are purchasing or have rights under the
Warrants identified on Schedule II (the Warrants ) to purchase from Allaire
Corporation, a Delaware corporation (the Company ) shares (the Series A
Preferred Shares ) of Series A Convertible Preferred Stock, $.01 par value, of
the Company (the Series A Preferred Stock ), shares (the Series B Preferred
Shares ) of Series B Convertible Preferred Stock, $.01 par value, of the Company
(the Series B Preferred Stock ), shares (the Series C Preferred Shares ) of
Series C Convertible Preferred Stock, $.01 par value, of the Company (the Series
C Preferred Stock ) or shares (the Series D Preferred Shares ) of Series D
Convertible Preferred Stock, $.01 par value, of the Company (the Series D
Preferred Stock ) (such Series A Preferred Shares, Series B Preferred Shares,
Series C Preferred Shares and Series D Preferred Shares being hereinafter
collectively referred to as the Preferred Shares and such Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock being hereinafter collectively referred to as the Preferred Stock ) and/or
have rights to purchase shares of Common Stock (as defined below) or Preferred
Shares pursuant to the Warrants, the Company covenants and agrees with each of
you as follows:
1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the
Company, as constituted as of the date of this Agreement.
"Conversion Shares" shall mean shares of Common Stock issued or
exercisable upon conversion of the Preferred Shares or exercise of the
Warrants.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the time.
"Registration Expenses" shall mean the expenses so described in
Section 8.
<PAGE>
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"Restricted Stock" shall mean the Conversion Shares, excluding
Conversion Shares which have been (a) registered under the Securities Act
pursuant to an effective registration statement filed thereunder and
disposed of in accordance with the registration statement covering them or
(b) publicly sold pursuant to Rule 144 under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section 8.
2. Restrictive Legend. Each certificate representing Preferred
Shares, Warrants or Conversion Shares shall, except as otherwise provided in
this Section 2 or in Section 3, be stamped or otherwise imprinted with a legend
substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED UNDER SUCH ACT AND
ALL SUCH APPLICABLE LAWS OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE."
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to the Company (it being agreed that Testa, Hurwitz & Thibeault,
LLP shall be satisfactory) the securities represented thereby may be publicly
sold without registration under the Securities Act and any applicable state
securities laws.
3. Notice of Proposed Transfer. Prior to any proposed transfer
of any Preferred Shares, Warrants or Conversion Shares (other than under the
circumstances described in Sections 4, 5 or 6), the holder thereof shall give
written notice to the Company of its intention to effect such transfer. Each
such notice shall describe the manner of the proposed transfer and, if requested
by the Company, shall be accompanied by an opinion of counsel satisfactory to
the Company (it being agreed that Testa, Hurwitz & Thibeault, LLP shall be
satisfactory) to the effect that the proposed transfer may be effected without
registration under the Securities Act and any applicable state securities laws,
whereupon the holder of such stock shall be entitled to transfer such stock in
accordance with the terms of its notice; provided, however, that no such opinion
of counsel shall be required for a transfer to one or more partners of the
transferor (in the case of a transferor that is a partnership) or to an
affiliated corporation (in the case of a transferor that is a corporation). Each
certificate for Preferred Shares, Warrants or Conversion Shares transferred as
above provided shall bear the legend set forth in Section 2, except that such
certificate shall not bear such legend if (i) such transfer is in accordance
with the provisions of Rule 144 (or any other rule permitting public sale
without registration under the Securities Act) or (ii) the opinion of counsel
referred to above is to the further effect that the transferee and any
subsequent transferee (other than an affiliate of the Company) would be entitled
to transfer such
<PAGE>
-3-
securities in a public sale without registration under the Securities Act. The
restrictions provided for in this Section 3 shall not apply to securities which
are not required to bear the legend prescribed by Section 2 in accordance with
the provisions of that Section.
4. Required Registration. (a) At any time beginning 180 days
after the Company=s initial underwritten public offering or, if earlier, on June
30, 2000, the holders of Restricted Stock constituting at least a majority of
the total shares of Restricted Stock then outstanding may request the Company to
register under the Securities Act all or any portion of the shares of Restricted
Stock held by such requesting holder or holders for sale in the manner specified
in such notice, provided that the shares of Restricted Stock for which
registration has been requested shall constitute at least a majority of the
total shares of Restricted Stock originally issued. For purposes of this Section
4 and Sections 5, 6, 14(b) and 14(e), the term "Restricted Stock" shall be
deemed to include the number of shares of Restricted Stock which would be
issuable to a holder of Preferred Shares or Warrants upon full conversion of all
Preferred Shares and/or Warrants held by such holder at such time, provided,
however, that the only securities which the Company shall be required to
register pursuant hereto shall be shares of Common Stock, and provided, further,
however, that, in any underwritten public offering contemplated by this Section
4 or Sections 5 and 6, the holders of Preferred Shares and/or Warrants shall be
entitled to sell such Preferred Shares and/or Warrants to the underwriters for
conversion and sale of the shares of Common Stock issued upon conversion
thereof. Notwithstanding anything to the contrary contained herein, no request
may be made under this Section 4 within 120 days after the effective date of a
registration statement filed by the Company covering a firm commitment
underwritten public offering in which the holders of Restricted Stock shall have
been entitled to join pursuant to Sections 5 or 6.
(b) Following receipt of any notice under this Section 4, the
Company shall immediately notify all holders of Restricted Stock from whom
notice has not been received and shall use its best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within 30 days after the giving of such notice by the
Company). If such method of disposition shall be an underwritten public offering
the Company will designate the managing underwriter of such offering, which
managing underwriter shall be reasonably acceptable to a majority of the holders
selling Restricted Stock in such offering. The Company shall be obligated to
register Restricted Stock pursuant to this Section 4 on two occasions only,
provided, however, that such obligation shall be deemed satisfied only when a
registration statement covering all shares of Restricted Stock specified in
notices received as aforesaid, for sale in accordance with the method of
disposition specified by the requesting holders, shall have become effective
and, if such method of disposition is a firm commitment underwritten public
offering, all such shares shall have been sold pursuant thereto, subject to any
applicable underwriters= cutbacks.
(c) The Company shall be entitled to include in any
registration statement referred to in this Section 4, for sale in accordance
with the method of disposition specified by the requesting holders, shares of
Common Stock to be sold by the Company for its own account,
<PAGE>
-4-
except as and to the extent that, in the opinion of the managing underwriter (if
such method of disposition shall be an underwritten public offering), such
inclusion would adversely affect the marketing of the Restricted Stock to be
sold. Except for registration statements on Form S-4, S-8 or any successor
thereto, the Company will not file with the Commission any other registration
statement with respect to its Common Stock, whether for its own account or that
of other stockholders, from the date of receipt of a notice from requesting
holders pursuant to this Section 4 until the completion of the period of
distribution of the registration contemplated thereby; provided, however, that
if at the time any written request for registration is received by the Company
pursuant to this Section 4, the Company has determined to proceed with the
actual preparation and filing of a registration statement under the Securities
Act in connection with the proposed offer and sale for cash of any of its
securities by it or any of its security holders, such written request shall be
deemed to have been given pursuant to Section 5 or 6 hereof rather than this
Section 4, and the rights of the holders of Restricted Stock covered by such
written request shall be governed by Section 5 or 6 hereof; provided, further,
however, that if the Company does not file its registration statement within 90
days after such written request, the Company shall immediately thereafter file a
registration statement pursuant to the written request in accordance with the
provisions of this Section 4.
5. Incidental Registration. If the Company at any time (other
than pursuant to Section 4 or Section 6) proposes to register any of its
securities under the Securities Act for sale to the public, whether for its own
account or for the account of other security holders or both (except with
respect to registration statements on Forms S-4, S-8 or another form not
available for registering the Restricted Stock for sale to the public), each
such time it will give written notice to all holders of outstanding Restricted
Stock of its intention so to do. Upon the written request of any such holder,
received by the Company within 30 days after the giving of any such notice by
the Company, to register any of its Restricted Stock, the Company will use its
best efforts to cause the Restricted Stock as to which registration shall have
been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
requisite to permit the sale or other disposition by the holder of such
Restricted Stock so registered. In the event that any registration pursuant to
this Section 5 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced (pro rata among the requesting holders based upon
the number of shares of Restricted Stock owned by such holders) if and to the
extent that the managing underwriter shall be of the opinion that such inclusion
would adversely affect the marketing of the securities to be sold by the Company
therein, provided, however, that such number of shares of Restricted Stock shall
not be reduced if any shares are to be included in such underwriting for the
account of any person other than the Company or requesting holders of Restricted
Stock. Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 5 without thereby incurring
any liability to the holders of Restricted Stock.
6. Registration on Form S-3. If at any time (i) a holder or
holders of Preferred Shares, Warrants or Restricted Stock request that the
Company file a registration statement on Form S-3 or any successor thereto for a
public offering of all or any portion of the shares of Restricted Stock held by
such requesting holder or holders, the reasonably anticipated
<PAGE>
-5-
aggregate price to the public of which would exceed $1,000,000, and (ii) the
Company is a registrant entitled to use Form S-3 or any successor thereto to
register such shares, then the Company shall use its best efforts to register
under the Securities Act on Form S-3 or any successor thereto, for public sale
in accordance with the method of disposition specified in such notice, the
number of shares of Restricted Stock specified in such notice, provided,
however, that the Company shall not be required to effect a registration
pursuant to this Section 6 more than once in any 12-month period. Whenever the
Company is required by this Section 6 to use its best efforts to effect the
registration of Restricted Stock, each of the procedures and requirements of
Section 4 (including but not limited to the requirement that the Company notify
all holders of Restricted Stock from whom notice has not been received and
provide them with the opportunity to participate in the offering) shall apply to
such registration, provided, however, that there shall be no limitation on the
number of registrations on Form S-3 which may be requested and obtained under
this Section 6, and provided, further, however, that the requirements contained
in the first sentence of Section 4(a) shall not apply to any registration on
Form S-3 which may be requested and obtained under this Section 6.
7. Registration Procedures. If and whenever the Company is
required by the provisions of Sections 4, 5 or 6 to use its best efforts to
effect the registration of any shares of Restricted Stock under the Securities
Act, the Company will, as expeditiously as possible:
(a) prepare (and afford one counsel for the sellers of
Restricted Stock the opportunity to review and comment thereon) and file with
the Commission a registration statement (which, in the case of an underwritten
public offering pursuant to Section 4, shall be on Form S-1, or on Form S-3 if
the Company is eligible to so file, or on another form of general applicability
satisfactory to the managing underwriter selected as therein provided) with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby (determined as hereinafter provided);
(b) prepare (and afford one counsel for the sellers of
Restricted Stock the opportunity to review and comment thereon) and file with
the Commission such amendments and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for the period specified in paragraph (a) above
and comply with the provisions of the Securities Act with respect to the
disposition of all Restricted Stock covered by such registration statement in
accordance with the sellers' intended method of disposition set forth in such
registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
(d) use its best efforts to register or qualify the Restricted
Stock covered by such registration statement under the securities or "blue sky"
laws of such jurisdictions as the sellers of Restricted Stock or, in the case of
an underwritten public offering, the managing underwriter
<PAGE>
-6-
reasonably shall request, provided, however, that the Company shall not for any
such purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to
general service of process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered
by such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify each seller of Restricted Stock and
each underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained 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 light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any
seller of Restricted Stock, use its best efforts to furnish on the date that
Restricted Stock is delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and to such
seller, stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to form in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (C) to such other
effects as reasonably may be requested by counsel for the underwriters or by
such seller or its counsel and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
(h) make available for inspection by each seller of Restricted
Stock, any underwriter participating in any distribution pursuant to such
registration statement, and any attorney, accountant or other agent retained by
such seller or underwriter, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
registration statement.
