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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 27, 1996
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TEMPLATE SOFTWARE, INC.
(EXACT NAME OF ISSUER REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
7373
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
52-1042793
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
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45365 VINTAGE PARK PLAZA
DULLES, VIRGINIA 20166
(703) 318-1000
(ADDRESS AND TELEPHONE NUMBER OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
E. LINWOOD PEARCE
CHIEF EXECUTIVE OFFICER
TEMPLATE SOFTWARE, INC.
45365 VINTAGE PARK PLAZA
DULLES, VIRGINIA 20166
(703) 318-1000
(NAME, ADDRESS AND TELEPHONE NUMBER
OF AGENT FOR SERVICE)
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Copies to:
JOSEPH W. CONROY, ESQUIRE
MICHAEL R. LINCOLN, ESQUIRE
HUNTON & WILLIAMS
1751 PINNACLE DRIVE
SUITE 1700
MCLEAN, VIRGINIA 22102
STUART M. CABLE, ESQUIRE
GOODWIN, PROCTER & HOAR LLP
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED
MAXIMUM
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED(1) SHARE(2) PRICE(1)(2) FEE(2)
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Common Stock, par value
$.01 per share........ 2,415,000 Shares $17.00 $41,055,000 $12,441
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(1) Includes shares to be sold pursuant to an over-allotment option granted to
the Underwriters.
(2) Estimated solely for the purpose of calculating the registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED , 1996
2,100,000 SHARES
[TEMPLATE SOFTWARE, INC. LOGO]
COMMON STOCK
------------------------
Of the 2,100,000 shares of Common Stock offered hereby, 1,400,000 shares
are being offered by Template Software, Inc. ("Template" or the "Company") and
700,000 shares are being offered by certain selling shareholders (the "Selling
Shareholders"). The Company will not receive any proceeds from the sale of
shares by the Selling Shareholders. See "Principal and Selling Shareholders."
Prior to this offering, there has been no public market for the Common Stock of
the Company. It is currently estimated that the initial public offering price
will be between $15.00 and $17.00 per share. See "Underwriting" for a discussion
of the factors to be considered in determining the initial public offering
price. Application has been made to have the Company's Common Stock approved for
listing on the Nasdaq National Market under the symbol "TMPL," subject to
official notice of issuance.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGES 5 THROUGH 13.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
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<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
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Total(3)................ $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $600,000.
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day option to purchase up to 315,000 additional shares of Common Stock on
the same terms and conditions as set forth above to cover over-allotments,
if any. If the Underwriters exercise this option in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $ , $ ,
$ , and $ , respectively. See "Underwriting."
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The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale, when, as and if accepted by them and subject to
certain conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
the certificates for the shares of Common Stock will be available for delivery
at the offices of Volpe, Welty & Company, One Maritime Plaza, San Francisco,
California, on or about , 1996.
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VOLPE, WELTY & COMPANY PIPER JAFFRAY INC.
The date of this Prospectus is , 1996.
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[INSERT NEW CHART -- TO COME]
Prior to this offering, the Company has not been a reporting company under
the Securities Act of 1934. The Company intends to furnish its shareholders
annual reports containing audited financial statements examined by its
independent auditors and quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year.
SNAP(R) is a registered trademark and Template Software(TM), Workflow
Template(TM), System Management Template(TM) and Web Template(TM) are trademarks
of Template. This Prospectus also includes trade names, trademarks and
references to intellectual property owned by other companies.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET
(INCLUDING THE NASDAQ STOCK MARKET) OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. Prospective investors should consider carefully
the information discussed under "Risk Factors." Except as set forth in the
Consolidated Financial Statements and unless otherwise indicated, all
information in the Prospectus (i) assumes no exercise of the Underwriters' over-
allotment option, (ii) reflects the conversion of all outstanding shares of
Series A Convertible Preferred Stock (the "Preferred Stock") into Common Stock
effective upon consummation of the offering and (iii) gives effect to the
Recapitalization (as defined in "Description of Capital Stock"). See
"Underwriting" and "Description of Capital Stock."
THE COMPANY
Template Software, Inc. provides enterprise-wide software solutions to
organizations that require large-scale, distributed computing systems through
its reusable software templates, robust software development environment and
staff of software development professionals. The Company believes that, by
combining its reusable software templates, consisting of over one million lines
of reusable object code, and its family of visual development tools, its clients
can obtain solutions in less time and at lower cost than with traditional
software development techniques. The Company's current templates can provide up
to 90% of the code necessary for a complete, functioning application. The
Company's solutions are targeted at large-scale, mission-critical applications,
such as securities trading, telecommunications service management, aircraft
maintenance scheduling, air traffic control and network monitoring systems.
According to a recent industry study, more than $250 billion is currently spent
each year in the United States on information technology application
development.
In an effort to gain a competitive advantage in today's global markets, many
companies are automating business processes by employing flexible, open and
distributed computing architectures, rather than relying on traditional
centralized systems. These distributed computing environments typically consist
of a mix of complex new and legacy hardware and software systems, which must be
integrated to allow enterprise-wide business processes to function. Despite the
increased complexity and sophistication required to meet these new distributed
computing challenges, businesses are demanding faster development and deployment
times, as well as lower prices, for information technology solutions. These
businesses are also demanding solutions which are adaptable and proven to work
in mission-critical operational settings. To address these needs, the Company
has developed a family of broadly targeted foundation templates which are used
to build custom, enterprise-wide, distributed applications. The Company's
foundation templates provide up to 80% of the code required for a complete
application. In addition, the Company has developed cross-industry templates,
and is currently developing industry-specific templates, each of which is
designed to be layered on top of the Company's foundation templates to provide
even more pre-written code for specific business solutions. The Company's
cross-industry templates provide an additional 5-10% of completed application
code, and the Company believes its industry-specific templates will provide 5-8%
more of such code. Using the Company's templates, distributed applications can
be rapidly developed either by the Company's professional software developers,
or by a client's staff. The Company believes that its family of proven, reusable
templates gives it a competitive advantage by permitting its clients to obtain
highly adaptable, mission-critical solutions, generally on a fixed-price basis
and in six to twelve months.
The Company's products are designed to eliminate low-level programming by
providing platform-independent templates which can be developed into functioning
applications by adding client-specific business process knowledge. The Company
believes that this capability will ultimately result in systems being built by
those who best understand the challenges of the business. In addition, the
Company believes that the architecture upon which its products are based is
highly adaptable to new and emerging technologies. For example, because the
Company has incorporated Internet, internal corporate intranet ("Intranet") and
World Wide Web ("Web") technologies into its products, business processes
automated with the Company's solutions can be accessed from anywhere in the
world by customers, suppliers and employees of an enterprise. The Company
believes that the combination of Internet and Web accessibility, large-scale
business process automation and integration inherent in the Company's products
position it to exploit the extension of information technology to new markets,
such as electronic commerce.
The Company markets its solutions in North America and Europe through the
Company's direct sales force, distributors, value added resellers and systems
integrators, such as Electronic Data Systems Corporation ("EDS"), International
Business Machines Corporation ("IBM"), Unisys Corporation, GTE Government
Systems and Siemens Corporation. The Company's solutions have been successfully
developed and deployed for over 300 clients including Northwest Airlines
Corporation, First Data Resources, Inc. ("First Data"), United Parcel Service
("UPS"), United HealthCare Corporation and ENRON Corp.
Recent Developments
In November 1996, Alcatel Alsthom Compagnie Generale d'Electricite S.A.
("Alcatel") invested $8.0 million in the Company in the form of Preferred Stock
at the equivalent of $16.00 per share of Common Stock. See "Certain
Transactions." Alcatel is a worldwide supplier of high technology systems for
the telecommunications, energy and transportation industries. In connection with
this investment, the Company and Alcatel agreed to enter
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into a business relationship whereby Alcatel and the Company will design and
develop solutions based on the Company's templates and Alcatel's expertise in
the telecommunications, energy and transportation industries. Alcatel and the
Company have already completed successful pilot projects.
THE OFFERING
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Common Stock offered by:
The Company................................................ 1,400,000 shares
The Selling Shareholders................................... 700,000 shares
Common Stock to be outstanding after this offering:
Actual..................................................... 4,222,008 shares(1)
Fully-diluted.............................................. 6,327,923 shares(2)
Use of proceeds.............................................. For general corporate
purposes, including working
capital and future
acquisitions.
Proposed Nasdaq National Market symbol....................... TMPL
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED NOVEMBER 30, AUGUST 31,
------------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- 1995 -----------
(UNAUDITED) -----------
1991 (UNAUDITED)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue......... $ 5,900 $ 7,283 $ 5,953 $ 6,313 $ 7,511 $ 5,146 $ 9,617
Income (loss) from
operations.......... 270 (234 ) (793) (418) 671 407 1,197
Net income (loss)..... 175 (242 ) (527) (275) 327 189 726
Earnings (loss) per
common share(3)..... $ 0.08 $ (0.12 ) $ (0.17) $ (0.09) $ 0.07 $ 0.04 $ 0.16
Weighted average
number of common
shares
outstanding......... 2,206,371 2,080,474 3,173,503 3,186,331 4,655,824 4,418,269 4,656,558
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------------------------
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
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BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 922 $ 8,991 $ 29,223
Working capital................................................ 821 9,089 29,321
Total assets................................................... 4,979 13,048 33,280
Long-term debt, less current portion........................... -- 199 199
Total shareholders' equity..................................... 1,655 9,723 29,955
</TABLE>
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(1) Includes 75,000 shares to be issued upon the exercise of options and sold in
this offering by certain Selling Shareholders. See "Principal and Selling
Shareholders." Excludes: (i) shares of Common Stock issuable upon the
exercise of options to purchase an aggregate of 2,105,915 shares of Common
Stock (the "Outstanding Options") outstanding as of November 22, 1996 (not
including options to purchase 75,000 shares referred to above) at a weighted
average exercise price of $2.62 per share; and (ii) 1,000,000 additional
shares of Common Stock reserved for issuance pursuant to the Company's 1996
Equity Incentive Plan.
(2) Includes Outstanding Options, but excludes the shares reserved for issuance
under the Company's 1996 Equity Incentive Plan.
(3) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of shares used in computing earnings (loss) per share.
(4) Gives effect to the Pro Forma Events (as defined in "Capitalization"). See
Notes 1, 2, 6 and 9 of Notes to Consolidated Financial Statements.
(5) Adjusted to reflect the sale of 1,400,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $16.00 per
share, and assumes the conversion of all outstanding shares of Preferred
Stock into Common Stock upon the consummation of this offering. See "Use of
Proceeds" and "Capitalization."
4
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RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
Variability of Quarterly Results; Uncertainty of Future Operating
Results. The Company's quarterly operating results have varied significantly in
the past and are likely to vary significantly in the future. This variability is
due to a variety of factors including, without limitation, the size and timing
of significant orders and their fulfillment; demand for the Company's products,
changes in pricing policies by the Company or its competitors; the number,
timing and significance of product enhancements and new product announcements by
the Company and its competitors; the ability of the Company to develop,
introduce and market new and enhanced versions of the Company's products on a
timely basis; changes in the level of operating expenses; budgeting cycles of
the Company's customers; customer order deferrals in anticipation of
enhancements or new products offered by the Company or its competitors; the
cancellation of licenses during the warranty period or nonrenewal of maintenance
agreements; product life cycles software bugs and other product quality
problems; personnel changes; changes in the Company's strategy; the level of
international expansion; seasonal trends; and general domestic and international
economic and political conditions.
A significant portion of the Company's revenues have been, and the Company
believes will continue to be, derived from a limited number of orders placed by
large organizations, and the timing and fulfillment of such orders have caused
and are expected to continue to cause material fluctuations in the Company's
operating results, particularly on a quarterly basis. Historically, with the
exception of the federal government, organizations that provide in excess of 10%
of the Company's revenues have changed from year to year. For the fiscal year
ended November 30, 1995, the federal government and IBM represented the only
customers of the Company that accounted for more than 10% of the Company's total
revenues, accounting for 31.7% and 10.6% of total revenue, respectively. The
percentage of revenue accounted for by the federal government has declined in
recent years and is expected to decline further. For the nine months ended
August 31, 1996, each of First Data, Wellspring and the federal government
accounted for more than 10% of the Company's total revenue, representing an
aggregate of approximately 71.7% of total revenue or 19.7%, 32.7% and 19.2% of
total revenue, respectively. Based on a recent restructuring of the Company's
agreement with Wellspring, the Company does not anticipate that Wellspring will
account for 10% of the Company's total revenue in 1997.
The Company intends to continue to expand its domestic and international
direct sales force. The timing of such expansion and the rate at which new sales
people become productive could also cause material fluctuations in the Company's
quarterly operating results. Due to the foregoing factors, quarterly revenues
and operating results are difficult to forecast. Revenues are also difficult to
forecast because the market for client-server and peer-to-peer application
development software is rapidly evolving, and the Company's sales cycle, from
initial evaluation to purchase and the provision of support services, is lengthy
and varies substantially from customer to customer. Due to the foregoing,
revenues for any future quarter are not predictable with any significant degree
of accuracy. Accordingly, the Company believes that period-to-period comparisons
of its operating results are not necessarily meaningful and should not be relied
upon as indications of future performance. Although the Company has recently
experienced revenue growth, such growth should not be considered indicative of
future revenue growth, if any, or as an indication of future operating results.
Failure by the Company, for any reason, to increase revenues would have a
material adverse effect on the Company's business, operating results and
financial condition. See "-- Emerging Market; Product Concentration; Rapid
Technological Change."
A significant number of the Company's client projects are performed on a
fixed-price basis and, therefore, the Company bears the risk of cost overruns
and inflation. A significant portion of net revenues are recognized on the
percentage-of-completion method which requires revenues to be recorded over the
term of a client contract. Revenues attributable to the sale of software tools
are recognized upon shipment and revenues attributable to services are
recognized upon completion. A loss is recorded at the time when current
estimates of project costs exceed unrecognized revenues. Quarterly revenues and
operating results can depend on the significance of client engagements commenced
and completed during a quarter, the number of working days in
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a quarter and employee utilization rates. The timing of revenues is difficult to
forecast because the Company's sales cycle is relatively long in the case of new
clients and may depend on factors such as the size and scope of assignments and
general economic conditions. The Company's software products are typically used
to develop applications that are critical to a customer's business and the
purchase of the Company's products is often part of a customer's larger business
process reengineering initiative or implementation of distributed computing. As
a result, the license and implementation of the Company's software products and
business solutions generally involves a significant commitment of management
attention and resources by prospective customers. Accordingly, the Company's
sales process is often subject to delays associated with a long approval process
that typically accompanies significant initiatives or capital expenditures.
Because a high percentage of the Company's expenses are relatively fixed, a
variation in the timing of the initiation or the completion of client
assignments, particularly at or near the end of any quarter, can cause
significant variations in operating results from quarter to quarter and could
result in losses. The Company attempts to manage its personnel utilization rates
by closely monitoring project timetables and staffing requirements for new
projects. On a typical project, a significant number of personnel are provided
by the Company's clients or third parties. While professional staff must be
adjusted to reflect active projects, the Company must maintain a sufficient
number of senior professionals to oversee existing client projects and
participate with the Company's sales force in securing new client assignments.
In addition, many of the Company's engagements are, and may be in the future,
terminable without client penalty. An unanticipated termination of a major
project could require the Company to maintain or terminate under-utilized
employees, resulting in a higher than expected number of unassigned persons or
higher severance expenses. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The operating results of many software and business solutions companies
reflect seasonal trends, and the Company expects to be affected by such trends
in the future. Although the Company has not experienced consistent seasonal
fluctuations in operational results to date, the Company believes that it is
likely that it will experience relatively higher revenues in the Company's
quarter ending November 30, 1996 and relatively lower revenues in its quarter
ending February 28, 1997 as a result of efforts by its direct sales force to
meet fiscal year-end sales quotas. To the extent future international operations
constitute a higher percentage of the Company's total revenues, the Company
anticipates that it may also experience relatively weaker demand in the quarter
ending August 31, 1997 as a result of reduced sales activity in Europe during
the summer months. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Emerging Market; Product Concentration; Rapid Technological Change. The
market for information technology consulting and software development services
utilizing client-server and peer-to-peer architectures is continuing to develop.
Many of the Company's potential clients currently employ information processing
systems that run on mainframe-based or centralized computer systems. The
Company's success is dependent on the acceptance of information processing
systems utilizing client-server and peer-to-peer architectures. While the
Company believes that corporations and government agencies will continue to
accept the use of client-server and peer-to-peer architectures for
enterprise-wide information processing systems, a decline in this trend would
have a material adverse effect on the Company's business and prospects.
The Company's revenues have been attributable to a limited number of
products and related services. As a result, factors adversely affecting the
pricing of or demand for such products and services could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company's success will depend in part on its ability to develop
strategic information technology solutions which keep pace with continuing
changes in information processing technology, evolving industry standards and
changing client preferences. For example, the Company's customers have adopted a
wide variety of hardware, software, database and networking platforms, and as a
result, to gain broad market acceptance, the Company is and will be required to
support its family of object-oriented, template-based software products and
tools on many of such platforms and to develop and introduce enhancements to
such object-oriented, template-based software products and tools and new
products on a timely basis that keep pace with such technological developments
and emerging industry standards and customer requirements. There can be no
assurance that the Company will be successful in addressing these developments
on a timely basis or
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that if addressed the Company will be successful in the marketplace. The
Company's delay or failure to address these developments would have a material
adverse effect on the Company's business. In addition, there can be no assurance
that products or technologies developed by others will not render the Company's
services noncompetitive or obsolete.
The Company has in the past experienced delays in the release dates of
enhancements to its software. If release dates of any future Template software
enhancements or new products are delayed or if when released they fail to
achieve market acceptance, the Company's business, operating results and
financial condition would be materially adversely affected. In addition, the
introduction or announcement of new product offerings or enhancements by the
Company or the Company's competitors may cause customers to defer or forgo
purchases of current versions of Template software, which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Product Development."
Lack of Experience with the Internet, Intranets and Other Markets;
Uncertain Commercial Adoption of the Internet and Intranets. The Company's
future success will depend, in part, on the acceptance of the Company's products
for use in new markets, such as in the Internet and in Intranets, and in new
applications, such as electronic commerce. To date, the Company has had
relatively limited experience in these markets. In addition to the engineering
expenses associated with modifying its products to be useful in a new market,
the Company must devote considerable resources to identifying potential
customers and their specific needs, building relationships with strategic
partners and establishing credibility in the market. There can be no assurance
that the Company will be successful in developing and introducing new products
or product enhancements that may be required to address new markets and achieve
market acceptance. See "Business -- Customers and Markets" and
"Business -- Product Development."
Demand for and market acceptance of the Company's products and services in
the Internet and Intranet markets are subject to a high level of uncertainty.
The Company has only recently begun marketing and product development efforts
directed specifically to the Internet and Intranet markets. It is difficult to
predict with any assurance whether the Internet or Intranet markets will prove
to be viable for the Company's products, or whether there will be significant
demand for the Company's Internet or Intranet-related products and services. See
"Business -- Products and Services." The market for applications and commercial
products for the Internet and Intranets has only recently begun to develop, is
rapidly changing and is characterized by an increasing number of new entrants
whose products may compete with those of the Company. As a result, it is
difficult to predict the future growth of this market, and there can be no
assurance that a viable Internet or Intranet market for the Company's products
and services will develop or be sustainable.
Competition. The information technology consulting, software development
and business solution markets include a large number of participants, are
subject to rapid changes and are highly competitive. The Company competes with
and faces potential competition for client assignments and experienced personnel
from a number of companies that have significantly greater financial, technical
and marketing resources and which generate greater revenues than does the
Company. These markets are highly fragmented and served by numerous firms, many
of which serve only their respective local markets. In the software development
tools market, representative competitors of the Company include, among others,
Forte Software, Inc., Viewstar Corporation, NeXT Software, Inc. and Dynasty
Technologies, Inc. In the information technology consulting market,
representative competitors of the Company include, among others, Cambridge
Technology Partners, Inc. and TCSI Corporation. In the business solutions
market, representative competitors of the Company include Oracle Corporation,
Integrated Systems Solutions Corporation (a subsidiary of IBM) and Andersen
Consulting, among others. Clients may also elect to use their internal
information systems resources to satisfy their needs for software development
and technical consulting services, rather than using those offered by the
Company.
In addition, complex client-server and peer-to-peer applications that can
be developed and deployed using the Company's template-based solutions can also
be implemented using a combination of first-generation application development
tools and more powerful server programming techniques such as stored procedures
in relational databases and C or C++ programming, along with the integration of
networking and database middleware to connect the various components. As such,
the Company also effectively experiences
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competition from potential customers' decisions to pursue internally developed
solutions as opposed to utilizing an application environment such as the
template-based technology offered by the Company. As a result, the Company must
continuously educate existing and prospective customers as to the advantages of
the Company's products and services. There can be no assurance that these
customers or potential customers will perceive sufficient value in the Company's
products and services to justify purchasing them.
The Company's clients primarily consist of Fortune 1000 companies, agencies
of the federal government and other large organizations, and there are an
increasing number of professional services firms seeking information technology
consulting and software development engagements from that client base. The
Company believes that the principal competitive factors in the information
technology consulting and software development industry include responsiveness
to client needs, quality of service, price, project management capability and
technical expertise. The Company believes that its ability to compete also
depends in part on a number of competitive factors outside its control,
including the ability of its competitors to hire, retain and motivate senior
project managers, the ownership by competitors of software used by potential
clients, the development by others of software that is competitive with the
Company's products and services, the price at which others offer comparable
services and the extent of its competitor's responsiveness to customer needs.
There can be no assurance that the Company will be able to compete successfully
against current and future competitors on the basis of these factors or others
and the failure to do so successfully would have a material adverse effect upon
the Company's business, operating results and financial condition.
The Company's competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sale of their products than the
Company. Also, many current and potential competitors have greater name
recognition and more extensive customer bases that could be leveraged, thereby
increasing such competitors' market share to the Company's detriment. The
Company expects to face additional competition as other established and emerging
companies enter the client-server application development market and new
products and technologies are introduced. Increased competition could result in
price reductions, fewer customer orders, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, operating results and financial condition. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Further, competitive pressures could require the Company to reduce the
price of its software licenses and related services, which could materially
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, operating
results and financial condition. See "Business -- Competition."
Risks Associated with Transition to Industry-Specific Templates. A
component of the Company's strategy involves the development and introduction of
industry-specific templates designed to be layered on top of its existing
software templates to provide additional pre-written code for specific business
solutions. In order to do so successfully, the Company will be required, among
other things, to develop substantial knowledge it does not currently have about
the function of business processes in its target industries and to successfully
incorporate such knowledge into reusable software templates. There can be no
assurance that the Company will be able to develop such knowledge or that, if
developed, it will ultimately lead to software templates which the Company is
able to market successfully. The failure of the Company's strategy of developing
industry-specific templates to lead to software products which can be
successfully marketed by the Company would have a material adverse effect on its
business, operating results and financial condition.
See "Business -- Products and Services -- Industry-Specific Templates."
Proprietary Rights, Risks of Infringement and Source Code Release. The
Company relies primarily on a combination of copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
proprietary rights. The Company generally enters into confidentiality agreements
with
8
<PAGE> 10
its employees, consultants, clients and potential clients and limits access to
and distribution of its proprietary information. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. There can be no assurance that others will
not develop technologies that are similar or superior to the Company's
technology or design around the proprietary rights owned by the Company.
The Company's business includes the development of custom software in
connection with specific client engagements. This custom software generally uses
the Company's core software technology, reusable software templates and certain
software tools which remain the property of the Company. In the past, the
Company has generally assigned the custom software components to its clients.
Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights as fully as do the laws of the United States. There can be no assurance
that the Company's means of protecting its proprietary rights in the United
States or abroad will be adequate or that competition will not independently
develop similar technology. The Company has entered into source code escrow
agreements with a limited number of its customers and resellers requiring
release of source code in certain circumstances. Such agreements generally
provide that such parties will have a limited, non-exclusive right to use such
code in the event that there is a bankruptcy proceeding by or against the
Company, if the Company ceases to do business or if the Company fails to meet
its support obligations.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties (including
the parties for whom the Company has been engaged to develop solutions, from
which its reusable software templates have been derived) will not claim
infringement by the Company of their intellectual property rights. The Company
expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially adversely affected. See "Business -- Intellectual Property
and Other Proprietary Rights."
Management of Growth. The Company has recently experienced a period of
significant revenue growth and an expansion in the number of its employees, the
scope of its operating and financial systems and the geographic area of its
operations. This growth has resulted in new and increased responsibility for
management personnel and has placed significant strain upon the Company's
management, operating and financial systems and resources. To accommodate recent
growth, compete effectively and manage potential future growth, the Company must
continue to implement and improve information systems, procedures and controls
and expand, train, motivate and manage its work force. These demands will
require the addition of new management personnel. The Company's future success
will depend to a significant extent on the ability of its current and future
management personnel to operate effectively, both independently and as a group.
There can be no assurance that the Company's personnel, systems, procedures and
controls will be adequate to support the Company's future operations. Any
failure to implement and improve the Company's operational, financial and
management systems or to expand, train, motivate or manage employees could have
a material adverse effect on the Company's business, operating results and
financial condition. See "-- Dependence on Key Personnel,"
"Business -- Employees" and "Management."
9
<PAGE> 11
Risks Associated with Expanding Distribution. To date, the Company has
sold its products and services through its direct sales force, distributors,
value added resellers, and systems integrators. The Company's ability to achieve
significant revenue growth in the future will depend in large part on its
success in recruiting and training sufficient direct sales personnel and
establishing and maintaining relationships with distributors, resellers and
system integrators. Although the Company is currently investing, and plans to
continue to invest, significant resources to expand its direct sales force and
to develop distribution relationships with third-party distributors and
resellers, the Company has at times experienced and continues to experience
difficulty in recruiting qualified sales personnel and in establishing necessary
third-party relationships. There can be no assurance that the Company will be
able to successfully expand its direct sales force or other distribution
channels or that any such expansion will result in an increase in revenues. Any
failure by the Company to expand its direct sales force or other distribution
channels would materially adversely affect the Company's business, operating
results and financial condition. See "-- Dependence on Key Personnel,"
"Business -- Strategy" and "Business -- Sales and Marketing."
Dependence on Key Personnel. The Company's success depends to a
significant degree upon the continuing contributions of its key management,
sales, marketing, customer support and product development personnel. The loss
of key management or technical personnel could adversely affect the Company.
Only three of the Company's employees are subject to employment agreements with
the Company. The Company believes that its future success will depend in large
part upon its ability to attract and retain highly-skilled managerial, sales,
customer support and product development personnel. The Company has at times
experienced and continues to experience difficulty in recruiting qualified
personnel. Competition for qualified software development, sales and other
personnel is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel. Qualified project
managers are in particularly great demand and are likely to remain a limited
resource for the foreseeable future. Competitors and others have in the past and
may in the future attempt to recruit the Company's employees. Failure to attract
and retain key personnel could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Product
Development," "Business -- Employees" and "Management."
Risks Associated with International Operations. Revenues from a foreign
subsidiary and export sales accounted for 6.8% and 8.7% of the Company's total
revenues in fiscal year 1995 and the nine months ended August 31, 1996,
respectively. The Company currently has an international sales office located in
the United Kingdom and distribution arrangements with third parties in France
and the Netherlands, which have generated substantially all direct international
revenues recognized by the Company to date. In November 1996, the Company
entered into a non-binding letter of intent pursuant to which the Company agreed
to acquire Krystal Ingenierie S.A., the Company's existing distributor in
France. In addition, the Company has entered into a non-binding letter of intent
to distribute its products and solutions in Germany through a joint venture, 51%
owned by the Company, and 49% owned by a German software distributor. The
Company believes that in order to increase sales opportunities and
profitability, it will be required to expand its international operations. The
Company has committed and continues to commit significant management time and
financial resources to developing direct and indirect international sales and
support channels. There can be no assurance, however, that the Company will be
able to maintain or increase international market demand for Template software
tools and services. To the extent that the Company is unable to do so in a
timely manner, the Company's international sales will be limited, and the
Company's business, operating results and financial condition would be
materially and adversely affected. See "Business -- Sales and Marketing."
International operations are subject to inherent risks, including the
impact of possible recessionary environments in economies outside the United
States, costs of localizing products for foreign markets, longer receivables
collection periods and greater difficulty in accounts receivable collection,
unexpected changes in regulatory requirements, difficulties and costs of
staffing and managing foreign operations, reduced protection for intellectual
property rights in some countries, potentially adverse tax consequences and
political and economic instability. There can be no assurance that the Company
or its distributors or resellers will be able to sustain or increase
international revenues from licenses or from maintenance and service, or that
the foregoing factors will not have a material adverse effect on the Company's
future international revenues and, consequently, on the Company's business,
operating results and financial condition. The Company's direct
10
<PAGE> 12
international revenues are generally denominated in local currencies. The
Company does not currently engage in hedging activities. Revenues generated by
the Company's distributors and resellers are generally paid to the Company in
United States dollars. Although exposure to currency fluctuations to date has
been insignificant, there can be no assurance that fluctuations in currency
exchange rates in the future will not have a material adverse impact on revenues
from international sales and thus, the Company's business, operating results and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Customers and Markets" and
"-- Sales and Marketing."
Government Contracting Risks. Approximately 31.7% and 19.2% of the
Company's total revenues in fiscal year 1995 and in the nine months ended August
31, 1996, respectively, were derived from contracts with the government.
Government contracts, by their terms, generally can be terminated at any time by
the government, without cause, for the convenience of the government. If a
government contract is so terminated, the Company would be entitled to receive
compensation for the services provided or costs incurred at the time of
termination and a negotiated amount of the profit on the contract to the date of
termination. In addition, all government contracts require compliance with
various contract provisions and procurement regulations. The adoption of new or
modified procurement regulations could adversely affect the Company or increase
its costs of competing for or performing government contracts. Any violation
(intentional or otherwise) of these regulations could result in the termination
of such government contracts, imposition of fines, and/or debarment from award
of additional government contracts. The termination of any of the Company's
significant government contracts or the imposition of fines, damages, or
suspension from bidding on additional government contracts could have a material
adverse effect on the Company. Most government contracts are also subject to
modification in the event of changes in funding, and the Company's contractual
costs and revenue are subject to adjustment as a result of audits by the Defense
Contract Audit Agency ("DCAA") and other government auditors. The DCAA routinely
audits cost-reimbursement contracts to verify that costs have been properly
charged to the government. Further, most government contract awards are subject
to protest by competitors.
Requirement to Maintain Security Clearances. As of November 1, 1996,
approximately 30% of the Company's employees had security clearances permitting
the Company to obtain and perform classified work under certain government
contracts. In addition, certain of the Company's government contracts require
the Company to maintain facility security clearances complying with Department
of Defense ("DoD") and other requirements. If the Company were to lose these
clearances, the Company might not be able to retain such contracts, and, if
present clearances were invalidated, it might not be able to obtain new
contracts requiring security clearances.
Risk of Software Defects. Software products as internally complex as those
developed by the Company frequently contain errors or defects, especially when
first introduced or when new versions or enhancements are released. Although the
Company has not experienced material adverse effects resulting from any such
defects or errors to date, there can be no assurance that, despite testing by
the Company and by current and potential customers, defects and errors will not
be found in current versions, new versions or enhancements after commencement of
commercial shipments, resulting in loss of revenues or delay in market
acceptance, which could have a material adverse effect upon the Company's
business, operating results and financial condition. See "Business -- Product
Development."
Product Liability. The Company markets to its customers complex,
business-critical, distributed applications. The Company's license agreements
with its customers typically contain provisions designed to limit the Company's
exposure to potential product liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's license
agreements may not be effective as a result of existing or future federal, state
or local laws or ordinances or unfavorable judicial decisions. Although the
Company has not experienced any product liability claims to date, the sale and
support of Template software tools by the Company may entail the risk of such
claims, which are likely to be substantial in light of the use of Template
software tools in complex, business-critical applications. A successful product
liability claim brought against the Company could have a material adverse effect
upon the Company's business, operating results and financial condition.
11
<PAGE> 13
Shares Eligible for Future Sale; Registration Rights; Possible Adverse
Effect on Future Market Prices. Sales of a substantial number of shares of
Common Stock in the public market following this offering could adversely affect
the market price of the Common Stock. Upon completion of this offering and
assuming no exercise of outstanding stock options, the Company will have
outstanding 4,222,008 shares of Common Stock (based upon the number of shares
outstanding as of November 22, 1996), of which the 2,100,000 shares sold in this
offering will be freely tradeable. Immediately prior to the completion of the
offering, it is expected that 2,747,008 shares of Common Stock will be
outstanding (based upon the number of shares outstanding as of November 22,
1996), of which 700,000 shares will be sold in this offering by the Selling
Shareholders. Of the 2,047,008 such currently outstanding shares not being sold
in this offering, 2,039,257 shares are subject to agreements with the
Underwriters under which such shares may not be offered, sold or otherwise
disposed of for a period of 180 days after the date of this Prospectus without
the prior written consent of Volpe, Welty & Company. Of the 8,751 shares not
subject to such lock-up agreements: (i) 7,500 shares will be eligible for sale
without restriction in the public market pursuant to Rule 144(k) of the
Securities Act of 1933, as amended ("Securities Act") commencing immediately
upon the date of this Prospectus; and (ii) the remaining 1,251 shares will first
become eligible for resale under Rule 144 of the Securities Act ("Rule 144") in
September 1997 and August 1998. In addition, outstanding options to purchase
1,117,476 shares of Common Stock were fully vested as of November 22, 1996, all
of which options are subject to 180-day lock-up agreements. In recent offerings
in which it has served as lead manager of underwriters, Volpe, Welty & Company
has consented to early releases from lock-up agreements only in a limited number
of circumstances, after considering all circumstances that it deemed to be
relevant. Volpe, Welty & Company will, however, have complete discretion in
determining whether to consent to early releases from the lock-up agreements
delivered in connection with this offering, and no assurance can be given that
it will not consent to the early release of all or a portion of the shares of
Common Stock and options covered by such lock-up agreements. Alcatel is entitled
to certain rights with respect to the registration of the sale of its 500,000
shares of Common Stock under the Securities Act beginning one year after the
effective date of the offering. In addition, promptly after the date of this
Prospectus, the Company intends to register the Common Stock issued or to be
issued under the Company's stock option plans. See "Shares Eligible for Future
Sale" and "Description of Capital Stock -- Registration Rights."
No Prior Trading Market for Common Stock; Potential Volatility of Stock
Price. Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained after this offering. The initial public offering price was
determined through negotiations among the Company and the representatives of the
Underwriters based on several factors and may not be indicative of the market
price of the Common Stock after this offering. The market price of the shares of
Common Stock is likely to be highly volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of technological innovations, new products or new
contracts by the Company or its competitors, developments with respect to
patents, copyrights or proprietary rights, conditions and trends in the software
and other technology industries, adoption of new accounting standards affecting
the software industry, changes in financial estimates by securities analysts,
general market conditions and other factors. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common stock of technology
companies. These broad market fluctuations may adversely affect the market price
of the Common Stock. In the past, following periods of volatility in the market
price of a particular company's securities, securities class action litigation
has often been brought against the company. There can be no assurance that such
litigation will not occur in the future with respect to the Company; such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect upon the
Company's business, operating results and financial condition. See
"Underwriting."
Control by Principal Shareholders, Officers and Directors. Upon completion
of this offering, the present directors, executive officers and principal
shareholders of the Company and their affiliates will beneficially own
approximately 48.0% of the outstanding Common Stock. As a result, these
shareholders will be able to exercise control over all matters requiring
shareholder approval, including the election of directors and
12
<PAGE> 14
approval of significant corporate transactions. Such concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Principal and Selling Shareholders."
Effect of Certain Charter and Bylaw Provisions; Antitakeover Effects of
Virginia Law. Upon completion of this offering, the Company's Board of
Directors will have the authority to issue up to 3,000,000 shares of Preferred
Stock and to determine the price, rights, preferences, privileges and
restrictions, including voting and conversion rights of such shares, without any
further vote or action by the Company's shareholders. The rights of the holders
of Common Stock will be subject to, and may be adversely affected by, the rights
of the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with possible acquisitions and other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has no current plans to
issue shares of Preferred Stock. Further, certain provisions of the Company's
Amended and Restated Articles of Incorporation (the "Articles") and Bylaws and
of Virginia law could delay or make more difficult a merger, tender offer or
proxy contest involving the Company. In addition, in connection with the
purchase of Preferred Stock by Alcatel in November 1996, the Company agreed to
give Alcatel prior notice in the event the Company plans to sell certain assets
or capital stock of the Company. See "Description of Capital Stock -- Preferred
Stock," "Description of Capital Stock -- Certain Provisions of Virginia Law and
the Company's Articles of Incorporation and Bylaws" and "Certain Transactions."
Uncertainty as to Use of Proceeds. The principal purposes of this offering
are to obtain working capital, to create a public market for the Company's
Common Stock and to facilitate future access to public equity markets and to
obtain additional working capital. The Company expects to use the net proceeds
from this offering for working capital and general corporate purposes. A portion
of the net proceeds of the offering may also be used to invest in products,
technologies or businesses that broaden or enhance the Company's current product
or service offerings. Accordingly, the Company's management will retain broad
discretion as to the allocation of a substantial portion of the net proceeds
from this offering. Pending such uses, the Company intends to invest the net
proceeds in short-term, investment-grade, interest-bearing securities. See "Use
of Proceeds."
Immediate and Substantial Dilution. Investors participating in this
offering will incur immediate, substantial dilution of $8.93 per share. To the
extent outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution. If the net proceeds of this offering, together
with available funds and cash generated from operations, are insufficient to
satisfy the Company's cash needs, the Company may be required to sell additional
equity or convertible debt securities. The sale of additional equity or
convertible debt securities could result in additional dilution to the Company's
shareholders. See "Dilution" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
13
<PAGE> 15
THE COMPANY
The Company was incorporated in Maryland in 1975 and reincorporated in
Virginia in 1996. The Company was reorganized into its current line of business
in 1978 by Joseph M. Fox, the Chairman of the Company's Board of Directors. The
Company's home page is located on the Web at http://www.template.com. The
Company's principal executive offices are located at 45365 Vintage Park Plaza,
Dulles, Virginia 20166 and its telephone number is (703) 318-1000.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company are estimated to be approximately $20,232,000
(approximately $23,356,800 if the Underwriters exercise their overallotment
option in full) after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company and excluding any proceeds
from the exercise of options to acquire Common Stock by certain Selling
Shareholders of the Company (assuming an initial public offering price of $16.00
per share). The Company will not receive any of the proceeds from the sale of
shares of Common Stock by the Selling Shareholders.
The principal purposes of this offering are to obtain additional working
capital, to create a public market for the Company's Common Stock and to
facilitate the Company's future access to public equity markets. The Company
expects to use the net proceeds of this offering for working capital and general
corporate purposes. A portion of the net proceeds of the offering may also be
used to acquire or invest in products, technologies or businesses that broaden
or enhance the Company's current product or service offerings. Other than as set
forth herein, there are no current agreements or negotiations with respect to
any acquisitions, investments or other transactions. Pending such uses, the
Company intends to invest the net proceeds in short-term, investment grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock. The Company currently intends to retain its future earnings, if any, to
fund the development and growth of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. The Company's
bank line of credit currently prohibits the payment of cash dividends.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
August 31, 1996, and as adjusted to give effect to the sale of the 1,400,000
shares of Common Stock offered hereby by the Company at an assumed initial
public offering price of $16.00 per share (the midpoint of the estimated initial
public offering price range), after deducting estimated offering expenses and
underwriting discounts. See "Use of Proceeds." This information should be read
in conjunction with the Company's Consolidated Financial Statements and the
Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AUGUST 31, 1996
----------------------------------------
ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------ ------------ --------------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
<S> <C> <C> <C>
Long-term debt............................................ $ -- $ 199 $ 199
------ ------------ --------------
Shareholders' equity
Convertible Preferred Stock, $1.9694 par value; 450,000
shares authorized; 156,336 shares issued, none
outstanding, actual; none authorized, issued or
outstanding, pro forma and as adjusted............... 308 -- --
Preferred Stock, $0.01 par value; none authorized, none
outstanding, actual; 3,000,000 shares authorized,
none issued or outstanding, pro forma and as
adjusted............................................. -- --
Class A Common Stock, $0.01 par value; 5,000,000 shares
authorized, 1,799,046 shares issued, 1,759,988 shares
outstanding, actual; none authorized, issued or
outstanding, pro forma and as adjusted............... 18 -- --
Class B Common Stock, $0.01 par value; 5,000,000 shares
authorized, 437,020 shares issued and outstanding,
actual; none authorized, issued or outstanding, pro
forma and as adjusted................................ 4 -- --
Common Stock, $0.01 par value; 17,000,000 shares
authorized, none issued or outstanding, actual;
2,747,008 issued and outstanding, pro forma;
4,147,008 issued and outstanding, as adjusted........ 27 41
Less cost of treasury stock, 195,394 shares, actual;
none, pro forma and as adjusted...................... (269) -- --
Additional paid-in capital.............................. 1,007 9,109 29,327
Retained earnings....................................... 587 587 587
------ ------------ --------------
Total shareholders' equity......................... 1,655 9,723 29,955
------ ------------ --------------
Total capitalization............................ $1,655 $9,922 $ 30,154
====== ========== ===========
</TABLE>
- ---------------
(1) Gives effect to (i) the exchange of all of the outstanding shares of Class A
Common Stock (the "Class A Common Stock") and Class B Common Stock (the
"Class B Common Stock") for an equal number of shares of Common Stock in
October 1996, (ii) the repayment in October 1996 of certain subordinated
notes payable and the retirement of the underlying shares of Convertible
Preferred Stock and Class A Common Stock held in treasury, (iii) the
exercise of 50,000 options by an officer of the Company at an exercise price
of $1.38 per share in October 1996, and (iv) the conversion of 500,000
shares of Preferred Stock issued to Alcatel in November 1996 at $16.00 per
share into an equal number of shares of Common Stock (collectively, the "Pro
Forma Events"). See Notes 1, 2, 6 and 9 of Notes to Consolidated Financial
Statements.
(2) Based on the number of shares outstanding as of August 31, 1996. Excludes
shares of Common Stock issuable upon the exercise of outstanding options to
purchase an aggregate of 1,851,415 shares of Common Stock, as of August 31,
1996, at prices between $1.38 and $1.98 per share and 1,000,000 additional
shares of Common Stock reserved for issuance pursuant to the Company's 1996
Equity Incentive Plan. See "Management -- Stock Option Plans,"
"Management -- 1996 Equity Incentive Plan" and Note 7 of Notes to
Consolidated Financial Statements.
15
<PAGE> 17
DILUTION
At August 31, 1996, the Company had a pro forma net tangible book value of
$9,077,289 or $3.30 per share. After giving effect to the sale of the 1,400,000
shares of Common Stock offered hereby by the Company at an assumed initial
public offering price of $16.00 per share (the midpoint of the estimated initial
public offering price range), and after deducting estimated offering expenses
and underwriting discounts, the pro forma net tangible book value of the Company
as of August 31, 1996 would have been approximately $29.3 million or $7.07 per
share of Common Stock. This represents an immediate and substantial dilution to
new investors purchasing shares in this offering.
The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $16.00
Pro forma net tangible book value per share as of August 31,
1996............................................................ $3.30
Increase in pro forma net tangible book value per share
attributable to this offering and use of proceeds therefrom..... 3.76
-----
Pro forma net tangible book value per share after this offering...... 7.07
------
Dilution per share to new investors.................................. $ 8.93
======
</TABLE>
The following table summarizes as of August 31, 1996, after giving effect
to this offering, the number of shares of Common Stock purchased from the
Company, the total consideration paid therefor (using an assumed initial public
offering price of $16.00 per share for the new investors) and the average price
per share paid by the existing shareholders and by the new investors purchasing
shares of Common Stock in this offering before deduction of the estimated
underwriting discounts and commissions and offering expenses payable by the
Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)................. 2,747,008 66.2% $ 9,136,457 29.0% $ 3.33
New investors(1)......................... 1,400,000 33.8 22,400,000 71.0 16.00
--------- ------- ----------- -------
Total.................................. 4,147,008 100.0% $31,536,457 100.0%
======== ======= ========== =======
</TABLE>
- ---------------
(1) Excludes 75,000 shares to be issued upon the exercise of options and sold in
the offering by certain Selling Shareholders. See "Principal and Selling
Shareholders." Sales by Selling Shareholders in this offering will reduce
the number of shares held by existing shareholders to 2,047,008, or
approximately 49.4% of the total number of shares of Common Stock to be
outstanding after this offering (approximately 45.9% if the Underwriters'
over-allotment option is exercised in full), and will increase the number of
shares held by new investors to 2,100,000, or approximately 50.6% of the
total number of shares of Common Stock to be outstanding after this offering
(2,415,000 shares or approximately 54.1% if the Underwriters' over-allotment
option is exercised in full).
The above computations assume (i) no exercise of the Underwriters'
over-allotment option, and (ii) no exercise of options outstanding as of August
31, 1996. At August 31, 1996, the Company had options outstanding to purchase
1,851,415 shares of Common Stock at a weighted average exercise price of $1.87
per share. If all outstanding options as of August 31, 1996 are exercised, there
would be dilution of $11.11 per share to new investors.
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this Prospectus. The following
selected consolidated financial data of the Company as of November 30, 1994 and
1995, and August 31, 1996 and for each of the three years in the period ended
November 30, 1995, and for the nine-month period ended August 31, 1996, have
been derived from the Company's consolidated financial statements audited by
Coopers & Lybrand L.L.P., independent accountants, included elsewhere herein.