<PAGE>
-7-
For purposes of Section 7(a) and 7(b) and of Section 4(c), the
period of distribution of Restricted Stock in a firm commitment underwritten
public offering shall be deemed to extend until each underwriter has completed
the distribution of all securities purchased by it, and the period of
distribution of Restricted Stock in any other registration shall be deemed to
extend until the earlier of the sale of all Restricted Stock covered thereby and
120 days after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 4, 5
or 6 covering an underwritten public offering, the Company and each seller agree
to enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. Expenses. All expenses incurred by the Company in complying
with Sections 4, 5 and 6, including, without limitation, all registration and
filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company, fees and expenses (including
counsel fees) incurred in connection with complying with state securities or
"blue sky" laws, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, but excluding any
Selling Expenses, are called "Registration Expenses". All costs of insurance and
fees and disbursements of counsel for the sellers of Restricted Stock,
underwriting discounts and selling commissions applicable to the sale of
Restricted Stock are called "Selling Expenses".
The Company will pay all Registration Expenses in connection
with each registration statement under Sections 4, 5 or 6. All Selling Expenses
in connection with each registration statement under Sections 4, 5 or 6 shall be
borne by the participating sellers in proportion to the number of shares sold by
each, or by such participating sellers other than the Company (except to the
extent the Company shall be a seller) as they may agree.
9. Indemnification and Contribution. (a) In the event of a
registration of any of the Restricted Stock under the Securities Act pursuant to
Sections 4, 5 or 6, the Company will indemnify and hold harmless each seller of
such Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Sections 4, 5 or 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement
<PAGE>
-8-
thereof, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse each such seller, each
such underwriter and each such controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided, however,
that the Company will not be liable in any such case if and to the extent that
any such loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by any such seller, any such
underwriter or any such controlling person in writing specifically for use in
such registration statement or prospectus.
(b) In the event of a registration of any of the Restricted
Stock under the Securities Act pursuant to Sections 4, 5 or 6, each seller of
such Restricted Stock thereunder, severally and not jointly, will indemnify and
hold harmless the Company, each person, if any, who controls the Company within
the meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of each seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the shares
sold by such seller under such registration statement bears to the total public
offering price of all securities sold thereunder, but not in any event to exceed
the net proceeds received by such seller from the sale of Restricted Stock
covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder
of notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9 and shall only relieve
it
<PAGE>
-9-
from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of Restricted Stock exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 9 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 9 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 9; then, and in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such proportion
so that such holder is responsible for the portion represented by the percentage
that the public offering price of its Restricted Stock offered by the
registration statement bears to the public offering price of all securities
offered by such registration statement, and the Company is responsible for the
remaining portion; provided, however, that, in any such case, (A) no such holder
will be required to contribute any amount in excess of the public offering price
of all such Restricted Stock offered by it pursuant to such registration
statement; and (B) no person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) will be entitled to
contribution from any person or entity who was not guilty of such fraudulent
misrepresentation.
10. Changes in Common Stock or Preferred Stock. If, and as
often as, there is any change in the Common Stock, Warrants or Preferred Stock
by way of a stock split, stock dividend, combination or reclassification, or
through a merger, consolidation, reorganization or recapitalization, or by any
other means, appropriate adjustment shall be made in the provisions hereof so
that the rights and privileges granted hereby shall continue with respect to the
Common
<PAGE>
-10-
Stock, Warrants or the Preferred Stock as so changed and shall apply to any
securities received in any such transaction, including the securities of an
issuer other than the Company that may be issued to holders of Common Stock in a
merger transaction.
11. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Stock to the public without registration,
at all times after 90 days after any registration statement covering a public
offering of securities of the Company under the Securities Act shall have become
effective, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.
12. Representations and Warranties of the Company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement
by the Company have been duly authorized by all requisite corporate action and
will not violate any order of any court or other agency of government, the
Charter or By-laws of the Company or any provision of any indenture, agreement
or other instrument to which it or any or its properties or assets is bound,
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any such indenture, agreement or other instrument
or result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company.
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms, except insofar as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws of general application affecting enforcement of creditors= rights
and except as to enforceability of the indemnification and contribution
provisions.
13. Termination of Prior Registration Rights Agreement. By
entering into this Amended and Restated Registration Rights Agreement, each of
the parties hereto terminate that
<PAGE>
-11-
certain Registration Rights Agreement dated June 18, 1996, as amended, entered
into by them and each of them releases all existing rights, or rights which may
have come into existence, of any kind thereunder.
14. Miscellaneous.
(a) This Agreement constitutes the sole and entire agreement
of the parties with respect to the subject matter hereof.
(b) All covenants and agreements contained in this Agreement
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto (including
without limitation transferees of any Preferred Shares, Warrants or Restricted
Stock), whether so expressed or not, provided, however, that registration rights
conferred herein on the holders of Preferred Shares, Warrants or Restricted
Stock shall only inure to the benefit of a transferee of Preferred Shares,
Warrants or Restricted Stock if (i) there is transferred to such transferee at
least 40% of the total shares of Restricted Stock originally issued pursuant to
either the Convertible Preferred Stock Purchase Agreement dated as of June 18,
1996 or the Convertible Preferred Stock Purchase Agreement dated as of the date
hereof to the direct or indirect transferor of such transferee or (ii) such
transferee is a partner, shareholder or affiliate (including without limitation
persons under common control) of a party hereto.
(c) All notices, requests, consents and other communications
hereunder shall be in writing and shall be delivered in person, mailed by
certified or registered mail, return receipt requested, or sent by telecopier or
telex, addressed as follows:
if to the Company, to the Company headquarters, currently located at
One Alewife Center, Third Floor, Cambridge, Massachusetts 02140;
if to any holder of Preferred Shares, Restricted Stock or Warrants, to the
address of such party set forth on Schedule I hereto;
if to any subsequent holder of Preferred Shares, Restricted Stock or
Warrants, to it at such address as may have been furnished to the Company
in writing by such holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Preferred Shares, Warrants
or Restricted Stock) or to the holders of Preferred Shares, Warrants or
Restricted Stock (in the case of the Company) in accordance with the provisions
of this paragraph.
(d) This Agreement shall be governed by and construed in
accordance with the laws of Massachusetts.
<PAGE>
-12-
(e) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of the Company and
the holders of at least two-thirds of the outstanding shares of Restricted
Stock.
(f) 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.
(g) The obligations of the Company to register shares of
Restricted Stock under Sections 4, 5 or 6 shall terminate on the tenth
anniversary of the date of this Agreement.
(h) If requested in writing by the underwriters for the
initial underwritten public offering of securities of the Company, each holder
of Restricted Stock who is a party to this Agreement shall agree not to sell
publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period of not more than 180 days following the effective date of the
registration statement relating to such offering; provided, however, that all
persons entitled to registration rights with respect to shares of Common Stock
who are not parties to this Agreement, all other persons selling shares of
Common Stock in such offering, all persons holding in excess of 5% of the
capital stock of the Company on a fully-diluted basis and all executive officers
and directors of the Company shall also have agreed not to sell publicly their
Common Stock under the circumstances and pursuant to the terms set forth in this
Section 13(g).
(i) Notwithstanding the provisions of Section 7(a), the
Company's obligation to file a registration statement, or cause such
registration statement to become and remain effective, shall be suspended for a
period not to exceed 90 days in any 12-month period if there exists at the time
material non-public information relating to the Company which, in the reasonable
opinion of the Company, should not be disclosed.
(j) The Company shall not grant to any third party any
registration rights more favorable than or inconsistent with any of those
contained herein, so long as any of the registration rights under this Agreement
remains in effect.
(k) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Amended and Restated
Registration Rights Agreement shall be a binding agreement between the Company
and you.
Very truly yours,
ALLAIRE CORPORATION
/s/ David J. Orfao
----------------------------
David J. Orfao
President
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
AGREED TO AND ACCEPTED as of the date
first above written.
BancBoston Ventures Inc.
By: /s/ Peter A. Roberts
----------------------------------
Name: Peter A. Roberts
-----------------------------
Title: V.P
-----------------------------
Polaris Venture Partners, L.P.
By: Polaris Venture Management Co., L.L.C.
Its General Partner
By:
-------------------------------------
Member
Polaris Venture Partners Founders= Fund, L.P.
By: Polaris Venture Management Co., L.L.C.
Its General Partner
By:
------------------------------------
Member
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
AGREED TO AND ACCEPTED as of the date
first above written.
BancBoston Ventures Inc.
By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------
Polaris Venture Partners, L.P.
By: Polaris Venture Management Co., L.L.C.
Its General Partner
By: /s/ Jonathan A. Flint
-------------------------------------
Member
Polaris Venture Partners Founders= Fund, L.P.
By: Polaris Venture Management Co., L.L.C.
Its General Partner
By: /s/ Jonathan A. Flint
------------------------------------
Member
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
WA&H Investment, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
Its Managing Member
By: /s/ Ken Wessels
----------------------------------
Its: CEO/Managing Director
Rosewood Stone Group, Inc.
By:
------------------------------------
Its:
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Pension Trust
By:
------------------------------------
Douglas M. Cook
Vice President
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Benefit Assurance Trust
By:
------------------------------------
Douglas M. Cook
Vice President
- ---------------------------------------
Thomas W. Burton
- ---------------------------------------
Robert F. Berrey
- ---------------------------------------
Richard E. Eichhorn
- ---------------------------------------
Mitchell Kapor
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
WA&H Investment, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
Its Managing Member
By:
-----------------------------------
Its:
Rosewood Stone Group, Inc.
By: /s/ John Hallett
------------------------------------
Its: VP Finance
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Pension Trust
By:
------------------------------------
Douglas M. Cook
Vice President
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Benefit Assurance Trust
By:
------------------------------------
Douglas M. Cook
Vice President
- ---------------------------------------
Thomas W. Burton
- ---------------------------------------
Robert F. Berrey
- ---------------------------------------
Richard E. Eichhorn
- ---------------------------------------
Mitchell Kapor
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
WA&H Investment, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
Its Managing Member
By:
-----------------------------------
Its:
Rosewood Stone Group, Inc.
By:
------------------------------------
Its:
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Pension Trust
By: /s/ Douglas M. Cook
------------------------------------
Douglas M. Cook
Vice President
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Benefit Assurance Trust
By: /s/ Douglas M. Cook
------------------------------------
Douglas M. Cook
Vice President
- ---------------------------------------
Thomas W. Burton
- ---------------------------------------
Robert F. Berrey
- ---------------------------------------
Richard E. Eichhorn
- ---------------------------------------
Mitchell Kapor
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
WA&H Investment, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
Its Managing Member
By:
-----------------------------------
Its:
Rosewood Stone Group, Inc.
By:
------------------------------------
Its:
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Pension Trust
By:
------------------------------------
Douglas M. Cook
Vice President
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Benefit Assurance Trust
By:
------------------------------------
Douglas M. Cook
Vice President
/s/ Thomas W. Burton
- ---------------------------------------
Thomas W. Burton
- ---------------------------------------
Robert F. Berrey
- ---------------------------------------
Richard E. Eichhorn
- ---------------------------------------
Mitchell Kapor
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
WA&H Investment, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
Its Managing Member
By:
-----------------------------------
Its:
Rosewood Stone Group, Inc.
By:
------------------------------------
Its:
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Pension Trust
By:
------------------------------------
Douglas M. Cook
Vice President
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Benefit Assurance Trust
By:
------------------------------------
Douglas M. Cook
Vice President
- ---------------------------------------
Thomas W. Burton
/s/ Robert F. Berrey
- ---------------------------------------
Robert F. Berrey
- ---------------------------------------
Richard E. Eichhorn
- ---------------------------------------
Mitchell Kapor
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
WA&H Investment, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
Its Managing Member
By:
-----------------------------------
Its:
Rosewood Stone Group, Inc.