The balance sheet data as of November 30, 1993 has been derived from the
Company's audited consolidated financial statements not included herein. The
financial data as of November 30, 1991 and 1992, and August 31, 1995, and for
each of the two years in the period ended November 30, 1992, and the nine-month
period ended August 31, 1995 have been derived from the Company's unaudited
consolidated financial statements not included herein. Management believes that
the unaudited consolidated financial statements from which the financial data
below have been derived include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the financial data as
of November 30, 1991, 1992 and 1993, and August 31, 1995, and for each of the
two years in the period ended November 30, 1992, and for the nine-month period
ended August 31, 1995. The results for the nine months ended August 31, 1996 are
not necessarily indicative of results that may be expected for any other interim
period or for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED NOVEMBER 30, AUGUST 31,
------------------------------------------------------------------ ---------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Products................... $ 1,070 $ 2,859 $ 2,781 $ 2,893 $ 2,806 $ 2,062 $ 1,046
Services................... 4,830 4,424 3,172 3,420 4,705 3,084 8,571
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues........... 5,900 7,283 5,953 6,313 7,511 5,146 9,617
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cost of revenues:
Products................... 819 1,033 990 978 896 661 601
Services................... 2,597 1,994 1,883 1,873 2,592 1,728 4,439
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenues... 3,416 3,027 2,873 2,851 3,488 2,389 5,040
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit:................ 2,484 4,256 3,080 3,462 4,023 2,757 4,577
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Selling and marketing...... 1,118 1,953 1,904 1,510 1,181 823 1,594
Product development........ 496 994 436 924 692 557 649
General and
administrative........... 600 1,543 1,533 1,446 1,479 970 1,137
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 2,214 4,490 3,873 3,880 3,352 2,350 3,380
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations................. 270 (234) (793) (418) 671 407 1,197
Interest expense........... 23 47 72 75 108 82 33
Other income............... -- -- -- -- 1 1 11
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes and cumulative effect
of change in accounting
principle.................. 247 (281) (865) (493) 564 326 1,175
Income tax benefit
(provision)................ (72) 39 378 218 (237) (137) (449)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) before
cumulative effect of change
in accounting principle.... 175 (242) (487) (275) 327 189 726
Cumulative effect of change
in accounting principle.... -- -- (40) -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............ $ 175 $ (242) $ (527) $ (275) $ 327 $ 189 $ 726
========= ========= ========= ========= ========= ========= =========
Earnings (loss) per common
share(1)................... $ 0.08 $ (0.12) $ (0.17) $ (0.09) $ 0.07 $ 0.04 $ 0.16
========= ========= ========= ========= ========= ========= =========
Weighted average number of
common shares
outstanding................ 2,206,371 2,080,474 3,173,503 3,186,331 4,655,824 4,418,269 4,656,558
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED NOVEMBER 30, AUGUST 31,
------------------------------------------------------------------ ---------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 159 $ 27 $ 26 $ 16 $ 63 $ 18 $ 922
Working capital.............. 1,300 504 415 277 432 139 821
Total assets................. 2,870 3,125 2,898 3,021 3,421 3,224 4,979
Long-term liabilities........ 292 658 829 650 294 712 197
Total shareholders' equity... 1,830 874 847 572 901 254 1,655
</TABLE>
- ---------------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute per
share amounts.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains, in addition to historical information,
forward-looking statements that involve risks and uncertainty. The Company's
actual results could differ significantly from the results discussed in the
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed in "Risk Factors" as well as those discussed
elsewhere in this Prospectus.
OVERVIEW
The Company provides enterprise-wide software solutions to organizations
that require large-scale, distributed computing systems through its reusable
software templates, robust software development environment and its staff of
software development professionals. To date, substantially all of the Company's
revenues have been derived from license fees for use of the Company's products
("Product Revenue") or fees from software-related services ("Services Revenue").
These services include software development, training, maintenance, systems
integration and systems planning, among others.
The Company provides its software products and business solutions to
customers in both domestic and foreign markets under license agreements, service
contracts and purchase orders. Fees for solutions, consisting of a combination
of software-development services provided by the Company and licenses to use the
Company's products, are typically based on staffing requirements and the overall
scope and timing of the project as agreed upon with the client. The Company's
software templates, tools and reusable solutions are typically licensed
separately for development and deployment. Development license fees are
primarily based upon the number of developers who will be using the Company's
products. Deployment license fees are based upon the number of end-users, or the
number and power of computing platforms (servers) that execute the specialized
application created with Template technology.
The Company recognizes revenue from software products when the related
license agreement has been executed and the software has been shipped to and
accepted by the client. The Company recognizes revenue for software-related
services based on the type of contractual arrangement under which the services
are performed. In its commercial business, the Company typically contracts on a
fixed-price basis, although the Company also provides certain software services
on a time-and-material basis, depending on the overall project scope, project
risks and client requirements. In its government business, the Company typically
contracts on a cost-plus-fixed-fee basis.
The Company recognizes revenue from fixed-price contracts using the
percentage of completion method. Revenue from time-and-material contracts is
recognized when the services are performed. The Company recognizes revenue from
cost-plus-fixed-fee contracts on the basis of reimbursable contract costs
incurred during the period at provisional billing rates, and year-end
adjustments for actual costs are shown as under (over) billed costs. Management
believes that these cost adjustments are fully allowable under their respective
cost-plus contracts and prevailing government regulations.
The Company has recently shifted its marketing emphasis toward complete
business solutions, which require the Company's software development services in
addition to product licenses. Consequently, the Company expects Services Revenue
to continue to comprise a significant component of total revenue in the future.
In early 1996, the Company began to implement its strategy of developing
industry-specific templates and contemplates that it will ship its first such
product, an order handling application for a telecommunications service
management system, in the first half of 1997. As the Company implements this
strategy, it expects Product Revenue to increase because solutions incorporating
industry-specific templates will contain a larger product license component.
Historically, the Company has relied principally on distributors, systems
integrators and value added resellers for the sale of its product licenses.
However, the Company has recently begun to expand its internal sales force to
market directly to clients and prospective clients. The Company expects this
trend toward direct sales to continue in the future.
18
<PAGE> 20
The Company's clients consist primarily of Fortune 1000 companies, agencies
of the federal government and other large organizations. Because the Company's
business is characterized by significant customer concentration and relatively
large projects, individual client engagements can have a significant impact on
the Company's total revenue and total cost of revenue from period to period.
Historically, with the exception of the federal government, organizations that
provide in excess of 10% of the Company's revenues have changed from year to
year. For the fiscal year ended November 30, 1995, the federal government and
IBM represented the only customers that accounted for more than 10% of the
Company's total revenue, accounting for 31.7% and 10.6% of total revenue,
respectively. The percentage of revenue accounted for by the federal government
has declined in recent years and is expected to decline further. For the nine
months ended August 31, 1996, each of First Data, Wellspring and the federal
government accounted for more than 10% of the Company's total revenue,
representing an aggregate of approximately 71.7% of total revenue or 19.7%,
32.7% and 19.2% of total revenue, respectively. Based on a recent restructuring
of the Company's agreement with Wellspring, the Company does not anticipate that
Wellspring will account for 10% of the Company's total revenue in 1997.
Over the past five years, product development expenses have increased as
the Company has designed and developed cross-industry templates which seamlessly
integrate with the Company's existing templates to provide a more complete
solution for specialized applications. 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," the Company capitalizes the
required direct costs and allocated overhead associated with the development of
software products. Initial research costs are charged to product development
prior to the development of a detailed program design or a working model. Costs
incurred subsequent to the product release, and product development under
contract are charged to operations. Capitalized costs are amortized at the
higher of the sales ratio method or straight-line basis. Any unamortized costs
are carried at the lower of book value or the net realizable value. See Note 2
of Notes to Consolidated Financial Statements.
The Company is currently a member of a software development consortium that
includes IBM, Honeywell Corporation and ISX, Inc. This consortium is
participating in a federally-funded technology reinvestment program (the "TRP"),
which began in 1995, through which the Company is expected to receive an
aggregate of approximately $2.0 million. See Note 10 of Notes to Consolidated
Financial Statements. The Company recognized an initial amount of the funds
received through this consortium as revenue in fiscal year 1995 and is
accounting for additional funds received as an offset to product development
expense and selling and marketing expense. The aggregate amount of these offsets
for the fiscal year ended November 30, 1995 and the nine months ended August 31,
1996, were approximately $0.7 million and $0.4 million, respectively. The
Company expects this program to be completed in the second half of 1997, at
which time the Company will have received all funds it is expected to receive
pursuant to this program.
Revenue derived from the Company's foreign customers is recorded in United
States dollars using the exchange rate at the time of the transaction. Gains and
losses due to changes in the exchange rate are recorded when payment is made.
19
<PAGE> 21
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to total revenue of certain items in the Company's consolidated
statement of operations.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED NOVEMBER 30, AUGUST 31,
----------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Products................................... 46.7% 45.8% 37.4% 40.1% 10.9%
Services................................... 53.3 54.2 62.6 59.9 89.1
----- ----- ----- ----- -----
Total revenues.......................... 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- -----
Cost of revenues:
Products(1)................................ 35.6 33.8 31.9 32.0 57.5
Services(2) ............................... 59.4 54.8 55.1 56.0 51.8
----- ----- ----- ----- -----
Total cost of revenues.................. 48.3 45.2 46.4 46.4 52.4
----- ----- ----- ----- -----
Gross profit................................. 51.7 54.8 53.6 53.6 47.6
Operating expenses:
Selling and marketing...................... 32.0 23.9 15.7 16.0 16.6
Product development........................ 7.3 14.6 9.2 10.8 6.8
General and administrative................. 25.7 22.9 19.7 18.9 11.8
----- ----- ----- ----- -----
Total operating expenses................ 65.0 61.4 44.6 45.7 35.2
----- ----- ----- ----- -----
Income (loss) from operations................ (13.3) (6.6) 9.0 7.9 12.4
Interest expense........................... 1.2 1.2 1.4 1.6 0.3
Other income............................... -- -- -- -- 0.1
----- ----- ----- ----- -----
Income (loss) before income taxes and
cumulative effect of change in accounting
principle.................................. (14.5) (7.8) 7.6 6.3 12.2
Income tax benefit (provision)............... 6.3 3.4 (3.2) (2.6) (4.7)
----- ----- ----- ----- -----
Net income (loss) before cumulative effect of
change in accounting principle............. (8.2) (4.4) 4.4 3.7 7.5
Cumulative effect of change in accounting
principle.................................. 0.7 -- -- -- --
----- ----- ----- ----- -----
Net income (loss)............................ (8.9)% (4.4)% 4.4% 3.7% 7.5%
===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Shown as a percentage of Product Revenue.
(2) Shown as a percentage of Services Revenue.
COMPARISON OF NINE MONTHS ENDED AUGUST 31, 1996 AND AUGUST 31, 1995
Revenue. Total revenue was $9.6 million for the nine months ended August
31, 1996 compared to $5.1 million for the nine months ended August 31, 1995, an
increase of $4.5 million or 86.9%. This growth resulted principally from volume
increases in sales of software-related services due to the Company's shift in
emphasis toward selling complete solutions.
Product Revenue was $1.0 million for the nine months ended August 31, 1996
compared to $2.1 million for the nine months ended August 31, 1995, a decrease
of $1.1 million or 49.3%. This decrease was primarily attributable to lower
product sales by the Company's distributors, value added resellers and systems
integrators as a result of the Company's recent shift from a sales and marketing
strategy that relied primarily on indirect sales of its products by these
third-parties toward direct sales of complete solutions by the Company's
internal sales force. Product Revenue for the nine months ended August 31, 1995
contained approximately $420,000 of one-time revenue related to the Company's
participation in the TRP. Services Revenue was $8.6 million for the nine months
ended August 31, 1996 compared to $3.1 million for the nine
20
<PAGE> 22
months ended August 31, 1995, an increase of $5.5 million or 178.0%. This
increase was primarily attributable to the implementation of three significant
client engagements for complete solutions. Contracts for complete solutions
obtained by the Company through its direct sales force typically contain a
larger service component than those obtained through the Company's distributors,
value added resellers and systems integrators, as the Company is engaged to
develop a customized solution in addition to providing software products.
Cost of Revenue. Total cost of revenue consists primarily of salaries and
related benefits for personnel, and also includes an allocated portion of rent,
building services and computer equipment services and expenses. Total cost of
revenue was $5.0 million for the nine months ended August 31, 1996 compared to
$2.4 million for the nine months ended August 31, 1995, an increase of $2.6
million or 111.0%. This increase was primarily attributable to additional
professional staff hired to perform the increased volume of software services.
Total cost of revenue was 52.4% of total revenue for the nine months ended
August 31, 1996, compared to 46.4% of total revenue for the nine months ended
August 31, 1995. This percentage increase was primarily attributable to the
Company's inability to decrease the cost of Product Revenue commensurate with
the decrease in Product Revenue for the period because certain product-related
expenses, such as salaries for customer-support personnel, are relatively fixed
in the short term.
Cost of Product Revenue was $0.6 million for the nine months ended August
31, 1996 compared to $0.7 million for the nine months ended August 31, 1995, a
decrease of $0.1 million or 9.1%. This decrease was attributable to a decrease
in amortization of capitalized software costs related to the decrease in Product
Revenue. Cost of Services Revenue was $4.4 million for nine months ended August
31, 1996 compared to $1.7 million for the nine months ended August 31, 1995, an
increase of $2.7 million or 156.9%. This increase resulted primarily from the
cost associated with staffing the growth in services contracts. Because such
staffing is relatively fixed in the short term, if any of the Company's
engagements were to be terminated on short notice the Company would be unable to
reduce cost of Services Revenue commensurate with the associated decrease in
Services Revenue. Any such termination would have a material adverse effect on
the Company's business, operating results and financial condition.
Selling and Marketing. Selling and marketing expenses consist primarily of
expenses related to sales and marketing personnel, advertising, promotion, trade
show participation and public relations. Selling and marketing expenses were
$1.6 million for the nine months ended August 31, 1996 compared to $0.8 million
for the nine months ended August 31, 1995, an increase of $0.8 million or 93.7%.
This increase resulted primarily from the Company's strategic shift toward
direct sales. The Company anticipates that selling and marketing expenses will
increase in the near future due to such shift.
Product Development. Product development expenses were $0.6 million for
the nine months ended August 31, 1996 unchanged from $0.6 million for the nine
months ended August 31, 1995. Product development expenses for the nine months
ended August 31, 1996 and August 31, 1995 included offsets of $0.3 million and
$0.4 million, respectively, as a result of the Company's participation in the
TRP. During 1996, the Company's product development efforts were focused on
developing the Company's Web Template product and enhancements to its visual
development tools.
General and Administrative. General and administrative expenses include
costs of corporate services functions including accounting, human resources and
legal services, as well as the corporate executive staff. General and
administrative expenses were $1.1 million for the nine months ended August 31,
1996 compared to $1.0 million for the nine months ended August 31, 1995, an
increase of $0.1 million or 17.2%. This increase resulted primarily from higher
performance-related compensation to existing employees. The Company anticipates
general and administrative expenses to continue to increase in the future due to
increases in staffing.
Income Tax Benefit (Provision). The provision for income taxes was
$448,986 for the nine months ended August 31, 1996 compared to $137,070 for the
nine months ended August 31, 1995, an increase of $311,916. This increase was
attributable to the Company's greater pretax profit level for the nine months
ended August 31, 1996. The Company's effective tax rate of 38% for the nine
months ended August 31, 1996 was lower than the effective tax rate of 42% during
the nine months ended August 31, 1995 primarily as a result of a reduction in
book-tax permanent differences.
21
<PAGE> 23
COMPARISON OF YEARS ENDED NOVEMBER 30, 1995 AND NOVEMBER 30, 1994
Revenue. Total revenue was $7.5 million in 1995 compared to $6.3 million
in 1994, an increase of $1.2 million or 19.0%. This growth resulted from volume
increases in software-related services for clients. Product Revenue was $2.8
million in 1995 compared to $2.9 million in 1994, a decrease of $0.1 million or
3.0%. This decrease was primarily attributable to the decreased sales of
software licenses to distributors, value added resellers and systems
integrators. Services Revenue was $4.7 million in 1995 compared to $3.4 million
in 1994, an increase of $1.3 million or 37.6%. This increase was attributable to
increases in software-related services for clients in the government, financial
services and manufacturing industries.
Cost of Revenue. Total cost of revenue was $3.5 million in 1995 compared
to $2.9 million in 1994, an increase of $0.6 million or 22.3%. This increase was
primarily attributable to additional professional staff hired to perform the
increased volume of software services. Total cost of revenue was 46.4% of total
revenue in 1995 compared to 45.2% of total revenue in 1994.
Cost of Product Revenue was $0.9 million in 1995 compared to $1.0 million
in 1994, a decrease of $0.1 million or 8.3%. This decrease was attributable to a
decrease in amortization of capitalized software costs related to the lower
Product Revenue. Cost of Services Revenue was $2.6 million in 1995 compared to
$1.9 million in 1994, an increase of $0.7 million or 38.3%. This increase was
primarily attributable to additional professional staff hired to perform the
increased volume of software-related services.
Selling and Marketing. Selling and marketing expenses were $1.2 million in
1995 compared to $1.5 million in 1994, a decrease of $0.3 million or 21.8%. This
decrease was primarily attributable to an offset to selling and marketing
expense related to the TRP, as well as a temporary vacancy in a sales position.
Product Development. Product development expenses were $0.7 million in
1995 compared to $0.9 million in 1994, a decrease of $0.2 million or 25.1%. This
decrease was attributable to an offset of $0.5 million as a result of the
Company's participation in the TRP. During 1995, the Company's product
development efforts were focused on developing the Company's Workflow Template
product.
General and Administrative. General and administrative expenses were $1.5
million in 1995 compared to $1.4 million in 1994, an increase of $0.1 million or
2.3%. This increase was attributable to higher performance-related compensation
to existing employees.
Income Tax Benefit (Provision). The provision for income taxes was
$237,289 in 1995 based on the Company's pretax income in 1995. This compares to
an income tax benefit of $217,798 in 1994 based on the Company's pretax loss in
1994. The Company's effective tax rate of 42% in 1995 reflects the utilization,
during 1995, of research and development tax credits created in prior years.
COMPARISON OF YEARS ENDED NOVEMBER 30, 1994 AND NOVEMBER 30, 1993
Revenue. Total revenue was $6.3 million in 1994 compared to $6.0 million
in 1993, an increase of $0.3 million or 6.0%. Product Revenue was $2.9 million
in 1994 compared to $2.8 million in 1993, an increase of $0.1 million or 4.0%.
This increase was primarily attributable to volume increases in sales of
software licenses to distributors, value added resellers and systems
integrators. Services Revenue was $3.4 million in 1994 compared to $3.2 million
in 1993, an increase of $0.2 million or 7.8%. This increase was primarily
attributable to an increase in revenue from software maintenance.
Cost of Revenue. Total cost of revenue was $2.9 million in 1994 unchanged
from $2.9 million in 1993. Cost of Product Revenue was $1.0 million in 1994
unchanged from $1.0 million in 1993. Cost of Services Revenue was $1.9 million
in 1994 unchanged from $1.9 million in 1993.
Selling and Marketing. Selling expenses were $1.5 million in 1994 compared
to $1.9 million in 1993, a decrease of $0.4 million or 20.7%. This decrease was
primarily attributable to the elimination of two regional sales offices in an
effort to centralize certain sales and marketing activities at the Company's
headquarters.
Product Development. Product development expenses were $0.9 million in
1994 compared to $0.4 million in 1993, an increase of $0.5 million or 111.9%.
This increase was primarily attributable to increased
22
<PAGE> 24
expenses related to the development of the Company's first cross-industry
templates, Workflow Template and System Management Template. The development of
such products was initiated in late 1993.
General and Administrative. General and administrative expenses were $1.4
million in 1994 compared to $1.5 million in 1993, a decrease of $0.1 million or
5.7%. This decrease was primarily attributable to performance-based compensation
reductions and certain cost reductions instituted at the Company's headquarters.
Income Tax Benefit (Provision). The Company had income tax benefits of
$217,798 and $377,542 respectively, in 1994 and 1993, based on pretax losses
during those years. The Company's effective tax rate was a benefit of 44% in
both 1993 and 1994.
23
<PAGE> 25
QUARTERLY OPERATING RESULTS
The following tables set forth certain unaudited quarterly results of
operations for each of the ten quarters ended August 31, 1996, together with
such data as a percentage of total revenue. In the opinion of management, this
quarterly information has been prepared on the same basis as the annual
Consolidated Financial Statements presented elsewhere in this Prospectus and
includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the information for the periods presented when read
in conjunction with the Consolidated Financial Statements and the Notes thereto.
The operating results for any quarter are not necessarily indicative of results
of the full year or of any future quarter.
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
MAY 31, AUG 31, NOV 30, FEB 28, MAY 31, AUG 31, NOV 30, FEB 29, MAY 31, AUG 31,
1994 1994 1994 1995 1995 1995 1995 1996 1996 1996
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products..................... $ 752 $ 942 $ 515 $1,046 $ 394 $ 622 $ 744 $ 511 $ 346 $ 189
Services..................... 746 725 1,023 998 1,014 1,072 1,621 2,000 2,867 3,704
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues............. 1,498 1,667 1,538 2,044 1,408 1,694 2,365 2,511 3,213 3,893
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Products..................... 230 271 262 235 187 239 235 160 227 214
Services..................... 454 434 547 538 596 594 864 1,090 1,533 1,816
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues..... 684 705 809 773 783 833 1,099 1,250 1,760 2,030
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................. 814 962 729 1,271 625 861 1,266 1,261 1,453 1,863
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing........ 366 397 424 248 303 272 358 470 581 543
Product development.......... 229 208 269 173 199 185 135 133 229 287
General and administrative... 374 389 356 276 342 352 509 393 403 341
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses... 969 994 1,049 697 844 809 1,002 996 1,213 1,171
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................... (155) (32) (320) 574 (219) 52 264 265 240 692
Interest expense............. 17 19 19 24 30 28 26 12 10 11
Other income (expense)....... -- -- -- -- 1 -- -- -- 5 6
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes........................ (172) (51) (339) 550 (248) 24 238 253 235 687
Income tax benefit
(provision).................. 76 22 149 (231) 104 (10) (100) (97) (90) (262)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ (96) $ (29) $ (190) $ 319 $ (144) $ 14 $ 138 $ 156 $ 145 $ 425
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
-------------------------------------------------------------------------------------------------
QUARTER ENDED
-------------------------------------------------------------------------------------------------
MAY 31, AUG 31, NOV 30, FEB 28, MAY 31, AUG 31, NOV 30, FEB 29, MAY 31, AUG 31,
1994 1994 1994 1995 1995 1995 1995 1996 1996 1996
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Products..................... 50.2% 56.5% 33.5% 51.2% 28.0% 36.7% 31.4% 20.4% 10.8% 4.8%
Services..................... 49.8 43.5 66.5 48.8 72.0 63.3 68.6 79.6 89.2 95.2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Products..................... 15.4 16.3 17.0 11.5 13.3 14.1 10.0 6.4 7.1 5.5
Services..................... 30.3 26.0 35.6 26.3 42.3 35.1 36.5 43.4 47.7 46.7
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues..... 45.7 42.3 52.6 37.8 55.6 49.2 46.5 49.8 54.8 52.2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.................. 54.3 57.7 47.4 62.2 44.4 50.8 53.5 50.2 45.2 47.8
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling and marketing........ 24.4 23.8 27.6 12.2 21.5 16.1 15.1 18.7 18.1 13.9
Product development.......... 15.3 12.5 17.5 8.4 14.1 10.9 5.7 5.3 7.1 7.4
General and administrative... 25.0 23.3 23.1 13.5 24.4 20.7 21.5 15.7 12.5 8.8
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses... 64.7 59.6 68.2 34.1 60.0 47.7 42.3 39.7 37.7 30.1
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations................... (10.4) (1.9) (20.8) 28.1 (15.6) 3.1 11.2 10.5 7.5 17.7
Interest expense............. 1.1 1.2 1.2 1.2 2.2 1.6 1.1 0.4 0.3 0.3
Other income (expense)....... 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.1 0.2
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes........................ (11.5) (3.1) (22.0) 26.9 (17.7) 1.4 10.1 10.1 7.3 17.6
Income tax benefit
(provision).................. 5.1 1.4 9.6 (11.3) 7.5 (0.6) (4.3) (3.9) (2.8) (6.7)
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. (6.4)% (1.7)% (12.4)% 15.6% (10.2)% 0.8% 5.8% 6.2% 4.5% 10.9%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Because the Company's business is characterized by significant client
concentration and relatively large projects, individual client engagements can
have a significant impact on the Company's total revenue and total
24
<PAGE> 26
cost of revenue from quarter to quarter. In addition, variations in the
Company's revenue and operating results occur as a result of a number of other
factors, such as employee hiring and utilization rates as well as the number of
working days in a quarter. The timing of revenue is difficult to forecast
because the Company's sales cycle is relatively long and may depend on factors
such as the size and scope of assignments and general economic conditions.
Because a high percentage of the Company's expenses, particularly employee
compensation, is relatively fixed, a variation in the timing of the initiation
or completion of client engagements, especially at or near the end of any
quarter, can cause significant variations in operating results from quarter to
quarter and could result in quarterly losses. See "Risk Factors -- Variability
of Quarterly Results; Uncertainty of Future Operating Results."
The operating results of many software and business solutions companies
reflect seasonal trends, and the Company expects to be affected by such trends
in the future. Although the Company has not experienced consistent seasonal
fluctuations in operational results to date, the Company believes that it is
likely that it will experience relatively higher revenues in the Company's
quarter ending November 30, 1996 and relatively lower revenues in its quarter
ending February 28, 1997 as a result of efforts by its direct sales force to
meet fiscal year-end sales quotas. To the extent future international operations
constitute a higher percentage of the Company's total revenues, the Company
anticipates that it may also experience relatively weaker demand in the quarter
ending August 31, 1997 as a result of reduced sales activity in Europe during
the summer months. See "Selected Consolidated Financial Data."
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations in recent years primarily through
cash generated from operations. During the nine months ended August 31, 1996,
the Company had net income of $725,833 and generated $859,578 in net cash. Cash
generated by an increase in accounts payable was partially offset by an increase
in accounts receivable. During 1995, the Company had net income of $327,092 and
generated $47,102 in net cash. During this period, cash was used to support the
Company's growth, especially a $655,280 increase in accounts receivable.
On October 22, 1996, the Company entered into a Loan and Security Agreement
(the "Loan Agreement") with Signet Bank (the "Bank"), which consists of a
revolving loan and a term loan. The revolving loan has a maximum borrowing
amount of $3,000,000 with an expiration date of April 30, 1998 and the term loan
is in the amount of $275,000 with an expiration date of October 31, 1999. The
revolving loan permits the Company to borrow amounts in aggregate not to exceed
the lesser of the Maximum Borrowing Amount or the Borrowing Base as those terms
are defined in the Loan Agreement. Borrowings under the Loan Agreement are
collateralized by accounts receivable, equipment, furniture and fixtures. The
revolving loan bears interest at the Bank's prime interest rate per annum and
the term loan bears interest at the Bank's prime interest rate plus 1/4% per
annum. Availability of the funds under the Loan Agreement is also subject to the
Company's compliance with certain covenants customary with commercial loans,
including covenants related to maintenance of certain levels of tangible net
worth. The Loan Agreement further imposes restrictions on creation of debt,
merger, sale of assets, loans or advances, guarantees, payment of dividends or
repurchase of capital stock without the Bank's consent. The Company is currently
in compliance with all covenants under the Loan Agreement or has obtained the
requisite written waivers. See Note 5 of Notes to Consolidated Financial
Statements.
In November 1996, the Company sold 500,000 shares of Preferred Stock to
Alcatel for an aggregate of $8.0 million. See "Prospectus Summary -- Recent
Developments" and "Certain Transactions." The Company expects to use the
proceeds from the issuance of such Preferred Stock for working capital and
general corporate purposes.
The Company believes its cash balances, cash generated from operations and
borrowings available under its line of credit, will satisfy the Company's
working capital and capital expenditure requirements during fiscal year 1996 and
the foreseeable period thereafter. In the longer term, the Company may require
additional sources of liquidity to fund future growth. Such sources of liquidity
may include additional equity offerings or
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<PAGE> 27
debt financings. In the normal course of business, the Company evaluates
acquisitions of businesses, products and technologies that complement the
Company's business. Other than as set forth herein, the Company has no present
commitments or agreements with respect to any such transaction. However, the
Company may acquire businesses, products or technologies in the future.
IMPACT OF INFLATION
Inflation has not had any significant effect on the Company's operations.
OTHER
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," and SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," did not affect the Company's financial position or results of
operations because the Company has not offered such benefits.
26
<PAGE> 28
BUSINESS
OVERVIEW
The Company provides enterprise-wide software solutions to organizations
that require large-scale, distributed computing systems through its reusable
software templates, robust software development environment and staff of
software development professionals. The Company believes that, by combining its
reusable templates, consisting of over one million lines of reusable object
code, and visual development tools, its clients can obtain solutions in less
time and at lower cost than with traditional software development techniques.
The Company's current templates can provide up to 90% of the code necessary for
a complete, functioning application. The Company's solutions are targeted at
large-scale, mission-critical applications, such as securities trading,
telecommunications service management, aircraft maintenance scheduling, air
traffic control, and network monitoring systems. According to a recent industry
study, more than $250 billion is currently spent each year in the United States
on information technology application development.
The Company has developed a family of broadly targeted foundation templates
which are used to build custom, enterprise-wide, distributed applications. The
Company's foundation templates provide up to 80% of the code required for a
complete application. In addition, the Company has developed cross-industry
templates, and is currently developing industry-specific templates, each of
which is designed to be layered on top of the Company's foundation templates to
provide even more pre-written code for specific business solutions. The
Company's cross-industry templates provide an additional 5-10% of completed
application code, and the Company believes its industry-specific templates will
provide 5-8% more of such code. Using the Company's templates, distributed
applications can be rapidly developed either by the Company's professional
software developers, or by a client's staff. The Company believes that its
family of proven, reusable templates gives it a competitive advantage by
permitting its clients to obtain highly adaptable, mission-critical solutions,
generally on a fixed-price basis and in six to twelve months.
INDUSTRY BACKGROUND
The combined demands of global competition, deregulation, organizational
restructuring and rapid changes in products and markets are increasing the
competitive pressures on businesses. Many organizations are responding by
improving the efficiency and effectiveness of their operations through the
enhancement and reengineering of fundamental business processes. In this
context, automation of real-time, event driven processes, including the
integration of an organization's various business functions, can be a
significant component of achieving competitive advantage and responding to
rapidly changing market conditions.
In order to better operate their business, many organizations are deploying
powerful client-server and peer-to-peer distributed computing environments
connected by local and wide area networks that permit information and business
functions to be distributed globally. These distributed computing environments
typically consist of a heterogeneous mix of complex new and legacy hardware and
software platforms, which require highly sophisticated software in order to
address this complexity, support distributed operations, provide access via the
Internet and Intranets, and manage diverse, interrelated and dynamic
information.
Traditional software development techniques which involve line-by-line
construction of large, monolithic software programs are inefficient in
responding to the challenges created by the emergence of business process
automation using distributed computing environments. The Company believes that
such methods are time consuming, error prone and are difficult to adapt to
rapidly changing business demands.
A newer approach to software development, object-oriented programming,
responds to many of these limitations. Object-oriented programming languages,
such as C++, enable software developers to realistically model the complexities
of large-scale, dynamic systems, and to develop, maintain and evolve complex
programs more quickly and with a higher level of reliability than is often
possible using traditional software development methodologies. While
object-oriented technology can address many software development problems, it is
a relatively new and sophisticated approach which many in-house information
technology departments are not yet capable of exploiting.
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<PAGE> 29
In order to obtain business solutions that utilize state-of-the-art
technologies, some organizations have hired information technology services
providers to develop customized software applications. However, this approach is
relatively expensive, time consuming and labor intensive, and has a relatively
low success rate. In addition, many customized software development solutions
require that an organization obtain numerous software development tools, often
from several vendors, such as a graphical user interface ("GUI") tool, a
relational database management system ("RDBMS") and a networking communication
tool. The integration of these technologies into customized solutions often
presents additional complexity and challenges and contributes to project
failure.
Another approach is to purchase pre-packaged off-the-shelf software
applications. These pre-developed applications provide a fixed set of
functionality that is quickly deployable. However, by their nature, off-the-
shelf solutions allow only a limited amount of customization which may require
an organization to change the way it operates in order to fit the business model
inherent in the pre-developed solution. Moreover, as an organization's business
processes change, it can be difficult to modify an information system that
relies on an off-the-shelf solution.
As a result of the limitations of these traditional approaches to
information technology development and the increased complexity and
sophistication required to meet new distributed computing challenges, businesses
are increasingly demanding customizable, robust solutions to business processing
needs which can be quickly developed and deployed in a cost effective manner.
They are also demanding solutions which are adaptable and proven to work in
mission-critical operational settings. Moreover, these organizations require
solutions that are capable of integration with existing legacy systems and
databases, as well as pre-packaged software. Organizations require
business-critical solutions that support group collaborative analysis or
decision making within a department or spanning many departments in a company.
Such solutions are driven by, and must be responsive to, real-time events
governing critical business processes and must provide GUIs that are easy to use
and make information analysis more intuitive. While these solutions often reside
on multiple computers dispersed throughout a network of heterogeneous hardware
and software environments, they must provide immediate access to databases or
real-time sources.
THE TEMPLATE SOLUTION
The Company's enterprise-wide, business solutions combine the best features
of customized solutions with those of off-the-shelf solutions by providing the
following:
Proven Reusable Templates. With over one million lines of reusable code
already developed into templates, the Company and its customers begin each
project with up to 90% of the code necessary for a complete, customized
functioning application already complete. This pre-developed code typically
represents the part of the application that is the most difficult to build and
maintain. By requiring only company-specific knowledge and processes on any
given project, the Company believes that its solutions are faster and less
expensive to develop than customized software development solutions and more
flexible and tailored than off-the-shelf software applications.
The Company's templates are essentially collections of integrated object
frameworks which represent largely completed applications and have been used to
develop mission-critical applications for over 300 customers. The Company's
templates differ from a framework in two ways: first, they require minimal
development to produce a completed application because they contain
significantly more pre-written code than a single framework and second, they
embody a pre-developed integrated architecture which allows functionality,
including that of an organization's legacy systems to be added or adapted with
very little time-consuming low level programming. Thus, use of these templates
speeds application development, allows very large-scale code reuse, eliminates
errors of omission and simplifies the automation of complex business processes.
The Company's templates provide increased gains in productivity over a
component-based approach to code reuse because they provide an integrated
structure, common data representation, dynamic operations and architectural
integrity.
Simple Automation of Complex Business Processes. The Company's visual
development environment allows clients to focus on incorporating business logic
into a solution rather than on complex technical details.
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<PAGE> 30
With the Company's visual, object-oriented development environment, developers
and end-users can rapidly build applications that automate and integrate
business processes such as credit checking, order handling and inventory
management. From its history of working closely with its many clients, the
Company believes that it has gained a high level of expertise in complex
business processes and such expertise is embedded in the Company's templates for
the benefit of its clients. The close mapping between a business process and the
application architecture embodied in the Company's templates enables developers
and end-users to more easily design, maintain and reuse applications. This also
enables end-users to participate in the development of business process
solutions resulting in more successful implementations.
Iterative Design Approach. To more effectively accomplish a client's
business process objectives, the Company applies an iterative approach to
software design and deployment that permits refinement of the Company's
solutions through successive variations of the completed application. Given the
complexity associated with the modeling of enterprise-wide business processes,
large-scale solution designs are typically altered substantially between the
concept stage and the finished product. The Company's iterative design approach
facilitates this process while allowing delivery of a working application at
each iterative stage. The Company believes this approach encourages client
feedback, enables end-users to participate in the application development
process and leads to greater congruence with client needs and expectations.
Fixed Price, Fixed Timetable. The market for information technology
solutions has been characterized by significant delays and cost overruns. By
contrast, the Company's iterative design approach permits the Company and its
clients to agree on the nature of project deliverables and a fixed price, as
well as a fixed timetable for the project at the commencement, and at each
successive stage of a project engagement. The Company believes that its
willingness to offer a fixed price and a fixed timetable for complex business
solutions differentiates the Company from many of its competitors.
Scalability. The Company's templates employ a more powerful distributed
architecture than many current client-server systems. The Company's technology
supports both client-server and peer-to-peer distributed architectures. Together
these two architectures more closely model an organization's actual
enterprise-wide business processes. This allows automated systems to scale
rapidly through a replication methodology as the volume of users and
transactions increases.
Platform Independent Solutions. The Company's powerful and easy to use
family of templates provides organizations with an efficient and cost-effective
method for developing new applications and can be easily integrated with
disparate new and legacy systems, existing business applications and emerging
technologies. The Company's templates support a variety of industry standards
for operating systems, RDBMSs, GUI tools, Web browsers, communication protocols
and compilers. This gives both the Company and its clients the flexibility to
utilize multiple suppliers and enables the integration of new systems and legacy
systems.
STRATEGY
The Company's objective is to be the leading provider of mission-critical,
distributed business solutions. The Company's strategy incorporates the
following key elements:
Focus on Large and Growing Market for Enterprise-Wide, Mission-Critical
Solutions. The Company intends to leverage its comprehensive family of proven,
reusable templates to offer robust, complete solutions that address large-scale,
mission-critical applications. The Company believes that global trends toward
enterprise-wide business process automation will cause the large market for such
applications to grow rapidly. The flexible, open architecture and reusable code
of the Company's templates enable the rapid development and deployment, at
relatively low cost, of enterprise-wide solutions that are interoperable and
scale from small working groups and departments to an entire organization with
thousands of users over a distributed network. The Company believes that its
family of proven, reusable templates, which contain the Company's significant
business process knowledge, gives it an advantage over most of its competitors
by permitting its clients to obtain robust solutions for mission-critical
applications generally at a fixed and relatively low cost and on a fixed and
relatively rapid timetable (typically six to twelve months).
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<PAGE> 31
Continue Development of Specialized Templates. The Company has introduced
two cross-industry templates which, when added to the Company's foundation
templates, provide a more complete solution for specialized applications such as
workflow management or systems management. The Company also intends to introduce
new cross-industry templates, such as a customer care template. In addition, the
Company intends to leverage its industry knowledge and expertise in selected
markets to develop various industry-specific templates, which will provide
specialized features and functions to address special needs of vertical markets,
such as integrated order handling for telecommunications companies.
Concentrate on Selected Vertical Markets. The Company has identified
strategic vertical markets with business-critical needs which can be addressed
by the Company's enterprise-wide, mission-critical solutions. These are
information intensive industries with large, distributed business processes and
complex legacy application development environments. The Company has targeted
its sales and marketing efforts on the telecommunications, financial services,
manufacturing, energy and transportation industries, as well as on government
agencies. The Company intends to leverage its existing relationships and expand
its sales and marketing efforts to further increase market share in these
industries, as well as in other selected vertical markets.
Expand Distribution Channels. The Company's distribution strategy involves
a combination of direct sales and sales through systems integrators, value added
resellers, distributors and independent software vendors to reach the broadest
customer base in its targeted markets. The Company's strategic relationships
with development partners, systems integrators, value added resellers and
independent software vendors are a key part of its strategy to quickly establish
the widespread use of the Company's templates. In particular, the Company
intends to work closely with its strategic partners to develop new solutions of
which the Company's reusable templates and visual development tools are an
integral part. The Company will continue to strengthen its existing strategic
relationships while forging new relationships with key industry participants.
The Company has begun to complement its indirect distribution channels with
greater direct sales resources in certain vertical industries and markets.
Capitalize on the Emerging Internet/Intranet Market Opportunity. The
Company believes that the Internet and the Web will become increasingly
important to organizations utilizing distributed computing. Because the Company
incorporated Internet and Web technologies into its products, business processes
automated with the Company's solutions can be accessed from anywhere in the
world by the customers, suppliers and employees of an enterprise. The Company
believes that the combination of Internet and Web accessibility, large-scale
business process automation and integration inherent in the Company's products
position it to exploit the extension of information technology to new markets,
such as electronic commerce.
TECHNOLOGY
Advanced Technologies
Over the past two decades, a series of highly publicized new technologies,
such as object-oriented programming and the Internet, have been introduced or
widely adopted in the software industry each of which was expected to
revolutionize the way software is developed or used. Although valuable advances,
none of these technologies alone can solve all of the challenges associated with
the explosive growth of distributed computing. Rather, in the Company's view, a
combination of technologies is required to develop effective enterprise-wide
business solutions for organizations with complex information processing needs.
The Company believes that its template technology seamlessly combines the
best of these emerging technologies into an architecture suited to complex,
distributed, enterprise-wide solutions. These technologies include
object-oriented technology, knowledge-based systems, distributed processing,
GUIs, visual development, object frameworks, database technology, the Internet,
the Web and Intranets. While many other software development companies and
solutions providers are relying on some or even many of these advanced
technologies, the Company believes that it is one of the few to integrate all of
them into its solutions approach.
All of the Company's products are designed for multi-platform hosting and
broadbased interoperability. The Company's products are also designed to enable
accessibility, automate business processes and integrate
30
<PAGE> 32
existing and legacy systems which the Company believes is critical in developing
enterprise-wide solutions such as Internet and Web-based electronic commerce
solutions. Application developers using the Company's products do not need to
address the complexity of underlying heterogeneous standards because the
products hide these details allowing the developer to work at a higher level. An
application built for one set of standards will operate in another simply by
recompiling the application.
All of the Company's templates support Windows 95, Windows NT, Presentation
Manager and Motif windowing systems for both development and deployment. The
Company's templates also support standard Web browsers such as Netscape's
Navigator and Microsoft's Explorer. In addition, the Company's templates support
a range of operating systems, including Open VMS, UNIX, OS/2, Windows 95 and
Windows NT and most popular hardware platforms, including DEC, Hewlett Packard,
IBM, Pyramid, Sequent, Sun and Unisys. The Company's templates also operate in
conjunction with the leading RDBMSs including Oracle, Sybase, DB2 and Informix,
as well as the Microsoft ODBC interface.
Network Computing and Electronic Commerce
The Company has been building large-scale distributed systems that operate
in networked environments since 1984. The Company believes that this experience
has afforded it the opportunity to try many technical approaches to implementing
such systems under real world conditions. For example, the Company recognized
early in its development process the value of TCP/IP as a standard protocol for
integrating heterogeneous computer hardware and operating systems. As a result,
the Company's products and solutions have been capable of exploiting this
standard protocol for the Internet and Intranets since their emergence. In
addition, the Web, which is an extension of the Internet, offers a standard, low
cost graphic access device for customers and suppliers to directly interact with
the automated processes of an enterprise. The Company has integrated this
technology into its products so that a standard Web browser can be used to
access any application built with the Company's products.
The Company believes that solutions in the area of electronic commerce must
have three fundamental characteristics: broadbased accessibility, the ability to
automate business processes and the ability to integrate legacy systems. The
Company believes its solutions offer all three of these characteristics. First,
because the Company incorporated Internet and Web technologies into its
products, business processes automated with the Company's solutions can be
accessed from anywhere in the world by customers, suppliers and employees of an
enterprise. Second, the Company's products are specifically targeted at the
development of large-scale, enterprise-wide solutions making them ideal
candidates for business process automation. Third, the Company's products are
designed to integrate existing systems, such as an organization's legacy
systems, or systems external to an organization such as a credit check reporting
service. The Company believes that the combination of Web accessibility,
large-scale business process automation and integration inherent in the
Company's products position it to provide solutions to companies seeking to
exploit the extension of information technology to new markets, such as
electronic commerce.
Template-Based Code Reuse
The software industry in general is pursuing a strategy of software reuse.
Reuse is important because building large and complex systems that automate
multiple business processes may otherwise be economically impractical to develop
using traditional methodologies. Recently, the industry has attempted to reuse
software code principally through the use of objects and object frameworks. An
object is a small piece of code that encapsulates the data and logic associated
with some function or service, such as formatting the current date. If properly
conceived and implemented, objects can be reused in many different applications.
Object frameworks are collections of related objects that perform some function
or service on a larger scale such as providing the mechanism for all graphic
displays for an application.
This component-based approach to reuse works well with small, less complex
applications. However, its effectiveness is limited when applied to large,
complex applications because the number of objects required to attain
large-scale reuse can number in the thousands. The Company believes that this
large number becomes logistically difficult, particularly with respect to
maintenance and training requirements. Moreover, an
31
<PAGE> 33
organization relying on objects and object frameworks to develop a solution must
still resort to traditional line-by-line software programming to integrate the
components in a way that results in a customized solution. Through its early
research in the mid-1980s, the Company learned of these inherent limitations of
software reuse based solely on objects and object frameworks. From this
research, the Company began to develop what it believes is the next logical step
in the evolution of software reuse technology: templates.
The Company's templates are essentially collections of integrated object
frameworks which represent largely completed applications. The Company's
templates differ from a framework in two ways: first, they require minimal
development to produce a completed application because they contain
significantly more pre-written code than a single framework and second, they
embody a pre-developed integrated architecture which allows functionality,
including that of an organization's legacy system to be added or adapted with
very little time-consuming low level programming. Thus, use of the Company's
templates speeds application development, allows very large scale code reuse,
eliminates errors of omission and simplifies the automation of complex business
processes. The Company's templates provide increased gains in productivity over
a component-based approach to code reuse because they provide an integrated
structure, common data representation, dynamic operations and architectural
integrity. In addition, code reuse with a template is implicit and, therefore, a
developer relying on templates to construct an application is not required to
know the attributes of the framework being reused. By contrast, with a
components-based approach, a developer must explicitly design the application
with specific reusable frameworks in mind, write code to integrate the
frameworks and understand the complex semantics associated with each object in
the framework.
Visual Development Environment
The Template approach consists of using its template-based technology
combined with its visual development environment to produce applications through
an iterative process. Rather than programming at a detailed language level to
fill in a template, the Company's products include a visual development
environment that allows developers to accomplish this task using visual editors
thereby limiting greatly the need to resort to line-by-line programming. Thus,
many of the development activities associated with constructing an application,
such as process definition, object modeling and GUI implementation, can be
accomplished through the use of visual editors. With the Template approach,
developers need to employ traditional line-by-line programming only when
specialized behavior must be modeled that has not already been defined through
the Company's visual editors. The Company is currently enhancing and plans to
continue to enhance its visual development environment with new releases of its
products.
Visual development is important for two reasons. First, it enhances the
high productivity associated with template-based development. Second, and
perhaps more importantly, it greatly expands the types of people in an
organization capable of developing software applications. Currently, large-scale
or complex software systems are generally developed for organizations by highly
trained software engineers. In the Company's view, this greatly inhibits the use
of information technology as a competitive tool for many organizations. Visual
development enables non-programmers to participate in the development of
software applications. Through the use of properly designed visual development
environments, the Company believes that the people who actually run the business
(so-called "knowledge workers"), can directly incorporate their knowledge into
the automation of business processes. The Company believes that this capability
will ultimately result in systems being built by those who best understand the
challenges of the business.
Integrated Family of Reusable Templates
The Company has developed a robust family of general, broadly targeted
"foundation" templates that it uses to build custom, enterprise-wide business
solutions. These general foundation templates support the development of any
distributed application (client-server or peer-to-peer). On top of these
foundation templates, the Company has developed several specialized, more
narrowly focused cross-industry templates that address common types of business
processes, including workflow processes characterized by complex routing and
processing of information and systems management processes characterized by
real-time monitor
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and control of complex systems. The Company expects that its cross-industry
templates will substantially reduce development time by permitting even greater
code reuse than is achievable using a foundation template alone. The Company is
also currently developing a library of industry-specific templates designed to
be layered on top of the cross-industry templates in order to provide targeted
industries with nearly completed applications requiring very little final
development. The Company expects to deliver its first industry-specific
template, an order handling application for a telecommunications service
management system, in the first half of 1997.
As one moves up the hierarchy of templates, the Company's visual tools
become increasingly accessible to knowledge workers, rather than only to
developers or software engineers. The amount of code that remains to be
developed for a complete solution diminishes as one ascends the hierarchy. If an
application is built using only the Company's foundation templates,
approximately 75-80% of the code would typically be provided as reusable code
and the remaining 20-25% of the code would typically be developed by software
engineers. However, if an industry-specific template is used of the type
currently being developed by the Company, the Company believes that only 2-5% of
the ultimate code would have to be produced and most of this would be done by
knowledge workers.
The following diagram illustrates the Company's hierarchy of templates and
how they are designed to be used together to provide as much prewritten software
code as possible in developing customized applications:
GRAPHIC
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PRODUCTS AND SERVICES
The Company's product portfolio currently includes two foundation templates
(SNAP and Web Template) and two cross-industry templates (System Management
Template and Workflow Template). These templates have been designed to
interoperate seamlessly and each includes an integrated suite of visual
development tools to enhance the functionality and rapid development of specific
business solutions. The Company also intends to introduce new specialized
templates which are complementary to its existing family of templates and which
address both existing and emerging market needs.