By:
------------------------------------
Its:
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Pension Trust
By:
------------------------------------
Douglas M. Cook
Vice President
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Benefit Assurance Trust
By:
------------------------------------
Douglas M. Cook
Vice President
- ---------------------------------------
Thomas W. Burton
- ---------------------------------------
Robert F. Berrey
/s/ Richard E. Eichhorn
- ---------------------------------------
Richard E. Eichhorn
- ---------------------------------------
Mitchell Kapor
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
WA&H Investment, L.L.C.
By: Wessels, Arnold & Henderson Group, L.L.C.
Its Managing Member
By:
-----------------------------------
Its:
Rosewood Stone Group, Inc.
By:
------------------------------------
Its:
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Pension Trust
By:
------------------------------------
Douglas M. Cook
Vice President
Boston Safe Deposit and Trust Company as
Trustee of the U S WEST Benefit Assurance Trust
By:
------------------------------------
Douglas M. Cook
Vice President
- ---------------------------------------
Thomas W. Burton
- ---------------------------------------
Robert F. Berrey
- ---------------------------------------
Richard E. Eichhorn
/s/ Mitchell Kapor
- ---------------------------------------
Mitchell Kapor
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
Comdisco, Inc.
By: /s/ Jill C. Hanses
------------------------------------
Name: Jill C. Hanses
Title: Assistant Vice President
Ramsey/Bierne Associates, Inc.
By:
------------------------------------
Name:
Title:
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
Comdisco, Inc.
By:
------------------------------------
Name:
Title:
Ramsey/Bierne Associates, Inc.
By: /s/ William E. Ramsey
------------------------------------
Name: William E. Ramsey
Title: Treasurer
<PAGE>
[Signature Page to Amended and Restated Registration Rights Agreement]
Dated: June 13, 1997 BENEFIT CAPITAL MANAGEMENT
CORPORATION AS INVESTMENT
MANAGER FOR THE PRUDENTIAL
INSURANCE COMPANY OF
AMERICA, SEPARATE ACCOUNT
NUMBER VCA-GA-5298
By: /s/ Sue DeCarlo
----------------------------------
Sue DeCarlo
Sr. Vice President,
Chief Financial Officer of
Benefit Capital Management Corporation
<PAGE>
SCHEDULE 1
----------
BancBoston Ventures Inc.
Mezzanine & Equity Financing
175 Federal Street, 10th Floor
Boston, MA 02110
Polaris Venture Partners, L.P.
One Post Office Square, Suite 3800
Boston, MA 02109
Polaris Venture Partners Founders= Fund, L.P.
One Post Office Square, Suite 3800
Boston, MA 02109
WA&H Investment, L.L.C.
901 Marquette Avenue
Minneapolis, MN 55402
U S WEST Pension Trust
c/o Boston Safe Deposit and
Trust as Trustee
One Cabot Road
Medford, MA 02155-5159
U S WEST Benefit Assurance Trust
c/o Boston Safe Deposit and Trust
as Trustee
One Cabot Road
Medford, MA 02155-5159
Rosewood Stone Group, Inc.
1505 Bridgeway, Suite 201
Sausalito, CA 94965
Thomas W. Burton
19975 Cottagewood Avenue
Deephaven, MN 55331
Robert F. Berrey
20 Walnut Lane
Dayton, OH 45419-2933
Richard E. Eichhorn
10940 West River Road
Champlin, MN 55318
Mitchell Kapor
Kapor Enterprises, Inc.
238 Main Street, Suite 400
Cambridge, MA 02142
Comdisco, Inc.
One Newton Executive Park
Suite 302
Newton, MA 02162
Ramsey Bierne Associates, Inc.
500 Executive Blvd., Ste. 104
Ossining, New York 10562
Benefit Capital Management
Corporation as Investment
Manager for the Prudential
Insurance Company of
America, Separate Account
Number VCA-GA-5298
39 Old Ridgebury Road
Section E-2
Danbury, CT 06812
<PAGE>
Schedule II
1. Warrant Agreement To Purchase Shares of Series A Convertible Preferred Stock
of Allaire Corp., dated as of December 30, 1996, granted to Comdisco, Inc.
2. Warrant to Subscribe for and Purchase Common Stock of Allaire Corp., dated
March 7, 1997, granted to Polaris Venture Partners, L.P.
3. Warrant to Subscribe for and Purchase Common Stock of Allaire Corp., dated
March 7, 1997, granted to Polaris Venture Partners Founders Fund, L.P.
4. Common Stock Purchase Warrant dated May 14, 1996, issued by Allaire Corp. to
Robert F. Berrey.
5. Common Stock Purchase Warrant dated May 30, 1996, issued by Allaire Corp. to
Richard E. Eichhorn.
Waiver and
Amendment No. 1
to
Amended and Restated
Registration Rights Agreement
This Amendment No. 1 ("Amendment") dated as of December 7, 1998 is
made pursuant to Section 13(e) of the Registration Rights Agreement (as defined
below) by and among Allaire Corporation, a Delaware corporation (the "Company"),
BancBoston Ventures Inc. ("BancBoston"), WA&H Investments L.L.C. ("WA&H"),
Polaris Venture Partners, L.P. and Polaris Venture Partners Founders' Fund, L.P.
(collectively, "Polaris"), on behalf of the several purchasers (the
"Purchasers") named in Schedule I of the Amended and Restated Registration
Rights Agreement, and MC Silicon Valley, Inc. ("Mitsubishi").
WHEREAS, the Company and the Purchasers have entered into that certain
Amended and Restated Registration Rights Agreement dated as of May 15, 1997,
together with the schedules thereto (the "Registration Rights Agreement"), which
among other things, provides for certain rights and obligations of the
Purchasers in connection with the registration of Common Stock of the Company
issued upon conversion of the Company's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock under
state and Federal securities laws;
WHEREAS, Mitsubishi has subscribed for 31,250 shares of the Company's
Series A Preferred Stock and desires to become a party to the Registration
Rights Agreement as a Purchaser;
WHEREAS, the Company and the Purchasers desire to amend the
Registration Rights Agreement to make Mitsubishi a party thereto as a Purchaser
as provided herein;
WHEREAS, the Registration Rights Agreements grants the Purchasers the
right to notice of and participation in future issuances of securities by the
Company; and
WHEREAS, the Company is proposing to issue common stock of the Company
in an underwritten public offering (the "Offering");
NOW, THEREFORE, in consideration of the premises and the covenants
contained in this Amendment, the parties hereto agree as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein shall
have the meanings ascribed to such terms in the Registration Rights Agreement.
2. Amendments. Effective upon its purchase of shares of the Company's
Series A Preferred Stock, Mitsubishi is hereby added to Schedule I to the
Registration Rights Agreement as a Purchaser.
<PAGE>
3. Waiver of Rights with Respect to the Offering: Mitsubishi hereby
waives any and all rights of notice of and participation under the Registration
Rights Agreement with respect to the Offering if the Offering is consummated on
or before June 30, 1999. If the Offering is not consummated on or before June
30, 1999, this Waiver shall terminate as of such date and be of no effect
thereafter.
4. Effect of Amendments. The Registration Rights Agreement shall remain
in full force and effect except as specifically amended hereby.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
IN WITNESS WHEREOF, the Company, BancBoston, WA&H Investments, Polaris
and Mitsubishi have executed this Amendment No. 1 as of the day and year first
above written.
ALLAIRE CORPORATION
By: /s/ David Gerth
----------------------------------------
Its: Chief Financial Officer
----------------------------------------
MC SILICON VALLEY, INC.
By: /s/ Masayoshi Hirano
----------------------------------------
Its: President
----------------------------------------
BANCBOSTON VENTURES INC.
By: /s/ Peter R. Roberts
----------------------------------------
Its: Vice President
----------------------------------------
WA&H INVESTMENTS, L.L.C.
By: WESSELS, ARNOLD & HENDERSON GROUP, L.L.C.
Its Managing Member
By: /s/ Mary Zimmer
----------------------------------------
Its: Director Finance & Administration DRW
----------------------------------------
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., L.L.C.
Its General Partner
By: /s/ Jonathan Flint
-----------------------------------------
Member
POLARIS VENTURE PARTNERS
FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., L.L.C.
By: /s/ Jonathan Flint
-----------------------------------------
Member
December 23rd, 1996
J.J. Allaire
Allaire Corp.
One Alewife Center
Cambridge, MA 02140
David Orfao
17 Bartkus Farm Road
Concord, MA 01742
Dear David:
I am very pleased to extend an offer to you to join the Allaire team as Chief
Executive Officer and a member of the Board of Directors. I strongly believe
that we will make a great team and that you will provide Allaire with exactly
the kind of leadership and direction it needs to become fantastically
successful.
As CEO you will be responsible for Allaire's overall operation. This will
include but is not limited to sales, marketing, service, finance, and product
development. I expect that you would join Allaire full time no later than
February 15th, 1997.
We have structured a compensation package that consists of five components:
salary, incentive plan, stock options, benefits, and severance.
1. Salary
Base salary of $160,000, paid bi-weekly.
2. Incentive Plan
The incentive compensation for achieving 100% of your targeted
objectives will be $60,000 per annum. Incentive payments may be made
either in cash or stock at your discretion (the price of the stock will
be determined by the most recently completed round of investment). The
Board of Directors will map out the objectives upon which this bonus
will be based once you start your employment.
3. Stock Options
The company will grant you participation in the 1996 stock option plan.
You will receive options which will vest over time on shares equal to
7% of the company's fully diluted
<PAGE>
capitalization. Allaire expects to sell and issue additional shares of
capital stock to Polaris Ventures on or about December 31st, 1996 and
to increase its pool of stock available for the grant of options or
sale of restricted stock to key employees, at about the same time. In
either event we will revise your option or grant additional options to
you to assure that your option(s) represent 7% of Allaire's
fully-diluted capitalization as it may be increased by either or both
actions.
The option price is currently $1 and signing this agreement will lock
you into this price. Vesting will occur over a 4 year period, with the
first 25% to vest 1 year after the first day of employment and an
additional 1/36th of the balance to vest at the end of each month
during which you are employed by Allaire after the first year.
In the event of a change of control (a single transaction or series of
related transactions in which another party becomes the majority
stockholder of Allaire or acquires substantially all of its assets) in
which you are not offered a comparable position and title, the
remaining balance of your shares will immediately vest.
4. Benefits
You will be eligible to participate in the standard company benefits
plans. Our medical plan is with Massachusetts Blue Cross Blue Shield
and our dental plan is with Delta Dental. The company currently pays
100% of the premium for these plans. The company plans to implement
life insurance, long-term disability, and 401K plans during the first
quarter of 1997. You will be eligible to participate in these plans
when they are available.
5. Severance
Although we hope that the employment relationship will be mutually
satisfactory, your employment with Allaire is 'at will'. This means
that your employment is for no specific period of time, however in the
event you are involuntarily terminated for reasons other than cause,
you will receive continuing base salary and benefits (or cash payments
equivalent to applicable premiums) for 12 months.
You understand and agree that no facts or circumstances arising out of
employment, including length of employment or any conduct by the company,
including any express or implied agreements, can alter the at will employment
relationship unless specifically set forth in writing and signed by you and
approved by the Board of Directors.
This letter sets forth, fully, all understandings and agreements between you and
Allaire regarding your employment. Please acknowledge your acceptance of our
offer by signing and dating this letter and returning it to me no later than
Friday, December 27th, 1997.
This letter agreement and your employment will take effect upon the occurrence
of a change of control of SQA, Inc. that causes vesting of your SQA stock
options to accelerate with respect to
<PAGE>
50% of the unvested portions thereof, as provided in your letter agreement with
SQA dated November 8, 1995. If such event has not occurred by March 15, 1997
Allaire may terminate this letter agreement by written notice to you and
thereupon both parties shall cease to have any obligations to the other under
this letter agreement or otherwise.
Once again, I want to welcome you aboard with Allaire Corp. The board, the team,
and I are very excited about working with you and are confident that you will
bring us all to a new level of success.
Sincerely,
/s/ David Orfao
J.J. Allaire -------------------------------
Chairman David Orfao
-------------------------------
Date
CONTRIBUTION AND RESTRICTED STOCK
PURCHASE AGREEMENT
This Contribution and Restricted Stock Purchase Agreement is made as of the
14th day of July, 1998 by and between YESLER SOFTWARE, INC. a Washington
corporation ("Company"), and ALLAIRE CORPORATION ("Allaire").
WHEREAS, Company and the investors named in the Schedule of Investors
attached thereto are parties to that certain Series A Convertible Preferred
Stock Purchase Agreement dated the date hereof (the "Series A Purchase
Agreement") for the purchase of shares of Company's Series A Preferred Stock;
WHEREAS, Company has entered into a Restricted Stock Purchase Agreement
with Weld, Brown LLC dated July 14th, 1998, for the purchase of shares of
Company's Common Stock with certain vesting provisions therein;
WHEREAS, in connection therewith, Company, the Investors and other parties
thereto have concurrently entered into a Stock Restriction Agreement. Investor
Rights Agreement and Voting Agreement, all dated the date hereof;
WHEREAS, Company and Allaire are parties to that certain OEM Agreement
dated the date hereof (the "OEM Agreement") whereby Company will have the right
to distribute certain of Allaire's products as set forth therein;
WHEREAS, in conjunction with all of the above, Company and Allaire desire
to enter into this Agreement for the purchase of shares of Company's Common
Stock with certain vesting provisions therein.
NOW, THEREFORE, in consideration of the mutual covenants and
representations herein set forth, Company and Allaire agree as follows:
A. Definitions
-----------
The following terms, as used herein, shall have the following meanings:
1. "Allaire Software" shall mean Allaire's proprietary commercial computer
software products described in ATTACHMENT 1.1, including any Updates thereto
released from time to time by Allaire.
2. "alpha version" shall mean a version of computer software prior to
production of a beta version that is produced for demonstration or functionality
purposes only.
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<PAGE>
3. "Athena" shall mean the proprietary commercial computer software
application designed for use by non-technical end-users for creating multimedia
web-based presentations that is based upon or incorporates a portion of the
Code, to be created by Company, which is presently referred to as "Athena,"
including any Updates thereto released from time to time by Company.
4. "beta version" shall mean a version of computer software after
production of all alpha versions thereof but prior to production of a release
version, which is produced for testing purposes.
5. "Customer List" shall mean such list(s) as may be obtained from
Allaire's then-current customer database without unreasonable effort or expense,
setting forth available name, address, telephone number, e-mail address,
facsimile number and other contact information of all Allaire customers
(including without limitation, beta test customers and distribution partners)
who have consented to receive information regarding third party products.
6. "Code" shall mean the human readable source code to Allaire's
proprietary computer programs, presently referred to as "Allaire Alive," for
creating multimedia web-based presentations relating to customer support and
training in the form it existed at the date of this Agreement, including all
textual and/or graphical instructions, manuals, specifications and diagrams, in
both printed and electronic form, pertaining to the Code.
7. "Documentation" shall mean the textual and/or graphical instructions,
manuals, specifications and diagrams, in both printed and electronic form,
customarily provided to end-users of Allaire Alive, Athena or Allaire Software,
as the case may be.
8. "evaluation version" shall mean a version of computer software and any
related Documentation that is given for a limited period of time so a potential
purchaser may determine whether it is suitable for its needs.
9. "release version" shall mean a version of computer software and any
related Documentation after production of all beta versions thereof that is
produced for general commercial release by Company or Allaire, as the case may
be, for purchase by or distribution to end-users through the vendor's
distribution channel.
10. "Updates" shall mean revisions, updates, upgrades, enhancements,
modifications or bug fixes to the Code, Allaire Software or Athena, as the case
may be, and/or its related Documentation produced by Company or Allaire, as the
case may be.
B. Equity Purchase
---------------
1. Purchase and Sale of the Shares. Subject to the terms and conditions of
this Agreement, Company hereby sells to Allaire and Allaire hereby purchases
from Company 907,591 shares of Company's Common Stock (the "Shares") for the
price of $0.10 per
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<PAGE>
share, or an aggregate of $90,759.10, the consideration for such Shares being
the licenses and services described in Sections C.1 and C.2 of this Agreement.
Company will issue, as promptly hereafter as practicable, a certificate,
registered in the name of Allaire, evidencing the Shares.
2. Repurchase Option for the Shares.
---------------------------------
(a) Upon the occurrence of any of the events specified in paragraphs
(b)-(d) below, Company shall have an irrevocable right for a period of ninety
(90) days from the applicable defined date in paragraphs (b)-(d) below to
repurchase (the "Repurchase Option") any or all of (i) the Unvested Shares (as
defined in Section B.3 hereof) at a price of $0.10 per share, subject to
adjustment as set forth in Section B.10 hereof (the "Unvested Share Repurchase
Price") and (ii) the Vested Shares (as defined in Section B.3 hereof) at the
then current fair market value (the "Vested Share Repurchase Price") as
determined in good faith by either (A) the agreement of Company and Allaire, or
(B) if Company and Allaire cannot agree on such fair market value within thirty
(30) days after the giving of notice as provided for in Section 2(e) (the
"Notice Date"), the valuation shall be made by an appraiser of recognized
standing selected by Company and Allaire within forty (40) days of the Notice
Date, or, if they cannot agree on an appraiser within such forty (40) day
period, each shall select an appraiser of recognized standing and the two
appraisers shall designate a third appraiser of recognized standing within sixty
(60) days of the Notice Date, whose appraisal shall be completed within thirty
(30) days after his or her appointment and whose appraisal shall be
determinative of such fair market value; provided, however, that if the
Repurchase Option is being exercised within six (6) months following the date of
this Agreement, then notwithstanding the foregoing, the Vested Share Repurchase
Price shall be $0.10 per share for such six (6) month period. The fair market
value shall be determined without regard to liquidity or the minority or
majority ownership interest involved. Each of Company and Allaire shall bear the
cost and expenses of the appraiser it appoints, and each shall bear one-half of
the cost and expenses of the third appraiser or the sole appraiser if only one
is appointed. Notwithstanding the foregoing or any other provision herein, if
Company obtains the right to exercise the Repurchase Option under this Section
B.2(a) due to a material default by Allaire in fulfilling its obligations under
Section C.2(f)(i), then (x) with respect to all Shares subject to the Repurchase
Option, both the Unvested Share Repurchase Price and the Vested Share Repurchase
Price shall be $0.01, and (y) with respect to the Shares that Company may have
previously repurchased pursuant to the Repurchase Option (if any), Allaire shall
pay to Company an amount equal to the total amount previously paid for both
Vested Shares and Unvested Shares minus $0.01 for each such share.
(b) Material Default. Should a material default by Allaire in fulfilling
its obligations under Section C.1, C.2, C.3 or E of this Agreement or under
section 1.1, 2.1, 2.2 or 3.2 of the OEM Agreement occur, and Allaire has not
cured such default within fifteen (15) days after Company has given Allaire
written notice of such default, or has not commenced a curing action that is
reasonably satisfactory to Company with
3
<PAGE>
respect to a default which inevitably cannot reasonably be cured in such period,
then the day immediately following the fifteenth day shall be deemed the
"Default Date."
(c) Change in Control. Should any of the following transactions occur (a
"Change in Control Transaction"): (i) any merger, consolidation, reorganization
or other transaction, including a stock purchase or tender offer, pursuant to
which the persons who hold the outstanding shares of common stock of Allaire
immediately prior to the transaction have immediately following the transaction
less than fifty percent (50%) of the combined voting power of the outstanding
securities of the surviving entity ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors; or (ii) any sale, lease, exchange or other transfer not in the
ordinary course of business (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of Allaire, the
effective date of such Change in Control Transaction shall be deemed the "Change
in Control Date."
(d) Termination Date. Should Allaire elect to terminate this Agreement
pursuant to Section D.1, the effective date of such termination shall be deemed
the "Termination Date."
(e) The Repurchase Option shall be exercised by Company within ninety
(90) days following the applicable defined date set forth in paragraphs (b)-(d)
above by delivering or mailing to Allaire (i) written notice in the manner
provided for in Section F.4 hereof, and (ii) a check in the amount of the
aggregate Vested Share Repurchase Price and Unvested Share Repurchase Price, as
applicable; provided, however, that if the Vested Share Repurchase Price has not
been determined pursuant to Section 2(a) within such 90-day period, then payment
for the Vested Shares shall occur within ten (10) days after determination of
the fair market value in accordance with Section 2(a) hereof. Upon delivery of
such notice and the payment of the applicable repurchase price as described
above, Company shall become the legal and beneficial owner of the Shares being
repurchased for which payment had been made and all rights and interest therein
or relating thereto, and Company shall have the right to retain and transfer to
its own name the number of Shares being repurchased by Company.
(f) Upon any exercise of the Repurchase Option for the purchase of
Unvested Shares, all of Allaire's obligations under Sections C.1(e) and C.2
hereof (except for Section C.2(f), which shall survive any exercise of the
Repurchase Option) shall cease.
(g) The Repurchase Option is not assignable by Company unless Allaire
consents in writing to such assignment.
3. Vesting of Shares.
------------------
4
<PAGE>
(a) The Shares subject to this Agreement shall vest as follows provided
that none of the Default Date, the Change in Control Date nor the Termination
Date has occurred:
(i) 302,531 of the Shares shall be immediately vested upon the date
of this Agreement; and
(ii) the remaining 605,060 Shares shall vest, so long as this
Agreement is not terminated, at the rate of 50,421 Shares at the end of each
three (3) month period, commencing on the date of this Agreement, until all such
shares are fully released.
(b) Any of the Shares which have not yet vested are referred to herein
as "Unvested Shares."
(c) Any of the Shares which have vested are referred to herein as
"Vested Shares."
(d) Notwithstanding the foregoing, all of the Shares subject to this
Agreement shall be completely released from the Repurchase Option on the
effective date of such termination of this Agreement unless termination is
pursuant to Section D.2 or unless this Agreement is terminated by Allaire
pursuant to Section D.1.
4. Representations of Allaire. In connection with Allaire's purchase of the
Shares, Allaire hereby represents and warrants to Company as follows:
(a) Investment Intent; Capacity to Protect Interests. Allaire is
purchasing the Shares solely for its own account for investment and not with a
view to or for sale in connection with any distribution of the Shares or any
portion thereof and not with any present intention of selling, offering to sell
or otherwise disposing of or distributing the Shares or any portion thereof in
any transaction other than a transaction exempt from registration under the
Securities Act of 1933, as amended (the "Securities Act"). Allaire also
represents that the entire legal and beneficial interest of the Shares is being
purchased, and will be held, for Allaire's account only, and neither in whole or
in part for any other person. By reason of Allaire's business or financial
experience or the business or financial experience of Allaire's professional
advisors who are unaffiliated with and who are not compensated by Company or any
affiliate or selling agent of Company, Allaire, directly or indirectly, could be
reasonably assumed to have the capacity to evaluate the merits and risks of an
investment in Company and to protect Allaire's own interests in connection with
this transaction.