Foundation Templates
SNAP. SNAP is an application development template for creating complex,
scalable, distributed enterprise-wide solutions. SNAP, which is based on an
object-oriented fifth generation specification language, is designed to promote
large-scale code reuse and provides knowledge-based inferencing and dynamic
event handling. The reusable software in SNAP provides the foundation for up to
75%-80% of the code for distributed, multi-process applications, including two
and three tier client-server and peer-to-peer applications. SNAP includes
built-in components and functionality including dynamic graphical user
interfaces, storage capabilities for database and file access, facilities to
integrate with class libraries and legacy applications and advanced
communications protocols. SNAP also provides interprocess communications that
provide dynamic object sharing and updating which enable the reconfiguration or
scaling of distributed applications with little or no code changes. To achieve
this, SNAP provides a facility called the Shared Information Base ("SIB") which
enables interprocess communication among applications running on a single
hardware platform or multiple heterogeneous platforms. Because multiple SNAP
application processes can communicate on a peer-to-peer basis through a shared
information base, a developer can easily scale an application up from a single
workstation to a dispersed network of multiple workstations.
The Company believes that SNAP offers several performance advantages. Since
the object model of an application developed with SNAP resides in memory, access
and processing time are more rapid and efficient than traditional
database-centered applications which expend significant time in input/output
operations. SNAP provides the option to use C or C++ code (or any code that will
link with C code) for any particular time-critical process, while retaining the
advantages of the SNAP environment for all other aspects of the application.
Since processes can be distributed, any time-critical elements or system
bottlenecks can be moved to a platform with suitable CPU performance. The SIB
facility provides a mechanism for isolating and relocating those elements.
Web Template. Web Template is an application development template for
creating Web-based, enterprise-wide solutions. Web Template incorporates SNAP's
functionality and enables the dynamic generation in real-time of Hypertext
Markup Language ("HTML"). As a result, solutions developed with SNAP can be
deployed across the Internet and Intranets using Internet protocol with HTML
coding. Web Template supports leading web browsers and servers, including those
developed by Netscape Communications Corporation and Microsoft Corporation. Web
Template also takes advantage of emerging standards such as HTML 3.0 and Java.
Cross-Industry Templates
Workflow Template ("WFT"). WFT is an application development template for
creating workflow solutions that automate and provide real-time management and
control of the functions and tasks involved in a business process, such as
claims processing and order fulfillment. WFT incorporates SNAP's functionality
and provides the foundation for up to 90% of the code for most workflow
solutions. WFT is based on a business operations model which enables easy
development of a rules-based, process oriented workflow system. WFT provides the
versatility to develop workflow solutions that range from departmental systems
to production and enterprise-wide systems. WFT includes nine high-level editors
which provide the visual tools for workflow business process engineering,
analysis and design.
System Management Template ("SMT"). SMT is an application development
template for creating system management solutions that provide real-time
monitoring and control of complex physical processes,
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<PAGE> 36
such as pipeline management and computer network management. SMT enables
organizations to develop solutions that monitor the status of complex systems
and gives people in an organization the ability to rapidly change the elements
of the system. SMT incorporates SNAP's functionality and provides the foundation
for up to 90% of the code for most system management solutions. SMT tightly
integrates key management and operation services for system management with
built-in components for managing and routing commands, monitoring and managing
the system management application, filtering and routing system problems and
providing and regulating access control. SMT also provides a comprehensive list
of class libraries, configuration tools and a base application for system
management application development.
Customer Care Template ("CCT"). The Company intends to develop CCT, a new
cross-industry template for customer care functions. Customer care is a broad
set of business process applications aimed at across-the-board improvement in
the delivery of services and products to customers. Customer care touches nearly
all aspects of an organization's business processes and the Company believes
that organizations with advanced customer care functions will be better
positioned to capitalize on the trend toward electronic commerce. CCT will be
capable of incorporating SNAP, SMT, WFT and Web Template functionality and
provide a customer service solution that integrates customer care processes,
such as order handling, invoicing and collection, and problem handling, with
service and product development and maintenance processes, as well as network
and systems management processes.
Industry-Specific Templates
The Company intends to extend its family of foundation templates and
cross-industry templates to include industry-specific templates. The Company is
currently developing a customer care template for the telecommunications
industry ("Telco-CCT"). In the future, the Company intends to generalize these
components to develop other templates such as customer care for the electric
power industry. The Company has designed its proposed Telco-CCT template on a
model for customer care based on standards established by the Network Management
Forum ("NMF"), a consortium of over 180 companies in the telecommunications
industry. As a result, Telco-CCT is being developed from the start based on
common industry terminology and standards. The Company has incorporated into the
Telco-CCT the Customer Care model of the NMF using the Company's visual tools.
To date, the Company has completed a working model of the order handling
function of Telco-CCT based on the NMF model. By basing Telco-CCT on the NMF
standard, the Company believes that this product will give it an advantage over
competitors. First, a telecommunications system that is developed with Telco-CCT
will be capable of interoperating with systems owned by other telecommunications
companies. Also, new entrants in the industry will be able to use the systems
created with these templates with the confidence that they will be in
conformance with industry standards.
Services
The Company has a comprehensive service organization that is designed to
ensure successful implementation and use of its family of templates. The Company
believes its customers' success in implementing and using the Company's
templates is critical to sustaining its reference customer base. The Company
provides its customers with software-related services to specify, design,
develop, and deploy the software applications necessary to meet its customers'
business process needs. These services may be performed by third-party
integrators, independent consultants or Company personnel, depending on the
nature and complexity of the request. The Company believes that the availability
of its software-related services is a key factor in customer purchasing
decisions.
The Company's services have been and are expected to continue to be an
important source of revenues and software development projects. The fees for the
Company's services are typically fixed in advance of each stage of the software
development process for which the Company has been engaged.
The Company also has a government business unit comprised of approximately
25 people who provide technical services to government agencies. The principal
function of this group is to administer certain classified contracts between the
Company and an agency of the federal government. The nature of this work is
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<PAGE> 37
technical design and software development which the Company has been performing
for the federal government since 1977. Government contracts, by their terms,
generally can be terminated at any time by the government, without cause, for
the convenience of the government. If a government contract is so terminated,
the Company would be entitled to receive compensation for the services provided
or costs incurred at the time of termination and a negotiated amount of the
profit on the contract to the date of termination. In addition, all government
contracts require compliance with various contract provisions and procurement
regulations. The adoption of new or modified procurement regulations could
adversely affect the Company or increase its costs of competing for or
performing government contracts. Any violation (intentional or otherwise) of
these regulations could result in the termination of such government contracts,
imposition of fines, and/or debarment from award of additional government
contracts. The termination of any of the Company's significant government
contracts or the imposition of fines, damages, or suspension from bidding on
additional government contracts could have a material adverse effect on the
Company.
CUSTOMERS AND MARKETS
As of September 30, 1996, the Company has licensed its technology or
provided software-related services to over 300 customers in a wide variety of
industries worldwide. To date, the Company's marketing efforts have been
directed toward a diverse group of industries, including manufacturing, energy,
telecommunications, transportation, healthcare and financial services, as well
as federal government agencies.
The Company believes that the following is a representative list of the
Company's recent or current customers:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
INDUSTRY CUSTOMER APPLICATION
<S> <C> <C>
Energy ENRON Corp. Gas pipeline control and management
Electronic Power Power monitoring and personnel training
Research Institute
Siemens Corporation Power distribution management
Financial Valores Mexicanos Brokerage trading
Soluciones
First Data Consumer promotion data analysis
Healthcare United HealthCare Claims adjudication and processing
Corporation
Government Advanced Research Visual tool development
Project Agency
NASA Jet Propulsion Control and monitoring of a deep space probe
Laboratory
Various other agencies Systems engineering
Transportation Northwest Airlines Maintenance scheduling
Corporation
Northrop-Grumman Air traffic control
Corporation
S.N.C.B. (Belgium Control of high speed trains
National Railways
Company)
UPS Scheduling of airplane maintenance and repair
Telecommunications Unisys Corporation Network monitoring and control
Vyvx, Inc. Management of terrestrial video transport
networks
</TABLE>
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Because of the costs involved in implementing a solution, clients undertake
projects on an irregular basis and the amount of work performed for clients may
vary from year to year. There can be no assurance that the Company will perform
additional projects for any client.
Historically, with the exception of the federal government, organizations
that provide in excess of 10% of the Company's revenues have changed from year
to year. For the fiscal year ended November 30, 1995, the federal government and
IBM represented the only customers of the Company that accounted for more than
10% of the Company's total revenue, accounting for 31.7% and 10.6% of total
revenue, respectively. The percentage of revenue accounted for by the federal
government has declined in recent years and is expected to decline further. For
the nine months ended August 31, 1996, each of First Data, Wellspring and the
federal government accounted for more than 10% of the Company's total revenue
representing an aggregate of approximately 71.7% of total revenue or 19.7%,
32.7% and 19.2% of total revenue, respectively. Based on a recent restructuring
of the Company's agreement with Wellspring, the Company does not anticipate that
Wellspring will account for 10% of the Company's total revenue in 1997.
The following examples illustrate how selected organizations are using the
Company's products and services:
UPS, one of the largest transportation companies in the world, needed an
application to help manage the maintenance of its extensive aircraft fleet. UPS
used the Company's technology to develop a set of business processes designed to
assist with maintenance work to be performed, schedule qualified personnel,
interface with existing inventory management and tool control systems, and help
improve data accuracy, consistency and timeliness. UPS selected the Company's
technology for this complex, distributed system because of its functionality,
integrated tool set and sophisticated communications infrastructure. The Company
and UPS completed development of this complex, heterogeneous, distributed
application and deployed it in several dozen cities in less than one year.
S.N.C.B. (Belgium National Railways Company), a major railway company in
Europe, needed a software system to automate railroad traffic control systems.
The Company's technology enabled a real-time, distributed traffic management
system for high-speed trains. The system provided a graphic representation of
rail lines for estimated and real-time train schedules, mapped rail routes from
data and developed dispatcher dialogue modules for traffic management. The
application was created with six people in approximately 21 months.
Unisys Corporation used the Company's technology to create Single Point
Operations ("SPO"), a commercial product which provides a single console for
managing multiple computer systems. SPO provides a logical means of automating
and centralizing system operations so that one operator can monitor and control
multiple systems. SPO allows a user to manipulate the system console from a
window in the workstation. In addition, applications which are running remotely
on mainframes can interact with the SPO platform. SPO provides high level
displays which depict the activity and status of each system being monitored.
Unisys has installed this system in over 150 locations to automate and
centralize the running of clients' data centers.
SALES AND MARKETING
To reach a broad potential customer base, the Company has pursued multiple
distribution channels, including a direct sales force, as well as third party
relationships with distributors, value added resellers and systems integrators.
The Company's direct sales force focuses on large customers and leverages its
industry experience to access target organizations within particular vertical
markets. These markets are characterized by business areas to which the
Company's services and technology are particularly well-suited, and by
participants who possess the financial resources and scale of operations
necessary to support the engagement of service providers such as the Company.
The Company identifies leading organizations in each industry and seeks to
provide an initial solution that builds on one of the Company's reusable
software templates. Once an initial project has been successfully completed, the
Company seeks to offer additional services that automate and enhance other
business processes for the client. The Company intends to target additional
industries in which its business area experience and advanced software
technology expertise can be applied.
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An important element of the Company's sales and marketing strategy is to
expand its relationships with third parties to increase market awareness and
acceptance of Template software solutions. To enhance marketing and distribution
channels, the Company has established strategic relationships with distributors,
value added resellers and systems integrators. The relationships with each of
these groups generally provide for training and other support necessary to
promote the market acceptance of the Company's products. The Company has also
formed business alliances with certain distributors, value added resellers or
systems integrators through which these parties include Template products and
services in bids they submit for systems projects.
Internationally, the Company's sales and marketing efforts have been
focused on the European market. The Company has a direct sales force which
operates from the Company's wholly-owned subsidiary in the United Kingdom.
Recently, the Company has also taken several steps to significantly expand its
distribution capabilities in Europe. In November 1996, in connection with an
investment in Preferred Stock of the Company, the Company and Alcatel agreed to
enter into a business relationship. See "Prospectus Summary -- Recent
Developments" and "Certain Transactions." In November 1996, the Company entered
into a non-binding letter of intent pursuant to which the Company agreed to
acquire Krystal Ingenierie S.A. ("Krystal"), the Company's existing distributor
in France. The letter of intent provides that the Company will issue up to
93,750 shares of Common Stock to the shareholders of Krystal in exchange for all
of the capital stock of Krystal and cancellation of certain indebtedness of
Krystal to its principal shareholder. In addition, the Company has entered into
a non-binding letter of intent to distribute its products and solutions in
Germany through a joint venture 51% owned by the Company, and 49% owned by a
German software distributor. The Company intends to continue to expand its
international sales and marketing efforts to include areas beyond Europe.
As of November 1, 1996, over 20 such distributors, value added resellers
and systems integrators employ or resell the Company's technology, including:
<TABLE>
<S> <C> <C>
DISTRIBUTORS VALUE ADDED RESELLERS SYSTEMS INTEGRATORS
Krystal Ingenierie(1) EDS Daxus Corporation
Contemplate B.V.I.O. Northrop-Grumman Corporation EDS
Template Software, GmbH(2) Siemens Corporation Groupa Solucinos
Unisys Corporation GTE Government Systems
Hernandez Albin, S.C.
IBM
WILOGS Company
</TABLE>
(1) The Company has entered into a non-binding letter of intent to acquire this
distributor.
(2) Pending consummation of distributorship joint venture which is currently
subject to a non-binding letter of intent.
The Company employs a variety of business development and marketing
techniques to communicate directly with current and prospective clients. These
techniques include exhibiting at trade shows, authoring articles and presenting
papers regarding the Company's solutions and technology, holding seminars for
clients and prospective clients on technology and industry issues and direct
mail marketing. In accordance with government contracting requirements, the
Company's marketing and sales efforts toward defense industry clients that are
governmental agencies or instrumentalities are limited to responding to requests
for proposals and participating in competitive bidding.
Existing clients are also an important component of the Company's marketing
strategy. The Company's process of building open systems applications on an
incremental basis results in flexible systems which can support additional
applications as a client's needs develop or change. Follow-on projects leverage
sales and marketing resources and strengthen the Company's client relationships.
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CUSTOMER TRAINING AND SUPPORT
The Company believes that a high level of customer support is important to
the successful marketing and sale of the Company's solutions. The Company
employs a team of technical specialists to provide support services ranging from
design and application engineering support to full-scale application development
and turnkey solutions. The typical direct sale to a client includes initial
maintenance, training and consulting services. In addition, substantially all of
the clients for whom the Company has developed an application elect to enter
into an ongoing maintenance and support contract with the Company, which is
typically for twelve months and entitles the customer to upgrades, and technical
support. The Company also offers introductory and advanced classes and training
programs available at the Company's headquarters and at customer sites. In
addition, users of Template software can attend an annual technology forum, at
which knowledge of Template software skills and customer solutions are
exchanged.
On a worldwide basis, the Company's authorized distributors, value added
resellers and systems integrators also provide customers with training, product
support and consulting services. Each of the Company's software distributors is
capable of providing training in its respective country. In addition, many
international partners and distributors, particularly independent software
vendors, operate their own technology training programs.
BACKLOG
The Company includes in backlog only signed contracts that either have
milestones yet to be attained or for which the Company can make a reasonable
estimate of work yet to be performed. The Company's backlog totaled
approximately $4.3 million at August 31, 1996, compared to approximately $4.6
million at August 31, 1995. There can be no assurance that contracts reflected
in backlog will not be canceled or delayed. Accordingly, the Company believes
that backlog is not a reliable measure of future revenue.
EMPLOYEES
As of November 1, 1996, the Company had a total of 98 full-time employees,
of which 70 were technical and technical support personnel.
The Company's success will depend in large part upon its ability to
attract, retain and motivate highly-skilled employees, particularly project
managers and client managers and other senior technical personnel. Qualified
personnel are in particularly great demand and are likely to remain a limited
resource for the foreseeable future. However, the Company believes that it has
been successful in its efforts to attract and retain the number and quality of
professionals needed to support present operations and future growth, in part
because of its emphasis on training, its policy of promoting from within, and
its methodology, which allows its personnel to progress with one client through
multiple phases of a project, thereby maximizing the learning process and
maintaining the professional challenge. Although the Company expects to continue
to attract sufficient numbers of highly skilled employees and to retain its
existing project managers and other senior personnel for the foreseeable future,
there can be no assurance that the Company will be able to do so.
None of the Company's employees is subject to a collective bargaining
agreement. The Company believes that its relations with its employees are
excellent.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company generally enters into
confidentiality agreements with its employees and consultants that limit access
to and distribution of its proprietary information. The Company also believes
that factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential to establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection. There can be no assurance that others will
not develop
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technologies that are similar or superior to the Company's technology or design
around the proprietary rights owned by the Company. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult, and while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights as fully as do the laws of the
United States. There can be no assurance that the Company's means of protecting
its proprietary rights in the United States or abroad will be adequate or that
competition will not independently develop similar technology. The Company has
entered into source code escrow agreements with a limited number of its
customers and resellers requiring release of source code in certain
circumstances.
The Company's business includes the development of custom software in
connection with specific client engagements. This custom software generally uses
the Company's core software technology, reusable software templates and certain
software tools, which remain the property of the Company. However, in the past,
the Company has generally assigned the custom software components to its
clients.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties (including
the parties for whom the Company has been engaged to develop solutions, from
which its reusable software templates have been derived) will not claim
infringement by the Company of their intellectual property rights. The Company
expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be time
consuming to defend, result in costly litigation, divert management's attention
and resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
would be materially adversely affected.
PRODUCT DEVELOPMENT
Since inception, the Company has made substantial investments in product
development and related activities. The Company believes that its future success
will depend in large part on its ability to enhance its current family of
software products, develop new products, maintain technological leadership and
satisfy an evolving range of customer requirements for enterprise-wide,
mission-critical distributed applications. The Company's product development
organization is responsible for product architecture, core technology and
functionality, product testing, visual tool development and expanding the
ability of Template software to operate with the leading hardware platforms,
operating systems, relational database management systems and networking and
communication protocols. This organization is also responsible for new product
development. In fiscal 1995 and for the nine months ended August 31, 1996,
product development expenses were $691,620 and $649,401, respectively. To date,
the Company has capitalized certain software development costs, but in the
future, as a result of the Company's change in product development, the Company
anticipates capitalizing an insignificant amount of such costs. See Note 2 of
Notes to Consolidated Financial Statements. Management expects that, as a result
of its product development strategy, internally funded research and development
costs may increase significantly in future periods. There can be no assurance
that such increased research and development costs will result in the successful
introduction of new products.
The Company attempts to continuously improve its existing products in two
ways. In response to market demands, the Company seeks to enhance its current
family of Template products through planned releases. At the same time, the
Company tries, on an ongoing basis, to expand its existing family of products by
periodically introducing new template-based products. This effort to enhance
existing products falls into three categories. First, the Company adds new
visual development tools to increase the productivity of those using its
templates. Second, the Company adds new functionality to its existing templates
in the form of reusable
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code. Third, as new platforms and standards are introduced into the market, the
Company ports its templates to new platforms and standards to enhance
interoperability.
The Company usually retains the right to enhancements of its products.
However, the Company generally assigns ownership of the custom software
components to its clients. The Company is currently a member of a software
development consortium that includes IBM, Honeywell Corporation and ISX, Inc.
This consortium is participating in the TRP, which began in 1995, through which
the Company is expected to receive an aggregate of approximately $2.0 million.
COMPETITION
The information technology consulting, software development and business
solution markets include a large number of participants, are subject to rapid
changes and are highly competitive. The Company competes with and faces
potential competition for client assignments and experienced personnel from a
number of companies that have significantly greater financial, technical and
marketing resources and generate greater revenues than does the Company. These
markets are highly fragmented and served by numerous firms, many of which serve
only their respective local markets. Clients may elect to use their internal
information systems resources to satisfy their needs for software development
and technical consulting services, rather than using those offered by the
Company. In the software development tools market, representative competitors of
the Company include, among others, Forte Software, Inc., ViewStar Corporation,
NeXT Software, Inc. and Dynasty Technologies, Inc. In the information technology
consulting market, representative competitors of the Company include, among
others, Cambridge Technology Partners, Inc. and TCSI Corporation. In the
business solutions market, representative competitors of the Company include,
among others, Oracle Corporation, Integrated Systems Solutions Corporation (a
subsidiary of IBM) and Andersen Consulting, among others.
In addition, complex client-server and peer-to-peer applications that can
be developed and deployed using the Company's object-oriented, template-based
solutions can also be implemented using a combination of first-generation
application development tools and more powerful server programming techniques
such as stored procedures in relational databases and C or C++ programming,
along with the integration of networking and database middleware to connect the
various components. As such, the Company also effectively experiences
competition from potential customers' decisions to pursue such an approach as
opposed to utilizing an application environment such as the template-based
technology offered by the Company. As a result, the Company must continuously
educate existing and prospective customers as to the advantages of the Company's
products and services. There can be no assurance that these customers or
potential customers will perceive sufficient value in the Company's products and
services to justify purchasing them.
The Company's clients primarily consist of Fortune 1000 companies, agencies
of the federal government, and other large organizations, and there are an
increasing number of professional services firms seeking information technology
consulting and software development engagements from that client base. The
Company believes that the principal competitive factors in the information
technology consulting and software development industry include responsiveness
to client needs, project completion time, quality of service, price, project
management capability and technical expertise. The Company believes it presently
competes favorably with respect to each of these factors. However, the Company's
market is still evolving and there can be no assurance that the Company will be
able to compete successfully against current and future competitors and the
failure to do so successfully will have a material adverse effect upon the
Company's business, operating results and financial condition. The Company
believes that its ability to compete also depends in part on a number of
competitive factors outside its control, including the ability of its
competitors to hire, retain and motivate senior project managers, the ownership
by competitors of software used by potential clients, the development by others
of software that is competitive with the Company's products and services, the
price at which others offer comparable services and the extent of its
competitor's responsiveness to customer needs.
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CERTAIN REGULATORY MATTERS
The nature of certain government contracts to which the Company is a party
subjects the Company to various regulatory restrictions and limitations,
including those set forth below.
Security Clearances. Certain of the Company's government contracts require
the Company to maintain facility security clearances complying with DoD
requirements, including for the performance of classified work under its
contracts. The Company believes that it is in compliance with these
requirements. As of November 1, 1996, approximately 30% of the Company's
employees possessed secret or top secret security clearances, which are required
for the performance of certain of the Company's contracts. The Company has never
had a contract terminated for security reasons.
Government Contract Audits and Investigations. Government contractors are
commonly subject to various audits and investigations by government agencies.
These audits and investigations involve a review of a contractor's performance
on its contracts, as well as its pricing practices, costs and compliance with
applicable laws, regulations and standards. The DCAA generally audits
cost-reimbursable contracts to verify that costs have been properly charged to
the government. The Company has not experienced any material adverse effects as
a result of these completed audits.
FACILITIES
The Company's principal administrative, sales, marketing, and product
development facility occupies approximately 40,000 square feet in Dulles,
Virginia pursuant to a lease which expires in December 2006. In addition, the
Company also leases a sales and support office in Atlanta, Georgia maintains an
office in Arlington, Virginia for its government business unit and maintains an
international office in the United Kingdom. The Company believes that its
existing facilities are adequate for its current needs and that suitable
additional or alternative space will be available in the future on commercially
reasonable terms as needed.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their respective
ages as of November 1, 1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ----------------------------------------
<S> <C> <C>
Joseph M. Fox................................... 62 Chairman of the Board of Directors
E. Linwood Pearce............................... 51 Chief Executive Officer and Director
Andrew B. Ferrentino............................ 56 President, Secretary and Director
Kimberly E. Osgood.............................. 40 Chief Financial Officer
David L. Kiker.................................. 37 Vice President of Technology
J. Kelly Brown.................................. 42 Vice President of Federal Business Unit
Randall K. Maroney.............................. 47 Vice President of Business Development
Richard H. Collard.............................. 47 Vice President of European Operations
Duane A. Adams(1)(2)............................ 58 Director
Alan B. Salisbury(1)(2)......................... 59 Director
</TABLE>
- ---------------
(1) Each of Drs. Adams and Salisbury have agreed to serve as a director upon
completion of this offering.
(2) Each of Drs. Adams and Salisbury have agreed to serve on the Compensation
Committee and Audit Committee upon completion of this offering.
Joseph M. Fox has served as Chairman of the Company since 1978. Mr. Fox
reorganized the Company into its current line of business in 1978. From 1956
until 1977, he was employed by IBM, the last seven years as Vice President of
its Federal Systems Division, where he oversaw a software development unit
comprised of over 4,000 employees and was responsible for many major projects
including the automation of the Air Traffic Control System in the United States
and the United Kingdom and the automation of the ground and on-board NASA
Shuttle control system.
Andrew B. Ferrentino joined the Company in April 1979 as Vice President and
in 1984 was appointed President and a director. From November 1977 until April
1979, Mr. Ferrentino served as a Senior Technical Consultant to Satellite
Business Systems, Inc., a satellite communications company, where he was
responsible for new business development. From 1966 to November 1977, Mr.
Ferrentino served in various management capacities for IBM's Federal Systems
Division, most recently as a Manager of Advanced Technology.
E. Linwood Pearce joined the Company in November 1991 and since that time
has served as its Chief Executive Officer and as a director. From July 1988 to
April 1991, Mr. Pearce was Executive Vice President of Sales, Marketing and
Business Development for Sage Software, Inc. (the predecessor to Intersolv,
Inc.). From October 1985 to May 1988, Mr. Pearce was Executive Vice President
and Chief Operating Officer of Software AG of North America. From 1967 to
September 1985, Mr. Pearce was employed by Applied Data Research, a software
products and services company, most recently as Vice President of Field
Operations.
Kimberly E. Osgood joined the Company in May 1983 as Controller and in
March 1993, was appointed to serve as Vice President of Finance and
Administration. Ms. Osgood was promoted to Chief Financial Officer of the
Company in September 1996. Prior to that time, Ms. Osgood was employed by the
Ralph M. Parsons Company for four years where she was responsible for government
contract oversight.
David L. Kiker joined the Company in November 1985 as a software engineer
and in June 1991, was appointed to serve as Vice President of Technology. Prior
to that time, Mr. Kiker was employed by the National Biomedical Research
Foundation for five years where he was responsible for developing software for
medical research applications.
J. Kelly Brown joined the Company in February 1990 and serves as Vice
President of the Company's Federal Business Unit. From December 1987 to February
1990, Mr. Brown was employed by Quality Systems, Inc., a government contractor,
most recently as Lead Systems Analyst. From July 1986 to December 1987, Mr.
Brown served as Senior Knowledge Engineer of Systems Designers International,
Inc., an International AI Company. From May 1979 to July 1986, Mr. Brown served
as Project Manager and
43
<PAGE> 45
Systems Engineer of Vitro Corporation, a government contractor. Prior to that
time, Mr. Brown was employed by Westinghouse Corporation as a Field Engineer.
Randall K. Maroney joined the Company in December 1992 as Vice President of
Business Development. Prior to that time, Mr. Maroney served as the President of
WING Corporation, a document imaging company he founded in 1988. From 1968 until
1988, Mr. Maroney served as an officer in the United States Navy. At present,
Mr. Maroney is on a temporary medical leave of absence. However, the Company
expects Mr. Maroney to return to full-time status during 1997.
Richard H. Collard joined the Company in January 1995 as Managing Director
of the Company's United Kingdom subsidiary. Mr. Collard was promoted to Vice
President of European Operations for the Company in March 1996. Prior to that
time, he was a founder and spent 10 years with Instrumatic U.K., Limited, a
supplier of high technology products to professional customers throughout
Europe, the last three years as Executive Vice President. Prior to that, he
managed European Sales for a division of Gould Corporation and worked for
Tektronix, Inc. in the United Kingdom.
Duane A. Adams has consented to become a director of the Company upon the
completion of this offering. Dr. Adams is the Vice Provost for Research at
Carnegie Mellon University. From 1992 to 1996, Dr. Adams was the Deputy Director
of the Department of Defense's Advanced Research Projects Agency. Prior to that
time, Dr. Adams was an Associate Dean for Research at Carnegie Mellon
University's School of Computer Science.
Alan B. Salisbury has consented to become a director of the Company upon
the completion of this offering. Since 1993, Dr. Salisbury has served as the
President of Learning Tree International USA, Inc. From 1991 to 1993, Dr.
Salisbury served as Executive Vice President and Chief Operating Officer of the
Microelectronics and Computer Technology Corporation, a research and development
consortium owned by 22 companies. From 1987 to 1991, he served as President of
Contel Technology Center, the advanced research and development organization
serving Contel Corporation. Prior to that time, Dr. Salisbury served in the
United States Army as a Major General where he commanded the United States Army
Information Systems Engineering Command.
The Company's Board of Directors currently consists of three directors and,
upon consummation of the offering, will consist of five directors. Each director
holds office until the next annual meeting of shareholders or until his
successor is duly elected and qualified. The officers serve at the discretion of
the Board of Directors. There are no family relationships between any of the
directors or executive officers of the Company.
Effective upon consummation of the offering, the Board of Directors will
consist of three classes, each of whose members will serve for a staggered
three-year term. The Board consists of two Class I Directors (Mr. Fox and Dr.
Salisbury), one Class II Director (Mr. Ferrentino), and two Class III Directors
(Mr. Pearce and Dr. Adams). At each annual meeting of shareholders, a class of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the Class I Directors,
Class II Director and Class III Directors will expire upon the election and
qualification of successor directors at the annual meetings of shareholders to
be held in 1997, 1998 and 1999, respectively.
The Company has agreed, if requested by Alcatel, to use all reasonable
efforts to nominate an Alcatel designee for election to the Company's Board of
Directors and certain principal shareholders of the Company have agreed to vote
all beneficially owned shares in support of such designee's election to the
Company's Board of Directors. See "Certain Transactions." The Company expects
that following consummation of this offering, the Board of Directors will be
expanded to add a Class II Director and an Alcatel designee will be assigned to
that position.
BOARD COMMITTEES
Following the completion of this offering, the Board of Directors will have
a Compensation Committee, which will make recommendations concerning salaries
and incentive compensation for employees of and consultants to the Company and
administer and grant stock options and awards pursuant to the Company's equity
incentive plans, and an Audit Committee, which will review the results and scope
of the audit and other services provided by the Company's independent certified
public accountants.
44
<PAGE> 46
COMPENSATION OF DIRECTORS
Effective on the date of consummation of this offering, the Company has
agreed to award options to acquire 25,000 shares of Common Stock to each of its
independent, outside directors. Such options will be granted at the fair market
value on such date and will vest over a three year period. Following completion
of this offering, each director who is not an employee of the Company will
receive reimbursement for expenses incurred in service of the Company as a
director and will participate in the 1996 Equity Incentive Plan.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered to the Company during the year ended November 30,
1995 by the Chief Executive Officer of the Company and the four other executive
officers who received at least $100,000 in compensation in 1995 (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
----------------------- SECURITIES
NAME AND PRINCIPAL POSITION(S) SALARY($) BONUS($) UNDERLYING OPTIONS(#)
- ---------------------------------------------------- --------- -------- ---------------------
<S> <C> <C> <C>
Joseph M. Fox....................................... $ 150,000(1) $20,000 --
Chairman
E. Linwood Pearce................................... 150,000(1) 20,000 --
Chief Executive Officer
Andrew B. Ferrentino................................ 150,000(1) 20,000 --
President
David L. Kiker...................................... 122,250 4,000 20,000
Vice President of Technology
Randall K. Maroney.................................. 85,000 16,881 15,000
Vice President of Business Development
</TABLE>
- ---------------
(1) Effective December 1, 1995, the annual salary of each of Messrs. Fox, Pearce
and Ferrentino was increased to $170,000.
45
<PAGE> 47
The following table sets forth certain information with respect to the
grant of stock options by the Company to Named Executive Officers during the
fiscal year ended November 30, 1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF
---------------------------------------------------------------------- STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
NUMBER OF SECURITIES OPTIONS GRANTED TO EXERCISE OR OPTION TERM(4)
UNDERLYING OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------
NAME GRANTED(#)(1) FISCAL YEAR(2) ($/SHARE)(3) DATE 5%($) 10%($)
- -------------------- -------------------- ------------------ ------------ ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Fox....... -- -- -- -- -- --
E. Linwood Pearce... -- -- -- -- -- --
Andrew B.
Ferrentino........ -- -- -- -- -- --
David L. Kiker...... 20,000 4.3% $ 1.98 8/01/05 $24,904 $63,112
Randall K. Maroney.. 15,000 3.3% $ 1.98 8/18/05 $18,678 $47,334
</TABLE>
- ---------------
(1) The options granted are incentive stock options that become exercisable in
increments of 25% per year beginning on the first anniversary of the date of
grant.
(2) Based on an aggregate of 460,835 options granted to employees during the
fiscal year ended November 30, 1995.
(3) The exercise price per share equaled the fair market value of the Common
Stock on the date of grant, as determined by the Board of Directors.
(4) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on assumed rates of stock appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date and are not presented to forecast possible future
appreciation, if any, in the price of the Common Stock. The gains shown are
net of the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise of the options or the sale of
the underlying shares. The actual gains, if any, on the stock option
exercises will depend on the future performance of the Common Stock, the
optionee's continued employment through applicable vesting periods and the
date on which the options are exercised.
The following table sets forth the number of shares covered by both
exercisable and unexercisable stock options as of November 30, 1995. Also
reported are the values for "in-the-money" options which represent the positive
spread between the exercise price of any such existing stock options and the
estimated price of the Common Stock as of November 30, 1995.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT FISCAL YEAR-END($)(1)
---------------------------- ------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Joseph M. Fox................................ -- / -- -- / --
E. Linwood Pearce............................ 324,680 / -- $29,221 / --
Andrew B. Ferrentino......................... -- / -- -- / --
David L. Kiker............................... 97,500 / 42,500 $ 8,775 / $3,825
Randall K. Maroney........................... 31,250 / 43,750 $ 2,813 / $3,938
</TABLE>
- ---------------
(1) Prior to this offering, the Common Stock of the Company has not been
publicly traded. The Board of Directors, in connection with grants of stock
options that it makes from time to time, determines the fair market value of
the Common Stock as of the grant date. For purposes of calculating the value
recognized at fiscal year-end, the Company has used the deemed fair market
value as of November 30, 1995, as determined by the Company's Board of
Directors, of $2.07 per share.
46
<PAGE> 48
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with E. Linwood Pearce
that provides that Mr. Pearce will serve as Chief Executive Officer of the
Company until October 23, 1998. Mr. Pearce is currently entitled to a base
salary of $170,000 per year, with bonuses and salary increases to be determined
from time to time by the Board of Directors. The Company may terminate the
employment agreement upon Mr. Pearce's death, disability or for cause. If the
Board of Directors terminates Mr. Pearce for cause, Mr. Pearce is not entitled
to severance pay. If the Board of Directors terminates Mr. Pearce without cause,
Mr. Pearce is entitled to receive compensation equal to the greater of (i) the
compensation due to Mr. Pearce through the end of the employment agreement; or
(ii) 12 months of salary and bonus. Mr. Pearce may terminate the agreement upon
30 days written notice to the Board of Directors.
The Company has entered into an employment agreement with Joseph M. Fox
that provides that Mr. Fox will serve as Chairman of the Board of the Company
until October 23, 1998. Mr. Fox is currently entitled to a base salary of
$170,000 per year, with bonuses and salary increases to be determined from time
to time by the Board of Directors. The Company may terminate the employment
agreement upon Mr. Fox's death, disability or for cause. If the Board of
Directors terminates Mr. Fox for cause, Mr. Fox is not entitled to severance
pay. If the Board of Directors terminates Mr. Fox without cause, Mr. Fox is
entitled to receive compensation equal to the greater of (i) the compensation
due to Mr. Fox through the end of the employment agreement; or (ii) 12 months of
salary and bonus. Mr. Fox may terminate the agreement upon 30 days written
notice to the Board of Directors.
The Company has entered into an employment agreement with Andrew B.
Ferrentino that provides that Mr. Ferrentino will serve as President of the
Company until October 23, 1998. Mr. Ferrentino is currently entitled to a base
salary of $170,000 per year, with bonuses and salary increases to be determined
from time to time by the Board of Directors. The Company may terminate the
employment agreement upon Mr. Ferrentino's death, disability or for cause. If
the Board of Directors terminates Mr. Ferrentino for cause, Mr. Ferrentino is
not entitled to severance pay. If the Board of Directors terminates Mr.
Ferrentino without cause, Mr. Ferrentino is entitled to receive compensation
equal to the greater of (i) the compensation due to Mr. Ferrentino through the
end of the employment agreement; or (ii) 12 months of salary and bonus. Mr.
Ferrentino may terminate the agreement upon 30 days written notice to the Board
of Directors.
STOCK OPTION PLANS
1986 Incentive Stock Option Plan. In 1986, the Company adopted the
Company's 1986 Incentive Stock Option Plan (the "1986 ISO Plan"). The 1986 ISO
Plan was amended effective January 1, 1987, and January 1, 1992. The 1986 ISO
Plan provided that stock option awards could be made to eligible employees of
the Company owning less than ten percent of the combined voting power of the
Company's stock. The 1986 ISO Plan provided that it was to be administered by
the Board of Directors. The purpose of the 1986 ISO Plan was to provide an
increased incentive for the Company's employees to own the Company's stock and
to put forth maximum effort to achieve long-term corporate objectives. The 1986
ISO Plan was terminated according to its terms, as amended, as of December 31,
1991, but such termination did not effect the rights of optionees under options
granted pursuant to the 1986 ISO Plan.
1992 Stock Option Plans. In 1992, the Company adopted two Incentive Stock
Option Plans (the "1992 ISO Plans"), and one Nonqualified Stock Option Plan (the
"1992 Nonqualified Plan"). The 1992 ISO Plans and the 1992 Nonqualified Plan
(collectively, the "1992 Stock Option Plans"), were the successor equity
incentive plans to the 1986 ISO Plan. The 1992 Stock Option Plans were
substantially identical, except that one of the 1992 ISO Plans permitted the
grant of options to acquire shares of the Company's former Class B Common Stock
while the other 1992 ISO Plan and the 1992 Nonqualified Plan permitted the grant
of options to acquire shares of the Company's former Class A Common Stock. See
"Description of Common Stock -- Recapitalization." The 1992 ISO Plans require
that the Board of Directors grant options at an exercise price not less than the
fair market value per share on the date of such grant; the 1992 Nonqualified
Plan has no such requirement. The 1992 Stock Option Plans were terminated
effective September 30, 1996, but such
47
<PAGE> 49
termination did not affect the rights of optionees under options granted
pursuant to the 1992 Stock Option Plans.
Terms of Awards Under the 1986 ISO Plan and the 1992 Stock Option
Plans. The following is a description of the provisions of the 1986 ISO Plan,
the 1992 ISO Stock Option Plans (collectively, the "Prior Plans"), and the 1992
Nonqualified Plan that apply to awards made thereunder prior to the termination
of such plans. Awards to employees under the Prior Plans were made in the form
of stock options meeting the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended ("Incentive Stock Options") while awards to employees
under the 1992 Nonqualified Plan did not meet such requirements ("Nonqualified
Stock Options"). The term of each option was determined by the Board of
Directors, provided that (i) the term of an option could not exceed ten years
from the date of grant and (ii) effective January 1, 1987, the aggregate fair
market value (as determined by the Board of Directors of the Company on the date
of grant) of Common Stock with respect to which Incentive Stock Options granted
a participant become exercisable for the first time in any single calendar year
could not exceed $100,000. The exercise price for Incentive Stock Options must
have at least equaled 100% of the fair market value of the Common Stock on the
date of grant of such option. The exercise price of Nonqualified Stock Options
was established by the Board of Directors at the time of grant. The exercise
price is payable in cash or in such other form as the Board of Directors may
determine. Stock options granted under the Prior Plans and the 1992 Nonqualified
Plan are not transferable except by will or the laws of descent and distribution
and may be exercised only by a participant during his or her lifetime. Unless
otherwise determined by the Board of Directors, all rights to exercise or
surrender options shall terminate immediately upon termination of employment if
such termination results from any cause other than death, disability or
retirement with the consent of the Company.
As of November 22, 1996, options to acquire an aggregate of 2,190,915
shares of the Company's Common Stock were outstanding pursuant to the Prior
Plans and the 1992 Nonqualified Plan.
1996 EQUITY INCENTIVE PLAN
In October 1996, the Board of Directors adopted and the Company's
shareholders approved the Company's 1996 Equity Incentive Plan (the "1996 Equity
Incentive Plan"). The 1996 Equity Incentive Plan will serve as the successor
equity incentive program to the 1992 Stock Option Plans. Options granted under
the 1992 Stock Option Plans before their termination will remain outstanding in
accordance with their terms, but no further options will be granted under the
1992 Stock Option Plans after this offering. The Company has reserved an
additional 1,000,000 shares of Common Stock for issuance under the 1996 Equity
Incentive Plan. Shares that (i) are subject to an option under the 1996 Equity
Incentive Plan but cease to be subject to such option for any reason other than
exercise of such option or a corresponding stock appreciation right, (ii) are
awarded under the 1996 Equity Incentive Plan but are forfeited or are
repurchased by the Company or (iii) are subject to an award that otherwise
terminates without shares being issued will be available for grant or issuance
under the 1996 Equity Incentive Plan.
The 1996 Equity Incentive Plan provides for the grant of stock options,
stock appreciation rights, stock awards and incentive awards by the Company to
its employees (including directors) and other persons who provide services to
the Company or an affiliate. The maximum aggregate number of shares that may be
issued under the 1996 Equity Incentive Plan pursuant to the exercise of SARs and
options and the grant of stock awards is 1,000,000. The number of shares subject
to the 1996 Equity Incentive Plan may be adjusted in certain circumstances as
determined by the Compensation Committee of the Board. The 1996 Equity Incentive
Plan is administered by the Compensation Committee of the Board, consisting of
Duane A. Adams and Alan B. Salisbury, each of whom are "non-employee directors"
as that term is defined under the Securities Exchange Act of 1934, as amended
and "outside directors" as that term is defined in Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"). The Compensation
Committee, within the parameters of the 1996 Equity Incentive Plan, determines
the type and terms of all stock option awards, the exercise price of stock
options, employee eligibility for stock option awards and the exercise period of
stock option awards. The 1996 Equity Incentive Plan permits the Compensation
Committee to grant options that are either incentive stock options (as defined
in Section 422 of the Code) or nonqualified stock options, on terms (including
the exercise price, which may not be less than 100% of the fair market value
48
<PAGE> 50
of Common Stock on the date of grant, and the vesting schedule) determined by
the Compensation Committee, subject to certain statutory and other limitations
in the 1996 Equity Incentive Plan. In addition to, or in tandem with, awards of
stock options, the Compensation Committee may grant participants restricted
stock awards to purchase Common Stock. The terms of such restricted stock awards
may be determined by the Compensation Committee. The Compensation Committee may
also grant incentive awards either in addition to, or in tandem with, other
awards under the 1996 Equity Incentive Plan, under such terms, conditions and
restrictions as the Compensation Committee may determine, subject to limitations
imposed by the 1996 Equity Incentive Plan. Awards of stock appreciation rights
also may be made by the Compensation Committee. Under the 1996 Equity Incentive
Plan, incentive awards may be made for the satisfaction of performance goals
established in advance. The 1996 Equity Incentive Plan will terminate on October
17, 2006, unless terminated earlier in accordance with its provisions.
401(k) PLAN
The Company currently has in place a 401(k) Plan (the "401(k) Plan").
Participants in the 401(k) Plan may contribute a percentage of their current
compensation, up to the statutorily prescribed annual limit. The salary deferral
contributions are made on a pre-tax basis. The Company provides a matching
contribution equal to 50% of the first 4% of each employee's salary deferral.
The 401(k) Plan also includes provisions which authorize the Company to make
discretionary contributions. Such contributions, if made, would be allocated
among all eligible employees as determined under the 401(k) Plan. Each
participant is subject to a vesting schedule with respect to such matching
contributions made by the Company. Distributions may be made from a
participant's account in the form of a lump sum distribution upon termination of
employment, retirement, disability, death, upon reaching age 59 1/2, or in the
event of a financial hardship. The 401(k) Plan is intended to qualify under
Section 401 of the Code so that income earned on an employee's salary deferral
contributions to the 401(k) Plan are not taxable to the participants until
withdrawn from the 401(k) Plan.
BONUS PLAN
The Company has an annual cash bonus plan for executive officers and
certain other employees under which bonuses are paid based upon a combination of
the Company achieving performance objectives and the employee meeting individual
performance objectives.
CHANGE OF CONTROL ARRANGEMENTS
The Compensation Committee, as administrator of the 1996 Equity Incentive
Plan, will have the authority to accelerate the time at which an option or stock
appreciation right may be exercised, the time at which a stock award becomes
transferable or nonforfeitable, or the time at which an incentive award may be
settled, including in connection with changes in control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to consummation of this offering, the Company did not have a
Compensation Committee and all matters concerning executive officer compensation
were addressed by the entire Board of Directors, which consisted of Messrs. Fox,
Pearce and Ferrentino. Upon consummation of this offering, the Company will
establish a Compensation Committee comprised of Drs. Adams and Salisbury.
CERTAIN TRANSACTIONS
In September 1996, in connection with an increase to the Company's
then-outstanding line of credit, the Bank released personal guarantees of the
line of credit which had been given by Messrs. Fox, Ferrentino and Pearce, all
of whom are directors and executive officers of the Company.
In November 1996, Alcatel purchased 500,000 shares of Preferred Stock of
the Company for an aggregate of $8.0 million. All outstanding shares of
Preferred Stock will convert automatically into Common Stock upon consummation
of this offering. Each share of Preferred Stock will initially convert into one
share
49
<PAGE> 51
of Common Stock, but is subject to adjustment if the Company issues additional
securities at a price per share of less than $13.00. Upon conversion of all the
outstanding shares of Preferred Stock into Common Stock upon consummation of
this offering, Alcatel will beneficially own more than 5% of the Company's
outstanding Common Stock. Under agreements entered into in connection with this
purchase of Preferred Stock, the Company granted certain registration rights to
Alcatel with respect to sales of securities of the Company held by it. See
"Description of Capital Stock -- Registration Rights." Alcatel also agreed to a
"standstill" provision whereby Alcatel and any of its affiliates would not
acquire beneficial ownership of Common Stock or any securities convertible into,
or exchangeable or exercisable for, shares of Common Stock, that when added to
the Common Stock beneficially owned by Alcatel or its affiliates would exceed
19.9% of the then outstanding shares of Common Stock. Under these agreements,
the Company agreed, among other things, to use all reasonable efforts to
nominate an Alcatel designee for election to the Company's Board of Directors
and certain principal shareholders of the Company agreed to vote all
beneficially owned shares in support of such designee's election to the
Company's Board of Directors. These principal shareholders also granted to
Alcatel the right to join in certain sales of the Common Stock of the Company
held by such persons and the Company agreed to give Alcatel prior notice in the
event the Company plans to sell certain assets or capital stock of the Company.