(b) Resident. Allaire's principal place of business is as set forth on
the signature page hereof.
5
<PAGE>
(c) Information Concerning Company. Allaire has heretofore discussed
Company and its plans, operations and financial condition with Company's
officers, knows that Company is engaged in a speculative business and has
heretofore received all such information as Allaire has deemed necessary and
appropriate to enable Allaire to evaluate the financial risk inherent in making
an investment in the Shares, and Allaire has received satisfactory and complete
information concerning the business and financial condition of Company in
response to all inquiries in respect thereof.
(d) Economic Risk. Allaire realizes that the purchase of the Shares will
be a highly speculative investment and involves a high degree of risk, and
Allaire is able, without impairing its financial condition, to hold the Shares
for an indefinite period of time and to suffer a complete loss of Allaire's
investment.
(e) Restricted Securities. Allaire understands and acknowledges that:
(i) The sale of the Shares has not been registered under the
Securities Act, and the Shares must be held indefinitely unless subsequently
registered under the Securities Act or an exemption from such registration is
available (such as Rule 144 or the resale provisions of Rule 701 under the
Securities Act);
(ii) The share certificate representing the Shares will be stamped
with the legends specified in Section B.8 hereof; and
(iii) Company will make a notation in its records of the
aforementioned restrictions on transfer and legends.
(f) Disposition under the Securities Act. Allaire understands that the
Shares are restricted securities within the meaning of Rule 144 promulgated
under the Securities Act; that the exemption from registration under Rule 144
will not be available in any event for at least one (1) year from the date of
purchase and payment of the Shares and even then will not be available unless
(i) a public trading market then exists for the Common Stock of Company, (ii)
adequate information concerning Company is then available to the public, and
(iii) other terms and conditions of Rule 144 are complied with; and that any
sale of the Shares may be made only in limited amounts in accordance with such
terms and conditions. There can be no assurance that the requirements of Rule
144 will be met, or that the stock will ever be saleable.
(g) Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Allaire further agrees that it shall in no
event make any disposition of all or any portion of the Shares unless and until:
(i) (A) There is then in effect a Registration Statement under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with said Registration Statement; (B) the resale provisions of
Rule 144 are available in the opinion of counsel to Company; or (C)(1) Allaire
shall have notified
6
<PAGE>
Company of the proposed disposition and shall have furnished Company with a
detailed statement of the circumstances surrounding the proposed disposition,
(2) Allaire shall have furnished Company with an opinion of Allaire's counsel to
the effect that such disposition will not require registration of such Shares
under the Securities Act, and (3) such opinion of Allaire's counsel shall have
been concurred with by counsel for Company and Company shall have advised
Allaire of such concurrence; and
(ii) The Shares proposed to be transferred shall no longer be
subject to the Repurchase Option set forth in Section B.2 hereof and Allaire
shall have complied with the "lock-up" provisions set forth in Section B.9
hereof and the right of first refusal and other transfer restrictions set forth
in that certain Stock Restriction Agreement dated the date hereof by and among
Company, the Investors, Allaire and Weld, Brown (as such parties are defined in
such agreement) (the "Stock Restriction Agreement").
(h) Section 83(b) Election. Allaire understands that Section 83 of the
Internal Revenue Code of 1986 (the "Code"), taxes as ordinary income the
difference between the amount paid for the Shares and the fair market value of
the Shares as of the date any restrictions on the Shares lapse. In this context,
"restriction" means the right of Company to buy back the Shares pursuant to the
repurchase options. Allaire understands that it may elect to be taxed at the
time the Shares are purchased rather than when and as the repurchase options
expire by filing an election under Section 83(b) of the Code with the Internal
Revenue Service within thirty (30) days from the date of purchase. Even if the
fair market value of the Shares equals the amount paid for the Shares, the
election must be made to avoid adverse tax consequences in the future. The form
for making this election is attached as Exhibit A hereto. Allaire understands
that failure to make this filing timely will result in the recognition of
ordinary income by Allaire, as the repurchase options lapse, on the difference
between the purchase price and the fair market value of the Shares at the time
such restrictions lapse.
ALLAIRE ACKNOWLEDGES THAT IT IS ALLAIRE'S SOLE RESPONSIBILITY AND NOT
COMPANY'S TO FILE TIMELY THE ELECTION UNDER SECTION 83(b), EVEN IF ALLAIRE
REQUESTS COMPANY OR ITS REPRESENTATIVES TO MAKE THIS FILING ON ALLAIRE'S BEHALF.
7
<PAGE>
5. Other Documents/Matters.
------------------------
(a) Representations and Warranties of Company. Subject in part to the
accuracy of the representations of Allaire set forth in Section 4 hereof,
Company hereby affirms to Allaire the same representations and warranties made
in Section 4 of the Series A Purchase Agreement.
(b) Transfer Restrictions. The restrictions on any proposed transfer of
the Shares are as set forth in the Stock Restriction Agreement.
6. Rights as Shareholder. Subject to the terms and conditions of this
Agreement, Allaire shall have all of the rights of a shareholder of Company with
respect to the Shares from and after the date that Allaire delivers full payment
for the Shares until such time as Allaire disposes of the Shares or Company
and/or its assignee(s) exercises the repurchase options hereunder. Upon such
exercise, Allaire shall have no further rights as a holder of the Shares so
purchased except the right to receive payment for the Shares so purchased in
accordance with the provisions of this Agreement, and Allaire shall forthwith
cause the certificate(s) evidencing the Shares so purchased to be surrendered to
Company for transfer or cancellation.
7. Escrow. As security for the faithful performance of this Agreement,
Allaire agrees, immediately upon receipt of the certificate(s) evidencing the
Shares, to deliver such certificate(s), together with a stock power in the form
of Exhibit B attached hereto, executed by Allaire (with the date and number of
Shares left blank), to the Secretary of Company or its designee ("Escrow
Agent"); said documents are to be held by the Escrow Agent pursuant to the Joint
Escrow Instructions of Company and Allaire set forth in Exhibit C attached
hereto and incorporated by this reference, which instructions shall also be
delivered to the Escrow Agent upon execution of this Agreement.
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<PAGE>
8. Restrictive Legends and Stop-Transfer Orders.
(a) Legends. Allaire understands and agrees that Company shall cause the
legends set forth below or legends substantially equivalent thereto, to be
placed upon any certificate(s) evidencing ownership of the Shares together with
any other legends that may be required by state or federal securities laws:
(i) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED,
SOLD OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER
THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER
9
<PAGE>
OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER IS IN
COMPLIANCE THEREWITH.
(ii) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS AS SET FORTH IN THE AGREEMENT BETWEEN THE ISSUER AND
THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE
OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH RESTRICTIONS
ARE BINDING ON TRANSFEREES OF THESE SHARES.
(iii) Any legends set forth in the Stock Restriction Agreement and that
certain Voting Agreement dated the date hereof, by and among
Company, the Investors, Allaire and Weld Brown (as such parties
are defined in such agreement).
(b) Stop-Transfer Notices. Allaire agrees that, in order to ensure
compliance with the restrictions referred to herein, Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if Company transfers its own securities, it may make appropriate notations
to the same effect in its own records.
(c) Refusal to Transfer. Company shall not be required (i) to transfer
on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as the
owner of such Shares or to accord the right to vote or pay dividends to any
Allaire or other transferee to whom such Shares shall have been so transferred.
9. Market Standoff Agreement. Allaire hereby agrees that if so requested by
Company or any representative of the underwriters in connection with any
registration of the offering of any securities of Company under the Securities
Act, Allaire shall not sell or otherwise transfer any Shares or other securities
of Company during the one hundred eighty (180) day period following the
effective date of a registration statement of Company filed under the Securities
Act (or in the case of any registration statement filed after an initial public
offering, ninety (90) days after such effective date). Company may impose
stop-transfer instructions with respect to securities subject to the foregoing
restrictions until the end of such period.
10. Adjustment for Stock Split. All references to the number of Shares and
the purchase price for the Shares in this Agreement shall be appropriately
adjusted to reflect any stock split, stock dividend or other change in the
Shares which may be made by Company after the date of this Agreement.
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<PAGE>
C. Intellectual Property
---------------------
1. Assignment of Code; Licenses; Delivery Of Materials.
----------------------------------------------------
(a) Assignment of Code. Allaire hereby irrevocably sells, grants,
transfers and assigns to Company all right, title and interest in and to the
Code, free and clear of any liens, encumbrances or restrictions, and does hereby
deliver good and marketable title to the Code to Company.
(b) Grant-back License to Code. Subject to the terms and conditions
hereof, Company hereby grants to Allaire a fully-paid, perpetual, non-exclusive,
irrevocable, worldwide license to use the Code solely for its internal use,
including for use in developing Updates to the Code and for use in its website,
except to the extent that any such use by Allaire would violate any of the
provisions of this Agreement (including, without limitation, Sections C.2(f) and
C.3); provided, however, that the foregoing shall not be deemed to prohibit
Allaire from using general programming concepts and know-how acquired by it in
the process of developing the Code, so long as such use does not involve use of
the Code and is otherwise within the scope of the license granted in this
Section C.2(b). This Section C.2(b) shall survive termination of this Agreement.
(c) License to Updates to the Code. Subject to the terms and conditions
hereof, Allaire hereby grants to Company a fully-paid, perpetual, exclusive,
irrevocable, worldwide, license to use, copy, modify and prepare derivative
works of, market and distribute, and to sublicense third parties to do any or
all of the foregoing, all Updates to the Code and related Documentation provided
hereunder prior to the termination or expiration of this Agreement in accordance
with its terms. This Section C.2(c) shall survive termination of this Agreement.
(d) License to Allaire Software. Subject to the terms and conditions
hereof, Allaire hereby grants to Company a fully-paid, perpetual, non-exclusive,
irrevocable, worldwide license to use a reasonable number of alpha, beta and
release versions of the Allaire Software and any related Documentation provided
hereunder prior to the termination or expiration of this Agreement in accordance
with its terms, except to the extent that such use by Company would violate the
provisions of Section C.3 (1) to maintain compatibility of Athena with the
Allaire Software, (2) to develop new products compatible with the Allaire
Software and (3) otherwise in accordance with the applicable beta agreement or
applicable commercial end-user license agreement. Company's right to bundle and
ship release versions of any or all of the Allaire Software with Athena shall be
governed by the OEM Agreement. This Section C.2(d) shall survive termination of
this Agreement.
(e) License to Athena. Subject to the terms and conditions hereof,
Company hereby grants to Allaire a fully-paid, perpetual, non-exclusive,
non-transferable, irrevocable, worldwide license to internally use a reasonable
number of
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<PAGE>
alpha, beta and release versions of Athena provided hereunder prior to the
termination or expiration of this Agreement in accordance with its terms,
including use in its website, (1) except to the extent that such internal use by
Allaire would violate the provisions of this Agreement (including, without
limitation, Sections C.2(f) and C.3) and (2) otherwise in accordance with the
applicable beta agreement or applicable commercial end-user license agreement.
If Allaire desires to bundle and ship release versions of any or all of Athena
with the Allaire Software, the parties shall enter into a written OEM agreement
containing mutually agreeable terms and conditions. This Section C.2(e) shall
survive termination of this Agreement.
(f) Delivery of Code. Upon execution of this Agreement, Allaire shall
deliver to Company at no charge one complete copy of the Code in electronic
format (on machine readable diskette, CD-ROM or such other suitable means as may
be agreed to by the parties), together with any related tools and Documentation.