The Company also granted to Alcatel the right to appoint an observer to attend
meetings of the Company's Board of Directors in the event a representative
designated by Alcatel is not then serving on the Company's Board of Directors.
All rights and obligations under the terms of the agreements with Alcatel
(except registration rights with respect to Alcatel's Common Stock) will
terminate if Alcatel ceases to own in the aggregate at least 3% of the Company's
fully-diluted Common Stock. In connection with this purchase of Preferred Stock,
the Company and Alcatel agreed to enter into a business relationship. See
"Prospectus Summary -- Recent Developments."
50
<PAGE> 52
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of Common Stock as of the date of this offering and as
adjusted to reflect the sale of the Common Stock offered hereby by (i) each
person who is known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock, (ii) each of the Company's directors, (iii)
each of the Named Executive Officers, (iv) the Selling Shareholders and (v) all
directors and executive officers as a group. Unless otherwise indicated in the
footnotes to the table, each person or entity has sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by
such person or entity:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(1)
-------------------- SHARES BEING --------------------
NAMES OF BENEFICIAL OWNERS NUMBER PERCENT OFFERED NUMBER PERCENT
- ----------------------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Joseph M. Fox+........................... 1,226,667(2) 44.7% 323,000 903,667 21.8%
E. Linwood Pearce+....................... 447,144(3) 16.2 75,000 372,144 9.0
Andrew B. Ferrentino+.................... 640,857(4) 23.3 150,000 490,857 11.8
Alcatel.................................. 500,000 18.2 -- 500,000 12.1
Kimberly E. Osgood+...................... 42,000(5) 1.5 10,000 32,000 *
David L. Kiker+.......................... 117,500(6) 4.3 20,000 97,500 2.3
J. Kelly Brown+.......................... 33,750(7) 1.2 8,000 25,750 *
Randall K. Maroney+...................... 53,750(8) 2.0 9,000 44,750 1.1
Richard H. Collard+...................... 37,500(9) 1.4 8,000 29,500 *
Duane A. Adams........................... -- -- -- -- --
Alan B. Salisbury........................ -- -- -- -- --
All Executive Officers and Directors as a
group (10 persons)..................... 2,599,168 75.0 603,000 1,996,168 48.0
<CAPTION>
OTHER SELLING SHAREHOLDERS
- -----------------------------------------
<S> <C> <C> <C> <C> <C>
Robert H. Krieble........................ 83,333 3.0% 28,000 55,333 *
Robert H. Krieble Associates
1 Gold Street, #24 H
Hartford, CT 06103
J. William Middendorf.................... 50,000 1.8 17,000 33,000 *
565 West Main Road
Little Creek, RI 02837
James Reggia............................. 100,922 3.7 15,000 85,922 2.1%
7238 Dockside Lane
Columbia, MD 21045
John J. Collins, Jr...................... 80,000(10) 2.9 20,000 60,000 1.4
24362 3 Widgeon Place
St. Michaels, MD 21663
William J. Fox........................... 20,000 * 7,000 13,000 *
174 R. Mystic Valley Parkway
Winchester, MA 01890
Paul D. Fox.............................. 20,000 * 5,000 15,000 *
7000 Tilden Lane
Rockville, MD 20852
Lucy E. Fox.............................. 20,000 * 5,000 15,000 *
7000 Tilden Lane
Rockville, MD 20852
</TABLE>
- ---------------
* Less than 1%
+ c/o Template Software, Inc., 45365 Vintage Park Plaza, Dulles, Virginia
20166.
51
<PAGE> 53
(1) The number of shares of Common Stock outstanding used in calculating the
percentage for each listed person (i) assumes conversion of all of the
Company's outstanding shares of Preferred Stock into shares of Common
Stock, and (ii) includes the shares of Common Stock underlying the options
held by such person or entity that are exercisable within 60 days of
November 22, 1996 but excludes shares of Common Stock underlying options
held by any other person.
(2) Includes 5,000 shares held by Mr. Fox's spouse and 120,000 shares held by
Mr. Fox's six children. Mr. Fox disclaims beneficial ownership of all
125,000 such shares. In the event that the Underwriters' over-allotment
option is exercised in full, Mr. Fox will sell an additional 48,450 shares
of Common Stock. In the event of such sale, Mr. Fox will beneficially own
855,217 shares, which will represent 20.6% of the outstanding Common Stock.
(3) Includes 324,680 shares issuable upon the exercise of options exercisable
within 60 days of November 22, 1996 and 10,000 shares held by Mr. Pearce's
two children. Mr. Pearce disclaims beneficial ownership of all 10,000 such
shares. In the event that the Underwriters' over-allotment option is
exercised in full, Mr. Pearce will sell an additional 11,250 shares of
Common Stock. In the event of such sale, Mr. Pearce will beneficially own
360,894 shares, which will represent 8.7% of the outstanding Common Stock.
(4) Includes 30,000 shares held by Mr. Ferrentino's spouse and 25,000 shares
held by Mr. Ferrentino's brother, Peter S. Ferrentino, as trustee for the
benefit of Allison J. Ferrentino. Mr. Ferrentino disclaims beneficial
ownership of all 55,000 such shares. In the event that the Underwriters'
over-allotment option is exercised in full, Mr. Ferrentino will sell an
additional 22,500 shares of Common Stock. In the event of such sale, Mr.
Ferrentino will beneficially own 468,357 shares, which will represent 11.3%
of the outstanding Common Stock.
(5) Includes 40,250 shares issuable upon the exercise of options which have
fully vested and are exercisable within 60 days of November 22, 1996. In
the event that the Underwriters' over-allotment option is exercised in
full, Ms. Osgood will sell an additional 1,500 shares of Common Stock. In
the event of such sale, Ms. Osgood will beneficially own 30,500 shares,
which will represent less than 1% of the outstanding Common Stock.
(6) Includes 112,500 shares issuable upon the exercise of options which have
fully vested and are exercisable within 60 days of November 22, 1996. In
the event that the Underwriters' over-allotment option is exercised in
full, Mr. Kiker will sell an additional 3,000 shares of Common Stock. In
the event of such sale, Mr. Kiker will beneficially own 89,500 shares,
which will represent 2.2% of the outstanding Common Stock.
(7) Consists of shares issuable upon the exercise of options which have fully
vested and are exercisable within 60 days of November 22, 1996. In the
event that the Underwriters' over-allotment option is exercised in full,
Mr. Brown will sell an additional 1,200 shares of Common Stock. In the
event of such sale, Mr. Brown will beneficially own 22,050 shares, which
will represent less than 1% of the outstanding Common Stock.
(8) Consists of shares issuable upon the exercise of options which have fully
vested and are exercisable within 60 days of November 22, 1996. In the
event that the Underwriters' over-allotment option is exercised in full,
Mr. Maroney will sell an additional 1,350 shares of Common Stock. In the
event of such sale, Mr. Maroney will beneficially own 43,400 shares, which
will represent 1% of the outstanding Common Stock.
(9) Consists of shares issuable upon the exercise of options which have fully
vested and are exercisable within 60 days of November 22, 1996. In the
event that the Underwriters' over-allotment option is exercised in full,
Mr. Collard will sell an additional 1,200 shares of Common Stock. In the
event of such sale, Mr. Collard will beneficially own 29,500 shares, which
will represent less than 1% of the outstanding Common Stock.
(10) Consists of shares issuable upon the exercise of options which have fully
vested and are exercisable within 60 days of November 22, 1996. In the
event that the Underwriters' over-allotment option is exercised in full,
Mr. Collins will sell an additional 3,000 shares of Common Stock. In the
event of such sale, Mr. Collins will beneficially own 57,000 shares, which
will represent 1.4% of the outstanding Common Stock.
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<PAGE> 54
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the offering, the Company's authorized capital stock
will consist of 17,000,000 shares of Common Stock, par value $0.01 per share,
and 3,000,000 shares of preferred stock, par value $0.01 per share (the
"Preferred Stock") of which 3,722,008 shares of Common Stock and no shares of
Preferred Stock will be issued and outstanding. All of the issued and
outstanding shares of Common Stock will be fully paid and nonassessable.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by this reference to the
Company's Articles and Bylaws, copies of which have been filed as exhibits to
the Registration Statement of which this Prospectus forms a part.
RECAPITALIZATION
In connection with the Company's intended reincorporation in Virginia prior
to the consummation of this offering, the holders of the Company's previously
outstanding Class A Common Stock and Class B Common Stock will exchange each
share of common stock for one share of Common Stock of the Company (the
"Recapitalization").
COMMON STOCK
The holders of validly issued and outstanding shares of Common Stock are
entitled to one vote per share of record on all matters to be voted upon by
shareholders. At a meeting of shareholders at which a quorum is present, a
majority of the votes cast decides all questions, unless the matter is one upon
which a different vote is required by express provision of law or the Company's
Articles or Bylaws. There is no cumulative voting with respect to the election
of directors (or any other matter).
The holders of Common Stock have no preemptive rights and have no rights to
convert their Common Stock into any other securities.
Subject to the rights of holders of Preferred Stock, if any, in the event
of a liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to participate equally, share for share, in all assets
remaining after payment of liabilities.
Subject to the rights of holders of Preferred Stock, if any, the holders of
Common Stock are entitled to receive ratably such dividends as the Board of
Directors may declare out of funds legally available therefor, when and if so
declared. The payment by the Company of dividends, if any, rests within the
discretion of its Board of Directors and will depend upon the Company's results
of operations, financial condition and capital expenditure plans, as well as
other factors considered relevant by the Board of Directors. The Company has
entered into a bank credit agreement which includes financial covenants
restricting the payment of dividends. See "Dividend Policy."
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into shares of Common Stock. See Note 9 of Notes to
Consolidated Financial Statements. Following the conversion, the Company's
Articles of Incorporation will be amended and restated to delete all references
to the prior series of Preferred Stock and to authorize the Board of Directors
to issue up to 3,000,000 shares of Preferred Stock in one or more series and to
establish such relative voting, dividend, redemption, liquidation, conversion
and other powers, preferences, rights, qualifications, limitations and
restrictions as the Board of Directors may determine without further approval of
the shareholders of the Company. The issuance of Preferred Stock by the Board of
Directors could, among other things, adversely affect the voting power of the
holders of Common Stock and, under certain circumstances, make it more difficult
for a person or group to gain control of the Company.
The issuance of any series of Preferred Stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
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<PAGE> 55
future capital needs of the Company, the then-existing market conditions and
other factors that, in the judgment of the Board of Directors, might warrant the
issuance of Preferred Stock. At the date of this Prospectus, there are no plans,
agreements or understandings relative to the issuance of any shares of Preferred
Stock.
REGISTRATION RIGHTS
Following the consummation of the offering, Alcatel will hold 500,000
shares of Common Stock issued upon conversion of the Preferred Stock and will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act. Under the terms of the Registration Rights Agreement between
the Company and Alcatel, after the earlier of (i) the third anniversary of the
date of the Registration Rights Agreement or (ii) the first anniversary after
the effectiveness of this offering, Alcatel has the right to require the Company
to file a registration statement under the Securities Act in order to register
the sale of all or any part of its shares of Common Stock. See "Shares Eligible
For Future Sale." The Company may in certain circumstances defer such
registrations, and the underwriters with respect to such sale have the right,
subject to certain limitations, to limit the number of shares included in such
registrations. Further, Alcatel may require the Company to register the sale
from time to time of all or a portion of its shares on Form S-3, when such form
becomes available to the Company, subject to certain conditions and limitations.
In the event that the Company proposes to register the sale of any of its
securities under the Securities Act, or in connection with a public offering of
such securities solely for cash, the Company is required to promptly give
Alcatel written notice, at which point Alcatel will have twenty days to make a
written request of the Company to include Alcatel's shares of Common Stock in
such registration, subject to the underwriter's right to limit such shares
described above, and certain other limitations. Generally, the Company is
required to bear the expense of all such registrations. The Company intends to
file a registration statement under the Securities Act approximately 180 days
after the effective date of this offering covering the shares of Common Stock
reserved for issuance under the 1996 Equity Incentive Plan.
CERTAIN PROVISIONS OF VIRGINIA LAW, THE COMPANY'S ARTICLES OF INCORPORATION AND
BYLAWS AND CERTAIN AGREEMENTS
Certain provisions of the Virginia Stock Corporation Act of the
Commonwealth of Virginia, of the Company's Articles and Bylaws and in certain
agreements, summarized in the following paragraphs, may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a shareholder might consider to be in
such shareholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by shareholders.
Affiliated Transactions. The Virginia Affiliated Transactions statute
imposes restrictions on certain transactions between a public Virginia
corporation and a 10% beneficial shareholder of the corporation (the "Interested
Shareholder"). Under this statute, significant transactions (such as a merger, a
transfer to the Interested Shareholder of corporate assets worth more than 5% of
net worth, or a reclassification of securities having the effect of increasing
by 5% or more the corporation's outstanding voting shares held by any Interested
Shareholder) between the corporation and an Interested Shareholder must receive
the approval of both a majority of disinterested directors and the holders of
two-thirds of the corporation's voting shares (not including the Interested
Shareholder's shares). After an Interested Shareholder has held the stock for
three years, the transaction may proceed upon the approval of either the
disinterested directors or the holders of two-thirds of the voting shares or
upon compliance with certain statutory fair price provisions. The corporation
may avoid application of the statute if a majority of the disinterested
directors approves the initial 10% stock acquisition by the Interested
Shareholder. In addition, this statute does not apply to an Interested
Shareholder who has been such continuously since the date the corporation first
became subject to the statute because it had more than 300 shareholders of
record.
Special Meetings of Shareholders. The Company's Bylaws provide that
special meetings of shareholders may be called only by the Chairman, the
Vice-Chairman, the Chief Executive Officer or the President (if he is also the
Chief Executive Officer) or by a majority of the Board of Directors.
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Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Company's Bylaws provide that shareholders seeking to bring
business before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or a special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to, or mailed and received at, the principal executive office
of the Company, (i) in the case of an annual meeting that is called for a date
that is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of shareholders, not less than 60 days nor more than 90
days prior to such anniversary date, and, (ii) in the case of an annual meeting
that is called for a date that is not within 30 days before or after the
anniversary date of the immediately preceding annual meeting, or in the case of
a special meeting of shareholders called for the purpose of electing directors,
not later than the close of business on the tenth day following the day on which
notice of the date of the meeting was mailed or public disclosure of the date of
the meeting was made, whichever occurs first. The Bylaws also specify certain
requirements for a shareholder's notice to be in proper written form. These
provisions may preclude some shareholders from making nominations for directors
at an annual or special meeting or from bringing other matters before the
shareholders at a meeting.
The Articles divide the Board of Directors of the Company into three
classes, each class to be as nearly equal in number of directors as possible. At
each annual meeting of shareholders, directors in each class will be elected for
three-year terms to succeed the directors of that class whose terms are
expiring. Mr. Fox and Dr. Salisbury are Class I directors whose terms of office
will expire in 1997. Mr. Ferrentino is a Class II director whose terms will
expire in 1998. Mr. Pearce and Dr. Adams are Class III directors whose term will
expire in 1999.
Certain Agreements. In connection with the purchase of Preferred Stock by
Alcatel in November 1996, the Company agreed to give Alcatel prior notice in the
event the Company plans to sell certain assets or capital stock of the Company.
See "Prospectus Summary -- Recent Developments" and "Certain Transactions."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is First Union
National Bank Shareholder Services.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and assuming no exercise of outstanding
options, the Company will have 4,222,008 shares of Common Stock outstanding,
based upon the number of shares outstanding as of November 22, 1996. The
2,100,000 shares sold in the offering will be freely tradeable without
restriction or further registration under the Securities Act, unless acquired by
an "affiliate" of the Company as that term is defined in Rule 144, which shares
will be subject to the resale limitations of Rule 144 described below.
Immediately prior to the completion of the offering, it is expected that
2,747,008 shares of Common Stock will be outstanding (based upon the number of
shares outstanding as of November 22, 1996), of which 700,000 shares will be
sold in this offering by the Selling Shareholders. Of the 2,047,008 currently
outstanding shares not being sold in this offering, 2,039,257 shares are subject
to agreements with the Underwriters under which such shares may not be offered,
sold or otherwise disposed of for a period of 180 days after the date of this
Prospectus without the prior written consent of Volpe, Welty & Company. Of the
8,751 shares not subject to such lock-up agreements: (i) 7,500 shares will be
eligible for sale without restriction in the public market pursuant to Rule
144(k), commencing immediately upon the date of this Prospectus; and (ii) the
remaining 1,251 shares will first become eligible for resale under Rule 144 in
September 1997 and August 1998.
In general, under Rule 144 as currently in effect, a shareholder who has
beneficially owned, for at least two years, shares privately acquired directly
or indirectly from the Company or from an affiliate of the Company, and persons
who are affiliates of the Company who have acquired the shares in registered
transactions, will be entitled to sell within any three-month period a number of
shares that does not exceed the
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greater of: (i) 1% of the outstanding shares of Common Stock (approximately
4,222 shares immediately after completion of the offering); or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements relating to the manner and notice of sale and the availability of
current public information about the Company.
The Company, each of its directors and officers, and certain other holders
(representing an aggregate of approximately 48.0%) of the Company's currently
outstanding securities (based upon the number of shares outstanding as of
November 22, 1996) and of the options exercisable by such persons within 60 days
of such date have agreed with the Underwriters not to offer, sell or otherwise
dispose of any shares of Common Stock or securities convertible into or
exercisable or exchangeable for such shares for a period of 180 days after the
date of this Prospectus without the prior written consent of Volpe, Welty &
Company.
In addition, outstanding options to purchase 1,117,476 shares of Common
Stock were fully vested as of November 22, 1996, all of which are subject to
180-day lock-up agreements. After the expiration of such lock-up agreements,
these shares will become available for resale in the public market pursuant to
Rule 701.
Under Rule 701 of the Securities Act, certain persons who are issued shares
of Common Stock upon exercise of options or warrants granted pursuant to
employee benefit plans or consulting or advisory contracts relating to
compensation prior to the effective date of this offering are entitled to sell
such shares 90 days after the effective date of the offering in reliance on Rule
144, without compliance with the public information, volume limitation or notice
provisions of Rule 144. In addition, Alcatel is entitled to certain rights with
respect to the registration of the sale of its 500,000 shares of Common Stock
under the Securities Act beginning one year after the effective date of this
offering. Approximately 180 days after the date of this Prospectus, the Company
intends to file registration statements under the Securities Act to register the
issuance of Common Stock under the 1986 Incentive Stock Option Plan, the 1992
Incentive Stock Option Plans and the 1996 Equity Incentive Plan. After the
effective dates of such registration statements, shares issued under these plans
will be freely tradeable without restriction under the Securities Act, unless
acquired by affiliates of the Company.
In recent offerings in which it has served as lead manager of underwriters,
Volpe, Welty & Company has consented to early releases from lock-up agreements
only in a limited number of circumstances, after considering all circumstances
that it deemed to be relevant. Volpe, Welty & Company will, however, have
complete discretion in determining whether to consent to early releases from the
lock-up agreements delivered in connection with this offering, and no assurance
can be given that it will not consent to the early release of all or a portion
of the shares of Common Stock and options covered by such lock-up agreements.
Prior to this offering, there has been no market for the Common Stock. No
predictions can be made with respect to the effect, if any, that public sales of
shares of the Common Stock or the availability of shares for sale will have on
the market price of the Common Stock after the completion of the offering. Sales
of substantial amounts of Common Stock in the public market following the
offering, or the perception that such sales may occur, could adversely affect
the market price of the Common Stock or the ability of the Company to raise
capital through sales of its equity securities. See "Risk Factors Shares
Eligible for Future Sale."
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UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company and the Selling Shareholders have agreed to sell to each of the
underwriters named below (the "Underwriters"), and each of such Underwriters,
for whom Volpe, Welty & Company and Piper Jaffray Inc. (together, the
"Representatives") are acting as representatives, has agreed severally to
purchase from the Company and the Selling Shareholders, the respective number of
shares of Common Stock set forth opposite its name below. The Underwriters are
committed to purchase and pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Volpe, Welty & Company...................................................
Piper Jaffray Inc........................................................
---------
Total.......................................................... 2,100,000
========
</TABLE>
The Representatives have advised the Company and the Selling Shareholders
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of per share, of which may be reallocated to other dealers. After
the initial public offering, the public offering price, concession and
reallowance to dealers may be reduced by the Representatives. No such reduction
shall change the amount of proceeds to be received by the Company and the
Selling Shareholders as set forth on the cover page of this Prospectus.
The Company and the Selling Shareholders have granted the Underwriters an
option for thirty days after the date of this Prospectus to purchase, at the
initial public offering price, less the underwriting discounts and commissions
as set forth on the cover page of this Prospectus, up to 315,000 additional
shares of Common Stock at the same price per share as the Company and the
Selling Shareholders receive for the 2,100,000 shares of Common Stock offered
hereby, solely to cover over-allotments, if any. If the Underwriters exercise
their over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares of Common Stock to be purchased by each of them, as shown
in the foregoing table, bears to the 2,100,000 shares of Common Stock offered
hereby. The Underwriters may exercise such option only to cover the
over-allotments in connection with the sale of the 2,100,000 shares of Common
Stock offered hereby.
Each of the Company's directors and officers, and certain other employees
and security holders of the Company, have agreed not to offer, sell, contract to
sell or otherwise dispose of Common Stock or securities convertible into or
exchangeable for, or any rights to purchase or acquire, Common Stock for a
period of 180 days following the date of this Prospectus, without the prior
written consent of Volpe, Welty & Company. The Company also has agreed not to
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
or any securities convertible into or exchangeable for, or any rights to
purchase or acquire, Common Stock for a period of 180 days following the date of
this Prospectus without the prior written consent of Volpe, Welty & Company,
except for the granting of options or the issuance of stock pursuant to the
Company's existing stock option plans. Volpe, Welty & Company, in its
discretion, may waive the foregoing restrictions in whole or in part, with or
without a public announcement of such action. In recent offerings in which it
has
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served as lead manager of underwriters, Volpe, Welty & Company has consented to
early releases from lock-up agreements only in a limited number of
circumstances, after considering all circumstances that it deemed to be
relevant. Volpe, Welty & Company will, however, have complete discretion in
determining whether to consent to early releases from the lock-up agreements
delivered in connection with this offering, and no assurance can be given that
it will not consent to the early release of all or a portion of the shares of
Common Stock and options covered by such lock-up agreements.
The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to accounts over which the Underwriters have
discretionary authority.
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price of the Common Stock was determined by
negotiations between the Company, the Selling Shareholders and the
Representatives. Among the factors considered in determining the initial public
offering price of the Common Stock, in addition to prevailing market conditions,
were the Company's historical performance, estimates of the business potential
and earnings prospects of the Company, an assessment of the Company's management
and the consideration of the above factors in relation to market valuations of
companies in related businesses.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities that may be incurred in connection with
the offering, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Hunton & Williams, McLean, Virginia. Certain legal matters relating
to this offering will be passed upon for the Underwriters by Goodwin, Procter &
Hoar LLP, Boston, Massachusetts.
EXPERTS
The consolidated balance sheets of the Company as of November 30, 1994 and
1995, and August 31, 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended November 30, 1995, and for the nine month period ended August
31, 1996, and the related financial statement schedule included in this
Registration Statement have been included herein in reliance upon the report,
which includes an explanatory paragraph describing that the Company changed its
method of accounting for income taxes, of Coopers & Lybrand, LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement"), pursuant to the provisions of the Securities Act, and the rules and
regulations promulgated thereunder, for the registration of the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and financial statements
and notes filed as a part thereof. Statements made in this Prospectus concerning
the contents of any contract or other document are not necessarily complete.
With respect to each such contract or other document filed with the Commission
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. The Registration
Statement and the exhibits and schedules thereto filed by the Company with the
Commission may be inspected at the public reference facilities maintained by the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
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D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, Suite 1300, New York, New York 10048 and at 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials may be
obtained from the Public Reference Section of the Commission, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a website on the Internet that contains the Registration
Statement, including the exhibits thereto and financial statements and notes
filed as a part thereof; the address of such site is http://www.sec.gov.
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent public
accountants and quarterly reports containing unaudited consolidated financial
information for the first three quarters of each fiscal year.
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GLOSSARY
<TABLE>
<S> <C>
Client-server: A specialized distributed computing architecture, consisting of
client applications and related server applications in which
the client applications request and receive information and
computing services from the server applications.
Distributed computing: The process by which data and applications are distributed to
minicomputers, workstations and personal computers within a
network rather than maintained on a centralized main-frame.
Graphical user interface: A means of communicating with a computer by manipulating icons
and windows rather than using character-oriented displays.
Internet: An open global network of interconnected commercial,
educational and governmental computer networks which utilize a
common communications protocol, TCP/IP.
Intranet: An organization's private network which utilizes Internet data
formats and communications protocols and which may use the
Internet's facilities as the backbone for network
communications.
Network Management Forum: A consortium of over 180 companies in the telecommunications
industry addressing standards and other issues for that
industry.
Object: A small piece of code that encapsulates the data and logic
associated with some function or service, such as formatting
the current date.
Object frameworks: Collections of related objects that perform some function or
service on a larger scale such as providing the mechanism for
all graphic displays for an application.
Object-oriented Software development using methods and languages that support
programming: and utilize objects as the component building block of the
software.
Peer-to-peer: A specialized distributed processing architecture where the
information and computing capabilities of each computer on the
network can be shared by the other computers on the network.
Protocol: A formal description of message formats and the rules two or
more machines must follow in order to exchange such messages.
RDBMS: Relational database management system.
Reuse: The reuse of software code principally through the use of
objects and object frameworks.
TCP/IP: Transmission Control Protocol/Internet Protocol. A compilation
of network-and transport-level protocols that allow computers
with different architectures and operating system software to
communicate with other computers on the Internet.
Template: A collection of integrated object frameworks which represents a
largely completed application.
Visual development: Creating software using visual editors instead of programming
at a detailed language level using line-by-line programming.
Windows: A computer operating system developed by Microsoft Corporation
that provides a graphical user interface and multitasking
capabilities.
World Wide Web: A network of computer servers that uses a special
communications protocol to link different servers throughout
the Internet and permits communication of graphics, video and
sound.
</TABLE>
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets as of November 30, 1994 and 1995, and August 31, 1996..... F-3
Consolidated Statements of Operations for the Years Ended November 30, 1993, 1994 and
1995 and the nine month periods ended August 31, 1995 (unaudited) and 1996.......... F-4
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the Years
Ended November 30, 1993, 1994 and 1995 and the nine month period ended August 31,
1996................................................................................ F-5
Consolidated Statements of Cash Flows for the Years Ended November 30, 1993, 1994 and
1995 and the nine month periods ended August 31, 1995 (unaudited) and 1996.......... F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Template Software, Inc.
We have audited the consolidated balance sheets of Template Software, Inc.
and its subsidiaries (the "Company") as of November 30, 1994 and 1995, and
August 31, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended November 30, 1995 and the nine month period ended August 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of November 30, 1994 and 1995, and August 31, 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended November 30, 1995, and for the nine month period ended August
31, 1996, in conformity with generally accepted accounting principles.
As described in Note 2 of the Notes to Consolidated Financial Statements,
the Company changed its method of accounting for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
COOPERS & LYBRAND, L.L.P.
McLean, Virginia
October 25, 1996 except for Note 9
for which the date is November 20, 1996
F-2
<PAGE> 64
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30, PRO FORMA
------------------------ AUGUST 31, AUGUST 31,
1994 1995 1996 1996
---------- ---------- ---------- (NOTE 2)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................ $ 15,682 $ 62,784 $ 922,362 $8,991,362
Accounts receivable, net............................................. 1,707,147 2,178,669 2,553,030 2,553,030
Deferred income taxes................................................ 275,989 299,213 287,667 287,667
Prepaid expenses..................................................... 76,796 117,232 185,967 185,967
---------- ---------- ---------- -----------
Total current assets............................................... 2,075,614 2,657,898 3,949,026 12,018,026
---------- ---------- ---------- -----------
Property and equipment, net............................................ 164,215 141,360 176,354 176,354
Software development costs, net........................................ 719,880 575,051 646,306 646,306
Deferred income taxes.................................................. 16,817 -- -- --
Other assets........................................................... 43,999 46,400 207,512 207,512
---------- ---------- ---------- -----------
Total assets................................................... $3,020,525 $3,420,709 $4,979,198 $13,048,198
========= ========= ========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............................. $ 773,876 $1,054,601 $1,726,203 $1,720,848
Revolving credit agreement........................................... 498,642 161,330 -- --
Current portion of long-term debt.................................... 74,583 355,993 269,645 76,390
Capital lease obligations............................................ 11,524 5,262 -- --
Income taxes payable................................................. -- 74,289 385,207 385,207
Deferred income...................................................... 440,100 573,944 746,786 746,786
---------- ---------- ---------- -----------
Total current liabilities.......................................... 1,798,725 2,225,419 3,127,841 2,929,231
---------- ---------- ---------- -----------
Long-term liabilities:
Long-term debt, net of current portion............................... 326,277 -- -- 198,610
Capital lease obligations, noncurrent................................ 5,262 -- -- --
Deferred income taxes................................................ -- 145,294 181,222 181,222
Other liabilities.................................................... 318,318 148,981 15,540 15,540
---------- ---------- ---------- -----------
Total liabilities.............................................. 2,448,582 2,519,694 3,324,603 3,324,603
---------- ---------- ---------- -----------
Commitments and contingencies (Note 9)
Shareholders' equity:
Convertible Preferred Stock, $1.9694 par value; authorized 450,000
shares; issued 232,403 shares, 195,847 shares and 156,336 shares;
none outstanding................................................... 457,694 385,701 307,888 --
Preferred Stock; $0.01 par value; authorized 3,000,000 shares; none
issued or outstanding.............................................. --
Class A Common Stock, $0.01 par value; authorized 5,000,000 shares;
issued 1,818,064 shares, 1,808,924 shares and 1,799,046 shares;
1,759,988 shares outstanding....................................... 18,181 18,089 17,990 --
Class B Common Stock, $0.01 par value; authorized 5,000,000 shares;
issued and outstanding 422,006 shares, 423,006 shares and 437,020
shares............................................................. 4,220 4,230 4,370 --
Common Stock, $0.01 par value; authorized 17,000,000 shares; none
issued and outstanding as of November 30, 1994, 1995, and August
31, 1996; issued and outstanding 2,747,008 (unaudited) shares pro
forma.............................................................. 27,470
Additional paid-in capital........................................... 958,495 969,491 1,006,854 9,108,987
Retained earnings (Accumulated deficit).............................. (465,787) (138,695) 587,138 587,138
Less cost of treasury stock; Convertible Preferred Stock, 232,403
shares, 195,847 shares and 156,336 shares; Class A Common Stock,
58,076 shares, 48,936 shares, and 39,058 shares.................... (400,860) (337,801) (269,645) --
---------- ---------- ---------- -----------
Total shareholders' equity..................................... 571,943 901,015 1,654,595 9,723,595
---------- ---------- ---------- -----------
Total liabilities and shareholders' equity................... $3,020,525 $3,420,709 $4,979,198 $13,048,198
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 65
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED NOVEMBER 30, AUGUST 31,
-------------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Products......................... $2,781,496 $2,893,033 $2,806,112 $2,062,262 $1,045,647
Services......................... 3,172,029 3,419,880 4,704,994 3,083,481 8,571,183
---------- ---------- ---------- ---------- ----------
Total revenues................ 5,953,525 6,312,913 7,511,106 5,145,743 9,616,830
---------- ---------- ---------- ---------- ----------
Cost of revenues:
Products......................... 990,105 977,795 896,297 660,897 600,818
Services......................... 1,882,797 1,873,593 2,591,839 1,727,836 4,439,428
---------- ---------- ---------- ---------- ----------
Total cost of revenues........ 2,872,902 2,851,388 3,488,136 2,388,733 5,040,246
---------- ---------- ---------- ---------- ----------
Gross profit....................... 3,080,623 3,461,525 4,022,970 2,757,010 4,576,584
---------- ---------- ---------- ---------- ----------
Operating expenses:
Selling and marketing............ 1,903,983 1,510,071 1,180,810 823,029 1,593,824
Product development.............. 435,966 923,841 691,620 557,496 649,401
General and administrative....... 1,533,167 1,445,976 1,479,385 969,596 1,136,405
---------- ---------- ---------- ---------- ----------
Total operating expenses...... 3,873,116 3,879,888 3,351,815 2,350,121 3,379,630
---------- ---------- ---------- ---------- ----------
Income (loss) from operations...... (792,493) (418,363) 671,155 406,889 1,196,954
Interest expense................. 71,632 74,924 107,450 82,010 33,158
Other income..................... -- -- 676 1,478 11,023
---------- ---------- ---------- ---------- ----------
Net income (loss) before income
taxes and cumulative effect of
change in accounting principle... (864,125) (493,287) 564,381 326,357 1,174,819
Income tax benefit (provision)..... 377,542 217,798 (237,289) (137,070) (448,986)
---------- ---------- ---------- ---------- ----------
Net income (loss) before cumulative
effect of change in accounting
principle........................ (486,583) (275,489) 327,092 189,287 725,833
Cumulative effect of change in
accounting principle............. (40,258) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss).................. $ (526,841) $ (275,489) $ 327,092 $ 189,287 $ 725,833
========= ========= ========= ========= =========
Earnings (loss) per common share
before cumulative effect of
change in accounting principle... $ (0.15) $ (0.09) $ 0.07 $ 0.04 $ 0.16
Cumulative effect of change in
accounting principle............. (0.02) -- -- -- --
---------- ---------- ---------- ---------- ----------
Earnings (loss) per common share... $ (0.17) $ (0.09) $ 0.07 $ 0.04 $ 0.16
========= ========= ========= ========= =========
Weighted average number of common
shares outstanding............... 3,173,503 3,186,331 4,655,824 4,418,269 4,656,558
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 66
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE CLASS B COMMON
PREFERRED STOCK PREFERRED STOCK CLASS A COMMON STOCK STOCK
--------------------- -------------------- ---------------------- -------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- --------- -------- -------- ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30,
1992....................... 232,403 $ 457,694 -- $ -- 1,818,064 $ 18,181 338,422 $ 3,384
Issuance of stock........... -- -- -- -- -- -- 83,333 834
Net loss.................... -- -- -- -- -- -- -- --
-------- --------- -------- -------- ---------- -------- -------- -------
Balance, November 30,
1993....................... 232,403 457,694 -- -- 1,818,064 18,181 421,755 4,218
Issuance of Class B Common
Stock...................... -- -- -- -- -- -- 251 2
Net loss.................... -- -- -- -- -- -- -- --
-------- --------- -------- -------- ---------- -------- -------- -------
Balance, November 30,
1994....................... 232,403 457,694 -- -- 1,818,064 18,181 422,006 4,220
Retirement of stock held in
treasury................... (36,556) (71,993) -- -- (9,140) (92) -- --
Issuance of Class B Common
Stock...................... -- -- -- -- -- -- 1,000 10
Net income.................. -- -- -- -- -- -- -- --
-------- --------- -------- -------- ---------- -------- -------- -------
Balance, November 30,
1995....................... 195,847 385,701 -- -- 1,808,924 18,089 423,006 4,230
Retirement of stock held in
treasury................... (39,511) (77,813) -- -- (9,878) (99) -- --
Issuance of Class B Common
Stock...................... -- -- -- -- -- -- 14,014 140
Net income.................. -- -- -- -- -- -- -- --
-------- --------- -------- -------- ---------- -------- -------- -------
Balance, August 31, 1996.... 156,336 307,888 -- -- 1,799,046 17,990 437,020 4,370
Pro forma exchange of Class
A and Class B Common Stock
(unaudited)................ -- -- -- -- (1,759,988) (17,600) (437,020) (4,370)
Pro forma retirement of
treasury stock
(unaudited)................ (156,336) (307,888) -- -- (39,058) (390) -- --
Pro forma issuance Preferred
Stock (unaudited).......... -- -- 500,000 5,000 -- -- -- --
Pro forma conversion
Preferred Stock
(unaudited)................ -- -- (500,000) (5,000) -- -- -- --
Pro forma issuance of Common
Stock (unaudited).......... -- -- -- -- -- -- -- --
-------- --------- -------- -------- ---------- -------- -------- -------
Pro forma balance, August
31, 1996 (unaudited)....... -- $ -- -- $ -- -- $ -- -- $ --
========== =========== ========== ========== =========== ========== ========== ========
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TREASURY
-------------------- PAID-IN (ACCUMULATED STOCK
SHARES AMOUNT CAPITAL DEFICIT) AT COST TOTAL
--------- ------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30,
1992....................... -- $ -- $ 458,834 $ 336,543 $(400,860) $ 873,776
Issuance of stock........... -- -- 499,166 -- -- 500,000
Net loss.................... -- -- -- (526,841) -- (526,841)
--------- ------- ---------- ------------ --------- ----------
Balance, November 30,
1993....................... -- -- 958,000 (190,298) (400,860) 846,935
Issuance of Class B Common
Stock...................... -- -- 495 -- -- 497
Net loss.................... -- -- -- (275,489) -- (275,489)
--------- ------- ---------- ------------ --------- ----------
Balance, November 30,
1994....................... -- -- 958,495 (465,787) (400,860) 571,943
Retirement of stock held in
treasury................... -- -- 9,026 -- 63,059 --
Issuance of Class B Common
Stock...................... -- -- 1,970 -- -- 1,980
Net income.................. -- -- -- 327,092 -- 327,092
--------- ------- ---------- ------------ --------- ----------
Balance, November 30,
1995....................... -- -- 969,491 (138,695) (337,801) 901,015
Retirement of stock held in
treasury................... -- -- 9,756 -- 68,156 --
Issuance of Class B Common
Stock...................... -- -- 27,607 -- -- 27,747
Net income.................. -- -- -- 725,833 -- 725,833
--------- ------- ---------- ------------ --------- ----------
Balance, August 31, 1996.... -- -- 1,006,854 587,138 (269,645) 1,654,595
Pro forma exchange of Class
A and Class B Common Stock
(unaudited)................ 2,197,008 21,970 -- -- -- --
Pro forma retirement of
treasury stock
(unaudited)................ -- -- 38,633 -- 269,645 --
Pro forma issuance Preferred
Stock (unaudited).......... -- -- 7,995,000 -- -- 8,000,000
Pro forma conversion
Preferred Stock
(unaudited)................ 500,000 5,000 -- -- -- --
Pro forma issuance of Common
Stock (unaudited).......... 50,000 500 68,500 -- -- 69,000
--------- ------- ---------- ------------ --------- ----------
Pro forma balance, August
31, 1996 (unaudited)....... 2,747,008 $27,470 $9,108,987 $ 587,138 $ -- $9,723,595
========== ======== =========== ============== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 67
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED NOVEMBER 30, AUGUST 31,
----------------------------------- ------------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $(526,841) $(275,489) $ 327,092 $ 189,287 $ 725,833
Adjustments to reconcile net income (loss) to net
cash and cash equivalents provided by operating
activities:
Depreciation.................................. 150,820 128,200 92,555 69,416 77,022
Amortization.................................. 632,478 570,401 438,871 321,944 189,196
Deferred rent amortization.................... 48,279 70,962 (169,337) (125,423) (133,441)
Bad debt expense.............................. 93,146 181,223 183,758 137,819 --
Deferred tax benefit (provision).............. (42,010) (220,112) 138,887 44,640 47,474
Cumulative effect of change in accounting
principle.................................. 40,258 -- -- -- --
Changes in assets and liabilities:
Accounts receivable........................ 87,965 (140,044) (655,280) (682,263) (374,361)
Prepaid expenses........................... 30,037 53,658 (40,436) (50,693) (68,735)
Other assets............................... 80,815 (5,945) (2,401) (6,202) (161,112)
Accounts payable and accrued liabilities... (156,593) 41,856 280,725 179,977 671,602
Income taxes payable....................... (158,209) (394) 74,289 48,487 310,918
Deferred income............................ (24,522) 130,582 133,844 13,288 172,842
--------- --------- --------- --------- ----------
Net cash provided by operating activities..... 255,623 534,898 802,567 140,277 1,457,238
--------- --------- --------- --------- ----------
Cash flows from investing activities:
Capital expenditures.............................. (11,975) (41,465) (69,700) (35,722) (112,016)
Capitalization of software development costs...... (907,727) (586,157) (294,042) (248,370) (260,451)
--------- --------- --------- --------- ----------
Net cash used in investing activities......... (919,702) (627,622) (363,742) (284,092) (372,467)
--------- --------- --------- --------- ----------
Cash flows from financing activities:
Proceeds from:
Revolving credit facility, net.................. 202,721 103,752 -- 173,318 --
Note payable.................................... -- -- 24,240
Issuance of capital stock....................... 500,000 497 1,980 1,981 27,747
Principal payments on:
Revolving credit facility, net.................. -- -- (337,312) -- (161,330)
Note payable.................................... -- -- (69,107) (12,229) (86,348)
Capital lease obligations....................... (39,456) (21,607) (11,524) (16,786) (5,262)
--------- --------- --------- --------- ----------
Net cash provided by (used in) financing
activities................................. 663,265 82,642 (391,723) 146,284 (225,193)
--------- --------- --------- --------- ----------
Net increase (decrease) in cash..................... (814) (10,082) 47,102 2,469 859,578
Cash and cash equivalents at beginning of period.... 26,578 25,764 15,682 15,682 62,784
--------- --------- --------- --------- ----------
Cash and cash equivalents at end of period.......... $ 25,764 $ 15,682 $ 62,784 $ 18,151 $ 922,362
========== ========== ========== ========== ==========
Supplemental cash flow disclosures:
Cash paid for interest.......................... $ 71,627 $ 72,179 $ 107,557 $ 80,668 $ 34,317
========== ========== ========== ========== ==========
Cash paid for taxes............................. $ 265,085 $ -- $ 24,113 $ 1,526 $ 90,594
========== ========== ========== ========== ==========
Noncash investing and financing activities:
Retirement of treasury stock:
Class A Common Stock............................ $ -- $ -- $ 12,612 $ 8,299 $ 13,631
========== ========== ========== ========== ==========
Preferred Stock................................. $ -- $ -- $ 50,447 $ 33,195 $ 54,525
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 68
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Business
Template Software, Inc. (the "Company") provides enterprise-wide software
solutions to organizations that require large-scale, distributed computing
systems through its reusable software templates, robust software development
environment and its staff of software development professionals. The Company's
solutions are targeted at large-scale, mission-critical applications, such as
air traffic control, securities trading, telecommunications service management,
aircraft maintenance scheduling and network monitoring systems.
The Company provides its products and services to federal government
agencies and commercial clients both domestically and abroad. Accordingly, the
Company's revenues are generated as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
-------------------- NINE MONTHS ENDED
1993 1994 1995 AUGUST 31, 1996
---- ---- ---- -----------------
<S> <C> <C> <C> <C>
Federal government agencies............................... 36% 31% 32% 19%
Domestic.................................................. 19% 56% 61% 72%
Foreign................................................... 45% 13% 7% 9%
</TABLE>
Recapitalization of Common Stock
The Company, a Maryland corporation, elected to change its capital
structure in October 1996, and reincorporate into Template Software, Inc., a
Virginia corporation (the "Recapitalization"). Pursuant to the Recapitalization,
the Company (i) exchanged its Class A and Class B Common Stock for an equal
amount of shares of a single class of $0.01 par value, common stock ("Common
Stock") and (ii) increased the Company's authorized capital stock to 20,000,000
shares, which consisted of 17,000,000 shares of Common Stock and 3,000,000
shares of a new class of non-convertible preferred stock ("Preferred Stock").
Registration statement
In August 1996, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission for the
initial public offering of shares of the Company's Common Stock.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Template
Software, Inc. and its wholly-owned subsidiaries ("Subsidiaries"), Template
Software UK Limited and Template Software Limited. The Subsidiaries were
organized in the United Kingdom on November 22, 1994 to market the Company's
products and services in the United Kingdom. All material intercompany accounts
and transactions have been eliminated in consolidation.
Interim financial information
The financial information presented for the nine months ended August 31,
1995 is unaudited. In the opinion of management, this unaudited financial
information contains all necessary adjustments (which consist only of normal,
recurring adjustments) necessary for a fair presentation. Operating results for
the nine months ended August 31, 1996 are not necessarily indicative of results
that may be expected for the full year.
F-7
<PAGE> 69
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pro forma financial information
Unaudited pro forma financial information gives effect to (i) the exchange
of all of the issued and outstanding shares of the Company's previously
outstanding Class A and B Common Stock for an equal amount of shares of Common
Stock in connection with the Recapitalization in October 1996 (see Note 1), (ii)
the repayment of the subordinated note payable and the retirement of the
underlying shares of the Company's capital stock held in treasury in October
1996 (see Note 5), (iii) the exercise of 50,000 Common Stock options by an
officer of the Company in October 1996, that were granted in 1992 at an exercise
price of $1.38 per share, and (iv) the conversion of 500,000 shares of Preferred
Stock issued in November 1996 at $16.00 per share into an equal amount of shares
of Common Stock (see Note 9).
Revenue recognition
The Company licenses the rights to use its software products to customers
under perpetual license agreements, and provides product support and
enhancements under annual maintenance agreements. Product license revenues are
recognized upon acceptance of the software by the customer unless the Company
has significant future obligations to the customer, in which case revenues are
recognized when such obligations are satisfied. Insignificant vendor obligations
and service revenues obligations are accrued upon acceptance of the product by
the customer. Service revenues includes consulting, product support and
maintenance and training. The Company defers and recognizes product support and
maintenance revenue over the terms of the contract period, which is generally
one year. The Company recognizes training and consulting revenue as the services
are provided.
Customization is sometimes involved in the development of a software
solution by the Company. Under these circumstances, the Company's revenues are
derived from contracts of various types. Revenue from federal government agency
cost-plus-fixed-fee contracts is recognized to the extent of costs incurred plus
a proportionate amount of the fee. Revenues from fixed-price contracts is
recognized using the percentage-of-completion method based on the relationship
of actual costs incurred to total costs estimated to be incurred over the
duration of the contract. Fees under federal government agency contracts may be
increased or decreased in accordance with certain provisions which measure
actual performance against established targets or other criteria. Such fee
adjustments are included in revenues at the time the amounts can be reasonably
determined. Provisions for anticipated contract losses are recognized at the
time they become evident.
Software development costs
The Company capitalizes the direct costs and allocated overhead associated
with the development of software products in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed." Research costs are charged
to product development expense prior to the development of a detailed program
design or a working model. Costs incurred subsequent to the product release, and
research and development performed under contract are charged to operations.
Capitalized costs are amortized over the estimated product life using the
greater of the straight-line method or the ratio of current product revenues to
total projected future revenues. Software development costs at November 30, 1994
and 1995 and August 31, 1996 are presented net of accumulated amortization of
$2,315,910, and $2,754,781 and $2,943,977, respectively. Amortization expense
related to software development costs was $632,478, $570,401 and $438,871,
respectively for the years ended November 30, 1993, 1994 and 1995, and $189,196
for the nine months ended August 31, 1996.