In addition, during the term of this Agreement and at no charge, Allaire will
promptly deliver to Company copies of any Update of the Code and any related
Documentation that Allaire may make, but in any event no later than fourteen
(14) days after such Update is first used by Allaire in production on Allaire's
external website, for use by Company in accordance with the license granted in
(a) above. Company acknowledges and agrees that Allaire is under no obligation
to develop any Updates to the Code. The copies of both the original and Update
versions of the Code to be provided shall be in electronic format (on machine
readable diskette, CD-ROM or such other suitable electronic format as may be
agreed upon by the parties).
(g) Delivery of Alpha, Beta and Updates. During the term of this
Agreement and at no charge, Allaire will deliver to Company copies of each alpha
version, beta version, release version and Update of the Allaire Software,
together with any related Documentation, no later than two (2) weeks after the
date such alpha version, beta version, release version or Update is first sold,
given, licensed, authorized or otherwise provided by Allaire to any third party,
for use by Company in accordance with the license granted in (b) above. The
copies to be provided shall be in electronic format (on machine readable
diskette, CD-ROM or such other suitable electronic format as may be agreed upon
by the parties).
(h) Delivery of Athena. During the term of this Agreement and at no
charge, Company will promptly supply Allaire with copies of each alpha version,
beta version, release version and Update of Athena produced by Company, together
with any related Documentation, for use by Allaire in accordance with the
license granted in (c) above. The copies to be provided shall be in electronic
format on machine readable diskette, CD-ROM or such other suitable electronic
format as may be agreed upon by the parties).
(i) Ownership and Modification of Code. Subject the license granted to
Allaire under Section C.1(b) of this Agreement, Company retains all right, title
and
12
<PAGE>
interest in and to the Code and any related Documentation, including, without
limitation, all copyrights and trademarks. Company reserves the right, in its
sole discretion, to modify, improve or discontinue any or all of the Code and
any related Documentation at any time or from time to time.
(j) Ownership and Modification of Athena. Subject to the license granted
to Allaire under Section C.1(e) of this Agreement, Company retains all right,
title and interest in and to Athena and any related Documentation, including,
without limitation, all copyrights and trademarks. Company reserves the right,
in its sole discretion, to modify, improve or discontinue any or all of Athena
and any related Documentation at any time or from time to time.
2. Additional Responsibilities of Allaire.
---------------------------------------
(a) Technical Support for the Code. During the term of this Agreement,
Allaire shall provide reasonable technical support to Company concerning the
operation, capabilities, compatibilities and other aspects of the Code and
Company's development of Athena relating thereto. Such technical support shall
include, without limitation, providing call-back response to Company's requests
for support as promptly as possible, but in any event within two (2) business
days, and access to an assigned employee of Allaire with adequate knowledge of
and experience with the Code and the Allaire Software. The parties hereby agree
that Mike Andler shall be such assigned employee unless and until a substitute
with comparable knowledge and experience is designated by Allaire.
(b) Product Planning Meetings. The parties agree that in order to enable
Company to offer Athena products compatible with the Allaire Software
concurrently with or soon after Allaire's release of a new Update to the Allaire
Software (a "New Release"), upon Company's request (but not more frequently than
quarterly) appropriate engineering and product marketing staff from Allaire will
meet with Company at a mutually acceptable time and location to discuss
Allaire's product development plans for potential New Releases. If and to the
extent any written information relevant to any such New Releases is provided at
such meetings, Allaire shall provide Company with such information; provided,
however, that if for confidentiality reasons Allaire requires all participants
at such meetings to return such information, then Company shall comply with such
requirement.
(c) Technical Support for Compatibility. During the term of this
Agreement, Allaire shall provide reasonable technical support to Company
relating to Company's efforts to modify, fix or upgrade Athena and the related
Documentation in order to be compatible with the Allaire Software and any New
Releases. Such technical support shall include, without limitation, providing
call-back response to Company's requests for support as promptly as possible,
but in any event within two (2) business days, and access to an assigned
employee of Allaire with adequate knowledge and
13
<PAGE>
experience. The parties hereby agree that Ben Forta shall be such assigned
employee unless and until a substitute with comparable knowledge and experience
is designated by Allaire.
(d) Mailings to Allaire's Customer List. At any time after the execution
of this Agreement and at Company's request, Company shall be permitted, at
Company's sole expense and through a bonded mail house, to make a "blind"
promotional mailing regarding Athena to Allaire's Customer List. Company shall
be permitted to make additional blind promotional mailings regarding Athena and
any other products of Company developed using the Allaire Software to Allaire's
Customer List; provided, that mailings are made no more frequently than once per
quarter to any particular customer (it being understood and agreed that more
than one mailing may be made in the same quarter subject to the foregoing
restriction), unless otherwise agreed to by Allaire. Nothing contained herein
shall prohibit or restrict Company from making any mailings to Company's
customers.
(e) Access to Sales and Distribution Channels. During the term of this Agreement
and upon Company's request (and at no charge to Company), Allaire shall (i)
assist Company in identifying appropriate customers, beta version test customers
and/or distribution partners for Athena, (ii) include in designated shipments of
the Allaire Software advertisements and/or promotional materials as reasonably
requested by Company to all or part of Allaire's Customer List (such materials
to be provided by Company at its expense), (iii) facilitate and participate in
personal introductions of Company to certain customers from Allaire's Customer
List designated by Company and (iv) cooperate with Company in other co-marketing
arrangements, including, without limitation, participation in and attendance at
appropriate trade shows.
(f) Non-Competition; Non-Solicitation. During the term of this Agreement
and for one (1) year after the earlier to occur of (1) exercise of the
Repurchase Option or (2) termination hereof, Allaire shall not (i) have an
ownership interest in or control (as defined below) any business which offers or
provides a product which competes with Athena anywhere in the world, nor shall
it assist any third party by providing management, consulting, development or
other services (other than by providing support to its OEMs and other users of
the Allaire Software in the use of and establishing compatibility with the
Allaire Software) to compete with Athena anywhere in the world, (ii) induce or
attempt to induce any employee of Company to leave Company's employ or in any
way interfere with the relationship between Company and any of its employees for
any reason, including without limitation, becoming employed or otherwise engaged
by Allaire (or any person or entity associated with Allaire) in any capacity,
nor will it assist others to do so or (iii) induce or attempt to induce any
customer, supplier, licensee or other business relation of Company to cease
doing business with Company, or in any way interfere with the relationship
between any customer, supplier, licensee or other business relation and Company,
nor will it assist others to do so; provided, however, that nothing herein shall
prevent the purchase or ownership by Allaire of shares
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<PAGE>
which constitute less than one percent of the outstanding equity securities of a
publicly-held company. For purposes of this Section C.2(f), "control" shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the affairs or management of a person or entity, whether through
the ownership of voting securities, as trustee or executor, by contract or
otherwise. In the event Company fails to use commercially reasonable efforts to
develop versions of Athena compatible with Cold Fusion technology with
substantially equivalent features and functionalities as versions of Athena (the
"Other Versions") compatible with other platforms (other than features or
functionalities which are inapplicable or not commercially feasible due to
limitations or characteristics of Cold Fusion technology) within a reasonable
period of time (generally understood not to exceed 90 days) after release of the
Other Versions, then Allaire will cease to be bound by this Section C.2(f).
Allaire acknowledges and agrees that, in the event of any violation by it of any
provision of Section C.2(f)(ii) or (iii), Company will suffer irreparable and
ongoing harm which, while substantial, will not be fully compensable by damages.
As a consequence, in the event of any actual or threatened breach of Section
C.2(f)(ii) or (iii), Company may, in addition and supplementary to any and all
other rights and remedies existing in its favor, seek to obtain immediate and
ongoing injunctive relief, enjoining or restraining whatever violation may have
occurred or be occurring or may have been threatened. This injunctive relief
shall be in the form of a temporary restraining order, preliminary injunction or
similar relief, and a permanent injunction, as may be sought by Company. In the
event of any violation by Allaire of Section C.2(f)(i), Company's sole and
exclusive remedy shall be to exercise the Repurchase Option in accordance with
Section B.2(a).
3. Proprietary Information; Non-Disclosure.
----------------------------------------
(a) Confidential Information. "Confidential Information," for purposes
of this Agreement, includes all information disclosed by a party that is marked
as confidential or proprietary, or is received under circumstances reasonably
interpreted as imposing an obligation of confidentiality. Confidential
Information includes, but is not limited to, the Code, Athena and all
proprietary technology, schematics, know-how, procedures, engineering data,
software structures, drawings, price lists, business plans, servicing guides and
documentation, disclosed by such party (the "Disclosing Party") to the other
party (the "Receiving Party"). In order to preserve the value of the Code to
Company, Allaire agrees that it will hold and use the Code as if it were
Confidential Information of Company. Notwithstanding the foregoing, Confidential
Information shall not include any information (i) that is or becomes readily
available in public records or documents, other than as a result of an improper
disclosure by the Receiving Party or any affiliate or other person acting on its
behalf, (ii) which can be shown to have been known by the Receiving Party prior
to its disclosure by the Disclosing Party, (iii) which must be disclosed by the
Receiving Party under applicable laws or regulations or judicial or
administrative proceedings, (iv) that is received by the Receiving Party from a
third party
15
<PAGE>
free to lawfully disclose such information or (v) that is subsequently
independently developed by the Receiving Party.
(b) Protection of Confidential Information. The Receiving Party shall
and shall cause any other person acting on its behalf to (i) hold the
Confidential Information of the Disclosing Party in strictest confidence, (ii)
exercise the highest degree of care in safeguarding such Confidential
Information against any and all loss, theft or other inadvertent disclosure, and
(iii) take such steps as are necessary to ensure and maintain such
confidentiality.
(c) Use of Confidential Information. Without the prior written consent
of the Disclosing Party, the Receiving Party shall not, and shall cause its
directors, officers, employees, affiliates and any other person acting on its
behalf to not (i) disclose, transfer or in any way divulge, directly or
indirectly, any of the Confidential Information of the Disclosing Party, under
any circumstances or by any means, to any third party (other than to third
parties performing services for the Receiving Party, which third parties are
subject to confidentiality obligations not less restrictive than those imposed
by this Agreement), (ii) copy, transmit, reproduce, summarize, quote, or make
any commercial use whatsoever of any of such Confidential Information, or (iii)
use any of the Confidential Information for any purpose other than for
performance of the Receiving Party's obligations hereunder.
(d) Survival. The Confidential Information of the Disclosing Party shall
remain the exclusive property of the Disclosing Party. The obligations of each
party hereunder shall survive termination of this Agreement for so long as such
party is in possession of any Confidential Information; provided, however, that
notwithstanding anything to the contrary contained in this Agreement, during and
following termination of this Agreement Company shall be permitted to use the
Code in accordance with the paid-up license granted under this Agreement.
(e) Ownership of Allaire Software. Company agrees that all right, title
and interest in and to any trademark, trade name, service mark, patent,
copyright or other property right incorporated in or relating to the Allaire
Software and any related Documentation are and shall remain vested solely in
Allaire. Company shall not attempt to register any name, symbol or mark of
Allaire, nor any name, symbol or mark similar thereto. Company will retain and
not obscure or alter in any way the serial numbers and copyright, proprietary
rights and trademark notices in the Allaire Software.
(f) Ownership of Athena. Allaire agrees that all right, title and
interest in and to any trademark, trade name, service mark, patent, copyright or
other property right incorporated in or relating to Athena and any related
Documentation (other than the Code and Documentation licensed to Company under
this Agreement) are and shall remain vested solely in Company. Allaire shall not
attempt to register any name, symbol or mark of Company, nor any name, symbol or
mark similar thereto. Allaire will retain
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<PAGE>
and not obscure or alter in any way the serial numbers and copyright,
proprietary rights and trademark notices in Athena or any related Documentation.
D. Term And Termination
--------------------
1. This Agreement will continue in effect until terminated for any or no
reason by either party with at least six (6) months prior written notice to the
other party.
2. Notwithstanding Section D.1, Company may terminate this Agreement
immediately upon notice to Allaire if: (a) Allaire is in breach of any
representation, warranty or obligation hereunder and such breach is not fully
cured within fifteen (15) days after Company has given Allaire written notice of
such breach; or (b) has not commenced a curing action that is reasonably
satisfactory to Allaire with respect to a breach which inevitably cannot be
reasonably cured in such period.
3. Notwithstanding Section D.1, Allaire may terminate this Agreement
immediately upon notice to Company if: (a) Company is in breach of any
representation, warranty or obligation hereunder and such breach is not fully
cured within fifteen (15) days after Allaire has given Company written notice of
such breach; or (b) has not commenced a curing action that is reasonably
satisfactory to Company with respect to a breach which inevitably cannot be
reasonably cured in such period.
4. Upon termination of this Agreement, the following shall occur:
(a) The assignment of the Code under Section C.1(a) and the licenses
granted under Sections C.1(b), (c), (d) and (e) prior to such termination, and
all respective rights and obligations of the parties arising under Sections B,
C.2(f), C.3 and E shall survive such termination in accordance with their terms
(except that if Company terminates this Agreement other than pursuant to Section
D.2, the rights and obligations of the parties arising under Section C.2(f)
shall not survive), it being agreed that all other rights and obligations of the
parties shall thereafter terminate;
(b) For a period of two (2) years after the effective date of such
termination, Company will be given the opportunity to participate as a member of
all distribution partner programs offered by Allaire, if any, so long as Company
meets the standard qualifications for such programs;
(c) Upon request by Company, Allaire shall immediately deliver to
Company all copies, diskettes, and other documents containing any Confidential
Information of Company, except for the copies of Athena provided to Allaire
hereunder; and
(d) Upon request by Allaire, Company shall immediately deliver to
Allaire all copies, diskettes, and other documents containing any Confidential
Information
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<PAGE>
of Allaire, except for the copies of the Allaire Software and Documentation
provided to Company hereunder and the Code.
5. Should this Agreement be terminated by Allaire pursuant to Section D.1
or should this Agreement be terminated by the Company pursuant to Section D.2,
Allaire shall provide a $120,000 credit against future purchases from Allaire by
the Company. Such $120,000 credit shall be reduced by $10,000 each calendar
quarter commencing at the end of the first calendar quarter following the date
of this Agreement.
E. Limited Warranties; Limitation Of Liability
-------------------------------------------
1. Allaire represents and warrants that (a) the Code and Allaire Software,
in the form delivered by Allaire to Company, do not and will not infringe any
valid United States patent, copyright, trademark or other intellectual property
right of any third party, (b) Allaire owns all right, title and interest in and
to, or has sufficient legal rights and interests to use and sell or license to
Company the right to use (as contemplated by this Agreement) the Code and
Allaire Software in the form delivered to Company, (c) no claims have been
asserted, and no claims are pending, by any third party regarding infringement
by the Code and Allaire Software in the form delivered hereunder, and to the
best knowledge of Company there is no basis for any such claim and (d) the legal
rights and interests of Allaire in the Code and Allaire Software transferred
hereby are adequate and sufficient to permit Company to license and sell Athena
as contemplated hereby. Company represents and warrants that Athena, in the form
delivered by Company to Allaire, do not and will not infringe any valid United
States patent, copyright, trademark or other intellectual property right of any
third party. The Code, Allaire Software and Athena provided under this Agreement
are collectively referred to herein as the "Software." Allaire and Company
warrant that the media on which any Software is provided to the other hereunder
are free from defects in material and workmanship under normal use and that the
Software recorded therein is properly recorded. Neither party warrants to the
other that the functions contained in the Software will meet the other party's
or its customers' requirements, that Software is free from defects or that the
operation of the Software will be uninterrupted or error free. Except for the
express warranties provided under Sections E.1 and E.2, all Software is provided
hereunder on an "AS IS" basis.
2. Each party shall indemnify, hold harmless and, at the other's request,
defend the other, its subsidiaries and affiliates from and against all claims,
liabilities, damages, losses and expenses including, but not limited to
reasonable attorney's fees and costs of suit, arising out of or in connection
with all claims that the use of the Software provided hereunder by the
indemnifying party violates any valid United States patent, copyright, trademark
or other intellectual property right of any third party, and which are awarded
against the indemnified party after a final adjudication of such claims from
which no appeal has been or may be made; provided, that the indemnified party
(a) notifies the indemnifying party promptly in writing of any claim or suit
within the
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<PAGE>
scope of this indemnity, (b) cooperates with the indemnifying party by providing
information and assistance to settle and/or to defend any such claim or action,
and (c) gives the indemnifying party full authority to control the defense
and/or settlement of any such claim or action, subject only to the right of the
indemnified party to control the defense of any claims directly affecting its
interests in its own proprietary materials. If any Software is held in any suit
or proceeding to infringe any United States patent, copyright, mask work, trade
secret, trade mark or other proprietary right of any third party and its use is
enjoined, the party which provided such Software, at its option and own expense,
will either (i) procure for the other party the right to continue using the
Software which is alleged to be infringing; (ii) modify such Software so that it
becomes non-infringing while giving equivalent performance; (iii) replace the
Software with non-infringing technology or materials which give equivalent or
better performance or (iv) return all consideration received in exchange for the
license of the infringing Software (which in the case of Allaire, shall be all
of the Shares). Notwithstanding the foregoing, neither party shall have any
obligation or liability under this Section E arising from the modification of
such party's Software after delivery to the other party hereunder or the
combination of such party's Software with any products not supplied by such
party, and where, but for such modification or combination, no infringement
would have occurred. THE FOREGOING STATES THE INDEMNIFYING PARTY'S SOLE
RESPONSIBILITY, AND THE INDEMNIFIED PARTY'S SOLE REMEDY, FOR ANY INFRINGEMENTS
OF ANY PROPRIETARY RIGHTS. The obligations of each party under this Section E
shall survive termination of this Agreement.
3. THE WARRANTIES SET FORTH IN THIS SECTION E ARE THE ONLY WARRANTIES MADE
BY ALLAIRE OR COMPANY. NO OTHER WARRANTIES HAVE BEEN MADE BY ALLAIRE OR COMPANY.
ANY INFORMATION EXCHANGED UNDER THIS AGREEMENT IS PROVIDED "AS IS."
4. IN NO EVENT SHALL A PARTY BE LIABLE TO THE OTHER PARTY, ITS CUSTOMERS,
OR ANY OTHER PERSON FOR INCIDENTAL, INDIRECT, SPECIAL CONSEQUENTIAL OR PUNITIVE
DAMAGES, INCLUDING WITHOUT LIMITATION LOSS OF USE, DELAYS, LOST PROFITS OR LOST
SAVINGS, ARISING OUT OF THE BREACH OF ANY WARRANTY OR OBLIGATION UNDER THIS
AGREEMENT OR THE USE OR INABILITY TO USE THE CODE, ATHENA OR ANY RELATED
DOCUMENTATION OR UPDATES, OR ANY PORTION THEREOF, WHETHER BASED ON CONTRACT OR
TORT (INCLUDING BUT NOT LIMITED TO STRICT LIABILITY, PRODUCT LIABILITY,
NEGLIGENCE, OR FOR INDEMNIFICATION OR RESULTING FROM THIS AGREEMENT OR ANYTHING
FURNISHED HEREUNDER), EVEN IF THE OTHER PARTY HAS BEEN ADVISED AS TO THE
POSSIBILITY OF SUCH DAMAGES.
F. Miscellaneous
-------------
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1. Successors and Assigns. Without the prior consent of the other party,
neither party shall assign its rights or obligations under this Agreement;
provided, however, that Company may assign its rights and obligations under this
Agreement other than Sections B, C.2 and D.4(b) to single or multiple assignees
without Allaire's consent. Subject to the restrictions on transfer herein set
forth, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns.
2. Interpretation. Any dispute regarding the interpretation of this
Agreement shall be submitted by Allaire or by Company forthwith to Company's
Board of Directors which shall review such dispute at its next regular meeting.
The resolution of such a dispute by the Board shall be final and binding on
Company and on Allaire.
3. Governing Law; Severability. This Agreement exclusively shall be
governed by and construed in accordance with the laws of the State of
Washington, excluding that body of law pertaining to conflicts of law. Should
any provision of this Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
4. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or four (4)
days following deposit in the United States mail by certified mail, with postage
and fees prepaid, addressed to the other party at its address as shown below
opposite its signature, or to such other address as such party may designate by
appropriate notice hereunder from time to time to the other party.
5. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
6. Titles. The titles used in this Agreement are for convenience only and
are not to be considered in construing or interpreting this Agreement.
7. Independent Contractor. Company and Allaire are independent contractors
as to each other and at no time shall either party be deemed to be or hold
itself out as the employee, agent, partner or representative of the other party.
8. Entire Agreement. This Agreement constitutes the entire agreement of the
parties and supersedes in its entirety all prior undertakings and agreements of
Company and Allaire with respect to the subject matter hereof. To the extent
that any provision of this Agreement conflicts with any provision of the OEM
Agreement, this Agreement shall control and prevail.
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9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
YESLER SOFTWARE, INC. Address:
-------
a Washington corporation
By: /s/ David L. Weld, Jr. 108 S. Washington St., Suite 200
---------------------- --------------------------------
Its: President Seattle, Washington 98104
--------- -------------------------
ALLAIRE Address:
-------
Allaire Corporation
By: /s/ Joseph J. Allaire
---------------------- --------------------------------
Its: CTO
--------------------- --------------------------------
[Signature Page to Allaire Agreement]
<PAGE>
EXHIBIT A
---------
ELECTION UNDER SECTION 83(b)
----------------------------
OF THE INTERNAL REVENUE CODE OF 1986
------------------------------------
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the
Internal Revenue Code of 1986, as amended, to include in its gross income for
the current taxable year, the amount of any compensation taxable to it in
connection with its receipt of the property described below:
1. The name, address, taxpayer identification number and taxable year of
the undersigned are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
TAXPAYER SPOUSE
-------- ------
NAME: __________________ ______________________
ADDRESS: __________________ ______________________
__________________ ______________________
IDENTIFICATION NO: ____-___-_____ ____-___-_____
TAXABLE YEAR: Calendar Year 199__
</TABLE>
2. The property with respect to which the election is made is described as
follows:
_______ shares of Common Stock of Company, a Washington corporation.
3. The date on which the property was transferred is: _______, 199__
4. The property is subject to the following restrictions:
Option to repurchase 605,060 shares at cost upon the occurrence of
certain events as specified in the Agreement. Repurchase option lapses
quarterly over a three (3) year period.
5. The fair market value at the time of transfer, determined without
regard to any restriction other than a restriction which by its terms will never
lapse, of such property is: $_________.
<PAGE>
6. The amount (if any) paid for such property: __________ (in cash and
property).
The undersigned has submitted a copy of this statement in connection with the
undersigned's receipt of the above-described property.
The undersigned understands that the foregoing election may not be revoked
except with the consent of the Commissioner.
Dated: _____________________, 199__ ________________________________
Taxpayer
<PAGE>
EXHIBIT B
---------
STOCK POWER AND ASSIGNMENT
--------------------------
SEPARATE FROM CERTIFICATE
-------------------------
FOR VALUE RECEIVED and pursuant to that certain Contribution and Restricted
Stock Purchase Agreement dated as of _______________, 1998, the undersigned
hereby sells, assigns and transfers unto __________________________, [ ]
(_______) shares of Common Stock of Yesler Software, Inc., a Washington
corporation, standing in the undersigned's name on the books of said corporation
represented by certificate number ______ delivered herewith, and does hereby
irrevocably constitute and appoint ________________ as attorney-in-fact, with
full power of substitution, to transfer said stock on the books of said
corporation.