F-8
<PAGE> 70
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Earnings per share
Earnings per share is computed on a primary and fully-diluted basis using
the weighted average number of shares of Common Stock, assuming conversion of
dilutive common stock equivalent shares from common stock options. Pursuant to
the Securities and Exchange Commission's Staff Accounting Bulletin No. 83,
common stock and common stock equivalent shares issued by the Company at prices
below the public offering price during the 12 month period prior to the proposed
offering date, including the issuance of (i) 50,000 shares of Common Stock in
October 1996, (ii) the grant of 403,000 options to purchase shares of Common
Stock in September 1996 (see Note 7) and (iii) the conversion of 500,000 shares
of Preferred Stock that were issued in November 1996 into an equal number of
shares of Common Stock (see Note 9), have been included in the calculation of
common and common stock equivalent shares as if they were outstanding for all
periods presented. Stock options granted by the Company have not been included
in the calculation of earnings per share for the years ended November 30, 1993
and 1994 because such items were antidilutive.
Income taxes
Effective December 1, 1992, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). Under the provisions of SFAS 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences of temporary differences
and income tax credits. Temporary differences are primarily the result of the
differences between the tax bases of assets and liabilities and their financial
reporting amounts. Deferred tax assets and liabilities are measured by applying
enacted statutory tax rates applicable to the future years in which deferred tax
assets or liabilities are expected to be settled or realized. As a result of the
adoption of SFAS 109, the Company had a cumulative effect of a change in
accounting principle of $40,258 for the year ended November 30, 1993. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense consists of the taxes payable
for the current period and the change during the period in deferred tax assets
and liabilities.
Foreign currency translation
The assets and liabilities of non-U.S. operations are translated into U.S.
dollars at exchange rates in effect as of each balance sheet date. Revenue and
expense accounts of these operations are translated at average exchange rates
prevailing during the month the transaction occur. Translation gains and losses
are immaterial for all periods presented.
Property and equipment
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets,
generally three to five years. Amortization of leasehold improvements is
computed using the straight line method over the shorter of the assets useful
life or the lease term. When assets are returned or sold, the cost and related
accumulated depreciation and amortization are removed from the accounts, and any
gain or loss is reflected in operations. Maintenance and repairs are charged to
expenses when incurred, and the cost of significant additions and improvements
is capitalized.
Cash and cash equivalents
Cash and cash equivalents consist of demand deposits and short-term
repurchase agreements which have original maturities of three months or less. As
of August 31, 1996, the Company has not experienced any losses on these
investments.
F-9
<PAGE> 71
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash equivalents and accounts
receivable. The Company limits the amount of investment exposure in any one
financial instrument and minimizes the amount of cash it maintains in foreign
currencies by maintaining sufficient cash in U.S. dollars. To date, the impact
of exchange rates on foreign cash balances has been immaterial. The Company
sells products and services to customers without requiring collateral, however,
the Company routinely assesses the financial strength of its customers and
maintains allowances for anticipated losses.
For the years ended November 30, 1993, 1994 and 1995, and for the nine
months ended August 31, 1996, revenues from federal government agencies
represent 36%, 31% and 32%, and 19%, respectively, of total consolidated
revenues. With the exception of federal government agencies, there were two
customers during the nine months ended August 31, 1996, one customer during the
year ended November 30, 1995 and one customer during the year ended November 30,
1993 that accounted for 52%, 11% and 11%, respectively, of total consolidated
revenues. No customers accounted for more than 10% of total consolidated
revenues during the year ended November 30, 1994.
As of November 30, 1994 and 1995 and August 31, 1996, 27%, 32%, and 25% of
accounts receivable were comprised of balances from two customers.
Fair value of financial instruments
During 1995, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosure About Fair Value of Financial Instruments." The
company believes that the carrying amount of certain of its financial
instruments, which include cash equivalents, accounts receivable, accounts
payable and accrued expenses, and obligations under capital leases approximate
fair value due to the relatively short maturity of these instruments. The
carrying amounts of the revolving credit agreement and notes payable approximate
fair value because these financial instruments contain variable interest rates
which reprice frequently.
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.
F-10
<PAGE> 72
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
NOVEMBER 30, ENDED
------------------------ AUGUST 31,
1994 1995 1996
---------- ---------- -----------
<S> <C> <C> <C>
Government:
Billed......................................... $ 370,077 $ 393,640 $ 796,777
Unbilled....................................... 64,220 209,568 --
Retainage...................................... 65,219 58,920 80,441
---------- ---------- -----------
499,516 662,128 877,218
---------- ---------- -----------
Domestic:
Billed......................................... 1,116,587 1,239,580 1,273,124
Unbilled....................................... 81,034 -- 231,893
Other.......................................... 11,895 8,395 10,065
---------- ---------- -----------
1,209,516 1,247,975 1,515,082
---------- ---------- -----------
Foreign:
Billed......................................... 231,463 408,202 318,357
Unbilled....................................... 41,021 44,122 26,131
---------- ---------- -----------
272,484 452,324 344,488
---------- ---------- -----------
Total....................................... 1,981,516 2,362,427 2,736,788
Less: allowance for doubtful accounts............ (274,369) (183,758) (183,758)
---------- ---------- -----------
$1,707,147 $2,178,669 $2,553,030
========= ========= =========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
NOVEMBER 30, ENDED
------------------------ AUGUST 31,
1994 1995 1996
----------- --------- -----------
<S> <C> <C> <C>
Data processing equipment........................ $ 737,599 $ 382,861 $ 425,626
Office furniture and equipment................... 409,011 404,371 470,066
Leasehold improvements........................... 61,083 62,326 65,882
----------- --------- -----------
1,207,693 849,558 961,574
Less: accumulated depreciation (1,043,478) (708,198) (785,220)
----------- --------- -----------
$ 164,215 $ 141,360 $ 176,354
========== ========= =========
</TABLE>
F-11
<PAGE> 73
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
NOVEMBER 30, ENDED
--------------------- AUGUST 31,
1994 1995 1996
-------- --------- -----------
<S> <C> <C> <C>
Revolving credit facility.......................... $498,642 $ 161,330 $ --
======== ========= =========
Subordinated note payable.......................... $400,860 $ 337,801 $ 269,645
Note payable -- officer (see Note 12).............. -- 18,192 --
-------- --------- -----------
Total.............................................. 400,860 355,993 269,645
Less current portion............................... (74,583) (355,993) (269,645)
-------- --------- -----------
Long-term portion $326,277 $ -- $ --
======== ========= =========
</TABLE>
Revolving credit facility
The Company has a revolving credit facility (the "Facility") pursuant to a
Loan and Security Agreement (the "Loan Agreement") with a commercial bank. As of
August 31, 1996, availability under the Facility was equal to the lesser of
$850,000 or a maximum amount, as defined in the Loan Agreement. Borrowings under
the Facility bear interest at the prime rate plus 2% (10.5% at August 31, 1996),
are collateralized by substantially all assets of the Company and are guaranteed
by three of the Company's executive officers. The Facility expires on April 30,
1997. As of August 31, 1996, there were no amounts outstanding under the
Facility. In September 1996, pursuant to an amendment, the guarantees of the
Company's executive officers were terminated.
In October 1996, the Company restructured the Facility. Pursuant to this
restructuring, availability under the Facility was increased to the lesser of
$3,000,000 or a maximum amount, as defined in the Loan Agreement. Borrowings
under the Facility bear interest at the prime rate and are collateralized up to
$2,000,000 by substantially all of the Company's assets. In addition, the
restructured Facility provides for the issuance of letters of credit by the bank
on the Company's behalf up to the aggregate face amount of $300,000. Currently,
the Company has an outstanding letter of credit of $300,000 related to the
noncancelable operating lease for its new office space (see Note 9). The
expiration date of the Facility was extended to April 30, 1998.
The Facility contains certain financial covenants, the most restrictive of
which requires the Company to maintain defined levels of tangible net worth and
a ratio of total liabilities to tangible net worth. As of November 30, 1994 and
1995, and for each of the three years in the period ended November 30, 1995, and
for the nine month period ended August 31, 1996, the Company was not in
compliance with certain of these covenants for which a waiver was obtained. In
October 1996, in connection with the restructuring of the Facility, the
financial covenant for the ratio of total liabilities to tangible net worth was
removed.
Subordinated note payable
In December 1991, the Company repurchased 101,554 shares of Class A Common
Stock and 406,316 shares of Convertible Preferred Stock from a minority
shareholder for $300,000 in cash and a subordinated note in the amount of
$400,860 (the "Subordinated Note"). The Subordinated Note, as amended, requires
annual interest payments through March 1995 and quarterly principal and interest
payments of $31,000, beginning in April 1995. The Subordinated Note bears
interest at 2% above the prime rate (10.5% at August 31, 1996). Any remaining
balance is due January 1, 1999. Stock representing the unpaid portion of the
note is held in treasury, and is being retired as the principal is repaid.
F-12
<PAGE> 74
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
In October 1996, the balance of the Subordinated Note was paid in full and
all of the remaining, underlying shares of Preferred Stock and Class A Common
Stock held in treasury were retired. Accordingly, the Subordinated Note has been
classified as a current liability as of August 31, 1996. The repayment of the
Subordinated Note was financed with a $275,000, three year term loan from a
commercial bank (the "Term Loan"). The Term Loan bears interest at the prime
rate plus 1/4% and requires monthly principal payments of $7,639, beginning in
November 1996.
6. CAPITAL STOCK
As of August 31, 1996, the Company's authorized capital stock consisted of
5,000,000 shares of $0.01 par value Class A Common Stock, 5,000,000 shares of
$0.01 par value Class B Common Stock, and 450,000 shares of $1.9694 par value
Convertible Preferred Stock. In connection with the Recapitalization in October
1996 (see Note 1), the Company changed its capital structure to consist of
17,000,000 shares of $0.01 par value Common Stock and 3,000,000 shares of $0.01
par value Preferred Stock. The preferences, limitations and relative rights of
the Preferred Stock, which is issuable in series, will be determined by the
Board of Directors upon designation.
7. STOCK OPTION PLANS
Under the Company's 1992 Incentive Stock Option Plans (the "1992 ISO
Plans") and 1992 Non-Statutory Stock Option Plan (the "Non-Statutory Plan"),
2,851,415 shares have been reserved for issuance upon exercise of options
granted to employees of the Company (collectively, the "1992 Plans"). The 1992
Plans replace the Company's former 1986 Incentive Stock Option Plan and the 1984
Incentive Stock Option Plan and accordingly, no further grants may be made under
these plans.
The Board of Directors administers the 1992 Plans and determines the price
and other terms upon which awards shall be made. The 1992 ISO Plans consist of a
separate plan that provides for the grant of options to acquire shares of the
Company's former Class A Common Stock and a separate plan that provides for the
grant of options to acquire shares of the Company's former Class B Common Stock
(see Note 1). The Non-Statutory Plan provides for the grant of nonqualified
options to certain key employees of the Company's former Class A Common Stock.
Options granted under the Company's stock option plans generally vest over
a four year period and expire either three months after termination of
employment, or seven to ten years after date of grant. Options to purchase
approximately 1,174,615 were vested and exercisable and 1,000,000 were available
for future grant at August 31, 1996.
F-13
<PAGE> 75
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLANS (CONTINUED)
Stock option activity for the three years ended November 30, 1995 and the
nine months ended August 31, 1996 is summarized as follows:
<TABLE>
<CAPTION>
1984 INCENTIVE 1986 INCENTIVE 1992 INCENTIVE OPTION PRICE
STOCK PLAN STOCK PLAN STOCK PLANS TOTAL PER SHARE
-------------- -------------- -------------- --------- ------------
<S> <C> <C> <C> <C> <C>
Outstanding, December 1, 1992.... 237,255 158,000 563,031 958,286 $1.38-$1.98
Granted........................ -- -- 131,000 131,000 $1.98
Exercised...................... -- -- -- --
Forfeited...................... -- -- -- --
-------------- -------------- -------------- ---------
Outstanding, November 30, 1993... 237,255 158,000 694,031 1,089,286 $1.38-$1.98
Granted........................ -- -- 231,500 231,500 $1.98
Exercised...................... -- (251) -- (251) $1.98
Forfeited...................... (17,800) -- -- (17,800) $1.98
-------------- -------------- -------------- ---------
Outstanding, November 30, 1994... 219,455 157,749 925,531 1,302,735 $1.38-$1.98
Granted........................ -- -- 460,835 460,835 $1.98
Exercised...................... -- (1,000) -- (1,000) $1.98
Forfeited...................... (99,335) -- -- (99,335) $1.98
-------------- -------------- -------------- ---------
Outstanding, November 30, 1995... 120,120 156,749 1,386,366 1,663,235 $1.38-$1.98
Granted........................ -- -- 215,300 215,300 $1.98
Exercised...................... (14,014) -- -- (14,014) $1.98
Forfeited...................... (13,106) -- -- (13,106) $1.98
-------------- -------------- -------------- ---------
Outstanding, August 31, 1996..... 93,000 156,749 1,601,666 1,851,415 $1.38-$1.98
========== ========== ========== ========
</TABLE>
In September 1996, the Board of Directors granted 403,000 options to
purchase shares of the Company's former Class A Common Stock under the
corresponding 1992 ISO Plan at a weighted average exercise price of $5.97. These
Class A common stock options, as well as all other outstanding stock options,
were exchanged on a one-for-one basis for options to purchase the newly
authorized Common Stock in connection with the Company's Recapitalization (see
Note 1).
In October 1996, the Company established the 1996 Equity Incentive Plan
(1996 Equity Plan). Under the 1996 Equity Plan, which is administered by the
Compensation Committee of the Board of Directors, a variety of awards, including
stock options, stock appreciation rights, stock awards and incentive awards may
be made to the Company's employees and directors. The 1996 Equity Plan will
serve as successor to the 1992 ISO Plan and will increase the number of shares
of Common Stock available for issuance from 2,275,153 to 3,275,153.
The fair value of the Company's Common Stock was determined through an
independent valuation. The fair value of the Company's Common Stock was
confirmed at $2.07, as of November 30, 1995, and $3.34 as of August 31, 1996.
Accordingly, the Company calculated deferred compensation expense of $31,395 and
$252,422, respectively, related to certain options granted during the year ended
November 30, 1995 and the nine months ended August 31, 1996. The Company will
recognize compensation expense over the vesting period of those stock options.
However, the Company did not record any adjustments for deferred compensation
expense since it will not have a material effect on total shareholders' equity
as of November 30, 1995 or August 31, 1996.
The Company does not intend to adopt the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation," as they pertain to financial statement recognition of
F-14
<PAGE> 76
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCK OPTION PLANS (CONTINUED)
compensation expense attributable to option grants, however, the Company will be
required to disclose the effects of this pronouncement on a pro forma basis
beginning in fiscal 1997.
8. INCOME TAXES
Foreign loss before income taxes was $112,217 for the year ended November
30, 1995 and $81,878 for the nine months ended August 31, 1996.
The provision for income taxes for the years ended November 30, 1993, 1994
and 1995, and for the nine months ended August 31, 1996 is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
NOVEMBER 30, ENDED
--------------------------------- AUGUST 31,
1993 1994 1995 1996
-------- -------- --------- -----------
<S> <C> <C> <C> <C>
Current:
Federal................................ $335,532 $ -- $ (88,160) $(333,765)
State.................................. -- (2,314) (10,242) (67,747)
-------- -------- --------- -----------
335,532 (2,314) (98,402) (401,512)
-------- -------- --------- -----------
Deferred:
Federal................................ 37,887 197,150 (157,609) (70,478)
State.................................. 4,123 22,962 (18,310) (4,016)
Foreign................................ -- -- 37,032 27,020
-------- -------- --------- -----------
42,010 220,112 (138,887) (47,474)
-------- -------- --------- -----------
Total benefit (provision)...... $377,542 $217,798 $(237,289) $(448,986)
======== ======== ========= =========
</TABLE>
The source and tax effects of the temporary differences giving rise to the
Company's net deferred tax assets (liabilities) at November 30, 1994 and
November 30, 1995, and August 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
NOVEMBER 30, ENDED
---------------------- AUGUST 31,
1994 1995 1996
--------- --------- -----------
<S> <C> <C> <C>
Capitalized software.............................. $(273,267) $(218,233) $(245,273)
Deferred revenue.................................. 155,712 150,484 138,938
Allowance for doubtful accounts................... 104,150 69,736 69,736
Other............................................. 16,127 78,993 78,993
General business credit carryforwards............. 180,948 35,907 --
Net operating loss carryforward................... 109,136 37,032 64,051
--------- --------- -----------
Net deferred tax assets........................... $ 292,806 $ 153,919 $ 106,445
========= ========= =========
</TABLE>
The Company has determined that a valuation allowance is not necessary due
to the existence of estimated future taxable income and the reversal of existing
temporary differences.
As of November 30, 1994 the Company had net operating loss carryforwards
from its U.S. operations of $287,583 which were fully utilized to offset current
taxes payable during the year ended November 30, 1995. As of November 30, 1994
and 1995, the Company had general business credits of $180,948 and $35,907,
respectively, of which $145,041 and $35,907, respectively, were utilized to
offset current taxes payable during the year ended November 30, 1995 and the
nine months ended August 31, 1996. In addition, as of November 30, 1995 and
August 31, 1996 the Company had $37,032 and $64,051, respectively, of net
F-15
<PAGE> 77
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
operating loss carryforwards related to its foreign operations that may only be
used to offset foreign current taxes payable.
The Company's tax provision for the years ended November 30, 1993, November
30, 1994 and November 30, 1995, and the nine months ended August 31, 1996
differs from the statutory rate for Federal income taxes as a result of the tax
effect of the following factors:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER NINE MONTHS
30, ENDED
---------------------- AUGUST 31,
1993 1994 1995 1996
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Statutory rate...................................... 34 % 34 % (34)% (34)%
State income taxes.................................. 4 % 4% (4)% (4)%
Permanent differences............................... (1)% (3)% (3)% (1)%
General business credits............................ 7 % 8 % -- --
Foreign rate differential........................... -- -- (1)% --
Other............................................... -- 1 % -- 1 %
---- ---- ---- ---
Effective tax rate.................................. 44 % 44 % (42)% (38)%
==== ==== ==== =====
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leased office space under a sixty-three month noncancelable
operating lease which expired in September 1996. During September 1996, the
Company entered into a noncancelable operating lease for new office space that
expires in December 2005. As an incentive to lease this space, the landlord
provided a rent abatement through December 1996. Additionally, the lease
contains an escalation clause that provides for an increase in base rent
beginning in December 1997. The Company has provided additional security under
this lease in the form of an irrevocable letter of credit in the amount of
$300,000 (see Note 5). The letter of credit requirement expires upon the earlier
of October 1998 or the date the Company attains total shareholders' equity of at
least $3,000,000, as evidenced by audited financial statements.
The Company also leases certain office equipment and other office space
under noncancelable operating leases which expire at various dates through 1999.
Rent expense under all leases is recognized ratably over the lease terms. Rent
expense under all operating leases was approximately $581,345, $578,294, and
$539,826, respectively, for the years ended November 30, 1993, 1994, and 1995,
and $454,265 for the nine months ended August 31, 1996.
Capital leases
The company leases certain office equipment under arrangements that meet
the criteria requiring capitalization as prescribed by Statement of Financial
Accounting Standards No. 13, "Accounting for Leases" approximately $581,345,
$578,294, and $539,826, respectively, for the years ended November 30, 1993,
1994, and 1995, and $454,265 for the nine months ended August 31, 1996.
Capital leases
The company leases certain office equipment under arrangements that meet
the criteria requiring capitalization as prescribed by Statement of Financial
Accounting Standards No. 13, "Accounting for Leases"
F-16
<PAGE> 78
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
("SFAS No. 13"). Included in the balance sheets are the following amounts at
November 30, 1994 and 1995, and August 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
NOVEMBER 30, ENDED
------------------ AUGUST 31,
1994 1995 1996
------- ------- -----------
<S> <C> <C> <C>
Office furniture and equipment........................ $52,213 $52,213 $52,213
Less: accumulated amortization........................ 35,680 46,123 52,213
------- ------- -----------
$16,533 $ 6,090 $ --
======= ======= =========
</TABLE>
In September 1996, the Company entered into leases for certain office
equipment that require capitalization as prescribed by SFAS No. 13.
Future minimum lease payments under all leases, amended to reflect the
Company's new facility and equipment leases entered into in September 1996
discussed above, at August 31, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- --------
<S> <C> <C>
1997.......................................................... $ 913,887 $ 43,332
1998.......................................................... 827,378 43,332
1999.......................................................... 849,384 43,332
2000.......................................................... 781,760 43,332
2001.......................................................... 711,148 43,332
Thereafter.................................................... 3,286,763 --
---------- --------
Total minimum payments........................................ $7,370,320 216,660
=========
Less: portion representing interest........................... 45,626
--------
Present value of capital lease obligations.................... $171,034
========
</TABLE>
Joint Venture Agreement
In October 1996, the Company signed a non-binding letter of intent (the
"Letter") to distribute its products in Germany and Austria through a joint
venture (the "Joint Venture") 51% owned by the Company, and 49% owned by a
German software distributor ("German Distributor"). Pursuant to the proposed
terms of the Letter, the Company will receive a 35% license fee on all license
sales to the Joint Venture and the German Distributor will receive a 20%
commission on license sales by the Joint Venture for sales initiated by the
German Distributor.
Sale of Preferred Stock
In November 1996, the Company issued 500,000 shares of Preferred Stock to a
subsidiary of Alcatel Alsthom Compagnie Generale d'Electricite S.A., a worldwide
supplier of high technology systems in the telecommunications, energy and
transportation industries, for $16.00 per share. These shares are automatically
convertible into Common Stock upon consummation of a Qualifying Public Offering
(as defined in the Company's Articles of Incorporation). Each share of Preferred
Stock will initially convert into one share of Common Stock and such conversion
ratio shall be subject to adjustment from time to time for issuances by the
Company at a price per share of less than $13.00.
Acquisition of Krystal Ingenierie S.A.
In November 1996, the Company entered into a non-binding letter of intent
(the "Letter") under which the Company agreed to acquire Krystal Ingenierie S.A.
("Krystal"), the Company's existing distributor in
F-17
<PAGE> 79
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
France. Pursuant to the Letter, the Company will issue up to 93,750 shares of
Common Stock in exchange for all of outstanding capital stock of Krystal and the
cancellation of certain indebtedness.
10. THE OBJECT TECHNOLOGY FOR RAPID SOFTWARE DEVELOPMENT CONSORTIUM
In October 1994, the Company IBM, Honeywell Corporation and ISX, Inc.
formed a Consortium (the "Consortium"). The Consortium entered into a
collaborative agreement (the "Agreement") with the United States Air Force (the
"Air Force"), whereby the Consortium would participate in a federally-funded
technology reinvestment program to engage in research and development activities
on behalf of the Air Force to reduce the effort required to develop new software
applications through the development of reusable software components through the
first half of fiscal 1997. The cost sharing provisions of the Agreement provide
for an aggregate resource contribution by the Consortium of $11,903,054, of
which $5,897,817 will be reimbursed by the Air Force. The Company's total
resource contribution is $4,182,261, of which $1,976,780 will be reimbursed by
the Air Force. The Company's resource contribution includes $897,000 which
represents the agreed-upon value of the software provided by the Company to the
Consortium.
For the year ended November 30, 1995, the Company recognized product
revenues of $420,000 for reimbursable amounts attributable to software
contributed by the Company to the Consortium. Included in product development
and sales and marketing expenses for the year ended November 30, 1995 and the
nine months ended August 31, 1996, are costs incurred related to the Agreement
of $757,680, excluding the agreed-upon value of the software discussed above,
and $861,357, respectively, which are net of reimbursable amounts from the Air
Force of $686,652 and $413,516, respectively.
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
NOVEMBER 30, ENDED
---------------------- AUGUST 31,
1994 1995 1996
-------- ---------- -----------
<S> <C> <C> <C>
Accounts payable................................... $280,282 $ 414,053 $ 790,137
Accrued payroll, bonus and vacation................ 292,027 483,748 561,256
Accrued Commissions................................ 41,982 63,602 101,097
Accrued interest................................... 33,814 5,928 4,770
Accrued subcontractor's fees....................... -- -- 211,638
Other accrued expenses............................. 125,771 87,270 57,305
-------- ---------- ----------
$773,876 $1,054,601 $1,726,203
======== ========= =========
</TABLE>
12. RELATED PARTY TRANSACTIONS
In 1994, the Company agreed to accept a 10% interest in Template Software
International in exchange for a 20% reduction in royalties and training fees for
one year. Template Software International is a newly formed corporation created
to distribute products in the United Kingdom. No value was assigned to the
equity interest. During 1994, the Company recognized $140,148 of revenue from
the affiliate, of which $115,148 was in accounts receivable as of November 30,
1994. In 1995, the Company terminated the relationship, and wrote off the
receivable as bad debt expense.
In 1995, the Company financed the purchase of computer equipment with an
unsecured loan in the amount of $24,240 from an officer. The note was being
amortized by semi-monthly payments of $564, including interest at 11%. In March
1996, the balance of this note of $14,782 was paid in full.
F-18
<PAGE> 80
TEMPLATE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. EMPLOYEE BENEFIT PLANS
Deferred compensation plan
The Company maintains a deferred compensation profit-sharing plan under
section 401(k) of the Internal Revenue Code. Under the plan, domestic employees
may elect to defer up to 12% of their salary, subject to Internal Revenue
Service limits. The Company contributes a matching 50% of the first 4% of
employee contributions. In addition, the plan allows for the Company to make
discretionary contributions based on the participants salary. Total Company
contributions to the plan were $39,703, $54,551 and $101,596 for the years ended
November 30, 1993, 1994 and 1995, respectively and $72,957 for the nine months
ended August 31, 1996.
Incentive bonus plan
The Company has an incentive bonus plan whereby the Board of Directors
authorize the officers to grant awards to nominated employees in recognition of
exceptional contributions. Awards totaling $108,000, $108,000 and $4,500,
respectively, were given to employees for the years ended November 30, 1993,
1994 and 1995, respectively, and $256,350 for the nine months ended August 31,
1996.
F-19
<PAGE> 81
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
COMMON STOCK OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
---------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 5
The Company............................ 14
Use of Proceeds........................ 14
Dividend Policy........................ 14
Capitalization......................... 15
Dilution............................... 16
Selected Consolidated Financial Data... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 18
Business............................... 27
Management............................. 43
Certain Transactions................... 49
Principal and Selling Shareholders..... 51
Description of Capital Stock........... 53
Shares Eligible for Future Sale........ 55
Underwriting........................... 57
Legal Matters.......................... 58
Experts................................ 58
Additional Information................. 58
Glossary............................... 60
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
---------------------------
UNTIL JANUARY , 1997, (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, 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.
2,100,000 SHARES
[TEMPLATE SOFTWARE, INC. LOGO]
COMMON STOCK
--------------------
PROSPECTUS
, 1996
--------------------
VOLPE, WELTY & COMPANY
PIPER JAFFRAY INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with this offering are as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 9,514
NASD filing fee................................................... 3,640
Nasdaq National Market listing fee................................ 17,075
Blue Sky fees and expenses........................................ 20,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 150,000
Printing, engraving and postage expenses.......................... 90,000
Transfer agent's fees and expenses................................ 8,000
Miscellaneous..................................................... 51,771
--------
Total................................................... $600,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Section 13.1-697 of the code of Virginia (1950), as amended (the "Virginia
Code"), authorizes a corporation to indemnify an individual made a party to a
proceeding because he is or was a director against liability incurred in the
proceeding if such individual has conducted himself in good faith and if, in the
course of conduct in his official capacity, he believed that his conduct was in
the best interest of the corporation, and in all other cases, he believed that
his conduct was at least not opposed to the corporation's best interest. A
corporation is also authorized to indemnify a director in the case of any
criminal proceeding if the director had no reasonable cause to believe his
conduct was unlawful. The termination of the proceeding by judgment, order,
settlement or conviction is not, of itself, determinative that the director did
not meet the prescribed standard of conduct. A corporation may not indemnify a
director in connection with a proceeding by or in the right of the corporation
in which the director was adjudged liable to the corporation or in connection
with any other proceeding charging the director whether or not involving action
in his official capacity in which the director was adjudged liable on the basis
that personal benefit was improperly received by him.
Sections 13.1-698 and 13.1-702 of the Virginia Code provide that unless
limited by its articles of incorporation, a corporation shall indemnify each
director, officer, employee or agent who entirely prevails in the defense of any
proceeding to which he was a party because he is or was a director, officer,
employee or agent of the corporation against reasonable expenses incurred by him
in connection with the proceeding.
Section 13.1-704(B) of the Virginia Code provides that any corporation
shall have the power to make any further indemnity, including indemnity with
respect to a proceeding by or in the right of the corporation, and to make
additional provisions for advances and reimbursement of expenses to any
director, officer, employee or agent that may be authorized by the articles of
incorporation or by any bylaw made by the shareholders or any resolution
adopted, before or after the event, by the shareholders except an indemnity
against willful misconduct or a knowing violation of criminal law.
Article IV of the Amended and Restated Articles of Incorporation of the
Registrant (the "Articles") provides for indemnification of officers and
directors in the situations authorized by the Virginia Code. In addition, the
Underwriting Agreement provides for certain indemnification of officers,
directors and controlling persons of the Registrant.
The indemnification provisions in the Articles or the Underwriting
Agreement may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant currently carries a director and officer liability insurance
policy with a per claim and annual aggregate coverage limit of at least $1
million.
II-1
<PAGE> 83
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of the registration statement, the
Company has issued the following securities that were not registered under the
Securities Act:
On September 30, 1994, the Company issued 251 shares of Common Stock to Ms.
Tymira R. Sharp upon the exercise of stock options for an aggregate purchase
price of $496.98.
On August 26, 1995, the Company issued 1,000 shares of Common Stock to Mr.
John M. Buehler upon the exercise of stock options for an aggregate purchase
price of $1,980.00.
On July 26, 1996, the Company issued 1,485 shares of Common Stock to Mr.
Mike Jaskowiak upon the exercise of stock options for an aggregate consideration
of $2,940.30.
On July 26, 1996, the Company issued 5,000 shares of Common Stock to Mr.
David Kiker upon the exercise of stock options for an aggregate consideration of
$9,900.
On July 26, 1996, the Company issued 500 shares of Common Stock to Mr.
David Witten upon the exercise of stock options for an aggregate consideration
of $990.
On July 26, 1996, the Company issued 2,400 shares of Common Stock to Mr.
Doug Zimmerman upon the exercise of stock options for an aggregate consideration
of $4,752.
On August 6, 1996, the Company issued 2,500 shares of Common Stock to Mr.
Clifford W. Gay upon the exercise of stock options for an aggregate
consideration of $4,950.
On August 26, 1996, the Company issued 379 shares of Common Stock to Ms.
Julie L. Lane upon the exercise of stock options for an aggregate consideration
of $750.42.
On August 26, 1996, the Company issued 1,750 shares of Common Stock to Ms.
Kimberly E. Osgood upon the exercise of stock options for an aggregate
consideration of $3,465.
On September 11, 1996, Mr. E. Linwood Pearce transferred by gift 5,000
shares of Common Stock to Robin Elizabeth Pearce.
On September 11, 1996, Mr. E. Linwood Pearce transferred by gift 5,000
shares of Common Stock to Matthew Lin Pearce.
On October 7, 1996, Judith L. Schmonsees transferred by gift 3,000 shares
of Common Stock to Bradford J. Schmonsees.
On October 7, 1996, Robert J. Schmonsees transferred by gift 3,000 shares
of Common Stock to Laura K. Schmonsees.
On October 11, 1996, the Company issued 50,000 shares of Common Stock to
Mr. E. Linwood Pearce upon the exercise of stock options for an aggregate
consideration of $69,000.
On November 27, 1996, the Company issued 500,000 shares of Series A
Convertible Preferred Stock to Alcatel for an aggregate consideration of
$8,000,000.
Since September 1993, the Company has granted stock options to employees
under its stock option plans covering an aggregate of 1,325,635 shares of the
Company's Common Stock at exercise prices ranging from $1.38 to $6.00 per share.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by an
issuer not involving any public offering or the rules and regulations
thereunder, or pursuant to Rule 701 of the Securities Act. All of the foregoing
securities are deemed restricted securities for the purposes of the Securities
Act.
II-2
<PAGE> 84
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement to be entered into among the Company and the
Underwriters
3.1 Amended and Restated Articles of Incorporation
3.2 Bylaws
4.1 Stock Purchase Agreement, by and between the Company and Alcatel, N.V., dated
November 27, 1996.
4.2 Registration Rights Agreement, by and between the Company and Alcatel, N.V.,
dated November 27, 1996.
4.3 Shareholders Agreement, by and among Messrs. Joseph M. Fox, E. Linwood Pearce and
Andrew B. Ferrentino and Alcatel, N.V., dated November 27, 1996.
*5.1 Opinion of Hunton & Williams with respect to legality
10.1 1986 Incentive Stock Option Plan
10.2 1992 Incentive Stock Option Plan
10.3 1992 Incentive Stock Option Plan, Class B
10.4 1992 Non-Statutory Stock Option Plan
10.5 1996 Equity Incentive Plan
10.6 Employment Agreement, dated as of October 24, 1996, between the Company and E.
Linwood Pearce
10.7 Employment Agreement, dated as of October 24, 1996, between the Company and
Joseph M. Fox
10.8 Employment Agreement, dated as of October 24, 1996, between the Company and
Andrew B. Ferrentino
10.9 Development Agreement between the Company and Wellspring Resources L.L.C.
(successor-in-interest to Wyatt Preferred Choice, LLC) dated January 16, 1996
10.10 Cooperative Agreement under 10 U.S.C. 2371 between the Company and United States
Department of Air Force, Rome Laboratory dated April 7, 1995; as amended by
Modification No. P00002 dated February 28, 1996
10.11 Development Agreement between the Company and First Data Resources, Inc. dated
September 15, 1995
10.12 Distributor Agreement between the Company and Krystal Ingenierie S.A. dated
January 20, 1993
10.13 Distributor Agreement between the Company and Contemplate B.V.I.O.
(successor-in-interest to RCC Informatieservices, b.v.) dated August 3, 1993 and
June 28, 1993 respectively; as amended by letter of agreement dated May 31, 1996
10.14 Office Building Lease for Crystal Square Three, Suite 700, Arlington, Virginia
between the
Company and Charles E. Smith Management, Inc. dated February 15, 1996
10.15 Office Building Lease for Crystal Square Three, Suite 702, Arlington, Virginia
between the
Company and Charles E. Smith Management, Inc. dated February 15, 1996
10.16 Office Lease Agreement between the Company and Vintage Park Two Limited
Partnership dated April 25, 1996
10.17 First Amended and Restated Loan and Security Agreement between the Company and
Signet Bank dated October 22, 1996
10.18 Non Binding Heads of Agreement between the Company and Milestone Software, GmbH
dated October 11, 1996
10.19 Letter Agreement, dated as of November 20, 1996, by and between the Company and
Krystal Ingenierie S.A.
</TABLE>
II-3
<PAGE> 85
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <S>
11 Computation of earnings (loss) per share
21 Subsidiaries of the Registrant
23.1 Consent of Coopers & Lybrand L.L.P.
*23.2 Consent of Hunton & Williams (included in Exhibit 5.1)
24 Power of attorney (included on Page II-5)
27 Financial Data Schedule
99.1 Consent of Nominee for Director between the Company and Alan B. Salisbury
99.2 Consent of Nominee for Director between the Company and Duane A. Adams
</TABLE>
- ---------------
* To be filed by amendment.
(b) Financial Statement Schedule for three years ended November 30, 1995:
<TABLE>
<CAPTION>
SCHEDULE NO. DESCRIPTION
- ------------- ----------------------------------
<S> <C>
I Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the 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.
(b) The registrant hereby undertakes that:
(i) 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; and
(ii) 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.
(c) The undersigned registrant 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.
II-4
<PAGE> 86
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1993, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE COUNTY OF LOUDOUN, COMMONWEALTH
OF VIRGINIA, ON THE 27TH DAY OF NOVEMBER, 1996.
TEMPLATE SOFTWARE, INC.
By: __________________
E.
LINWOOD
PEARCE
CHIEF
EXECUTIVE
OFFICER
------------------------
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on November , 1996. Each of the directors and/or officers
of Template Software, Inc. whose signature appears below hereby appoints E.
Linwood Pearce, Joseph M. Fox and Andrew B. Ferrentino, and each of them
severally, as his attorney-in-fact to sign in his name and behalf, in any and
all capacities stated below and to file with the Securities and Exchange
Commission any and all amendments, including post-effective amendments to this
registration statement, making such changes in the registration statement as
appropriate, (or any registration statement filed pursuant to Rule 462(b) of the
Securities Act) and generally to do all such things in their behalf in their
capacities as officers and directors to enable Template Software, Inc. to comply
with the provisions of the Securities Act of 1933, and all requirements of the
Securities and Exchange Commission.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------------------ ----------------------------- ------------------
<S> <C> <C>
/s/ JOSEPH M. FOX Chairman of the Board November 27, 1996
- ------------------------------------------
JOSEPH M. FOX
/s/ ANDREW B. FERRENTINO President November 27, 1996
- ------------------------------------------
ANDREW B. FERRENTINO
/s/ E. LINWOOD PEARCE Chief Executive Officer November 27, 1996
- ------------------------------------------
E. LINWOOD PEARCE
/s/ KIMBERLY E. OSGOOD Chief Financial Officer and November 27, 1996
- ------------------------------------------ Chief Accounting Officer
KIMBERLY E. OSGOOD
</TABLE>
II-5
<PAGE> 87
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the consolidated financial statements of
Template Software, Inc. and its subsidiaries as of November 30, 1994 and 1995,
and August 31, 1996, and for each of the three years in the period ended
November 30, 1995, and the nine month period ended August 31, 1996, which
financial statements are included in the Prospectus, we have also audited the
financial statement schedule listed in Item 16(b) herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included herein.
/S/ COOPERS & LYBRAND L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
McLean, Virginia
October 25, 1996 except for Note 9
for which the date is November 20, 1996
S-1
<PAGE> 88
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 30, 1993, 1994 AND 1995,
AND FOR THE NINE MONTHS ENDED AUGUST 31, 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING OF CHARGED TO END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- -------------------------------------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
November 30, 1993................................. $137,200 $ 93,146 $ (137,200) $ 93,146
November 30, 1994................................. 93,146 181,223 -- 274,369
November 30, 1995................................. 274,369 183,758 (274,369) 183,758
August 31, 1996................................... 183,758 -- -- 183,758
</TABLE>
S-2
<PAGE> 89
EDGAR Appendix
1. The diagram in "Business--Technology" is a pyramid which illustrates
the manner in which the Company's templates are designed to be layered
on top of one another to provide a significant amount of pre-written
code. The pyramid has four layers representing the Company's
foundation templates, cross-industry templates, industry-specific
templates (under development) and the final portion of customized code
which is required to complete an application.
2. The chart in "Business--Customers and Markets" provides a
representative list of the Company's recent or current customers.
Column one of the chart identifies the industries (energy, financial,
healthcare, government, transportation and telecommunications) in
which certain of the Company's customers operate. Column two lists
the names of such customers. Column three specifies the application
for which such customers have used the Company's products.
3. The chart in "Business--Sales and Marketing" provides a representative
list of certain distributors, value added resellers and systems
integrators that employ or resell the Company's technology.
4. Inside Cover: The chart on the inside cover of the Prospectus is
entitled "The Template Approach." The chart has three icons at the
top representing the Company's software templates, visual tools and
services which are joined below by arrows to indicate their
combination to create mission-critical distributed software
applications. These applications are depicted beneath the arrows in
the form of icons representing various industry applications.
5. Fold Out: The chart on the fold-out of the Prospectus is entitled
"The Template Software Solution Strategy" and contains three
illustrations. The first illustration depicts the layering of the
Company's foundation templates, cross-industry templates and
industry-specific templates on top of which is customized code. The
second illustration identifies certain industries in which the
Company's technology has been employed to develop large-scale,
enterprise-wide solutions. The third illustration depicts the
automation of business processes using the Company's solutions.
6. Back Cover: The chart on the back cover of the Prospectus is
entitled "Template Software Product Strategy" and depicts a series of
three overlapping squares inside a rectangle. The smallest square
represents the current software tools market, which includes object
frameworks and object libraries. The square that encapsules the
current tools market depicts the Company's current or planned software
products (foundation templates, cross-industry templates and
industry-specific templates). The largest square encapsules both the
current software tools market and the Company's current or planned
software products.
<PAGE> 90
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement to be entered into among the Company and the
Underwriters...............................................................
3.1 Amended and Restated Articles of Incorporation.............................
3.2 Bylaws.....................................................................
4.1 Stock Purchase Agreement, by and between the Company and Alcatel, N.V.,
dated November 27, 1996....................................................
4.2 Registration Rights Agreement, by and between the Company and Alcatel,
N.V., dated November 27, 1996..............................................
4.3 Shareholders Agreement, by and among Messrs. Joseph M. Fox, E. Linwood
Pearce and Andrew B. Ferrentino and Alcatel, N.V., dated November 27,
1996.......................................................................
*5.1 Opinion of Hunton & Williams with respect to legality......................
10.1 1986 Incentive Stock Option Plan...........................................
10.2 1992 Incentive Stock Option Plan...........................................
10.3 1992 Incentive Stock Option Plan, Class B..................................
10.4 1992 Non-Statutory Stock Option Plan.......................................
10.5 1996 Equity Incentive Plan.................................................
10.6 Employment Agreement, dated as of October 24, 1996, between the Company and
E. Linwood Pearce..........................................................
10.7 Employment Agreement, dated as of October 24, 1996, between the Company and
Joseph M. Fox..............................................................
10.8 Employment Agreement, dated as of October 24, 1996, between the Company and
Andrew B. Ferrentino.......................................................
10.9 Development Agreement between the Company and Wellspring Resources, L.L.C.
(successor-in-interest to Wyatt Preferred Choice, LLC) dated January 16,
1996.......................................................................
10.10 Cooperative Agreement under 10 U.S.C. 2371 between the Company and United
States Department of Air Force, Rome Laboratory dated April 7, 1995; as
amended by Modification No. P00002 dated February 28, 1996.................
10.11 Development Agreement between the Company and First Data Resources, Inc.
dated September 15, 1995...................................................
10.12 Distributor Agreement between the Company and Krystal Ingenierie S.A. dated
January 20, 1993...........................................................
10.13 Distributor Agreement between the Company and Contemplate B.V.I.O
(successor-in-interest to RCC Informatieservices, b.v.) dated August 3,
1993 and June 28, 1993 respectively, as amended by letter of agreement
dated May 31, 1996.........................................................
10.14 Office Building Lease for Crystal Square Three, Suite 700, Arlington,
Virginia between the Company and Charles E. Smith Management, Inc. dated
February 15, 1996..........................................................
10.15 Office Building Lease for Crystal Square Three, Suite 702, Arlington,
Virginia between the Company and Charles E. Smith Management, Inc. dated
February 15, 1996..........................................................
10.16 Office Lease Agreement between the Company and Vintage Park Two Limited
Partnership dated April 25, 1996...........................................
10.17 First Amended and Restated Loan and Security Agreement between the Company
and Signet Bank dated October 22, 1996.....................................
</TABLE>
<PAGE> 91
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- --------------------------------------------------------------------------- ----
<C> <S> <C>
10.18 Non Binding Heads of Agreement between the Company and Milestone Software,
GmbH dated October 11, 1996................................................
10.19 Letter Agreement, dated as of November 20, 1996, by and between the Company
and Krystal Ingenierie S.A. ...............................................
11 Computation of earnings (loss) per share...................................
21 Subsidiaries of the Registrant.............................................
23.1 Consent of Coopers & Lybrand L.L.P. .......................................
*23.2 Consent of Hunton & Williams (included in Exhibit 5.1).....................
24 Power of attorney (included on Page II-5)..................................
27 Financial Data Schedule....................................................
99.1 Consent of Nominee for Director between the Company and Alan B.
Salisbury..................................................................
99.2 Consent of Nominee for Director between the Company and Duane A. Adams.....
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 1.1
FORM OF UNDERWRITING AGREEMENT
2,100,000 Shares(1)
TEMPLATE SOFTWARE, INC.
Common Stock
UNDERWRITING AGREEMENT
_____, 1996
Volpe, Welty & Company
Piper Jaffray Inc.
As Representatives of the several Underwriters
c/o Volpe, Welty & Company
One Maritime Plaza, 11th Floor
San Francisco, California 94111
Dear Sirs and Madams:
Template Software, Inc., a Virginia corporation (the "Company"),
proposes to issue and sell 1,400,000 shares of its authorized but unissued
Common Stock, $.01 par value (the "Common Stock"), and the stockholders of the
Company named in Schedule II hereto (collectively, the "Selling
Securityholders") propose to sell an aggregate of 700,000 shares of Common Stock
(such 2,100,000 shares of Common Stock being referred to herein as the "Firm
Shares"). The Company and the Selling Securityholders propose to grant to the
Underwriters (as defined below) an option to purchase up to 315,000 additional
shares of Common Stock (the "Optional Shares" and, with the Firm Shares,
collectively, the "Shares"). The Common Stock is more fully described in the
Registration Statement and the Prospectus hereinafter mentioned.
The Company and the Selling Securityholders severally hereby confirm
the agreements made with respect to the purchase of the Shares by the several
underwriters, for whom you are acting, named in Schedule I hereto (collectively,
the "Underwriters," which term shall also include any underwriter purchasing
Stock pursuant to Section 3(b) hereof). You represent and warrant that you have
been authorized by each of the other Underwriters to enter into this
Underwriting Agreement (the "Agreement") on its behalf and to act for it in the
manner herein provided.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SELLING SECURITYHOLDERS. The Company and each of the Selling Securityholders
hereby represent and warrant to the several Underwriters as of the date hereof
and as of each Closing Date (as defined below) that:
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 33-_____), including the
related preliminary prospectus, for the registration under the Securities Act of
1933, as amended (the "Securities Act") of the Shares. Copies of such
registration statement and of each amendment thereto, if any, including the
related preliminary prospectus (meeting the requirements
1 Plus an option to purchase from the Company up to 315,000 additional
shares to cover overallotments.
1
<PAGE> 2
of Rule 430A of the rules and regulations of the Commission) heretofore filed by
the Company with the Commission have been delivered to you.
The term Registration Statement as used in this Agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Shares first filed with the Commission pursuant to Rule 424(b) and Rule 430A
(or if no such filing is required, as included in the Registration Statement)
and, in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such registration
statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
Each of the Company and its subsidiaries has been duly incorporated and
each is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and authority to own
or lease its properties and conduct its business as described in the
Registration Statement and the Prospectus and as being conducted, and is duly
qualified as a foreign corporation and in good standing in all jurisdictions in
which the character of the property owned or leased or the nature of the
business transacted by it makes qualification necessary (except where the
failure to be so qualified would not have a material adverse effect on the
business, properties, condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole).
The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21 to the Registration Statement. Except as described in the Prospectus,
the Company owns all of the outstanding capital stock of its subsidiaries free
and clear of all claims, liens, charges and encumbrances. The Company and each
of its subsidiaries are in possession of, and operating in compliance with, all
material authorizations, licenses, permits, consents, certificates and orders
material to the conduct of their respective businesses as described in the
Prospectus, all of which are valid and in full force and effect.
Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any material
adverse change in the business, properties, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
other than as set forth in the Registration Statement and the Prospectus, and
since such dates, except in the ordinary course of business, neither the Company
nor any of its subsidiaries has entered into any material transaction not
referred to in the Registration Statement and the Prospectus.
2
<PAGE> 3
The Registration Statement and the Prospectus comply in all material
respects, and on the Closing Date (as hereinafter defined) and any later date on
which Optional Shares are to be purchased, the Prospectus will comply, in all
material respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Optional Shares are to be purchased, will not contain any untrue
statement of a material fact or omit 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; provided, however, that none of the
representations and warranties in this paragraph shall apply to statements in,
or omissions from, the Registration Statement or the Prospectus made in reliance
upon and in conformity with information herein or otherwise furnished in writing
to the Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
The Company has authorized and outstanding capital stock as set forth
under the heading "Capitalization" in the Prospectus. The issued and outstanding
shares of Common Stock have been duly authorized and validly issued, are fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities. All
issued and outstanding shares of capital stock of each subsidiary of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. Except as disclosed in or contemplated by the Prospectus and the
financial statements of the Company and the related notes thereto included in
the Prospectus, neither the Company nor any subsidiary has any outstanding
options to purchase, or any preemptive rights or other rights to subscribe for
or to purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth in the
Prospectus accurately and fairly presents the information required by the
Securities Act and the rules and regulations promulgated thereunder ("Rules and
Regulations") to be shown with respect to such plans, arrangements, options and
rights.
The Shares are duly authorized, are (or, in the case of Shares to be
sold by the Company, will be, when issued and sold to the Underwriters as
provided herein) validly issued, fully paid and nonassessable and conform to the
description thereof in the Prospectus. No further approval or authority of the
stockholders or the Board of Directors of the Company will be required for the
transfer and sale of the Shares to be sold by the Selling Securityholders or the
issuance and sale of the Shares to be sold by the Company as contemplated
herein.
Prior to the Closing Date, the Shares to be issued and sold by the
Company and to be sold by the Selling Securityholders will be authorized for
listing on the Nasdaq National Market upon official notice of issuance.
The Shares to be sold by the Company will be sold free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest, and
will conform to the description thereof contained in the Prospectus. No
preemptive right, co-sale right, registration right, right of first refusal or
other similar right to subscribe for or purchase securities of the Company
exists with respect to the issuance and sale of the Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived, or complied with, to require the Company to register the
sale of any shares owned by such stockholder under the Securities Act in the
public offering contemplated by this Agreement.
The Company has full corporate power and authority to enter into this
Agreement and perform the transactions contemplated hereby. This Agreement has
been duly authorized, executed and delivered by the
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<PAGE> 4
Company and constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms, except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium laws affecting creditors' rights generally and except as to those
provisions relating to indemnity or contribution for liabilities arising under
federal and state securities laws. The making and performance of this Agreement
by the Company and the consummation of the transactions contemplated hereby (i)
will not violate any provisions of the Articles of Incorporation, Bylaws or
other organizational documents of the Company or any of its subsidiaries, and
(ii) will not conflict with, result in a material breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both, a
material default under (A) any agreement, mortgage, deed of trust, lease,
franchise, license, indenture, permit or other instrument to which the Company
or any of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties may be bound or affected, or
(B) any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its subsidiaries or any of
their respective properties. No consent, approval, authorization or other order
of any court, regulatory body, administrative agency or other governmental body
that has not already been obtained is required for the execution and delivery of
this Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Securities Act, the Blue Sky laws
applicable to the public offering of the Shares by the several Underwriters and
the clearance of such offering with the National Association of Securities
Dealers, Inc. (the "NASD").
The consolidated financial statements and schedules of the Company and
the related notes thereto included in the Registration Statement and the
Prospectus present fairly on a consolidated basis the financial position of the
Company and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and cash flows of the
Company and its subsidiaries for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified, as certified by the independent accountants
named in subsection 10(f). No other financial statements or schedules are
required to be included in the Registration Statement. The selected financial
data set forth in the Prospectus under the captions "Capitalization" and
"Selected Consolidated Financial Information" fairly present the information set
forth therein on the basis stated in the Registration Statement.
The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (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, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and its
officers to its independent public accountants for the purpose of supporting the
letters referred to in Sections 10(g) and (h) are true and correct.
Neither the Company nor any of its subsidiaries is (i) in violation or
default of any provision of its Articles of Incorporation, Bylaws or other
organizational documents, or (ii) in material breach of, or material default
with respect to, any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of facts which, with notice or lapse
of time or both, would constitute such a material breach or default on the part
of the Company and its subsidiaries, taken as a whole.
There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement by the Securities Act or by the Rules and Regulations which
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<PAGE> 5
have not been described or filed as required. The contracts so described in the
Prospectus are in full force and effect on the date hereof, except as otherwise
indicated therein.
Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the knowledge of the
Company and the Selling Securityholders, threatened to which the Company or any
of its subsidiaries is or, to the knowledge of the Company and the Selling
Securityholders, is threatened to be made a party or of which property owned or
leased by the Company or any of its subsidiaries is or has been threatened to be
made the subject, which actions, suits or proceedings could, individually or in
the aggregate, prevent or materially adversely affect the transactions
contemplated by this Agreement or result in a material adverse change in the
business taken as a whole, properties, condition (financial or otherwise), or
results of operations of the Company or its subsidiaries; and no labor
disturbance by the employees of the Company or any of its subsidiaries exists or
is imminent which could materially adversely affect the business, business
prospects, properties, condition (financial or otherwise), or results of
operations of the Company or its subsidiaries. Neither the Company nor any of
its subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body. Except as disclosed in the
Prospectus, there are no material legal or governmental actions, suits or
proceedings pending or, to the Company's and the Selling Securityholders'
knowledge, threatened against any executive officers or directors of the
Company.
The Company or the applicable subsidiary has good and marketable title
to all the properties and assets reflected as owned in the financial statements
hereinabove described (or elsewhere in the Prospectus), subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except (i) those, if any,
reflected in such financial statements (or elsewhere in the Prospectus), or (ii)
those which are not material in amount to the Company or its subsidiaries, and
do not adversely affect the use made and proposed to be made of such property by
the Company or its subsidiaries. The Company or the applicable subsidiary holds
its leased properties under valid and binding leases.
Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
contemplated by the Prospectus: (i) the Company and its subsidiaries have not
(A) incurred any liabilities or obligations, indirect, direct or contingent, or
(B) entered into any oral or written agreement or other transaction, which in
the case of (A) or (B) is not in the ordinary course of business; (ii) the
Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company and its subsidiaries have not paid or declared any dividends
or other distributions with respect to their respective capital stock and the
Company and its subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any change
in the capital stock of the Company or its subsidiaries (other than upon the
sale of the Shares hereunder or upon the exercise of any options or warrants
disclosed in the Prospectus); (v) there has not been any material increase in
the short- or long-term debt of the Company and its subsidiaries; and (vi) there
has not been any material adverse change or any development involving or which
may reasonably be expected to involve a prospective material adverse change, in
the business, condition (financial or otherwise), properties, or results of
operations of the Company and its subsidiaries taken as a whole.
The Company and its subsidiaries are conducting business in compliance
with all applicable laws, rules and regulations of the jurisdictions in which
they are conducting business, except where the failure to be so in compliance
would not have a material adverse effect on the business, business prospects,
properties, condition (financial or otherwise) or results of operations of the
Company and its subsidiaries taken as a whole.
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<PAGE> 6
The Company and its subsidiaries have filed all necessary federal,
state and foreign income and franchise tax returns, and all such tax returns are
complete and correct in all material respects, and the Company and its
subsidiaries have not failed to pay any taxes which were payable pursuant to
said returns or any assessments with respect thereto. The Company has no
knowledge of any tax deficiency which has been or is likely to be threatened or
asserted against the Company or its subsidiaries.
The Company has not distributed, and will not distribute prior to the
later to occur of (i) completion of the distribution of the Shares, or (ii) the
expiration of any time period within which a dealer is required under the
Securities Act to deliver a prospectus relating to the Shares, any offering
material in connection with the offering and sale of the Shares other than the
Prospectus, the Registration Statement and any other materials permitted by the
Securities Act and consented to by the Underwriters.
Each of the Company and its subsidiaries maintains insurance of the
types and in the amounts generally deemed adequate for their business,
including, but not limited to, directors' and officers' insurance, insurance
covering real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect. The Company has not been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially adversely affect the business,
business prospects, properties, condition (financial or otherwise) or results of
operations of the Company or its subsidiaries.
Neither the Company nor any of its subsidiaries nor, to the best of the
Company's or the Selling Securityholders' knowledge, any of their employees or
agents has at any time during the last five years (i) made any unlawful
contribution to any candidate for foreign office, or failed to disclose fully
any contribution in violation of law, or (ii) made any payment to any foreign,
federal or state governmental officer or official or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Shares.
The Company has caused (i) each of its executive officers and directors
as set forth in the Prospectus and (ii) the holders of all but [8,751] shares of
the outstanding Common Stock (including shares issuable upon the exercise or
conversion of any option that vests prior to June 30, 1997, warrant or other
security) to furnish to the Underwriters an agreement in form and substance
satisfactory to Volpe, Welty & Company pursuant to which each such party has
agreed that during the period of one hundred eighty (180) days after the date
the Registration Statement becomes effective, without the prior written consent
of Volpe, Welty & Company, such party will not, directly or indirectly, offer,
sell, pledge, contract to sell, grant any option to purchase or otherwise
dispose of any shares of Common Stock beneficially owned or otherwise held by
such party (including, without limitation, shares of Common Stock which may be
deemed to be beneficially owned by such party in accordance with the rules and
regulations of the Securities and Exchange Commission and shares of Common Stock
which may be issued upon exercise of a stock option or warrant) or any
securities convertible into, derivative of or exercisable or exchangeable for
such Common Stock; provided, however, that if such party is an individual, he or
she may transfer any or all of the Common Stock held by such party either during
his or her lifetime or on death, by gift, will or intestacy, to his or her
immediate family or to a trust the beneficiaries of which are exclusively such
party and/or a member or members of his or her immediate family; provided, that
in any such case the transferee executes a lock-up agreement in substantially
the same form covering the remainder of the lock-up period.
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<PAGE> 7
Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba.
Except as specifically disclosed in the Prospectus, the Company and its
subsidiaries have sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals and governmental authorizations to conduct their businesses
as now conducted; the expiration of any trademarks, trade names, patent rights,
copyrights, licenses, approvals or governmental authorizations would not have a
material adverse effect on the business, properties, condition (financial or
otherwise) or results of operations of the Company or its subsidiaries; neither
the Company nor any Selling Securityholder has any knowledge of any infringement
by the Company or its subsidiaries of trademark, trade name rights, patent
rights, copyrights, licenses, trade secret or other similar rights of others;
and no claims have been made or are threatened against the Company or its
subsidiaries regarding trademark, trade name, patent, copyright, license, trade
secret or other infringement which could have a material adverse effect on the
business, properties, condition (financial or otherwise) or results of
operations or prospects of the Company and its subsidiaries taken as a whole.
Except as disclosed in the Prospectus, (i) the Company and its
subsidiaries are in compliance in all material respects with all rules, laws and
regulation relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to their business, (ii) neither the Company nor any of its
subsidiaries has received any written notice from any governmental authority or
third party of an asserted claim under Environmental Laws, (iii) to the
knowledge of the Company and the Selling Securityholders, no facts currently
exist that will require the Company or any of its subsidiaries to make future
material capital expenditures to comply with Environmental Laws, and (iv) to the
knowledge of the Company and the Selling Securityholders, no property which is
or has been owned, leased or occupied by the Company or any of its subsidiaries
has been designated as a Superfund site pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Section 9601, et seq.), or otherwise designated as a contaminated site
under applicable state or local law.
The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
SECTION 2. ADDITIONAL REPRESENTATIONS AND WARRANTIES, AND COVENANTS, OF
THE SELLING SECURITYHOLDERS.
Each of the Selling Securityholders severally represents and warrants
and covenants to the several Underwriters as of the date hereof and as of each
Closing Date hereinafter mentioned that:
(a) Such Selling Securityholder has good and marketable title to the
Shares to be sold by such Selling Securityholder hereunder, free and clear of
all liens, encumbrances, equities, security interests and claims whatsoever,
with full right and authority to deliver the same hereunder, subject, in the
case of each Selling Securityholder, to the rights of First Union National Bank,
as Custodian (the "Custodian"), and that upon the delivery of and payment for
such Shares hereunder, title to such Shares will pass to each Underwriter who
takes such Shares without knowledge of any lien, claim, security interest or
encumbrance.
(b) Certificates in negotiable form for the Shares to be sold by such
Selling Securityholder have been placed in custody under a Custody Agreement for
delivery under this Agreement with the Custodian; such Selling Securityholder
specifically agrees that the Shares represented by the certificates so held in
custody for such Selling Securityholder are subject to the interests of the
several Underwriters and the Company, that the arrangements made by such Selling
Securityholder for such custody, including the Power of Attorney provided for in
such Custody Agreement, are to that extent irrevocable, and that the obligations
of such Selling
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<PAGE> 8
Securityholder shall not be terminated by any act of such Selling Securityholder
or by operation of law, whether by the death or incapacity of such Selling
Securityholder (or, in the case of a Selling Securityholder that is not an
individual, the dissolution or liquidation of such Selling Securityholder) or
the occurrence of any other event; if any such death, incapacity, dissolution,
liquidation or other such event should occur before the delivery of such Shares,
certificates for the Shares shall be delivered by the Custodian in accordance
with the terms and conditions of this Agreement as if such death, incapacity,
dissolution, liquidation or other event had not occurred, regardless of whether
the Custodian shall have received notice of such death, incapacity, dissolution,
liquidation or other event.
(c) Such Selling Securityholder has reviewed the Registration Statement
and Prospectus and, although such Selling Securityholder has not independently
verified the accuracy or completeness of all the information contained therein,
nothing has come to the attention of such Selling Securityholder that would lead
such Selling Securityholder to believe that (i) on the Effective Date, the
Registration Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading; and, (ii) on the Effective
Date the Prospectus contained and, on the Closing Date and any later date on
which Optional Shares are to be purchased contains, any untrue statement of a
material fact or omitted or omits 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.
(d) All information in the Registration Statement or the Prospectus, or
any amendment or supplement thereto, relating to such Selling Securityholder
(including, without limitation, the information relating to the Selling
Securityholder which is set forth in the Prospectus under the caption "Principal
and Selling Shareholders"), and all representations and warranties of such
Selling Securityholder in the Custody Agreement are true and correct in all
material respects and do not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The sale of the Shares by such Selling Securityholder
pursuant hereto is not prompted by such Selling Securityholder's knowledge of
any material information concerning the Company or any subsidiary which is not
set forth in the Prospectus.
(e) Such Selling Securityholder has full power and authority to enter
into this Agreement and the Custody Agreement and perform the transactions
contemplated hereby and thereby. This Agreement and the Custody Agreement have
been duly authorized, executed and delivered by or on behalf of such Selling
Securityholder and the form of such Custody Agreement has been delivered to you.
(f) The making and performance of this Agreement and the Custody
Agreement and the consummation of the transactions contemplated hereby and
thereby will not result in a material breach or violation by such Selling
Securityholder of any of the terms or provisions of, or constitute a material
default by such Selling Securityholder under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease, franchise, license
or other agreement or instrument to which such Selling Securityholder is a party
or by which such Selling Securityholder or any of its properties is bound, any
statute, or any judgment, decree, order, rule or regulation of any court or
governmental agency or body applicable to such Selling Securityholder or any of
its properties.
(g) Such Selling Securityholder has not taken and will not take,
directly or indirectly, any action designed to or that might reasonably be
expected to cause or result in stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(h) Each of the Selling Securityholders agrees that during the period
of one hundred and eighty (180) days after the date of the Registration
Statement becomes effective, without the prior written consent of Volpe,
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<PAGE> 9
Welty & Company, such Selling Securityholder will not, directly or indirectly,
offer, sell, pledge, contract to sell, grant any option to purchase or otherwise
dispose of any shares of Common Stock beneficially owned or otherwise held by
such Selling Securityholder (including, without limitation, shares of Common
Stock which may be deemed to be beneficially owned by such Selling
Securityholder in accordance with the rules and regulations of the Securities
and Exchange Commission and shares of Common Stock which may be issued upon
exercise of a stock option or warrant) or any securities convertible into,
derivative of or exercisable or exchangeable for such Common Stock; provided,
however, that if such Selling Securityholder is an individual, he or she may
transfer any or all of the Common Stock held by such Selling Securityholder
either during his or her lifetime or on death, by gift, will or intestacy, to
his or her immediate family or to a trust the beneficiaries of which are
exclusively such Selling Securityholder and/or a member or members of his or her
immediate family; provided, that in any such case the transferee executes a
lock-up agreement in substantially the same form covering the remainder of the
lock-up period.
SECTION 3. PURCHASE OF THE SHARES BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
1,400,000 of the Firm Shares to the several Underwriters, each Selling
Securityholder severally agrees to sell to the several Underwriters the number
of the Firm Shares set forth in Schedule II hereto opposite the name of such
Selling Securityholder, and each of the Underwriters agrees to purchase from the
Company and the Selling Securityholders the respective aggregate number of Firm
Shares set forth opposite its name in Schedule I. The price at which such Firm
Shares shall be sold by the Company and the Selling Securityholders and
purchased by the several Underwriters shall be $___ per share. The obligation of
each Underwriter to the Company and each of the Selling Securityholders shall be
to purchase from the Company and the Selling Securityholders that number of Firm
Shares which represents the same proportion of the total number of Firm Shares
to be sold by each of the Company and the Selling Securityholders pursuant to
this Agreement as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto represents of the total number of shares of the
Firm Shares to be purchased by all Underwriters pursuant to this Agreement, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
In making this Agreement, each Underwriter is contracting severally and not
jointly; except as provided in paragraphs (b) and (c) of this Section 3, the
agreement of each Underwriter is to purchase only the respective number of
shares of the Firm Shares specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 9 or 10 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company or the Selling Securityholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of Shares which such defaulting
Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of Shares which each non-defaulting Underwriter is
otherwise obligated to purchase under this Agreement shall be automatically
increased on a pro rata basis to absorb the remaining shares and portion which
the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the non-defaulting Underwriters shall not be obligated to purchase
the portion which the defaulting Underwriter or Underwriters agreed to purchase
if the aggregate number of such Shares exceeds 10% of the total number of Shares
which all Underwriters agreed to purchase hereunder. If the total number of
Shares which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Securityholders shall have the right, within 24 hours
next succeeding the 24-hour period above referred to, to
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<PAGE> 10
make arrangements with other underwriters or purchasers satisfactory to you for
purchase of such Shares and portion on the terms herein set forth. In any such
case, either you or the Company and the Selling Securityholders shall have the
right to postpone the Closing Date determined as provided in Section 5 hereof
for not more than seven business days after the date originally fixed as the
Closing Date pursuant to Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company and the
Selling Securityholders shall make arrangements within the 24-hour periods
stated above for the purchase of all of the Shares which the defaulting
Underwriter or Underwriters agreed to purchase hereunder, this Agreement shall
be terminated without further act or deed and without any liability on the part
of the Company or the Selling Securityholders to any non-defaulting Underwriter
and without any liability on the part of any non-defaulting Underwriter to the
Company or the Selling Securityholders. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company and the Selling Securityholders hereby grant an option to the several
Underwriters to purchase, severally and not jointly up to 315,000 Optional
Shares from the Company and the Selling Security holders at the same price per
share as the Underwriters shall pay for the Firm Shares. Said option may be
exercised only to cover over-allotments in the sale of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or before
the thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of Optional
Shares as to which the several Underwriters are exercising the option. Delivery
of certificates for the Optional Shares, and payment therefor, shall be made as
provided in Section 5 hereof. The number of Optional Shares to be purchased by
each Underwriter shall be the same percentage of the total number of Optional
Shares to be purchased by the several Underwriters as such Underwriter is
purchasing of the Firm Shares, as adjusted by you in such manner as you deem
advisable to avoid fractional shares.
SECTION 4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Shares to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information (insofar as such information relates to the
Underwriters) set forth in the last paragraph on the front cover page and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Shares constitutes the only information furnished by
the Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company and the Selling
Securityholders that the statements made therein are correct.
SECTION 5. DELIVERY OF AND PAYMENT FOR THE SHARES.
(a) Delivery of certificates for the Firm Shares and the Optional
Shares (if the option granted by Section 3(c) hereof shall have been exercised
not later than 7:00 A.M., San Francisco time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts at 7:00
a.m., San Francisco time, on the fourth business day after the date of this
Agreement, or at such time on such other day, not later than seven full business
days after such fourth business day, as shall be agreed upon in writing by the
Company, the Attorneys in Fact for the
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Selling Securityholders under the Custody Agreement and you. The date and hour
of such delivery and payment (which may be postponed as provided in Section 3(b)
hereof) are herein called the "Closing Date".
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Optional Shares, and
payment therefor, shall be made at the office of Goodwin, Procter & Hoar LLP,
Exchange Place, Boston, Massachusetts at 7:00 a.m., San Francisco time, on the
third business day after the exercise of such option.
(c) Payment for the Shares purchased from the Company shall be made to
the Company or its order, and payment for the Shares purchased from the Selling
Securityholders shall be made, in the discretion of the Underwriters, to them or
to the Custodian, for the account of the Selling Securityholders, in each case
by (i) one or more certified or official bank check or checks in next day funds
(and the Company and the Selling Securityholders agree not to deposit any such
check in the bank on which drawn until the day following the date of its
delivery to the Company or the Custodian, as the case may be) or (ii) federal
funds wire transfer. Such payment shall be made upon delivery of certificates
for the shares to you for the respective accounts of the several Underwriters
(including without limitation by "full-fast" electronic transfer by Depository
Trust Company) against receipt therefor signed by you. Certificates for the
Shares to be delivered to you shall be registered in such name or names and
shall be in such denominations as you may request at least one business day
before the Closing Date, in the case of Firm Shares, and at least one business
day prior to the purchase thereof, in the case of the Optional Shares. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Volpe, Welty & Company's clearing agent, Bear
Stearns Securities Corp., on the business day prior to the Closing Date or, in
the case of the Optional Shares, by 3:00 p.m., New York time, on the business
day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Securityholders for shares to be purchased by any Underwriter
whose check shall not have been received by you on the Closing Date or any later
date on which Optional Shares are purchased for the account of such Underwriter.
Any such payment by you shall not relieve such Underwriter from any of its
obligations hereunder.
SECTION 6. COVENANTS OF THE COMPANY AND THE SELLING SECURITYHOLDERS.
Each of the Company and the Selling Securityholders severally and not jointly
covenants and agrees as follows:
(a) The Company will (i) prepare and timely file with the Commission
under Rule 424(b) a Prospectus containing information previously omitted at the
time of effectiveness of the Registration Statement in reliance on Rule 430A and
(ii) not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of
(i) the request by the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Shares for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company and
the Selling Securityholders will make every reasonable effort
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to prevent the issuance of such a stop order and, if such an order shall at any
time be issued, to obtain the withdrawal thereof at the earliest possible
moment.
(c) The Company will (i) on or before the Closing Date, deliver to you
a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required
by law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the Shares,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. If, after the initial public
offering of the Shares by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Shares may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the Shares in accordance with the
applicable provisions of the Securities Act and the Rules and Regulations
thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Shares.
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(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act).
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to the
performance of its and the Selling Securityholders obligations under this
Agreement, including all costs and expenses incident to (i) the preparation,
printing and filing with the Commission and the NASD of the Registration
Statement, any Preliminary Prospectus and the Prospectus, (ii) the furnishing to
the Underwriters and, if applicable, the persons designated by them of copies of
any Preliminary Prospectus and of the several documents required by paragraph
(c) of this Section 6 to be so furnished, (iii) the printing of this Agreement
and related documents delivered to the Underwriters, (iv) the preparation,
printing and filing of all supplements and amendments to the Prospectus referred
to in paragraph (d) of this Section 6, (v) the furnishing to you and the
Underwriters of the reports and information referred to in paragraph (g) of this
Section 6 and (vi) the printing and issuance of stock certificates, including
the transfer agent's fees. The Selling Securityholders will pay any transfer
taxes incident to the transfer to the Underwriters of the Shares being sold by
the Selling Securityholders.
(j) The Company agrees to reimburse you, for the account of the several
Underwriters, for blue sky fees and related disbursements (including counsel
fees and disbursements and cost of printing memoranda for the Underwriters) paid
by or for the account of the Underwriters or their counsel in qualifying the
shares under state securities or blue sky laws and in the review of the offering
by the NASD.
(k) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company hereby agrees to pay and shall not affect any agreement which
the Company and the Selling Securityholders may make, or may have made, for the
sharing of any such expenses and costs.
(l) The Company hereby agrees that, without the prior written consent
of Volpe, Welty & Company, the Company will not, for a period of 180 days
following the date the Registration Statement becomes effective, directly or
indirectly, offer, sell, pledge, contract to sell, grant any option to purchase
or otherwise dispose of any shares of Common Stock owned beneficially or
otherwise (including, without limitation, shares of Common Stock which may be
deemed to be beneficially owned in accordance with the rules and regulations of
the Securities and Exchange Commission and shares of Common Stock which may be
issued upon exercise of a stock option or warrant) or any securities convertible
into, derivative of or exercisable or exchangeable for such Common Stock, except
for the issuance of shares of Common Stock upon the exercise of options to
purchase Common Stock which are outstanding on the date hereof.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your reasonable
opinion the market price for the shares has been or is likely to be materially
affected (regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
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(n) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
(o) The Company agrees to maintain directors' and officers' insurance
customary for the size and nature of the Company's business for a period of two
years from the date of this Agreement.
SECTION 7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Securityholders jointly and severally agree to indemnify
and hold harmless each Underwriter and each person (including each partner or
officer thereof) who controls any Underwriter within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or the common law or otherwise, and the
Company and the Selling Securityholders jointly and severally agree to reimburse
each such Underwriter and controlling person for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
and the Selling Securityholders contained in this paragraph (a) shall not apply
to any such losses, claims, damages, liabilities or expenses if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto, (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Shares which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with subparagraphs (ii) and (iii) of paragraph (c) of Section 6
hereof, and (3) each Selling Securityholder shall only be liable under this
paragraph with respect to (A) information pertaining to such Selling
Securityholder furnished by or on behalf of such Selling Securityholder
expressly for use in any Preliminary Prospectus or the Registration Statement or
the Prospectus or any such amendment thereof or supplement thereto or (B) facts
that would constitute a breach of any representation or warranty of such Selling
Securityholder set forth in Section 2(b) hereof. The indemnity agreements of the
Company and the Selling Securityholders contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Securityholders
contained in Section 2 hereof shall
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remain operative and in full force and effect regardless of any investigation
made by or on behalf of any indemnified party and shall survive the delivery of
and payment for the Shares.
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its officers who signs the Registration Statement on his
own behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, and the Selling Securityholders from and against any
and all losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated in writing to the
Company by or on behalf of such indemnifying Underwriter for use in the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the shares.
(c) Each party indemnified under the provision of paragraphs (a) and
(b) of this Section 7 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such
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<PAGE> 16
indemnified party or parties different from or in addition to those available to
the indemnifying party or parties, then counsel for the indemnified party or
parties shall be entitled to conduct the defense to the extent reasonably
determined by such counsel to be necessary to protect the interests of the
indemnified party or parties and (ii) in any event, the indemnified party or
parties shall be entitled to have counsel chosen by such indemnified party or
parties participate in, but not conduct, the defense. If, within a reasonable
time after receipt of the Notice, an indemnifying party gives a Notice of
Defense and the counsel chosen by the indemnifying party or parties is
reasonably satisfactory to the indemnified party or parties, the indemnifying
party or parties will not be liable under paragraphs (a) through (c) of this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party or parties in connection with the defense of the action, suit,
investigation, inquiry or proceeding, except that (A) the indemnifying party or
parties shall bear the legal and other expenses incurred in connection with the
conduct of the defense as referred to in clause (i) of the proviso to the
preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 7, then each indemnifying party, in lieu of
indemnifying such indemnified 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 paragraph (a) or (b) of this Section 7 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the Shares 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 each indemnifying party in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, or actions in respect thereof, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and the Selling Securityholders on the one hand and the Underwriters on
the other shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the shares received by the Company and the
Selling Securityholders and the total underwriting discount received by the
Underwriters, as set forth in the table on the cover page of the Prospectus,
bear to the aggregate public offering price of the shares. Relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by each indemnifying party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
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Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Securityholders will, without
the prior written consent of each Underwriter, settle or compromise or consent
to the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The liability of each Selling Securityholder under such Selling
Securityholder's representations and warranties contained in paragraph (a) of
Section 2 hereof and under the indemnity and reimbursement agreements contained
in the provisions of this Section 7 and Section 8 hereof shall be limited to an
amount equal to the initial public offering price of the shares sold by such
Selling Securityholder to the Underwriters (less underwriting discounts and
commissions). The Company and the Selling Securityholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to the respective amounts of such liability for which they each
shall be responsible.
SECTION 8. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their
other obligations under Section 7 of this Agreement (and subject, in the case of
a Selling Securityholder, to the provisions of paragraph (f) of Section 7), the
Company and the Selling Securityholders hereby jointly and severally agree to
reimburse on a monthly basis the Underwriters for all reasonable legal and other
expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 8 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
SECTION 9. TERMINATION. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company and the
Selling Securityholders in accordance with Section 10, or if after the date of
this Agreement trading in the Common Stock shall have been suspended, or if
there shall have occurred (i) the engagement in hostilities or an escalation of
major hostilities by the United States or the declaration of war or a national
emergency by the United States on or after the date hereof, (ii) any outbreak of
hostilities or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, calamity,
crisis or change in economic or political conditions in the financial markets of
the United States or the Company's industry sector would, in the Underwriters'
reasonable judgment, make the offering or delivery of the shares impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, or The Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters'
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reasonable opinion materially and adversely affects or will materially or
adversely affect the business or operations of the Company, (v) declaration of a
banking moratorium by either federal or New York State authorities or (vi) the
taking of any action by any federal, state or local government or agency in
respect of its monetary or fiscal affairs which in the Underwriters' reasonable
opinion has a material adverse effect on the securities markets in the United
States. If this Agreement shall be terminated pursuant to this Section 9, there
shall be no liability of the Company or the Selling Securityholders to the
Underwriters and no liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders agrees to indemnify and hold
harmless the Underwriters from all costs or expenses incident to the performance
of the obligations of the Company and the Selling Securityholders under this
Agreement, including all costs and expenses referred to in paragraphs (i) and
(j) of Section 6 hereof.
SECTION 10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the several Underwriters to purchase and pay for the Shares shall be subject to
the performance by the Company and by the Selling Securityholders of all their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Optional Shares are to be purchased, as the case may
be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no stop
order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Shares hereunder
and the validity and form of the certificates representing the Shares, all
corporate proceedings and other legal matters incident to the foregoing, and the
form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Goodwin, Procter & Hoar LLP counsel for the Underwriters.
(c) You shall have received from Hunton & Williams, counsel for the
Company and the Selling Securityholders, an opinion, addressed to the
Underwriters and dated the Closing Date, covering the matters set forth in Annex
A hereto, respectively, and if Optional Shares are purchased at any date after
the Closing Date, additional opinions from each such counsel, addressed to the
Underwriters and dated such later date, confirming that the statements expressed
as of the Closing Date in such opinions remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct in all material respects, and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not misleading;
(ii) since the Effective Date, no event has occurred which should have been set
forth in a supplement or amendment to the Prospectus which has not been set
forth in such a supplement or amendment; (iii) since the respective dates as of
which information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, whether or not arising from transactions in the ordinary course of
business, and, since such dates, except in the ordinary course of business,
neither the Company nor any of its subsidiaries has entered into any material
transaction not referred to in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein; (iv) the
Commission has not issued any order preventing or suspending the use of the
Prospectus or any Preliminary Prospectus filed as a part of the Registration
Statement or any amendment thereto; no stop order suspending the effectiveness
of the Registration Statement has been
18
<PAGE> 19
issued; and to the best knowledge of the respective signers, no proceedings for
that purpose have been instituted or are pending or contemplated under the
Securities Act; (v) neither the Company nor any of its subsidiaries has any
material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus; (vi) there are not any pending or known threatened
legal proceedings to which the Company or any of its subsidiaries is a party or
of which property of the Company or any of its subsidiaries is the subject which
are material and which are not disclosed in the Registration Statement and the
Prospectus; (vii) there are not any franchises, contracts, leases or other
documents which are required to be filed as exhibits to the Registration
Statement which have not been filed as required; and (vii) the representations
and warranties of the Company herein are true and correct in all material
respects as of the Closing Date or any later date on which Optional Shares are
to be purchased, as the case may be.
(e) You shall have received on the Closing Date and on any later date
on which Optional Shares are purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the Chief
Financial Officer of the Company, stating that the respective signers of said
certificate have carefully examined the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (viii) of paragraph (d) of this Section 10 are true and
correct.
(f) You shall have received from Coopers & Lybrand, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any later
date on which Optional Shares are purchased, confirming that they are
independent public accountants with respect to the Company within the meaning of
the Securities Act and the applicable published rules and regulations thereunder
and based upon the procedures described in their letter delivered to you
concurrently with the execution of this Agreement (the "Original Letter"), but
carried out to a date not more than three business days prior to the Closing
Date or such later date on which Optional Shares are purchased (i) confirming,
to the extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date, as the
case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of the Original Letter or to reflect the availability of more recent
financial statements, data or information. The letters shall not disclose any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the business or properties of the Company or any
of its subsidiaries which, in your reasonable judgment, makes it impractical or
inadvisable to proceed with the public offering of the Shares or the purchase of
the Optional Shares as contemplated by the Prospectus.
(g) You shall have received from Coopers & Lybrand, a letter stating
that their review of the Company's system of internal accounting controls, to
the extent they deemed necessary in establishing the scope of their examination
of the Company's financial statements as at November 30, 1995, did not disclose
any weakness in internal controls that they considered to be material
weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the shares to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received agreements
from all directors, officers and stockholders, in form reasonably satisfactory
to Volpe, Welty & Company, stating that without the prior written consent of
Volpe, Welty & Company, such person or entity will not, for a period of 180 days
following
19
<PAGE> 20
the date the Registration Statement became effective, directly or indirectly,
offer, sell, pledge, contract to sell, grant any option to purchase or otherwise
dispose of any shares of Common Stock beneficially owned or otherwise held by
such person or entity (including, without limitation, shares of Common Stock
which may be deemed to be beneficially owned by such person or entity in
accordance with the rules and regulations of the Securities and Exchange
Commission and shares of Common Stock which may be issued upon exercise of a
stock option or warrant) or any securities convertible into, derivative of or
exercisable or exchangeable for such Common Stock; provided, however, that, in
the case of any such person, he or she may transfer any or all of the Common
Stock held by such person either during his or her lifetime or on death, by
gift, will or intestacy, to his or her immediate family or to a trust the
beneficiaries of which are exclusively such person and/or a member or members of
his or her immediate family; provided, that in any such case the transferee
executes a lock-up agreement in substantially the same form covering the
remainder of the lock-up period.
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Goodwin, Procter & Hoar LLP, counsel for the
Underwriters, shall be satisfied, in their reasonable opinion, that they comply
in form and scope.
In case any of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and to the Selling Securityholders. Any such termination shall be
without liability of the Company or the Selling Securityholders to the
Underwriters and without liability of the Underwriters to the Company or the
Selling Securityholders; provided, however, that (i) in the event of such
termination, the Company and the Selling Securityholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Securityholders
under this Agreement, including all costs and expenses referred to in paragraphs
(i) and (j) of Section 6 hereof, and (ii) if this Agreement is terminated by you
because of any refusal, inability or failure on the part of the Company or the
Selling Securityholders to perform any agreement herein, to fulfill any of the
conditions herein, or to comply with any provision hereof other than by reason
of a default by any of the Underwriters, the Company will reimburse the
Underwriters severally upon demand for all out-of-pocket expenses (including
reasonable fees and disbursements of counsel) that shall have been incurred by
them in connection with the transactions contemplated hereby.
SECTION 11. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
SECURITYHOLDERS. The obligation of the Company and the Selling Securityholders
to deliver the Shares shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 11 shall not
be fulfilled, this Agreement may be terminated by the Company and the Selling
Securityholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Securityholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Securityholders; provided, however, that in the event of any such termination
the Company and the Selling Securityholders jointly and severally agree to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company and the Selling
Securityholders under this Agreement, including all costs and expenses referred
to in paragraphs (i) and (j) of Section 6 hereof.
SECTION 12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement
shall inure to the benefit of the Company, the Selling Securityholders and the
several Underwriters and, with respect to the provisions of Section 7 hereof,
the several parties (in addition to the Company, the Selling Securityholders and
the several Underwriters) indemnified under the provisions of said Section 7,
and their respective personal representatives, successors and assigns. Nothing
in this Agreement is intended or shall be construed to give to any other person,
20
<PAGE> 21
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the shares from any of the several Underwriters.
SECTION 13. NOTICES. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Volpe, Welty &
Company, One Maritime Plaza, 11th Floor, San Francisco, California 94111,
Attention: Gil Mogavero; and if to the Company, shall be mailed, telegraphed or
delivered to it at its office, 45365 Vintage Park Plaza, Dulles, Virginia 20166,
Attention: E. Linwood Pearce, and if to the Selling Securityholders, shall be
mailed, telegraphed or delivered to the Selling Securityholders in care of
_____________ at _____________. All notices given by telegraph shall be promptly
confirmed by letter.
SECTION 14. MISCELLANEOUS. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or the Selling Securityholders or their respective
directors or officers, and (c) delivery and payment for the Shares under this
Agreement; provided, however, that if this Agreement is terminated prior to the
Closing Date, the provisions of paragraphs (l), (m) and (n) of Section 6 hereof
shall be of no further force or effect.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section , paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section , paragraph or
provision hereof. If any Section , paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. APPLICABLE LAW. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 17. GENERAL. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, to Attorneys in Fact by or on behalf of
the Selling Securityholders and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Securityholders represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Securityholder pursuant to a
validly existing and binding Power of Attorney which authorizes such
Attorney-in-fact to take such action. Any action taken under this Agreement by
any of the Attorneys-in-fact will be binding on all of the Selling
Securityholders.
21
<PAGE> 22
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company and the several Underwriters,
including you, all in accordance with its terms.
Very truly yours,
TEMPLATE SOFTWARE, INC.
By:________________________________
Title:
THE SELLING SECURITYHOLDERS
By:_________________________________
Attorney-in-fact
The foregoing Underwriting Agreement
is hereby confirmed and accepted
by us in San Francisco, California as of
the date first above written.
VOLPE, WELTY & COMPANY
PIPER JAFFRAY INC.
Acting for ourselves and as the Representatives of
the several Underwriters named in the attached
Schedule A
BY: VOLPE, WELTY & COMPANY
By:________________________________
Principal
22
<PAGE> 23
SCHEDULE I
UNDERWRITERS
NUMBER OF
UNDERWRITERS SHARES TO BE PURCHASED
- --------------------------------------------------------------------------------
Volpe, Welty & Company..........................................................
Piper Jaffray Inc...............................................................
Total ...........................................................
I-1
<PAGE> 24
SCHEDULE II
SELLING SECURITYHOLDERS
NAME AND ADDRESS
OF SELLING SECURITYHOLDERS NUMBER OF SHARES TO BE SOLD
- --------------------------------------------------------------------------------
TOTAL............................................................______________
II-1
<PAGE> 25
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF HUNTON & WILLIAMS
COUNSEL FOR THE COMPANY
AND THE SELLING SECURITYHOLDERS
(i) Each of the Company and its subsidiaries has been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign corporation
and in good standing in [insert jurisdictions] and has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement; all the issued and outstanding capital stock of
each of the subsidiaries of the Company has been duly authorized and validly
issued and is fully paid and nonassessable, and is owned by the Company free and
clear of all liens, encumbrances and security interests, and to the best of such
counsel's knowledge, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in such
subsidiaries are outstanding;
(ii) the authorized capital stock of the Company consists of
_____________ shares of _____________ Stock, $_____ par value, of which there
are outstanding _____________ shares, and _____________ shares of Common Stock,
$____ par value, of which there are outstanding _____________ shares; all of the
outstanding shares of such capital stock (including the Firm Shares and the
Optional Shares issued, if any) have been duly authorized and validly issued and
are fully paid and nonassessable; any Optional Shares purchased after the
Closing Date have been duly authorized and, when issued and delivered to, and
paid for by, the Underwriters as provided in the Underwriting Agreement, will be
validly issued and fully paid and nonassessable; and no preemptive rights of, or
rights of refusal in favor of, stockholders exist with respect to the Shares, or
the issue and sale thereof, pursuant to the Articles of Incorporation or Bylaws
of the Company or to such counsel's knowledge any other instrument and, to the
knowledge of such counsel, there are no contractual preemptive rights that have
not been waived, rights of first refusal or rights of co-sale which exist with
respect to the Shares being sold by the Selling Securityholders or the issue and
sale of the Shares by the Company;
(iii) the Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act, and with the
rules and regulations of the Commission thereunder;
(v) such counsel have no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained therein, as to which such counsel need
not express any opinion or belief) at the Effective Date contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus (except as to the financial statements and schedules and
other financial and statistical data contained therein, as to which such counsel
need not express any opinion or belief) as of its date or at the Closing Date
(or any later date on which Optional Shares are purchased), contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading;
A-1
<PAGE> 26
(vi) the information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is, to such counsel's knowledge, accurately and adequately set
forth therein in all material respects or no response is required with respect
to such Items, and the description of the Company's stock option plan and the
options granted and which may be granted thereunder in the Prospectus fairly
presents the information required to be shown with respect to said plan and
options to the extent required by the Securities Act and the rules and
regulations of the Commission thereunder;
(vii) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(viii) the Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(ix) the Underwriting Agreement has been duly executed and delivered by
or on behalf of the Selling Securityholders and the Custody Agreement between
the Selling Securityholders and _____________, as Custodian, including the power
of attorney contained in such Custody Agreement, have been duly executed and
delivered by the several Selling Securityholders;
(x) the Company has full corporate power and authority to enter into
the Underwriting Agreement and to sell and deliver the Shares to be sold by it
to the several Underwriters;
(xi) the Custody Agreement, including the power of attorney contained
therein, are valid and binding agreements of each of the Selling Securityholders
enforceable in accordance with their terms except as enforceability may be
limited by general equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and except with
respect to those provisions relating to indemnity or contribution for
liabilities under the Securities Act, as to which no opinion need be expressed,
and each Selling Securityholder has full legal right and authority to enter into
the Underwriting Agreement and the Custody Agreement, including the power of
attorney contained therein, and to sell, transfer and deliver in the manner
provided in the Underwriting Agreement the Shares sold by such Selling
Securityholder hereunder;
(xii) the issue and sale by the Company of the Shares sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, or constitute a default under the Articles of
Incorporation or Bylaws of the Company or any of its subsidiaries or any
agreement or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or by which any of its properties may be bound or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(xiii) the transfer and sale by the Selling Securityholders of the
Shares to be sold by the Selling Securityholders as contemplated by the
Underwriting Agreement and the Custody Agreement, including the power of
attorney contained therein, will not conflict with, result in a breach of, or
constitute a default under any agreement or instrument known to such counsel to
which any of the Selling Securityholders is a party or by which any of the
Selling Securityholders or any of their properties may be bound, or any
applicable law or regulation, or so far is known to such counsel, order, writ,
injunction or decree of any jurisdiction, court or governmental instrumentality
body.
(xiv) all holders of securities of the Company known to such counsel to
have rights to the registration of shares of Common Stock, or other securities,
because of the filing of the Registration Statement by the
A-2
<PAGE> 27
Company have waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file the Registration
Statement;
(xv) good and marketable title to the Shares under the Underwriting
Agreement, free and clear of all liens, encumbrances, equities, security
interests and claims, has been transferred to the Underwriters who have
severally purchased such Shares under the Underwriting Agreement, assuming for
the purpose of this opinion that the Underwriters purchased the same in good
faith without notice of any adverse claims;
(xvi) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Shares by
the Underwriters and the clearance of the offering with the NASD as to which we
express no opinion;
(xvii) the Shares issued and sold by the Company and sold by the
Selling Securityholders will be duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
------------------------------------
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or of the Commonwealth of Virginia,
upon opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
A-3
<PAGE> 1
EXHIBIT 3.1
TEMPLATE SOFTWARE, INC.
ARTICLES OF AMENDMENT AND RESTATEMENT
1. The name of the Corporation is Template Software, Inc.
2. The Corporation's Articles of Incorporation shall be amended and
restated in their entirety by the Amended and Restated Articles of
Incorporation attached hereto as Exhibit A.
3. Pursuant to Section 13.1-639 of the Virginia Stock Corporation Act, the
amendments contained in the Amended and Restated Articles of
Incorporation required the approval of the Corporation's Board of
Directors, which approval was obtained by unanimous consent of the
Corporation's Board of Directors on November __, 1996.
IN WITNESS WHEREOF, the undersigned President and Secretary of the
Corporation has executed these Articles of Amendment and Restatement on
behalf of the Corporation.
Date: November 26, 1996
TEMPLATE SOFTWARE, INC.
By: /s/ Andrew Ferrentino
--------------------------
Andrew B. Ferrentino
President and Secretary
ATTEST:
By: /s/ Joseph Fox
------------------------
Joseph M. Fox
Chairman of the Board
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TEMPLATE SOFTWARE, INC.
ARTICLE 1.
The name of the Corporation is Template Software, Inc.
ARTICLE 2.
The purpose for which the Corporation is formed is to transact any or
all lawful business, not required to be specifically stated in these Articles,
for which corporations may be incorporated under the Virginia Stock Corporation
Act as amended from time to time.
ARTICLE 3.
The initial registered office shall be located at 1751 Pinnacle Drive,
Suite 1700, McLean, Virginia 22102 in the County of Fairfax, and the initial
registered agent shall be Joseph W. Conroy, who is a resident of Virginia and a
member of the Virginia State Bar, and whose business address is the same as the
address of the initial registered office.
ARTICLE 4.
(A) (1) The aggregate number of shares which the Corporation shall have
authority to issue shall be Twenty Million (20,000,000) shares, consisting of
Seventeen Million (17,000,000) shares of Common Stock, $.01 par value per share
("Common Stock"), and Three Million (3,000,000) shares of Preferred Stock, $.01
par value per share ("Preferred Stock").
(2) The Board of Directors may determine the preferences,
limitations and relative rights, to the extent permitted by the Virginia Stock
Corporation Act, of any class of shares of Preferred Stock before the issuance
of any shares of that class, or of one or more series within a class before the
issuance of any shares of that series. Each class or series shall be
appropriately designated by a distinguishing designation prior to the issuance
of any shares thereof. The Preferred Stock of all series shall have preferences,
limitations and relative rights identical with those of other shares of the same
series and, except to the extent otherwise provided in the description of the
series, with those of shares of other series of the same class.
1
<PAGE> 3
Prior to the issuance of any shares of a class or series of Preferred
Stock, (i) the Board of Directors shall establish such class or series by
adopting a resolution and by filing with the State Corporation Commission of
Virginia articles of amendment setting forth the designation and number of
shares of the class or series and the relative rights and preferences thereof,
and (ii) the State Corporation Commission of Virginia shall have issued a
certificate of amendment.