Dated: ________________, 1998.
ALLAIRE CORPORATION
_______________ By:________________________
_______________ Its:_______________________
Allaire Corporation
___________________________
_______________ (Please Print Name)
This Assignment Separate From Certificate was executed in conjunction with the
terms of a Contribution and Restricted Stock Purchase Agreement between the
above assignor and Company dated as of ________________, 1998.
Instruction: Please do not fill in any blanks other than the signature line.
<PAGE>
EXHIBIT C
---------
JOINT ESCROW INSTRUCTIONS
-------------------------
_________________, 1998
Roger F. Clark
Certified Public Accountants
14040 N.E. Eighth Street, Ste. 305
Bellevue, Washington 98007
Ladies and Gentlemen:
As Escrow Agent for both Yesler Software, Inc., a Washington corporation
(the "Company"), and Allaire Corporation ("Allaire"), you are hereby authorized
and directed to hold the documents delivered to you pursuant to the terms of
that certain Contribution and Restricted Stock Purchase Agreement (the
"Agreement"), dated as of ____________, 1998, to which a copy of these Joint
Escrow Instructions is attached, in accordance with the following instructions:
1. In the event that Company and/or any permitted assignee of Company
(referred to collectively for convenience herein as the "Company") exercises its
Repurchase Option set forth in the Agreement, Company shall give to Allaire and
you a written notice specifying the number of shares of stock to be purchased,
the purchase price, and the time for a closing hereunder at the principal office
of Company. Allaire and Company hereby irrevocably authorize and direct you to
close the transaction contemplated by such notice in accordance with the terms
of said notice.
2. At the closing, you are directed (a) to date the stock assignments
necessary for the transfer in question, (b) to fill in the number of shares
being transferred, and (c) to deliver same, together with the certificate
evidencing the shares of stock to be transferred, to Company against the
simultaneous delivery to you of the purchase price (by check or such other form
of consideration mutually agreed to by the parties) for the number of shares of
stock being purchased pursuant to the exercise of the Repurchase Option.
3. Allaire irrevocably authorizes Company to deposit with you any
certificates evidencing shares of stock to be held by you hereunder and any
additions and substitutions to said shares as defined in the Agreement. Allaire
does hereby irrevocably constitute and appoint you as its attorney-in-fact and
agent for the term of this escrow to execute with respect to such securities all
documents necessary or appropriate to make
1
<PAGE>
such securities negotiable and to complete any transaction herein contemplated.
Subject to the provisions of this paragraph 3, Allaire shall exercise all rights
and privileges of a shareholder of Company while the stock is held by you.
4. Upon written request of Allaire after each successive one-year period
from the date of the Agreement, unless the Repurchase Option has been exercised,
you will deliver to Allaire a certificate or certificates representing so many
shares of stock as are not the subject of the Repurchase Option. Ninety-One (91)
days after the applicable defined date as set forth in Section B.2 of the
Agreement, you will deliver to Allaire a certificate or certificates
representing the aggregate number of shares sold and issued pursuant to the
Agreement and not purchased by Company or its assignees pursuant to exercise of
the Repurchase Option.
5. If at the time of termination of this escrow you should have in your
possession any documents, securities, or other property belonging to Allaire,
you shall deliver all of same to Allaire and shall be discharged of all further
obligations hereunder.
6. Your duties hereunder may be altered, amended, modified or revoked only
by a writing signed by all of the parties hereto.
7. You shall be obligated only for the performance of such duties as are
specifically set forth herein and may rely and shall be protected in relying or
refraining from acting on any instrument reasonably believed by you to be
genuine and to have been signed or presented by the proper party or parties. You
shall not be personally liable for any act you may do or omit to do hereunder as
Escrow Agent or as attorney-in-fact for Allaire while acting in good faith and
in the exercise of your own good judgment.
8. You are hereby expressly authorized to disregard any and all warnings
given by any of the parties hereto or by any other person or corporation,
excepting only orders or process of courts of law, and are hereby expressly
authorized to comply with and obey orders, judgments or decrees of any court. In
case you obey or comply with any such order, judgment or decree, you shall not
be liable to any of the parties hereto or to any other person, firm or
corporation by reason of such compliance, notwithstanding any such order,
judgment or decree being subsequently reversed, modified, annulled, set aside,
vacated or found to have been entered without jurisdiction.
9. You shall not be liable in any respect on account of the identity,
authorities or rights of the parties executing or delivering or purporting to
execute or deliver the Agreement or any documents or papers deposited or called
for hereunder.
10. You shall not be liable for the outlawing of any rights under the
statute of limitations with respect to these Joint Escrow Instructions or any
documents deposited with you.
2
<PAGE>
11. You shall be entitled to employ at the expense of Company such legal
counsel and other experts as you may deem necessary properly to advise you in
connection with your obligations hereunder and may rely upon the advice of such
counsel.
12. Your responsibilities as Escrow Agent hereunder shall terminate if you
shall resign by written notice to each party. In the event of any such
termination, Company shall appoint a successor Escrow Agent.
13. If you reasonably require other or further instruments in connection
with these Joint Escrow Instructions or obligations in respect hereto, the
necessary parties hereto shall join in furnishing such instruments.
14. It is understood and agreed that should any dispute arise with respect
to the delivery and/or ownership or right of possession of the securities held
by you hereunder, you are authorized and directed to retain in your possession
without liability to anyone all or any part of said securities until such
disputes shall have been settled either by mutual written agreement of the
parties concerned or by a final order, decree or judgment of a court of
competent jurisdiction after the time for appeal has expired and no appeal has
been perfected, but you shall be under no duty whatsoever to institute or defend
any such proceedings.
15. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or four (4) days
following deposit in any United States Post Office, by registered or certified
mail with postage and fees prepaid, addressed to each of the other parties
thereunto entitled at the following addresses, or at such other addresses as a
party may designate by written notice to each of the other parties hereto.
<TABLE>
<S> <C>
COMPANY: Yesler Software, Inc.
108 South Washington Street
Suite 200
Seattle, Washington 98104
ALLAIRE: Allaire Corporation
One Alewife Center
Suite 380
Cambridge, Massachusetts 02140
ESCROW AGENT: Roger F. Clark
Certified Public Accountants
14040 N.E. Eighth Street, Ste. 305
Bellevue, Washington 98007
</TABLE>
3
<PAGE>
16. By signing these Joint Escrow Instructions, you become a party hereto
only for the purpose of said Joint Escrow Instructions; you do not become a
party to the Agreement.
17. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
Very truly yours,
YESLER SOFTWARE, INC., a Washington
corporation
By:________________________________
Title:_____________________________
ALLAIRE:
Allaire Corporation
By:________________________________
Its:_______________________________
ESCROW AGENT:
ROGER F. CLARK
_____________________________
4
<PAGE>
ATTACHMENT 1.1
--------------
ALLAIRE SOFTWARE
Cold Fusion Studio 3.1
Cold Fusion Application Server 3.1
Cold Fusion Studio 4.0, pre-release and release
Cold Fusion Application Server 4.0, pre-release and release
HomeSite 3.1
HomeSite 4.0, pre-release and release
5
[Letterhead of Polaris Venture Partners]
David J. Orfao
President and Chief Executive Officer
Allaire Corporation
One Alewife Center
Cambridge, MA 02140
December 4, 1998
Dear Mr. Orfao:
In the event that (1) the proposed initial public offering ("IPO") of the common
stock of Allaire Corporation ("Allaire") does not occur by February 28, 1999 and
(2) Allaire does not by that time close at least $3 million in financing (which
financing neither expires nor becomes due and payable prior to February 28,
2000) from an alternate source, each of the undersigned agrees to provide
Allaire with a working capital line of credit (the "Lines") to fund Allaire's
working capital requirements through February 28, 2000.
Advances under the Lines, not to exceed $3.0 million in the aggregate, will be
available to the Company as requested and will bear interest at a mutually
agreed rate between 5% and 20%. Each of the undersigned will contribute to each
requested advance in proportion to their respective investments in Allaire to
date.
The Lines will expire and any amounts advanced to the Company under the Lines
will be due and payable upon the earlier to occur of (1) the closing of an IPO
or (2) February 28, 2000.
POLARIS VENTURE PARTNERS, L.P.
By: Polaris Venture Management Co., L.L.C.
Its General Partner
By: /s/
------------------
Member
POLARIS VENTURE PARTNERS
FOUNDERS' FUND, L.P.
By: Polaris Venture Management Co., L.L.C.
By: /s/
-----------------
Member
Exhibit 11.1
Computation of net loss per share and unaudited pro forma net loss per share
<TABLE>
<CAPTION>
Period from
inception Year ended Nine months ended
(May 5, 1995) December 31, September 30,
through -------------------------- -----------------------------
December 31, 1995 1996 1997 1997 1998
----------------- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Basic and diluted net loss per share:
Net loss $ (188) $(1,698) $(7,425) $(4,548) $(7,988)
======= ======= ======= ======= =======
Basic and diluted weighted average
common shares outstanding 2,200 1,743 1,687 1,584 2,813
======= ======= ======= ======= =======
Basic and diluted net loss per share $ (0.09) $ (0.97) $ (4.40) $ (2.87) $ (2.84)
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Year ended Nine months
December 31, ended September 30,
1997 1998
------------ -------------------
(in thousands, except per share data)
<S> <C> <C>
Unaudited pro forma basic and diluted
net loss per share:
Net loss $(7,425) $(7,988)
======= =======
Unaudited pro forma basic and diluted
weighted average shares outstanding:
Shares attributable to common stock (1) 2,515 3,237
Shares attributable to the assumed
conversion of Preferred Stock upon
closing of an initial public offering 2,863 3,817
------- -------
Unaudited pro forma basic and diluted
weighted average shares 5,378 7,054
======= =======
Unaudited pro forma basic and diluted
net loss per share $ (1.38) $ (1.13)
======= =======
</TABLE>
(1) Includes outstanding common stock subject to repurchase under a stock
restriction agreement which lapses upon the consummation of the Offering.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 9, 1998 relating
to the financial statements of Allaire Corporation, which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the period from inception (May 5, 1995) through December
31, 1995, the two years ended December 31, 1997 and the nine months ended
September 30, 1998 listed under Item 16(b) of this Registration Statement when
such schedules are read in conjunction with the financial statements referred to
in our report. The audits referred to in such report also included these
schedules. We also consent to the reference to us under the heading "Experts" in
such Prospectus.
PricewaterhouseCoopers LLP
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ALLAIRE CORPORATION'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001016139
<NAME> ALLAIRE CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,879
<SECURITIES> 0
<RECEIVABLES> 2,868
<ALLOWANCES> 288
<INVENTORY> 138
<CURRENT-ASSETS> 4,877
<PP&E> 4,329
<DEPRECIATION> (1,257)
<TOTAL-ASSETS> 8,330
<CURRENT-LIABILITIES> 10,818
<BONDS> 0
12,673
260
<COMMON> 41
<OTHER-SE> (16,682)
<TOTAL-LIABILITY-AND-EQUITY> 8,330
<SALES> 11,716
<TOTAL-REVENUES> 13,903
<CGS> 1,262
<TOTAL-COSTS> 4,117
<OTHER-EXPENSES> 17,803
<LOSS-PROVISION> 53
<INTEREST-EXPENSE> 101
<INCOME-PRETAX> (7,988)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,988)
<EPS-PRIMARY> (2.84)
<EPS-DILUTED> (2.84)
</TABLE>