(3) No holder of shares of any class of the Corporation shall have
any preemptive or preferential right to purchase or subscribe to (i) any shares
of any class of the Corporation, whether now or hereafter authorized; (ii) any
warrants, rights, or options to purchase any such shares; or (iii) any
securities or obligations convertible into any such shares or into warrants,
rights, or options to purchase any such shares.
(B) Except as otherwise required in these Articles as they may
hereafter be amended:
(1) Any corporate action, except certain amendments or restatements
of these Articles as specified in subsection (5) below, a merger, a statutory
share exchange, the sale or other disposition of all or substantially all of the
Corporation's assets otherwise than in the usual and regular course of business,
or dissolution shall, for each voting group entitled to vote on the matter, be
approved at a meeting at which a quorum of the voting group is present if the
votes cast in favor of the action exceed the votes cast against the action;
(2) Directors shall be elected by a plurality of the votes cast by
the shares entitled to vote in the election at a meeting at which a quorum is
present;
(3) Any transaction with the Corporation or any subsidiary that
constitutes or involves an affiliated transaction, as defined in Section
13.1-725 of the Virginia Stock Corporation Act as in effect on the effective
date of these Articles, shall be approved by seventy-five percent (75%) of the
votes entitled to be cast by each voting group that is entitled to vote on such
transaction;
(4) A merger, statutory share exchange, sale or other disposition
of all or substantially all the Corporation's assets otherwise than in the usual
and regular course of business, or dissolution, other than any such transaction
to which subsection (3) of this section applies, shall be approved by at least
two-thirds of the votes entitled to be cast by each voting group that is
entitled to vote on such transaction; and
(5) An amendment to these Articles that amends or affects
subsection (3) of this section or to Article 4 of these Articles shall be
approved by seventy-five percent (75%) of the votes entitled to be cast by each
voting group that is entitled to vote on the matter.
2
<PAGE> 4
For purposes of subsection (3) of this section a transaction shall not
constitute an affiliated transaction if it is with an interested shareholder, as
defined in Section 13.1-725 of the Virginia Stock Corporation Act as in effect
on the effective date of these Articles: (i) who has been an interested
shareholder continuously or who would have been such but for the unilateral
action of the Corporation since the later of (a) the date on which this
Corporation first had 300 shareholders of record or (b) the date such person
became an interested shareholder with the prior or contemporaneous approval of a
majority of the disinterested directors as defined in Section 13.1-725 of the
Virginia Stock Corporation Act as in effect on the effective date of these
Articles; (ii) who became an interested shareholder as a result of acquiring
shares from a person specified in subdivision (i) or subdivision (ii) of this
subsection by gift, testamentary bequest or the laws of descent and distribution
or in a transaction in which consideration was not exchanged and who continues
thereafter to be an interested shareholder, or who would have so continued but
for the unilateral action of the Corporation; (iii) who became an interested
shareholder inadvertently or as a result of the unilateral action of the
corporation and who, as soon as practicable thereafter, divested beneficial
ownership of sufficient shares so that such person ceased to be an interested
shareholder, and who would not have been an interested shareholder but for such
inadvertency or the unilateral action of the Corporation; or (iv) whose
acquisition of shares making such person an interested shareholder was approved
by a majority of the disinterested directors.
ARTICLE 5.
(A) The Board of Directors shall be divided into three (3) classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. The directors initially designated as Class I
directors shall serve for a term ending on the date of the 1997 annual meeting
of shareholders, the director initially designated as a Class II director shall
serve for a term ending on the date of the 1998 annual meeting of shareholders,
and the director initially designated as a Class III director shall serve for a
term ending on the date of the 1999 annual meeting of shareholders. At each
annual meeting of shareholders, the successors to the class of directors whose
terms then shall expire shall be identified as being of the same class as the
directors they succeed and elected to hold office for a term expiring at the
third succeeding annual meeting of directors. Notwithstanding the foregoing,
each director shall hold office until such director's successor shall have been
duly elected or until such director's earlier death, resignation or removal. In
the event of any change in the number of directors, the Board of Directors shall
apportion any newly created directorships among, or reduce the number of
directorships in, such class or classes as shall equalize, as nearly as
possible, the number of directors in each class.
(B) Subject to the rights of the holders of any class or series of
Preferred Stock then outstanding, a director may be removed only with cause and
only upon the vote of shareholders holding not less than seventy-five percent
(75%) of the shares entitled to vote at an election of directors.
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<PAGE> 5
ARTICLE 6.
In furtherance and not in limitation of the rights, powers, privileges
and discretionary authority granted or conferred by the Virginia Stock
Corporation Act or other statutes or laws of the Commonwealth of Virginia, the
Board of Directors is expressly authorized to make, alter, amend or repeal the
By-Laws of the Corporation, without any action on the part of the shareholders,
but the shareholders may make additional By-Laws and may alter, amend or repeal
any By-Law whether adopted by them or otherwise. The Corporation may in its
By-Laws confer powers upon its Board of Directors in addition to the foregoing
and in addition to the powers and authorities expressly conferred upon the Board
of Directors by applicable law.
ARTICLE 7.
(A) In this Article:
"applicant" means the person seeking indemnification pursuant to
this Article.
"expenses" includes counsel fees.
"liability" means the obligation to pay a judgment, settlement,
penalty, fine, including any excise tax assessed with respect to an employee
benefit plan, or reasonable expenses incurred with respect to a proceeding.
"party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in a proceeding.
"proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative or investigative
and whether formal or informal.
(B) In any proceeding brought by or in the right of the Corporation or
brought by or on behalf of shareholders of the Corporation, no director or
officer of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages with respect to any transaction, occurrence or
course of conduct, whether prior or subsequent to the effective date of this
Article, except for liability resulting from such person's having engaged in
willful misconduct or a knowing violation of the criminal law or any federal or
state securities law.
(C) The Corporation shall indemnify (i) any person who was or is a
party to any proceeding, including a proceeding brought by a shareholder in the
right of the Corporation or brought by or on behalf of shareholders of the
Corporation, by reason of the fact that he is or was a director, or officer,
employee or agent of the Corporation, or (ii) any director or officer who is or
was serving at the request of the Corporation as a director, trustee, partner
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<PAGE> 6
or officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against any liability incurred by him in
connection with such proceeding unless he engaged in willful misconduct or a
knowing violation of the criminal law. A person is considered to be serving an
employee benefit plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to the
plan or to participants in or beneficiaries of the plan. The Board of Directors
is hereby empowered, by a majority vote of a quorum of disinterested directors,
to enter into a contract to indemnify any director or officer in respect of any
proceedings arising from any act or omission, whether occurring before or after
the execution of such contract.
(D) The provisions of this Article shall be applicable to all
proceedings commenced after the adoption hereof by the shareholders of the
Corporation, arising from any act or omission, whether occurring before or after
such adoption. No amendment or repeal of this Article shall have any effect on
the rights provided under this Article with respect to any act or omission
occurring prior to such amendment or repeal. The Corporation shall promptly take
all such actions, and make all such determinations, as shall be necessary or
appropriate to comply with its obligation to make any indemnity under this
Article and shall promptly pay or reimburse all reasonable expenses, including
attorneys' fees, incurred by any such director, officer, employee or agent in
connection with such actions and determinations or proceedings of any kind
arising therefrom.
(E) The termination of any 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 applicant did not meet the standard of
conduct described in Sections (B) or (C) of this Article.
(F) Any indemnification under Section (C) of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the applicant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section (C).
The determination shall be made:
(1) By the Board of Directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding;
(2) If a quorum cannot be obtained under subsection (1) of this
Section (F), by majority vote of a committee duly designated by the Board of
Directors (in which designation directors who are parties may participate),
consisting solely of two or more directors not at the time parties to the
proceeding;
(3) By special legal counsel:
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<PAGE> 7
(i) Selected by the Board of Directors or its committee in the
manner prescribed in subsections (1) or (2) of this Section (F); or
(ii) If a quorum of the Board of Directors cannot be obtained
under subsection (1) of this section and a committee cannot be designated under
subsection (b) of this section, selected by majority vote of the full Board of
Directors, in which selection directors who are parties may participate; or
(4) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not be
voted on the determination.
Any evaluation as to reasonableness of expenses shall be made in the
same manner as the determination that indemnification is appropriate, except
that if the determination is made by special legal counsel, such evaluation as
to reasonableness of expenses shall be made by those entitled under subsection
(3) of this Section (F) to select counsel.
Notwithstanding the foregoing, in the event there has been a change in
the composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification is claimed, any
determination as to indemnification and advancement of expenses with respect to
any claim for indemnification made pursuant to this Article shall be made by
special legal counsel agreed upon by the Board of Directors and the applicant.
If the Board of Directors and the applicant are unable to agree upon such
special legal counsel the Board of Directors and the applicant each shall select
a nominee, and the nominees shall select such special legal counsel.
(G) (1) The Corporation may pay for or reimburse the reasonable
expenses incurred by any applicant who is a party to a proceeding in advance of
final disposition of the proceeding or the making of any determination under
Section (F) if the applicant furnishes the Corporation:
(i) a written statement of his good faith belief that he has
met the standard of conduct described in Section (C); and
(ii) a written undertaking, executed personally or on his
behalf, to repay the advance if it is ultimately determined that he did not meet
such standard of conduct.
(2) The undertaking required by paragraph (ii) of subsection (1) of
this Section (G) shall be an unlimited general obligation of the applicant but
need not be secured and may be accepted without reference to financial ability
to make repayment.
(3) Authorizations of payments under this section shall be made by
the persons specified in Section (F).
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(H) The Board of Directors is hereby empowered, by majority vote of a
quorum consisting of disinterested directors, to cause the Corporation to
indemnify or contract to indemnify any person not specified in Sections (B) or
(C) of this Article who was, is or may become a party to any proceeding, by
reason of the fact that he is or was an employee or agent of the Corporation, or
is or was serving at the request of the Corporation as director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, to the same extent as if such person
were specified as one to whom indemnification is granted in Section (C). The
provisions of Sections (D) through (G) of this Article shall be applicable to
any indemnification provided hereafter pursuant to this Section (H).
(I) The Corporation may purchase and maintain insurance to indemnify it
against the whole or any portion of the liability assumed by it in accordance
with this Article and may also procure insurance, in such amounts as the Board
of Directors may determine, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against any liability asserted against or incurred by him in any
such capacity or arising from his status as such, whether or not the Corporation
would have power to indemnify him against such liability under the provisions of
this Article.
(J) Every reference herein to directors, officers, employees or agents
shall include former directors, officers, employees and agents and their
respective heirs, executors and administrators. The indemnification hereby
provided and provided hereafter pursuant to the power hereby conferred by this
Article on the Board of Directors shall not be exclusive of any other rights to
which any person may be entitled, including any right under policies of
insurance that may be purchased and maintained by the Corporation or others,
with respect to claims, issues or matters in relation to which the Corporation
would not have the power to indemnify such person under the provisions of this
Article. Such rights shall not prevent or restrict the power of the Corporation
to make or provide for any further indemnity, or provisions for determining
entitlement to indemnity, pursuant to one or more indemnification agreements,
bylaws, or other arrangements (including, without limitation, creation of trust
funds or security interests funded by letters of credit or other means) approved
by the Board of Directors (whether or not any of the directors of the
Corporation shall be a party to or beneficiary of any such agreements, bylaws or
arrangements); provided, however, that any provision of such agreements, bylaws
or other arrangements shall not be effective if and to the extent that it is
determined to be contrary to this Article or applicable laws of the Commonwealth
of Virginia.
(K) Each provision of this Article shall be severable, and an adverse
determination as to any such provision shall in no way affect the validity of
any other provision.
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<PAGE> 9
ARTICLE 8.
Article 14.1 of Chapter 9 of Title 13.1 of the Code of Virginia shall
not apply to acquisitions of shares of the Corporation.
ARTICLE 9
The Series A Stock shall have the following rights, preferences,
powers, privileges and restrictions, qualifications and limitations.
(1) Dividends. The holders of outstanding shares of Series A Stock
shall be entitled to receive dividends on each share of Series A Stock, out of
any assets legally available therefor, whenever the Board of Directors shall
declare a dividend on outstanding shares of Common Stock, equal to the aggregate
amount of dividends that would be payable as a result of such declaration on the
number of shares of Common Stock (with any fractional share, determined on an
aggregate conversion basis per holder, being rounded to the nearest whole share)
into which a share of Series A Stock could then be converted pursuant to
subsection 4 hereof (such number to be determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend). The
Board of Directors shall declare such dividends on Series A Stock simultaneously
with each declaration of dividends on the Common Stock, and the Corporation
shall not pay any dividends or other distributions on shares of Common Stock
unless the holders of the shares of Series A Stock then outstanding shall have
first received the dividends provided for in the preceding sentence.
(2) Liquidation, Dissolution or Winding Up; Certain Mergers,
Consolidations and Asset Sales.
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the shares of
Series A Stock then outstanding shall be entitled to receive, out of the assets
of the Corporation available for distribution to its shareholders, prior and in
preference to any payment or distribution to the holders of Common Stock or any
other class or series of stock of the Corporation ranking on liquidation junior
to the Series A Stock by reason of such holders' ownership thereof, an amount
equal to $16.00 per share (subject to appropriate adjustment in the event of any
stock dividend, stock split, combination or other similar recapitalization
affecting such shares), plus all declared but unpaid dividends on the Series A
Stock, but in no event shall the holders of shares of Series A Stock be paid an
amount less than the amount such holders would have received had they converted
all such shares into Common Stock prior to the event or transaction resulting in
such liquidation, at the rate of conversion then in effect with respect to the
Series A Stock. After payment shall have been made in full to the holders of the
Series A Stock pursuant to this subsection 2(i), the holders of Series A Stock
shall have no further rights to receive, by reason of such holders' ownership
thereof, distributions with
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<PAGE> 10
respect to any remaining assets of the Corporation legally available for the
distribution to the holders of its capital stock.
(ii) For purposes of this subsection 2: (a) any consolidation
or merger of the Corporation with or into any other corporation or other entity
or person, or any other corporate reorganization, in which (A) the outstanding
shares of Common Stock are exchanged for or converted into other securities or
consideration (except (unless in connection with a transaction otherwise
described in another clause of this subsection 2(ii)) pursuant to a merger
effected solely for the purpose of changing the Company's jurisdiction of
incorporation that does not result in any material adverse effect on the rights,
preferences or privileges of the Series A Stock), (B) all or substantially all
of the individuals and entities constituting the beneficial owners of the Fully
Diluted Common Shares (as hereinafter defined) immediately prior to such
consolidation, merger or reorganization beneficially own less than 60% of the
Fully Diluted Common Shares immediately after such consolidation, merger or
reorganization or issuable pursuant thereto, (C) the individuals constituting
the Board of Directors immediately prior to such consolidation, merger or
reorganization constitute less than the majority of the entire Board of
Directors immediately subsequent thereto, or (D) the Corporation is not the
continuing or surviving entity of such consolidation, merger or reorganization
(except (unless in connection with a transaction otherwise described in another
clause of this subsection 2(ii)) pursuant to a merger effected solely for the
purpose of changing the Company's jurisdiction of incorporation that does not
result in any material adverse effect on the rights, preferences or privileges
of the Series A Stock), or (b) any sale or transfer of all or substantially all
of the assets of the Corporation, shall be deemed to be a liquidation,
dissolution or winding up within the meaning of this subsection 2, in each case
if the holders of a majority of the outstanding shares of Series A Stock so
elect by written notice to the Secretary of the Corporation at the Corporation's
principal executive offices prior to the closing thereof.
(iii) If, immediately prior to the closing of a transaction
described in subsection 2(ii) as to which the election provided for therein has
been made, the cash distributions required by subsection 2(i) have not been
made, the Corporation shall forthwith either:
(a) cause such closing to be postponed until such time as
such cash distributions have been made, or
(b) cancel such transaction, in which event the rights,
preferences and privileges of the holders of the Series A Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in subsection 4(xiii) hereof.
(3) Voting and Certain Other Rights.
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(i) Except as otherwise provided by law or in this subsection
3, the holder of each share of Series A Stock shall have the right to one vote
for each share of Common Stock into which such share of Series A Stock could
then be converted (with any fractional share, determined on an aggregate
conversion basis per holder, being rounded to the nearest whole share), and with
respect thereto such holder shall have full voting rights and powers equal to
the voting rights and powers of the holders of Common Stock, and shall be
entitled, notwithstanding any other provision hereof, to notice of any
shareholders' meeting in accordance with the by-laws of the Corporation, and
shall be entitled to vote, together with holders of Common Stock as a single
class, with respect to any question or matter upon which holders of Common Stock
have the right to vote.
(ii) The authorized number of directors of the Corporation
prior to the consummation of an initial public offering of shares of Common
Stock registered under the Securities Act of 1933 (the "Securities Act") shall
be four (4); provided, however, that the number of directors constituting the
entire Board of Directors shall be three unless the holders of shares Series A
Stock exercise their rights set forth in this subsection 3(ii). At any time that
the outstanding shares of Series A Stock are convertible (pursuant to subsection
4) into at least three (3) percent of the number of then fully diluted shares of
Common Stock, calculated as provided below (the "Fully Diluted Common Shares"),
the holders of shares of Series A Stock, by written consent (to the extent
permitted by applicable law) or at a special meeting called for that purpose at
the written request of the holders of at least 50% of the outstanding shares of
Series A Stock, voting as a separate class, shall be entitled to elect an
additional director of the Corporation. In the case of any vacancy in the office
of a director elected by the holders of Series A Stock, a successor shall be
elected to hold office for the unexpired term of such director by the
affirmative vote of the holders of a majority of the shares of Series A Stock,
given at a special meeting of such shareholders duly called or by an action by
written consent (as permitted by law) for that purpose. Any director elected by
the holders of Series A Stock may be removed from the Board of Directors at any
time during such director's term of office, either for or without cause, by and
only by, the affirmative vote of the holders of a majority of the shares of such
Series A Stock given at a special meeting of the shareholders duly called or (to
the extent permitted by applicable law) by an action by written consent for that
purpose. Any director elected by the holders of Series A Stock shall (if the
Board of Directors is then classified) serve in such class or group of directors
as the Board of Directors may determine in accordance with law, and shall, in
his or her discretion, have the right to serve as a member of any executive or
other similar committee of the Board of Directors that may be created. Such
director shall not receive any fees or other remuneration for services as a
director or committee member at any time that he or she is a full time employee
of the holder of a majority of the then outstanding shares of Series A Stock,
but shall be entitled to reimbursement of expenses on the same basis provided to
any other director or directors who are not officers or employees of the
Corporation. "Fully Diluted Common Shares" shall mean, as of any date: the sum
of (a) the outstanding shares of Common Stock as of that date and (b) the
additional shares of Common Stock that would be taken into account for purposes
of calculating fully diluted earnings per share for the period from the end of
the Corporation's last fiscal year through
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<PAGE> 12
such date under the treasury-stock method in accordance with generally accepted
accounting principles.
(iii) In addition to any other rights provided by law, so long
as any shares of Series A Stock are outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent, as permitted
by law) of the holders of a majority of the outstanding shares of Series A
Stock, voting as a separate class:
(a) create shares of any class or series of stock that is
on a parity with or senior to the Series A Stock with respect to the payment of
dividends or the distribution of assets upon liquidation (with the Common Stock
not being deemed to be on a parity with the Series A Stock as to dividends for
purposes of this subsection 3);
(b) increase the authorized number of shares of any such
class or series;
(c) increase the authorized number of shares of Series A
Stock;
(d) effect any liquidation or dissolution of the Company;
(e) issue any shares of any class or series of stock (or
issue any securities, options, warrants or other rights that are convertible
into, or exchangeable or exercisable for, any such class or series) that are on
a parity with or senior to the Series A with respect to the payment of dividends
or the distribution of assets on liquidation;
(f) issue any additional shares of Series A Stock or any
securities that are convertible into or exercisable for shares of Series A
Stock;
(g) declare or pay any dividend on (including a dividend
payable in stock of the Corporation), make any other distribution with respect
to, or repurchase, any stock of the Corporation (or any other securities that
are convertible into or exercisable for such stock) that is junior to the Series
A Stock with respect to the payment of dividends or the distribution of assets
upon liquidation; provided, however, that the Corporation may declare and pay
cash dividends or shares of Common Stock in accordance with subsection 1 hereof
and may use an aggregate of up to one-third of the proceeds to the Corporation
of the sale of the shares of Series A Stock issued on the Original Issue Date to
repurchase then outstanding shares of Common Stock at prices not exceeding $16
per share;
(h) effect any merger or consolidation of the Corporation
with or into any other corporation or other entity; sell, lease, exchange or
otherwise dispose of, in a single transaction or a series of related
transactions, all or substantially all of the assets of the Corporation; or
effect any recapitalization or merger of the Corporation; in each case if such
transaction would, directly or indirectly: (A) result in or give rise to any
action, event or circumstance that would otherwise require the approval
hereunder of the holders of Series A Stock or (B) have any material adverse
effect on the rights, preferences or privileges of
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the Series A Stock; provided, that, without the consent of the holders of Series
A Stock, the Corporation may form a separate wholly-owned subsidiary of the
Corporation and transfer to such subsidiary all classified contracts between the
Corporation and the United States government (and related assets of the
Corporation) for the purpose of segregating such business from the Corporation's
commercial business if and to the extent required in order to maintain United
States government security clearances;
(i) do any act or thing (including, without limitation,
any reporting for tax purposes or otherwise) that would result in taxation of
the holders of shares of Series A Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the Internal
Revenue Code as hereafter from time to time amended);
(j) amend these Amended and Restated Articles of
Incorporation in any manner that adversely affects the rights, preferences or
privileges of the Series A Stock;
(k) change, except as provided in subsection 3(ii) above,
the number of directors constituting the entire Board of Directors prior to the
consummation of an initial public offering of shares of Common Stock registered
under the Securities Act;
(l) issue any shares of capital stock or other securities
of the Corporation, or any options, warrants or other rights exercisable for, or
convertible or exchangeable into, any shares of capital stock or any other
securities of the Corporation to officers, directors, employees or consultants
of the Corporation, except (A) shares of Common Stock issued pursuant to options
to purchase shares of Common Stock outstanding on the Original Issue Date in
accordance with the respective terms and conditions of such options as in effect
on that date or options described in the following clause or (B) other options
granted to officers, directors, employees or consultants of the Corporation
under the Corporation's 1996 Equity Incentive Plan as in effect on the Original
Issue Date provided that such options are granted at the current fair market
value of the Common Stock on the date of grant and the aggregate number of
shares of Common Stock with respect to which options may be granted prior to the
earlier of the six-month anniversary of the Original Issue Date and the
consummation of the Corporation's initial public offering registered under the
Securities Act of 1933 does not exceed 150,000 and the per share exercise price
of any options granted during such period is not less than $16.00 (in each case
subject to proportional adjustment in the event of a stock split, reverse stock
split or stock dividend); or
(m) engage in, enter into or permit any subsidiary or
joint venture of the Corporation to engage in or enter into, directly or
indirectly, any material transaction or agreement with any officer, director or
affiliate of the Corporation or any person deemed to be the beneficial owner
(determined in accordance with Section 13.1-725 of the Virginia Stock
Corporation Act) of more than 5% of any class of the outstanding voting shares
of the Corporation (with any voting shares deemed beneficially owned by such
person being included in the number of outstanding voting shares), but excluding
reasonable employment and compensation arrangements.
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For purposes of clause (m) of the immediately preceding sentence, a material
transaction or agreement shall mean any transaction or agreement (or related
series of transactions or agreements) involving payment or transfer of property
in excess of $50,000 or otherwise material to the business of the Corporation.
(iv) At any time that no director elected by the holders of Series
A Stock is then serving on the Board, the holders of a majority of the then
outstanding shares of Series A Stock may, by giving written notice to the
Secretary of the Corporation at the Corporation's principal executive offices,
appoint an observer entitled to attend, as an observer, each meeting of the
Board of Directors and, in his or her discretion, any executive or similar
committee of the Board that may be created. Such observer shall be entitled to
the same notice of meetings of the Board of Directors and such committee as is
provided to the other directors or members thereof (and, in any case, not less
than the minimum notice required by law), and shall be entitled to receive
timely all materials prepared for members of the Board or such committees;
provided that such observer agrees in writing not to disclose any confidential
information obtained at such meetings or contained in such materials to any
person other than the holders of the Series A Stock. Any such observer may be
replaced at any time by the holders of at least a majority of the outstanding
Series A Stock without prior notice to the Corporation. In connection with all
matters that come before the Board requiring United States classified
information to be presented or discussed, if the observer designated pursuant to
this subsection 3(iv) or the Board member designated pursuant to subsection
3(ii), does not hold an appropriate United States government security clearance,
the observer or Board member shall be recused from such Board presentations and
discussions. Notwithstanding anything in the foregoing to the contrary, the
holders of Series A Stock shall not be entitled to appoint an observer at any
time that such holders would not have the right to elect an additional director
pursuant to subsection 3(ii).
(v) The holders of a majority of the outstanding shares of Series A
Stock have a right, by giving written notice to the Chairman of the Board at the
Corporation's principal executive offices, to require the Board of Directors to
consider and vote upon, at its first meeting following receipt of such notice,
whether to establish a Scientific Committee, one of the members (who may, but
are not required to, be directors of the Corporation) of which would be
designated from time to time by such holders.
(4) Conversion. The holders of Series A Stock shall have conversion
rights as follows (the "Conversion Rights"):
(i) Right to Convert. Each share of Series A Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time and without the payment of additional consideration by the holder thereof,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $13.00, subject to adjustment as provided in the next
sentence (the "Base Amount"), by the Conversion Price (as defined below), in
effect at the time of conversion. The initial "Conversion Price" shall be
$13.00, provided, however, that both the Base Amount and the Conversion Price
shall be
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subject to adjustment as provided in subsection 4. Notwithstanding the foregoing
(but subject to the last sentence of this subsection 4(i)), on the first
anniversary of the Original Issue Date (as defined below) the Base Amount shall
be reduced to $10.00 and the Conversion Price shall be, subject to further
adjustment as provided in subsection 4, reduced to that number bearing the same
proportion to such new Base Amount as the Conversion Price in effect immediately
prior thereto bore to the prior Base Amount; provided, however, that any
adjustment in the number of shares of Common Stock into which each share of
Series A Stock may be converted pursuant to subsection 4(iv) as a result of any
issuance of Additional Shares of Common Stock (as defined therein) shall be
computed without giving effect to this sentence if: (a) a definitive agreement
or letter of intent, memorandum of understanding, agreement in principle or
other similar arrangement with respect to such issuance was entered into or
agreed upon, or a registration statement with respect thereto was filed, prior
to such anniversary and (b) the number of shares of Common Stock into which a
share of Series A Stock may be converted calculated without taking this sentence
into account is higher than it would be taking this sentence into account. Any
otherwise applicable Base Amount (including the Base Amounts used in the
Alternative Calculations, as defined below) shall be proportionately adjusted in
the event of a stock split, reverse stock split or stock dividend.
Notwithstanding anything in this subsection 4(i) to the contrary, the following
shall apply with respect to Alternative Calculation Issuances (as defined below)
if (but only if) they result in a higher conversion ratio for the Series A
Stock:
In connection with each issuance or deemed issuance of
Additional Shares of Common Stock to the Corporation's officers,
directors, employees or consultants as compensation or incentive
compensation ("Alternative Calculation Issuances"), the following
alternative calculations of the number of shares of Common Stock into
which a share of Series A Stock may be converted (the "Alternative
Calculations") shall be made, and if the Alternative Calculation
resulting in the issuance of the greater number of shares of Common
Stock upon conversion also results in the issuance of a greater number
of shares upon conversion than would otherwise be issuable pursuant to
this subsection 4(i), then, subject to further adjustment pursuant to
subsection 4, the number of shares of Common Stock into which a share
of Series A Stock may be converted shall be the number of shares
provided by such Alternative Calculation:
(I) The Conversion Price shall be recalculated by
taking into account only those issuances or
deemed issuances of Additional Shares of
Common Stock that constitute Alternative
Calculation Issuances (but otherwise taking into
account all adjustments to the Conversion Price
provided for in subsection 4) and the Base
Amount shall be $13.00; and
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(II) If Alternative Calculation Issuances are made with
respect to more than 150,000 shares of Common
Stock (subject to proportional adjustment in the
event of a stock split, reverse stock split or
stock dividend) during the six-month period
commencing upon the expiration of the period
referred to in clause (B) of subsection 3(iii)(l),
or if Alternative Calculation Issuances are made
with respect to more than 300,000 shares of Common
Stock (subject to proportional adjustment in the
event of a stock split, reverse stock split or
stock dividend) in any of the successive
twelve-month periods ("Excess Issuance Periods")
beginning upon the expiration of such six-month
period, then the Conversion Price shall be
calculated as provided in clause (I) above, except
that only those Alternative Calculation Issuances
during such Excess Issuance Period shall be taken
into account and the Base Amount shall be $16.00.
Example 1 Assume no prior issuances or deemed issuances of
Additional Shares of Common Stock and no public
offering by the Corporation. Seven months after
the Original Issue Date, the Corporation issues
10,000 shares to an investor at a per share price
of $12.00 and issues options to purchase 10,000
shares at a per share exercise price of $12.00. In
this example, neither of the Alternative
Calculations would result in a higher conversion
ratio, as the general Base Amount is still $13.00
(so Alternative Calculation I has no effect on the
conversion ratio) and the aggregate number of
shares with respect to which options have been
granted in the then current Excess Issuance Period
is insufficient to trigger Alternative Calculation
II. Each share of Series A Stock would be
convertible into 1.083 shares of Common Stock (13
/ 12).
Example 2 Assume the only prior issuances or deemed
issuances of Additional Shares of Common Stock are
those described in Example 1. Fourteen months
after the Original Issue Date, the Corporation
issues 200,000 shares to an investor at a per
share price of $9.50 and issues options to
purchase an aggregate of 120,000 shares to
officers and directors, with the lowest option
exercise price being $10.50. Pursuant to
Alternative Calculation I, the conversion ratio
would be 1.238 (13 / 10.50). There is no change in
the general Conversion Price ($9.23 after the
first
15
<PAGE> 17
anniversary of the Original Issue Date as a result
of the prior issuances) as a result of the $9.50
per share sale to the investor, and Alternative
Calculation II is not triggered because the option
grant limit for the then current Excess Issuance
Period has not been reached.
Example 3 Assume the only prior issuances or deemed
issuances of Additional Shares of Common Stock are
those described in Examples 1 and 2. Eighteen
months after the Original Issue Date, the
Corporation issues 500,000 shares to an investor
at a per share price of $9.00 and options to
purchase an aggregate of 185,000 shares to
employees at an exercise price of $11.25 per
share. Pursuant to Alternative Calculation II
(triggered because the aggregate option grants in
the then current Excess Issuance Period exceeds
300,000) the conversion ratio is now 1.524 (16 /
10.50). The reduction of the general Conversion
Price to $9.00 as a result of the sale to the
investor results in a lesser increase in the
conversion ratio than does Alternative Calculation
II.
Example 4 Assume the same facts as in Example 3, except that
options to purchase only 175,000 additional shares
were issued. Conversion Alternative II is not
triggered. While the general Conversion Price is
reduced to $9.00, the conversion ratio of 1.238
under Alternative Calculation I remains higher.
(ii) Fractional Shares. No fractional shares of Common Stock shall
be issued upon conversion of the Series A Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Conversion
Price.
(iii) Mechanics of Conversion.
(a) In order for a holder of Series A Stock to convert shares
of Series A Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates representing such shares of Series A Stock, at the
office of the transfer agent for the Series A Stock (or at the principal office
of the Corporation if the Corporation serves as its own transfer agent),
together with written notice that such holder elects to convert all or any
number of the shares of the Series A Stock represented by such certificate or
certificates. Such notice shall state such holder's name or the names of the
nominees in which such holder wishes the certificate or certificates for shares
of Common Stock to be issued. If required by the Corporation, the certificates
surrendered for conversion shall be endorsed or accompanied by a written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his, her or its attorney duly
16
<PAGE> 18
authorized in writing. The date of receipt of such certificates and notice by
the transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) is hereinafter referred to as the "Conversion Date". The
Corporation shall, as soon as practicable after the Conversion Date, issue and
deliver to such holder of Series A Stock, or to his, her or its nominees, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled, together with cash in lieu of any fraction of a
share, and cash in an amount equal to any declared but unpaid dividends on the
Series A Stock converted. All shares of Common Stock issued upon the conversion
of shares of Series A Stock shall be duly authorized, validly issued, fully paid
and nonassessable.
(b) The Corporation shall, at all times when any shares of
Series A Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the Series A Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Stock.
(c) Upon any such conversion, the Corporation shall pay in cash
to the holder of the Series A Stock surrendered for conversion the full amount
of any declared but unpaid dividends on the Series A Stock surrendered for
conversion. No adjustment to the Conversion Price shall be made for any declared
but unpaid dividends on the Series A Stock surrendered for conversion or on the
Common Stock delivered upon such conversion.
(d) All shares of Series A Stock that shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights to
receive notices and to designate a director or otherwise vote as provided in
this Article 9, shall immediately cease and terminate on the Conversion Date,
except for the right of the holders thereof to receive shares of Common Stock in
exchange therefor and payment of any dividends declared or accrued but unpaid
thereon. Any shares of Series A Stock so converted shall be retired and canceled
and shall not be reissued, and shall thereafter constitute shares of Preferred
Stock not designated as to class or series.
(e) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issuance or delivery of shares of Common
Stock upon conversion of shares of Series A Stock pursuant to this subsection 4.
The Corporation shall not, however, be required to pay any tax that may be
payable in respect of any transfer involved in the issuance and delivery of
shares of Common Stock in a name other than that in which the shares of Series A
Stock so converted were registered, and no such issuance or delivery shall be
made unless and until the person or entity requesting such issuance has paid to
the Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that such tax has been paid.
(iv) Adjustments to Conversion Price for Dilutive Issues.
17
<PAGE> 19
(a) Special Definitions. For purposes of this subsection 4(iv),
the following definitions shall apply:
(A) "Option" shall mean options, warrants or rights of any
kind or nature, contingent or otherwise, to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities.
(B) "Original Issue Date" shall mean the date on which
shares of Series A Stock are first issued.
(C) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(D) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to subsection 4(iv)(c) below, deemed
to be issued) by the Corporation after the Original Issue Date, other than
shares of Common Stock issued or issuable:
(I) upon conversion of shares of Series A Stock;
(II) as a dividend or distribution on shares of Series
A Stock;
(III) by reason of a dividend, stock split, split-up or
other distribution on shares of Common Stock that are excluded from the
definition of Additional Shares of Common Stock by the foregoing clauses (I) and
(II) or this clause (III); or
(IV) to officers, directors, employees or consultants
of the Corporation in accordance with subsection 3(iii)(l) during the period
from the date hereof until the earlier of the six-month anniversary of the
Original Issue Date or the consummation of the Corporations's initial public
offering registered under the Securities Act of 1933.
(b) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the Series A Stock is convertible
shall be made by adjustment in the Conversion Price pursuant to this subsection
4(iv) unless the consideration per share (determined pursuant to subsection
4(iv)(e)) for an Additional Share of Common Stock issued or deemed to be issued
by the Corporation is less than the Conversion Price in effect on the date of,
and immediately prior to, the issue of such Additional Shares.
(c) Deemed Issue of Additional Shares of Common Stock. If the
Corporation at any time or from time to time after the Original Issue Date shall
issue any Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares of Common
Stock issuable upon the exercise of such Options
18
<PAGE> 20
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities (in each case without regard to any
restrictions upon, or conditions to, such exercise, conversion or exchange),
shall be deemed to be Additional Shares of Common Stock, subject to the
limitations of subsection 4(iv)(a)(D), issued as of the time of issuance of such
Options or Convertible Securities or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that Additional
Shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to subsection 4(iv)(e) hereof) of
such Additional Shares of Common Stock would be less than the applicable
Conversion Price in effect on the date of and immediately prior to such issue,
or such record date, as the case may be, and provided further that in any such
case in which Additional Shares of Common Stock are deemed to be issued:
(A) No further adjustment in the Conversion Price shall be
made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any decrease in the
consideration payable to the Corporation, or any increase in the number of
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, insofar as such increase or decrease would
affect such Options or the rights of conversion or exchange under such
Convertible Securities, be calculated as if such increase or decrease were in
effect on the original date of issuance of such Options or Convertible
Securities; provided, however, that any increase or decrease occurring as a
result of the operation of customary antidilution provisions shall be taken into
account, and the Conversion Price recomputed, only upon such increase or
decrease becoming effective (provided, however, that no such adjustment of the
Conversion Price shall affect shares of Common Stock previously issued upon
conversion of the Series A Stock);
(C) If (I) all Options the issuance of which gave rise to
an adjustment in the Conversion Price shall expire or terminate unexercised, or
(II) the conversion rights of all Convertible Securities the grant or issuance
of which gave rise to an adjustment in the Conversion Price shall expire
unexercised, then the Conversion Price shall be readjusted to such Conversion
Price as would have been in effect had the adjustment which was made upon the
grant or issuance of such Options or Convertible Securities not been made;
(D) In the event of any change in the exercise price or the
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of any Option or Convertible Security, including, but not limited to, a
change resulting from the anti-dilution provisions thereof, the Conversion Price
then in effect shall forthwith be readjusted to such Conversion Price as would
have been in effect had the adjustment which was made upon the
19
<PAGE> 21
issuance of such Option or Convertible Security not exercised or converted prior
to such change been made upon the basis of such change; and
(E) No readjustment pursuant to clause (B), (C) or (D)
above shall have the effect of increasing the Conversion Price to a price that
exceeds the lower of (I) the Conversion Price on the original adjustment date,
or (II) the Conversion Price that would otherwise have resulted from any
issuances of Additional Shares of Common Stock between the original adjustment
date and such readjustment date.
(d) Adjustment of Conversion Price Upon Issuance of Additional
Shares of Common Stock. In the event the Corporation shall at any time after the
Original Issue Date issue Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant to subsection
4(iv)(c), but excluding shares issued as a dividend or distribution as provided
in subsection 4(vi) or upon a stock split or combination as provided in
subsection 4(v)), without consideration or for a consideration per share less
than the applicable Conversion Price in effect on the date of and immediately
prior to such issue, then and in such event, such Conversion Price shall be
reduced, concurrently with such issue, to the amount of the per share
consideration for such issuance.
(e) Determination of Consideration. For purposes of subsection
4(iv)(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at
the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest or accrued dividends;
(II) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock
are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (I) and (II) above,
as determined in good faith by the Board of Directors.
(B) Options and Convertible Securities. The consideration
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to subsection 4(iv)(c), relating to Options
and Convertible Securities, shall be determined by dividing:
20
<PAGE> 22
(I) the total amount, if any, received or receivable
by the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by
(II) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(v) Adjustment for Stock Splits and Combinations. If the
Corporation shall at any time or from time to time after the Original Issue
Date effect, or fix a record date for effecting, a subdivision of the
outstanding Common Stock, the Conversion Price then in effect immediately
before that subdivision shall be proportionately decreased. If the Corporation
shall at any time or from time to time after the Original Issue Date combine,
or fix a record date for combining, the outstanding shares of Common Stock, the
Conversion Price then in effect immediately before that record date or
combination shall be proportionately increased. Any adjustment under this
subsection 4(v) shall become effective at the close of business as of the
record date fixed or, if no record date is fixed, the date the subdivision or
combination becomes effective.
(vi) Adjustment for Certain Dividends and Distributions. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive, directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Share Equivalents")
without the payment of any consideration by such holder for such additional
shares of Common Stock or Common Share Equivalents, then and in each such event
the Conversion Price then in effect shall be decreased as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date, by multiplying the Conversion Price then
in effect by a fraction:
(a) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(b) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in
21
<PAGE> 23
payment of such dividend or distribution or in respect of the Common Share
Equivalents so issuable; provided, however, if such record date shall have been
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Conversion Price shall be recomputed
accordingly as of the close of business on such record date and thereafter the
Conversion Price shall be adjusted pursuant to this subsection 4(vi) as of the
time of actual payment of such dividends or distributions.
(vii) Adjustments for Other Dividends and Distributions. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall make or issue, or fix a record date for the determination of holders
of Common Stock entitled to receive, a dividend or other distribution payable in
indebtedness or securities of the Corporation other than shares of Common Stock,
then and in each such event provision shall be made so that the holders of the
Series A Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had the Series A Stock been converted
into Common Stock immediately prior to such dividend or distribution or, in the
event a record date shall have been fixed, immediately prior to such record
date, and had thereafter, during the period from the date of such event to and
including the conversion date, retained such securities receivable by them as
aforesaid during such period, giving application to all adjustments called for
during such period under this subsection with respect to the rights of the
holders of Series A Stock.
(viii) Adjustment for Reclassification or Change. If the Common
Stock issuable upon the conversion of the Series A Stock shall be changed into
the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
reorganization, merger, consolidation, or sale of assets provided for below),
then and in each such event the holder of each share of Series A Stock shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification, or other change, by holders of the number of
shares of Common Stock into which the shares of Series A Stock might have been
converted immediately prior to such reorganization, reclassification, or change,
all subject to further adjustment as provided herein.
(ix) Adjustment for Merger or Reorganization, etc. In the case of
any consolidation or merger of the Corporation with or into another corporation
or the sale of all or substantially all of the assets of the corporation to
another corporation (other than a consolidation, merger or sale which the
holders of the Series A Stock have elected to treat as a liquidation pursuant to
subsection 2(ii)), each share of Series A Stock shall thereafter be convertible
(or shall be converted into a security which shall be convertible) into the kind
and amount of shares of stock or other securities or property to which a holder
of the number of shares of Common Stock of the Corporation deliverable upon
conversion of such Series A Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made
22
<PAGE> 24
in the application of the provisions in this subsection 4 set forth with respect
to the rights and interests thereafter of the holders of the Series A Stock, to
the end that the provisions set forth in this subsection (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Series A Stock.
(xi) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
subsection 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of Series A
Stock against impairment.
(xii) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this subsection
4, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series A Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series A Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (a) such adjustments and readjustments, (b) the
Conversion Price then in effect, and (c) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series A Stock.
(xiii) Notice of Record Date. In the event:
(a) that the Corporation declares any dividend or other
distribution on any class or series of capital stock, whether in cash, property,
stock or other securities;
(b) that the Corporation subdivides or combines it outstanding
shares of Common Stock;
(c) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(d) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation; then the Corporation shall cause to be filed
at its principal office or at the office of the transfer agent of the Series A
Stock, and shall cause to be mailed to the holders
23
<PAGE> 25
of the Series A Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least twenty days prior to the dates
specified in (A) and (B) below, a notice stating:
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined; or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up. Such notice shall
describe the material terms and conditions of the impending event or
transaction, and the Corporation shall thereafter give the holders of the Series
A Stock prompt notice of any material change therein. No event or transaction
shall take place sooner than twenty (20) days after the Corporation has given
the first notice provided for herein, or sooner than ten (10) days after the
Corporation has given notice of any material changes provided for herein.
(5) Mandatory Conversion.
(i) All outstanding shares of Series A Stock shall automatically
be converted into shares of Common Stock, at the then effective Conversion Price
and Base Amount, upon the closing of the sale by the Corporation of shares of
Common Stock, at a price of at least $11.00 per share (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other similar
recapitalizations affecting such shares), in a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act resulting in at least $10,000,000 of gross proceeds to the
Corporation (a"Qualifying Public Offering"); provided, however, that the $11.00
price per share requirement shall be deemed satisfied if (a) the registration
pursuant to which a public offering otherwise satisfying the foregoing
requirements is made is first filed with the Securities and Exchange Commission
after the first anniversary date of the Original Issue Date and (b) the per
share sales price is at least $8.00 (subject to appropriate adjustment as
provided above). The date on which the closing of a Qualifying Public Offering
occurs is hereinafter referred to as the "Mandatory Conversion Date."
(ii) All holders of record of shares of Series A Stock will be
given written notice of the Mandatory Conversion Date and the place designated
for Mandatory Conversion of all such shares of Series A Stock pursuant to this
subsection 5. Such notice shall be sent by first class or registered mail,
postage prepaid, to each record holder of Series A Stock at such holder's
address last shown on the records of the transfer agent for the Series A Stock
(or the records of the Corporation, if it serves as its own transfer agent).
Upon receipt of such notice, each holder of shares of Series A Stock shall
surrender his, her or its certificate
24
<PAGE> 26
or certificates for all such shares to the Corporation at the place designated
in such notice, and shall thereafter receive certificates for the number of
shares of Common Stock to which such holder is entitled pursuant to this
subsection 5. On the Mandatory Conversion Date, all rights with respect to the
Series A Stock so converted, including the rights, if any, to receive notices
and to designate a director or otherwise vote as provided in this Article 9,
will terminate, except for the rights of the holders thereof, upon surrender of
their certificate or certificates therefor, to receive certificates for the
number of shares of Common Stock into which such Series A Stock has been
converted, and payment of any declared but unpaid dividends thereon. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his, her or its attorney duly authorized in writing. As soon as practicable
after the Mandatory Conversion Date and the surrender of the certificate or
certificates for Series A Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his, her or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
subsection 4(ii) in respect of any fraction of a share of Common Stock otherwise
issuable upon such conversion.
(iii) All certificates evidencing shares of Series A Stock which are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the Mandatory Conversion Date, be deemed to have
been retired and canceled and the shares of Series A Stock represented thereby
converted into Common Stock for all purposes, notwithstanding the failure of the
holder or holders thereof to surrender such certificates on or prior to such
date. The Corporation may thereafter take such appropriate action (without the
need for shareholder action) as may be necessary to reduce the authorized Series
A Stock accordingly.
25
<PAGE> 1
Exhibit 3.2
BY-LAWS
OF
TEMPLATE SOTWARE, INC.,
A VIRGINIA CORPORATION
ARTICLE 1.
Meetings of Shareholders.
1.1 Places of Meetings. All meetings of the shareholders shall be held
at such place, either within or without the Commonwealth of Virginia, as from
time to time may be fixed by the Board of Directors.
1.2 Annual Meetings. The date and time of the annual meeting of the
shareholders for the election of Directors and transaction of such other
business as may come before the meeting shall be fixed by the President or the
Board of Directors, but if no such date and time is fixed by the President or
the Board of Directors, the annual meeting shall be held in each year on the
third Tuesday in May, at 10:00 a.m. If that day is a legal holiday, the annual
meeting shall be held on the next succeeding day not a legal holiday.
1.3 Special Meetings. A special meeting of the shareholders for any
purpose or purposes may be called at any time by the Chairman of the Board, the
Vice-Chairman of the Board, the Chief Executive Officer or the President (if he
is also the Chief Executive Officer) or by a majority of the Board of Directors.
At a special meeting no business shall be transacted and no corporate action
shall be taken other than that stated in the notice of the meeting.
1.4 Notice of Meetings. A written or printed notice stating the place,
day and hour of every meeting of the shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
mailed not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each shareholder of record entitled to vote at such meeting, at
his address which appears in the share transfer books of the Corporation. Such
further notice shall be given as may be required by law, but meetings may be
held without notice if all the shareholders entitled to vote at the meeting are
present in person or
<PAGE> 2
by proxy or if notice is waived in writing by those not present, either before
or after the meeting.
1.5 Quorum. Except as otherwise required by the Articles of
Incorporation, any number of shareholders together holding at least a majority
of the outstanding shares of capital stock entitled to vote with respect to the
business to be transacted, who shall be present in person or represented by
proxy at any meeting duly called, shall constitute a quorum for the transaction
of business. If less than a quorum shall be in attendance at the time for which
a meeting shall have been called, the meeting may be adjourned from time to time
by a majority of the shareholders present or represented by proxy without notice
other than by announcement at the meeting.
1.6 Telephonic Meetings. Meetings may be held by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and participation in a meeting
pursuant to this paragraph shall constitute presence in person at a meeting.
1.7 Voting. At any meeting of the shareholders, each shareholder of a
class entitled to vote on any matter coming before the meeting shall, as to such
matter, have one vote, in person or by proxy, for each share of capital stock of
such class standing in his name on the books of the Corporation on the date, not
more than seventy (70) days prior to such meeting, fixed by the Board of
Directors as the record date for the purpose of determining shareholders
entitled to vote. Every proxy shall be in writing, dated and signed by the
shareholder entitled to vote or his duly authorized attorney-in-fact.
1.8 Inspectors. An appropriate number of inspectors for any meeting of
shareholders may be appointed by the Chairman of such meeting in his discretion.
Inspectors, if so appointed, shall have such duties as may be determined by the
Chairman, which duties may include opening and closing the polls, receiving and
taking charge of proxies and ballots, and deciding questions as to the
qualifications of voters, validity of proxies and ballots, and the number of
votes properly cast.
1.9 Shareholder Proposals.
(a) To be properly brought before an annual meeting of
shareholders, business may be (i) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors, (ii)
otherwise properly brought before the meeting by or at the direction of the
Board of Directors, or (iii) otherwise properly brought before the meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be given, either by
personal delivery or by United States mail, postage prepaid, to the Secretary of
the Corporation not later than ninety (90) days in advance of the annual
meeting. A shareholder's notice to the Secretary shall set forth as to
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<PAGE> 3
each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting (including the specific proposal to be presented) and the reasons for
conducting such business at the annual meeting, (ii) the name and record address
of the shareholder proposing such business, (iii) the class and number of shares
of the Corporation that are beneficially owned by the shareholder, and (iv) any
material interest of the shareholder in such business. If a shareholder complies
with the provisions of this Section 1.8, the Board of Directors may allow such
matter to be brought before the meeting, in its discretion.
(b) In the event that a shareholder attempts to bring business
before an annual meeting without complying with the provisions of this Section
1.8, the Chairman of the meeting shall declare to the meeting that the business
was not properly brought before the meeting in accordance with the foregoing
procedures, and such business shall not be transacted.
(c) No business shall be conducted at the annual meeting
except in accordance with the procedures set forth in this Section 1.8,
provided, however, that nothing in this Section 1.8 shall be deemed to preclude
discussion by any shareholder of any business properly brought before the annual
meeting.
ARTICLE 2.
Directors.
2.1 General Powers. The property, affairs and business of the
Corporation shall be managed under the direction of the Board of Directors, and,
except as otherwise expressly provided by law, the Articles of Incorporation or
these By-laws, all of the powers of the Corporation shall be vested in such
Board.
2.2 Number of Directors. The number of Directors constituting the Board
of Directors shall be established from time to time by resolution of the Board
of Directors, but shall be not less than three (3) nor more than fifteen (15).
At any regular or special meeting called for that purpose, the Board of
Directors may by affirmative vote of a majority of the members of the Board of
Directors establish, increase or decrease the number of Directors, provided that
the tenure of office of an incumbent Director shall not be affected by any
decrease in the number of Directors. As set forth in the Articles of
Incorporation, the Board of Directors shall be divided into three Classes.
Directors need not be shareholders of the Corporation.
2.3 Election of Directors; Vacancies; Quorum.
(a) Directors shall be elected at each annual meeting of
shareholders to succeed those Directors whose terms have expired and to fill any
vacancies then existing.
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(b) Any vacancy occurring on the Board of Directors by reason
of death, disability, resignation, removal or otherwise, shall be filled by
action of a majority of the remaining members of the Board of Directors,
although such majority is less than a quorum. Any vacancy occurring by reason of
an increase in the number of Directors shall be filled by action of a majority
of the members of the Board of Directors. Any Director elected by the Board of
Directors shall serve until the next annual meeting of shareholders. If there
are not Directors in office, then an election of Directors may be held in
accordance with the Virginia Stock Corporation Act.
(c) A majority of the number of Directors prescribed in these
By-laws shall constitute a quorum for the transaction of business. The act of a
majority of Directors present at a meeting at which a quorum is present shall be
the act of the Board of Directors. Less than a quorum may adjourn any meeting.
2.4 Meetings of Directors. An annual meeting of the Board of Directors
shall be held on the date of the annual meeting of shareholders at such place as
the Board may designate. Other meetings of the Board of Directors shall be held
at places within or without the Commonwealth of Virginia and at times fixed by
resolution of the Board, or upon call of the Chairman of the Board, the
Vice-Chairman of the Board, the Chief Executive Officer (if he is also a
director) or the President (if he is also a director and serves as the Chief
Executive Officer), or a majority of the Directors. The Secretary or officer
performing the Secretary's duties shall give 30 days written notice of each
regular quarterly meeting and not less than twenty-four (24) hours' notice by
letter, telegraph or telephone (or in person) of any special meeting of the
Board of Directors. Meetings may be held at any time without notice if all of
the Directors are present, or if those not present waive notice in writing
either before or after the meeting. The notice of meetings of the Board need not
state the purpose of the meeting.
2.5 Telephonic Meetings. Members of the Board of Directors may
participate in a meeting of such Board by means of conference telephone or other
similar communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting pursuant to this
paragraph shall constitute presence in person at such meeting.
2.6 Compensation. By resolution of the Board, Directors may be allowed
a fee and expenses for attendance at all meetings, but nothing herein shall
preclude Directors from serving the Corporation in other capacities and
receiving compensation for such other services.
2.7 Nominations. Subject to the rights of holders of any class or
series of Preferred Stock, nominations for the election of Directors shall be
made by the Board of Directors or a committee appointed by the Board of
Directors or by any shareholder entitled to vote in the election of Directors
generally. However, any shareholder entitled to vote in the election of
Directors generally may nominate one or more persons for election as
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Directors at a meeting only if written notice of such shareholder's intent to
make such nomination or nominations has been given, either by personal delivery
or by United States mail, postage prepaid, to the Secretary of the Corporation
not later than (i) with respect to an election to be held at an annual meeting
of shareholders, ninety (90) days in advance of such meeting, and (ii) with
respect to an election to be held at a special meeting of shareholders for the
election of Directors, the close of business on the seventh day following the
date on which notice of such meeting is first given to shareholders. Each notice
shall set forth: (a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as a Director of the Corporation if
so elected. The Chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
ARTICLE 3.
Committees.
3.1 Executive Committee. The Board of Directors, by resolution adopted
by a majority of the number of Directors then in office, may elect an Executive
Committee which shall consist of not less than three (3) Directors, which shall
include the Chief Executive Officer (if he is also a director), or the President
(if he is also the Chief Executive Officer and a director). When the Board of
Directors is not in session, the Executive Committee shall have all power vested
in the Board of Directors by law, by the Articles of Incorporation, or by these
By-laws, provided that the Executive Committee shall not have power to (i)
approve or recommend to shareholders action that the Virginia Stock Corporation
Act requires to be approved by shareholders; (ii) fill vacancies on the Board or
on any of its committees; (iii) amend the Articles of Incorporation pursuant to
Section 13.1-706 of the Virginia Code or adopt, amend, or repeal the By-laws;
(iv) approve a plan of merger not requiring shareholder approval; (v) authorize
or approve a distribution, except according to a general formula or method
prescribed by the Board of Directors; or (vi) authorize or approve the issuance
or sale or contract for sale of shares, or determine the designation and
relative rights, preferences, and limitations of a class or series of shares,
other than within limits specifically prescribed by the Board of Directors. The
Executive Committee shall report at the next regular or special meeting of the
Board of Directors all action which the Executive Committee may have taken on
behalf of the Board since the last regular or special meeting of the Board of
Directors.
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3.2 Finance Committee. The Board of Directors, by resolution adopted by
a majority of the number of Directors then in office, may elect a Finance
Committee which shall consist of not less than three Directors. The Finance
Committee shall consider and report to the Board with respect to plans for
corporate expansion, capital structure and long-range financial requirements.
The Committee shall also consider and report to the Board with respect to such
other matters relating to the financial affairs of the Corporation as may be
requested by the Board or the appropriate officers of the Corporation. The
Committee shall report periodically to the Board of Directors on all action
which it may have taken.
3.3 Audit Committee. The Board of Directors shall designate annually an
Audit Committee which shall consist of three or more directors whose membership
on the Audit Committee shall meet the requirements set forth in the rules of the
Nasdaq National Market System or any securities exchange on which the
Corporation's Securities are traded, as amended from time to time. Vacancies in
the Committee shall be filled by the Board of Directors with directors meeting
the requirements set forth above, giving consideration to continuity of the
Committee, and members shall be subject to removal by the Board at any time. The
Committee may, by resolution, fix its own rules of procedure and a majority of
the members serving shall constitute a quorum. The Committee shall review the
reports and minutes of any audit committees of the Corporation's subsidiaries.
The Committee shall review the Corporation's financial reporting process,
including accounting policies and procedures. The Committee shall examine the
report of the Corporation's outside auditors, consult with them with respect to
their report and the standards and procedures employed by them in their audit,
report to the Board the results of its study and recommend the selection of
auditors for each fiscal year.
3.4 Compensation Committee. The Board of Directors, by resolution
adopted by a majority of the number of Directors then in office, may elect a
Compensation Committee which shall consist of not less than three Directors, a
majority of whom shall not be officers of the Corporation. The Compensation
Committee shall have the authority to determine compensation for the
Corporation's executive officers, including salaries, any fringe benefits, bonus
plans or deferred compensation and to administer any stock option or equity
incentive plans adopted by the Corporation.
3.5 Other Committees. The Board of Directors, by resolution adopted by
a majority of the number of Directors then in office, may establish such other
standing or special committees of the Board as it may deem advisable, consisting
of not less than three Directors; and the members, terms and authority of such
committees shall be as set forth in the resolutions establishing the same.
3.6 Meetings. Regular and special meetings of any Committee established
pursuant to this Article may be called and held subject to the same requirements
with respect to time, place and notice as are specified in these By-laws for
regular and special meetings of the Board of Directors.
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3.7 Quorum and Manner of Acting. A majority of the members of any
Committee serving at the time of any meeting thereof shall constitute a quorum
for the transaction of business at such meeting. The action of a majority of
those members present at a Committee meeting at which a quorum is present shall
constitute the act of the Committee.
3.8 Term of Office. Members of any Committee shall be elected as above
provided and shall hold office until their successors are elected by the Board
of Directors or until such Committee is dissolved by the Board of Directors.
3.9 Resignation and Removal. Any member of a Committee may resign at
any time by giving written notice of his intention to do so to the President or
the Secretary of the Corporation, or may be removed, with or without cause, at
any time by such vote of the Board of Directors as would suffice for his
election.
3.10 Vacancies. Any vacancy occurring in a Committee resulting from any
cause whatever may be filled upon the vote of a majority of the Directors.
ARTICLE 4.
Officers.
4.1 Election of Officers; Terms. The officers of the Corporation shall
consist of a President, a Secretary and a Treasurer. Other officers, including a
Chairman of the Board, a Chief Executive Officer, one or more Vice-Presidents
(whose seniority and titles, including Executive Vice-Presidents and Senior
Vice-Presidents, may be specified by the Board of Directors), and assistant and
subordinate officers, may from time to time be elected by the Board of
Directors. All officers shall hold office until the next annual meeting of the
Board of Directors and until their successors are elected. The Chairman of the
Board, if any, shall be chosen from among the Directors. Any two officers may be
combined in the same person as the Board of Directors may determine.
4.2 Removal of Officers; Vacancies. Any officer of the Corporation may
be removed summarily with or without cause, at any time, by the Board of
Directors. Vacancies may be filled by the Board of Directors.
4.3 Duties. The officers of the Corporation shall have such duties as
generally pertain to their offices, respectively, as well as such powers and
duties as are prescribed by law or are hereinafter provided or as from time to
time shall be conferred by the Board of Directors. The Board of Directors may
require any officer to cooperate with the Corporation in obtaining a bond for
the faithful performance of his duties as the Board may see fit.
4.4 Chairman and Vice Chairman of the Board. The Chairman of the Board,
if there be one, shall preside over the meetings of the Board of Directors and
of the shareholders at which he shall be present. In the absence of the Chairman
of the Board, the Vice Chairman of the Board, if there be one, shall preside at
such meetings at which he shall
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be present. The Chairman of the Board and the Vice Chairman of the Board shall,
respectively, perform such other duties as may be assigned to him or them by the
Board of Directors.
4.5 Chief Executive Officer. Subject to the control of the Board of
Directors and such supervisory powers, if any, as may be given by the Board of
Directors, the Chief Executive Officer, if one is elected, shall act as the
general manager and shall have general supervision, direction and control of the
business affairs of the Corporation. Subject to the direction of the Board of
Directors, the Chief Executive Officer shall have general charge of the property
of the Corporation and shall supervise and control all officers, agents and
employees of the Corporation.
4.6 Duties of the President. The President shall be the Chief Executive
Officer of the Corporation unless the Board of Directors shall have designated
another officer to be the Chief Executive Officer of the Corporation. Subject to
the provisions of these By-Laws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board or the Vice Chairman, the President shall have the
general powers and duties and supervision and management usually vested in the
office of the President of a corporation. He shall have authority over the
general management and direction of the business and operations of the
Corporation and its divisions, if any, subject only to the ultimate authority of
the Board of Directors. In the absence of the Chairman, the Vice-Chairman of the
Board or the Chief Executive Officer, or if there are no such officers, the
President shall preside at all corporate meetings. He may sign and execute in
the name of the Corporation share certificates, deeds, mortgages, bonds,
contracts or other instruments, except in cases where the signing and the
execution thereof shall be expressly delegated by the Board of Directors or by
these By-laws to some other officer or agent of the Corporation or shall be
required by law otherwise to be signed or executed. In addition, he shall
perform all duties incident to the office of the President and such other duties
as from time to time may be assigned to him by the Board of Directors.
4.7 Duties of the Vice-Presidents. Each Vice-President, if any, shall
have such powers and duties as may from time to time be assigned to him by the
President or the Board of Directors.
4.8 Duties of the Treasurer. The Treasurer shall have such powers and
duties as may from time to time be assigned to him by the President or the Board
of Directors. In the absence of a Vice President of Finance, the Treasurer shall
have charge of and be responsible for all funds, securities, receipts and
disbursements of the Corporation, and shall deposit all monies and securities of
the Corporation in such banks and depositories as shall be designated by the
Board of Directors and shall be responsible (i) for maintaining adequate
financial accounts and records in accordance with generally accepted accounting
practices; (ii) for the preparation of appropriate operating budgets and
financial statements; (iii) for the
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preparation and filing of all tax returns required by law; and (iv) for the
performance of all duties incident to the office of Treasurer and such other
duties as from time to time may be assigned to him by the Board of Directors,
the Finance Committee or the President. The Treasurer may sign and execute in
the name of the Corporation share certificates, deeds, mortgages, bonds,
contracts or other instruments, except in cases where the signing and the
execution thereof shall be expressly delegated by the Board of Directors or by
these By-laws to some other officer or agent of the Corporation or shall be
required by law or otherwise to be signed or executed.
4.9 Duties of the Secretary. The Secretary shall act as secretary of
all meetings of the Board of Directors and shareholders of the Corporation. When
requested, he shall also act as secretary of the meetings of the committees of
the Board. He shall keep and preserve the minutes of all such meetings in
permanent books. He shall see that all notices required to be given by the
Corporation are duly given and served; shall have custody of the seal of the
Corporation and shall affix the seal or cause it to be affixed to all share
certificates of the Corporation and to all documents the execution of which on
behalf of the Corporation under its corporate seal is duly authorized in
accordance with law or the provisions of these By-laws; shall have custody of
all deeds, leases, contracts and other important corporate documents; shall have
charge of the books, records and papers of the Corporation relating to its
organization and management as a Corporation; shall see that all reports,
statements and other documents required by law (except tax returns) are properly
filed; and shall in general perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Board of Directors or the President.
4.10 Assistant Treasurers and Assistant Secretaries. Assistant
Treasurers and Assistant Secretaries, if any are appointed, shall be elected and
shall have such powers and perform such duties as shall be assigned to them,
respectively, by the directors. Such Assistant Treasurers and Assistant
Secretaries shall, in the absence of the Treasurer or Secretary, respectively,
or in the event of their inability or refusal to act, perform the duties and
exercise the powers of the Treasurer or Secretary, as the case may be.
4.11 Compensation. The Compensation Committee, if appointed, shall have
the authority to fix the compensation of all officers of the Corporation. If no
Compensation Committee is appointed, the Board of Directors shall have authority
to fix the compensation of all officers of the Corporation.
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ARTICLE 5.
Capital Stock.
5.1 Certificates. The shares of capital stock of the Corporation shall
be evidenced by certificates in forms prescribed by the Board of Directors and
executed in any manner permitted by law and stating thereon the information
required by law. Transfer agents and/or registrars for one or more classes of
shares of the Corporation may be appointed by the Board of Directors and may be
required to countersign certificates representing shares of such class or
classes. If any officer whose signature or facsimile thereof shall have been
used on a share certificate shall for any reason cease to be an officer of the
Corporation and such certificate shall not then have been delivered by the
Corporation, the Board of Directors may nevertheless adopt such certificate and
it may then be issued and delivered as though such person had not ceased to be
an officer of the Corporation.
5.2 Lost, Destroyed and Mutilated Certificates. Holders of the shares
of the Corporation shall immediately notify the Corporation of any loss,
destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such shareholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
5.3 Transfer of Shares. The shares of the Corporation shall be
transferable or assignable only on the books of the Corporation by the holder in
person or by attorney on surrender of the certificate for such shares duly
endorsed and, if sought to be transferred by attorney, accompanied by a written
power of attorney to have the same transferred on the books of the Corporation.
The Corporation will recognize the exclusive right of the person registered on
its books as the owner of shares to receive dividends and to vote as such owner.
5.4 Fixing Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than seventy
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If no record date is fixed for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders, or shareholders entitled to receive payment of a dividend, the
date on which notices of the meeting are mailed or the date on which the
resolution of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination shall
apply to any adjournment thereof unless
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the Board of Directors fixes a new record date, which it shall do if the meeting
is adjourned to a date more than 120 days after the date fixed for the original
meeting.
ARTICLE 6.
Miscellaneous Provisions.
6.1 Seal. The seal of the Corporation, if any, shall consist of a
flat-faced circular die, of which there may be any number of counterparts, on
which there shall be engraved the word "Seal" and the name of the Corporation.
6.2 Fiscal Year. The fiscal year of the Corporation shall end on such
date and shall consist of such accounting periods as may be fixed by the Board
of Directors or any Committee thereof to whom the Board of Directors shall have
designated such responsibility.
6.3 Checks, Notes and Drafts. Checks, notes, drafts and other orders
for the payment of money shall be signed by such persons as the Board of
Directors from time to time may authorize. When the Board of Directors so
authorizes, however, the signature of any such person may be a facsimile.
6.4 Amendment of By-laws. Unless proscribed by the Articles of
Incorporation, these By-laws may be amended or altered by the Board of
Directors. The shareholders entitled to vote in respect of the election of
Directors, however, shall have the power to rescind, amend, alter or repeal any
By-laws and to enact By-laws which, if expressly so provided, may not be
amended, altered or repealed by the Board of Directors.
6.5 Voting of Shares Held. Unless otherwise provided by resolution of
the Board of Directors or of the Executive Committee, if any, the President may
from time to time appoint an attorney or attorneys or agent or agents of the
Corporation, in the name and on behalf of the Corporation, to cast the vote
which the Corporation may be entitled to cast as a shareholder or otherwise in
any other corporation, any of whose securities may be held by the Corporation,
at meetings of the holders of the shares or other securities of such other
corporation, or to consent in writing to any action by any such other
corporation; and the President shall instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent and may execute or
cause to be executed on behalf of the Corporation, and under its corporate seal
or otherwise, such written proxies, consents, waivers or other instruments as
may be necessary or proper in the premises. In lieu of such appointment the
President may himself attend any meetings of the holders of shares or other
securities of any such other corporation and there vote or exercise any or all
power of the Corporation as the holder of such shares or other securities of
such other corporation.
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ARTICLE 7.
Emergency By-laws.
The Emergency By-laws provided in this Article VII shall be operative
during any emergency, notwithstanding any different provision in the preceding
Articles of these By-laws or in the Articles of Incorporation of the Corporation
or in the Virginia Stock Corporation Act (other than those provisions relating
to emergency by-laws). An emergency exists if a quorum of the Corporation's
Board of Directors cannot readily be assembled because of some catastrophic
event. To the extent not inconsistent with these Emergency By-laws, the By-laws
provided in the preceding Articles shall remain in effect during such emergency
and upon the termination of such emergency the Emergency By-laws shall cease to
be operative unless and until another such emergency shall occur.
During any such emergency:
(a) Any meeting of the Board of Directors may be called by any
officer of the Corporation or by any Director. The notice thereof shall specify
the time and place of the meeting. To the extent feasible, notice shall be given
in accord with Section 2.4 above, but notice may be given only to such of the
Directors as it may be feasible to reach at the time, by such means as may be
feasible at the time, including publication or radio, and at a time less than
twenty-four hours before the meeting if deemed necessary by the person giving
notice. Notice shall be similarly given, to the extent feasible, to the other
persons referred to in (b) below.
(b) At any meeting of the Board of Directors, a quorum shall
consist of a majority of the number of Directors fixed at the time by Article II
of the By-laws. If the Directors present at any particular meeting shall be
fewer than the number required for such quorum, other persons present as
referred to below, to the number necessary to make up such quorum, shall be
deemed Directors for such particular meeting as determined by the following
provisions and in the following order of priority:
(i) Any persons that are designated on a list that
shall have been approved by the Board of Directors before the emergency, such
persons to be taken in such order of priority and subject to such conditions as
may be provided in the resolution approving the list.
(ii) Vice-Presidents not already serving as
Directors, in the order of their seniority of first election to such offices, or
if two or more shall have been first elected to such offices on the same day, in
the order of their seniority in age;
(iii) All other officers of the Corporation in the
order of their seniority of first election to such offices, or if two or more
shall have been first elected to such offices on the same day, in the order of
their seniority in age; and
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(c) The Board of Directors, during as well as before any such
emergency, may provide, and from time to time modify, lines of succession in the
event that during such an emergency any or all officers or agents of the
Corporation shall for any reason be rendered incapable of discharging their
duties.
(d) The Board of Directors, during as well as before any such
emergency, may, effective in the emergency, change the principal office, or
designate several alternative offices, or authorize the officers so to do.
No officer, Director or employee shall be liable for action taken in
good faith in accordance with these Emergency By-laws.
These Emergency By-laws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, except that
no such repeal or change shall modify the provisions of the next preceding
paragraph with regard to action or inaction prior to the time of such repeal or
change. Any such amendment of these Emergency By-laws may make any further or
different provision that may be practical and necessary for the circumstances of
the emergency.
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<PAGE> 1
TEMPLATE SOFTWARE, INC.
CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
NOVEMBER 27, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
1. Purchase and Sale of Convertible Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
------------------------------------------------
1.1 Sale and Issuance of Convertible Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . 1
------------------------------------------------
2. Representations and Warranties of TSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
-------------------------------------
2.1 Organization, Good Standing and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . 2
---------------------------------------------
2.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
--------------
2.3 Authority; Execution and Delivery; Requisite Consents, Nonviolation . . . . . . . . . . . . . . 3
-------------------------------------------------------------------
2.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
------------
2.5 TSI Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
-------------------------
2.6 Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
-------------------------
2.7 Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
---------------
2.8 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
---------
2.9 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
---------------------
2.10 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
---------
2.11 Labor Union Activities; Employee Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
------------------------------------------
2.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
-----
2.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
----------
2.14 Compliance with Laws; Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-----------------------------
2.15 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
-----
2.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
---------------------
2.17 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
----------------------------
2.18 Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
-------------------
2.19 No Brokers or Finders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
---------------------
2.20 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------------------
2.21 Employee Confidentiality Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------------------------
2.22 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
----------
3. Representations and Warranties of Alcatel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-----------------------------------------
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
------------
3.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
-------------
3.3 No Intended Resale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
------------------
3.4 Disclosure of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
-------------------------
3.5 Investment Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------------------
3.6 Accredited Investor Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
--------------------------
3.7 Restricted Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
---------------------
3.8 Further Limitations on Disposition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
----------------------------------
3.9 Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------
4. Additional Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
---------------------
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
5. Certain Post-Closing Covenants of TSI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
-------------------------------------
5.1 Observer Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
---------------
5.2 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
-----------
5.3 Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
---------------
5.4 Exemption from Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------------------------------
5.5 Accounting and Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-----------------------
5.6 Assistance in Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
-------------------
5.7 Additional Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
--------------------
6. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
-------------
6.1 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
----------
6.2 Tax Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
------------
6.3 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
---------
6.4 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
---------------
6.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
--------
6.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
----------
6.7 Amendment; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-----------------
6.8 APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------------
6.9 JUDICIAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
--------------------
6.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
-------
6.11 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
-----------
6.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
------------
6.13 Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
--------------------
6.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
------------
</TABLE>
ii
<PAGE> 4
EXHIBIT LIST
Exhibit A - Amended and Restated Articles
Exhibit B - Shareholders Agreement
Exhibit C - Registration Rights Agreement
Exhibit D - By-Laws
Exhibit E - Financial Statements
Exhibit F - Employee Confidentiality Agreements
SCHEDULE LIST
Schedule 1 - Schedule of Exceptions
Schedule 2 - Names of Shareholders and holders of Options and/or
Warrants, etc.
Schedule 3 - Subsidiaries
iii
<PAGE> 5
CONVERTIBLE PREFERRED PURCHASE AGREEMENT
This Purchase Agreement ("AGREEMENT") is made as of this 27 day of
November, 1996 by and between Template Software, Inc. ("TSI"), a Virginia
corporation and the successor by merger to Template Software, Inc. ("TSI
MARYLAND"), a Maryland corporation, and Alcatel N.V. ("ALCATEL"), a company
limited by shares with ordinary structure organized under the laws of the
Netherlands.
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Convertible Preferred Stock.
1.1 Sale and Issuance of Convertible Preferred Stock.
Subject to the terms and conditions of this Agreement, Alcatel is hereby
purchasing and TSI is hereby selling and issuing to Alcatel, 500,000 shares of
Series A Convertible Preferred Stock, par value $0.01 (the "SERIES A STOCK"),
of TSI containing the terms set forth in the Articles of Amendment and
Restatement being filed simultaneously with the execution and delivery of this
Agreement in the form attached as Exhibit A hereto (the "AMENDED AND RESTATED
ARTICLES"), at a price of $16 per share of Series A Stock, for an aggregate
purchase price of $8,000,000. The shares of common stock, par value $0.01 per
share, of TSI (the "COMMON STOCK") issuable upon conversion of the Series A
Stock are sometimes hereinafter referred to as the "CONVERSION COMMON STOCK."
Simultaneously with the execution and delivery of this Agreement, TSI is
delivering to Alcatel, at the offices of Proskauer Rose Goetz & Mendelsohn LLP,
1585 Broadway, New York, New York a certificate representing the Series A Stock
issued in the name of Alcatel or such Affiliate (as hereinafter defined) of
Alcatel as Alcatel may specify, against delivery to TSI by Alcatel of a wire
transfer in the amount of the aggregate purchase price therefor.
2. Representations and Warranties of TSI. Except as set forth on
the Schedule of Exceptions furnished to Alcatel and attached hereto as Schedule
1, which specifically identifies the relevant subsections hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder, TSI hereby represents and warrants to, and agrees with, Alcatel as
follows. For purposes of this Section 2: (i) references to TSI (including
indirectly by reference to the Companies) shall be deemed, except where the
context otherwise requires, to include TSI Maryland with respect to any
representation or warranty relating to any events or period of time occurring,
in whole or in part, prior to the effective time of the Merger (as hereinafter
defined), (ii) matters disclosed on any subsection of Schedule 1 shall be
deemed disclosed for purposes of any other subsection, (iii) specific matters
disclosed in the Draft Registration Statement (as hereinafter defined) shall be
deemed disclosed on the relevant subsections of Schedule 1, and (iv) the phrase
"to the best knowledge of TSI" or other similar formulations shall be deemed to
refer to the current actual knowledge of the officers and directors of TSI and
any facts or circumstances of which, after due inquiry, such officers and
directors would reasonably be expected to have actual knowledge.
<PAGE> 6
2.1 Organization, Good Standing and Qualification. Each
of TSI, Template Software UK Limited ("TSUKL"), a corporation organized under
the laws of England and a wholly-owned subsidiary of TSI, and Template Software
Limited ("TSL"), a corporation organized under the laws of England and a
wholly-owned subsidiary of TSI and, together with TSUKL, the "SUBSIDIARIES"
(TSI and the Subsidiaries are sometimes hereinafter collectively referred to as
the "COMPANIES"), is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of the
Companies has all requisite power and authority to carry on its business as now
conducted and as proposed to be conducted. TSI has all requisite power and
authority to enter into and perform this Agreement and the transactions
contemplated hereby. Each of the Companies is duly qualified to transact
business and is in good standing in each jurisdiction in which the failure so
to qualify could have a material adverse effect on its business.
2.2 Capitalization.
(a) The capital stock of TSI consists of: (i)
17,000,000 shares of Common Stock, of which 2,247,008 shares are issued and
outstanding, 500,000 shares are reserved for issuance upon conversion of the
Series A Stock, 2,180,915 shares are reserved for issuance to key employees,
officers and directors under TSI's 1986 Incentive Stock Option Plan, its 1992
Incentive Stock Option Plan, its 1992 Incentive Stock Option Plan, Class B or
its 1992 Nonqualified Stock Option Plan (collectively, the "PRIOR STOCK OPTION
PLANS"), of which 2,100,915 shares are subject to outstanding incentive stock
option grants and 80,000 shares are subject to outstanding non-qualified stock
option grants under the Prior Stock Option Plans, and 1,000,000 shares are
reserved for issuance pursuant to TSI's 1996 Equity Incentive Plan (the "1996
EQUITY PLAN"), of which no shares are subject to outstanding grants or awards;
and (ii) 3,000,000 shares of Preferred Stock, par value $0.01, of TSI, of which
500,000 shares are designated as Series A Stock, all of which Series A shares
are issued and outstanding. The Prior Stock Option Plans have terminated and
no additional options may be granted thereunder. The rights, privileges and
preferences of the Common Stock and Series A Stock are as stated in the Amended
and Restated Articles, which has been duly filed with the Virginia State
Corporation Commission and is in full force and effect.
(b) Except for the outstanding shares of capital
stock and outstanding stock options specified in Subsection 2.2(a) and the
shares of Common Stock reserved for issuance upon exercise of such outstanding
options, pursuant to the 1996 Equity Plan or pursuant to the conversion rights
of the issued and outstanding shares of Series A Stock, TSI: (i) does not have
outstanding any capital stock or other securities convertible into or
exchangeable for any shares of its capital stock, and no Person (as hereinafter
defined) has any right to subscribe for or to purchase (including conversion or
preemptive rights), or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or other claims of any character relating to, any capital stock or
any stock or other securities convertible into or exchangeable for any capital
stock of TSI; (ii) does not have any capital stock, equity interests or other
securities reserved for issuance for any purpose; and (iii) is not subject to
any obligation (contingent or otherwise) to repurchase or otherwise acquire
2
<PAGE> 7
or retire any shares of its capital stock or any convertible securities, rights
or options of the type described in the preceding clause (i). All of the
issued and outstanding shares of Common Stock were duly authorized and have
been validly issued and are fully paid and nonassessable. All of the shares of
Series A Stock and, when issued as contemplated hereby, Conversion Common Stock
will be validly issued, fully paid and nonassessable. Except as set forth in
Part 2.2 of Schedule 1, TSI is not a party to and, to the best knowledge of
TSI, no shareholder of TSI is a party to, any agreement with respect to the
voting or transfer of any of TSI's capital stock, other than the agreements
regarding transfer contained herein, in the proposed Shareholders Agreement in
the form of Exhibit B attached hereto (the "SHAREHOLDERS AGREEMENT"), and in
the proposed Registration Rights Agreement in the form of Exhibit C attached
hereto (the "REGISTRATION RIGHTS AGREEMENT"). Schedule 2 includes a complete
and correct list of the name of each of TSI's shareholders and the number of
shares of Common Stock owned by such shareholder, and the name of each holder
of an outstanding stock option, the number of options to purchase Common Stock
owned by such holder and the exercise prices at which such options may be
exercised. No shares of capital stock of TSI Maryland were issued in violation
of any preemptive or other similar rights.
2.3 Authority; Execution and Delivery; Requisite
Consents, Nonviolation. TSI has all requisite power and authority to execute,
deliver, file (as applicable) and perform this Agreement, the Amended and
Restated Articles, the Shareholders Agreement, the Registration Rights
Agreement and each other document or instrument executed by it, or any of its
officers, in connection herewith or therewith or pursuant hereto or thereto
(this Agreement, together with all of the foregoing documents and instruments,
are sometimes collectively referred to herein as the "COMPANY DOCUMENTS"), and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery, filing and performance of this Agreement and the other Company
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
on the part of TSI and its shareholders. This Agreement and each of the other
Company Documents has been duly executed and delivered by TSI and constitute
the legal, valid and binding obligation of TSI, enforceable against TSI in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency or other similar laws affecting the enforceability of
creditors' rights in general or by general principles of equity. The
execution, delivery, filing and performance of this Agreement and the other
Company Documents (including, without limitation, the Amended and Restated
Articles, the Shareholders Agreement and the Registration Rights Agreement),
and the consummation by TSI of the transactions contemplated hereby and thereby
(including, without limitation, the offer, sale and delivery by TSI of the
Series A Stock and the Conversion Common Stock) does not and will not: (a)
require the consent, license, permit, waiver, approval, authorization or other
action of, by or with respect to, or the registration, declaration or filing
(except for the filing of the Amended and Restated Articles with the Virginia
State Corporation Commission) with, any court or governmental authority,
department, commission, board, bureau, agency or instrumentality, domestic or
foreign (each, a "GOVERNMENTAL AUTHORITY"), or any other individual,
partnership, corporation, unincorporated organization or association, limited
liability company, trust or other entity (collectively, a "PERSON"); (b)
violate or conflict with any provision of the Amended and Restated Articles,
3
<PAGE> 8
TSI's by-laws (a complete and correct copy of which is attached hereto as
Exhibit D); or (c) constitute a default (with or without notice or lapse of
time or both) under, violate or conflict with, or give rise to a right of
termination, cancellation or acceleration or to a loss of a material benefit
under, any Law, Contract, right relating to Intellectual Property, Permit or
Order (as each such capitalized term is hereinafter defined) to which TSI is or
hereafter may be a party or by which TSI or any of its properties are or
hereafter may be bound. The Merger was duly authorized and validly consummated
in accordance with all applicable requirements of Maryland and Virginia Laws.
2.4 Subsidiaries. Schedule 3 correctly sets forth all of
the subsidiaries of TSI, the jurisdiction of incorporation of each such
subsidiary and its authorized capitalization, its outstanding shares of capital
stock outstanding, and the record and beneficial owner of those shares. Except
for the Subsidiaries, TSI does not own or control, directly or indirectly, any
partnership interests, stock or other equity interests in any partnership,
corporation or other entity or any voting rights or right to control the
policies and direction of any partnership, corporation or other entity. There
are not outstanding (and neither TSI nor any Subsidiary has any plan to issue,
grant or enter into) any options, warrants, rights (including conversion or
preemptive rights), subscriptions or agreements for the purchase or acquisition
from or by TSI or any Subsidiary of any shares of capital stock of any
Subsidiary. There are no voting agreements, voting trust agreements,
shareholder agreements or other agreements relating to the capital stock of any
of the Subsidiaries.
2.5 TSI Financial Information. TSI previously has
provided to Alcatel its consolidated balance sheets as of November 30, 1994 and
1995 and August 31, 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the three-year period ended November 30, 1995 and the nine-month period ended
August 31, 1996 (the "FINANCIAL STATEMENTS"), as audited by Coopers & Lybrand,
LLP, who issued their report thereon dated October 25, 1996. Attached hereto
as Exhibit E is a true and complete copy of the Financial Statements. The
Financial Statements are complete and correct in all material respects, are in
accordance with the books of account, ledgers and records of the Companies;
have been prepared in conformity with generally accepted accounting principles,
and present fairly the consolidated financial position, results of operations
and cash flows of the Companies as of the respective dates and periods thereof.
Except as reflected in the notes to the Financial Statements, none of the
Companies has any obligation or liability, contingent or otherwise, other than:
(i) liabilities incurred in the ordinary course of business and consistent with
past practice since the date of the Financial Statements, which liabilities are
not, individually or in the aggregate, material to the business (as presently
conducted or proposed to be conducted), properties, earnings, assets,
liabilities, conditions (financial or otherwise) or prospects (collectively
"CONDITIONS") of the Companies taken as a whole, and (ii) obligations (not
arising as a result of any breach or default by any Company) under Scheduled
Contracts or Contracts of a type not required to be listed as Scheduled
Contracts. Each of the Companies maintains and will continue to maintain a
standard system of accounting established and administered in accordance with
generally accepted accounting principles.
4
<PAGE> 9
2.6 Certain Changes or Events. Except as set forth in
Part 2.6 of Schedule 1 and for the merger (the "MERGER") of TSI Maryland with
and into TSI on October 31, 1996 pursuant to the Agreement and Plan of
Reorganization of TSI Maryland and TSI dated as of October 16, 1996 and the
Articles of Merger dated October 18, 1996, complete and correct copies of which
have been delivered by TSI to Alcatel, since August 31, 1996 the business of
each of the Companies has been operated only in the ordinary course and
consistent with past practice, and, in addition to and not in limitation of the
foregoing: (i) there has been no change in the Condition of any of the
Companies, except for changes in the ordinary course of business consistent
with past practice which have not been, individually or in the aggregate,
materially adverse to the Companies taken as a whole; (ii) there has been no
change of Laws, no revocation or change in any Contract or Permit or right to
do business, and no other event or occurrence of any character, whether or not
insured against, which has resulted in, or to the best knowledge of TSI could
reasonably be expected to result in, a material adverse change in the Condition
of the Companies taken as a whole; (iii) TSI has not authorized or made any
distributions, or declared or paid any dividends, upon or with respect to any
of its capital stock or other equity interests, nor has TSI redeemed, purchased
or otherwise acquired, or issued or sold, any of its capital stock or other
equity interests; (iv) none of the Companies has entered into any material
transaction other than in the ordinary course of business and consistent with
past practice; (v) none of the Companies has incurred any indebtedness for
borrowed money or made any loans or advances to any Person; (vi) there has been
no waiver by any of the Companies of a valuable right or of a material debt
owed to it; (vii) none of the Companies has failed to satisfy or discharge any
Lien, except in the ordinary course of business and consistent with past
practice as to Liens that are not, individually or in the aggregate, material
to the Condition of the Companies taken as a whole; (viii) there has been no
material change in any compensation, arrangement or agreement with any
employee, director, shareholder or Affiliate (as defined below) of any Company;
and (ix) there has been no agreement or commitment by any of the Companies to
do or perform any of the acts described in this Section 2.6. For purposes of
this Agreement, an "AFFILIATE" of a specified Person shall mean a Person that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the Person specified.
2.7 Title to Assets. Except as set forth in Part 2.7 of
Schedule 1, each of the Companies has good and marketable title to all of its
assets and properties, free and clear of any liens, pledges, security
interests, claims, encumbrances or other restrictions of any kind
(collectively, "LIENS"). With respect to any assets or properties it leases,
each Company holds a valid and subsisting leasehold interest therein, free and
clear of any Liens, is in compliance, in all material respects, with the terms
of the applicable lease, and enjoys peaceful and undisturbed possession under
such lease. To the best knowledge of TSI, all of the assets and properties of
each of the Companies that are material to the conduct of business as presently
conducted or as proposed to be conducted by each such Company are in good
operating condition and repair, subject to ordinary wear and tear.
2.8 Contracts. None of the Companies is a party to, nor
are any of the Companies or any of their respective assets or properties bound
by or subject to, any oral or
5
<PAGE> 10
written contracts, agreements, notes, instruments, franchises, leases,
licenses, sublicenses, commitments, arrangements or understandings, written or
oral (collectively, "CONTRACTS") of the following types, except for those (the
"SCHEDULED CONTRACTS") listed in Part 2.8 of Schedule 1 hereto:
(a) any Contracts pursuant to which any of the
Companies or any other party thereto is obligated to pay in excess of
fifty thousand dollars ($50,000);
(b) any Contracts pursuant to which any of the
Companies acquired the right to use any Intellectual Property or
information that is material to the business of such Company, or
pursuant to which any of the Companies has granted to others the right
to use, or which otherwise relates to, its Intellectual Property;
(c) any Contracts (other than advances of
expenses to employees in the ordinary course of business) involving
loans, loan agreements, debt securities, mortgages, deeds of trust,
security agreements, suretyships or guarantees;
(d) any Contracts between any of the Companies,
on the one hand, and any of their respective officers, directors,
employees or Persons that beneficially own in excess of 5.0%
(calculated in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934) of the outstanding equity interests
in TSI (each a "PRINCIPAL SHAREHOLDER"), or any Affiliate or relative,
or Affiliate of a relative, of any of the foregoing, on the other;
(e) any deferred compensation agreements, bonus,
pension, profit sharing, stock option and incentive plans or
arrangements, hospitalization, medical and insurance plans, agreements
and policies, retirement and severance plans and other employee
compensation policies and agreements affecting employees of any of the
Companies;
(f) any Contracts with any labor union affecting
employees of any of the Companies;
(g) any Contracts which restrict in any material
respect any of the Companies from freely engaging in its business or
competing anywhere; and
(h) any Contracts which otherwise are material to
the Condition of any of the Companies.
Complete and correct copies of all Scheduled Contracts have
been made available to Alcatel. All of the Scheduled Contracts are in full
force and effect and constitute legal, valid and binding obligations of each of
the parties thereto; the Companies and, to the best knowledge of TSI, each
other party thereto, has performed in all material respects all obligations
required to be performed by it under the Scheduled Contracts, and no violation
exists in respect thereof
6
<PAGE> 11
on the part of any of the Companies or, to the best knowledge of TSI, any other
party thereto; none of the Scheduled Contracts is currently being renegotiated;
and the validity, effectiveness and continuation of all Scheduled Contracts was
not affected by the Merger and will not be materially adversely affected by the
transactions contemplated by this Agreement or the execution, delivery, filing
and performance by the Company of any of its obligations under any of the
Company Documents. All of the Scheduled Contracts were entered into in the
ordinary course of business and none of the Scheduled Contracts is materially
adverse to the Companies.
2.9 Intellectual Property.
(a) (i) Set forth on Part 2.9 of Schedule 1
hereto is a true, correct and complete list of all patents, trademarks, service
marks, trade names, computer software and copyrights material to the conduct of
the Companies' business, and any registrations or applications for any of the
foregoing (collectively, the "INTELLECTUAL PROPERTY"), of any kind in which any
of the Companies has an ownership interest. Except for standard third-party
license agreements for off-the-shelf software, Part 2.9 of Schedule 1 hereto
contains a true, correct and complete list of all licenses, sublicenses or
other agreements that in any way relate to or affect the rights of the
Companies to any of the Intellectual Property or any trade secrets of the
Companies or pursuant to which any of the Companies has a right to use any
Intellectual Property (the "INTELLECTUAL PROPERTY LICENSES"). All such
licenses, sublicenses and other agreements are in all material respects in the
respective forms of such agreements reviewed by Alcatel's intellectual property
counsel on November 7, 1996.
(ii) The Companies are the sole and
exclusive owners, free and clear of all Liens, and have all right, title and
interest in all of the Intellectual Property described in Part 2.9 of Schedule
1 hereto. With respect to any Intellectual Property or trade secret necessary
to conduct its business, each Company owns or has the exclusive (except with
respect to standard third-party license agreements for off-the-shelf software)
right to use such Intellectual Property or trade secret in its business. To
the best of TSI's knowledge, each Company owns or possesses sufficient licenses
or other rights to use all intellectual property covered by its patents or
patent applications that are necessary to conduct the business of such Company
as now being conducted and as proposed to be conducted by such Company.
(iii) Each of the Intellectual Property
Licenses is in full force and effect and constitutes a legal, valid, binding
and enforceable obligation in accordance (in all material respects) with its
terms against each party thereto. Each Company has performed all obligations
imposed upon it under each of the Intellectual Property Licenses to which it is
a party. None of the Companies nor, to the best knowledge of TSI, any other
party thereto is in material default thereunder, nor, to the best knowledge of
TSI, is there any event that with notice or lapse of time, or both, would
constitute a material default thereunder. The execution, delivery and filing
of this Agreement and the other Company Documents by TSI and the performance by
TSI of its obligations hereunder or thereunder will not, with notice or lapse
of time, or both, constitute a default under any of the Intellectual Property
Licenses. None of the Companies has received any notice that any other party
to any of the Intellectual Property
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Licenses intends to cancel, terminate or refuse to renew the same or to
exercise or decline to exercise any option or other right thereunder. No
director, officer, shareholder, employee or other Affiliate of TSI owns,
directly or indirectly, in whole or in part, any of the Intellectual Property
or any material trade secret of any Company. None of the officers, employees,
consultants, distributors, agents, representatives or advisors of any Company
have entered into any agreement relating to such Company's business regarding
know-how, trade secrets, assignment of rights in inventions, or prohibition or
restriction of competition or solicitation of customers, or any other similar
restrictive agreement or covenant, whether written or oral, with any Person
other than a Company.
(iv) Except for disclosures made in the
ordinary course of business that are not materially adverse to the Condition of
the Companies taken as a whole, none of the Companies has disclosed, other than
pursuant to, and in accordance with, the Intellectual Property Licenses, any
proprietary information (including, without limitation, any source code)
relating to the Intellectual Property or any of the Intellectual Property
Licenses to any person other than Alcatel. Each Company has at all times used
its reasonable best efforts to protect and enforce their rights in or to all
such proprietary information and other trade secrets of such Company. None of
the Companies is under any contractual or other obligation to disclose any
proprietary information relating to the Intellectual Property, any material
trade secret of any Company or any of the Intellectual Property Licenses, nor,
to the best knowledge of TSI, is any other party to the Intellectual Property
Licenses under any obligation to disclose proprietary information included in
or relating to the Intellectual Property, any material trade secret of any
Company or any of the Intellectual Property Licenses to any Person except to a
person having a legally binding obligation of confidentiality with respect
thereto, and no event has taken place, including the execution and delivery of
this Agreement and the transactions contemplated hereby or any related change
in the business activities of any Company, that would give rise to any such
obligation or to an unrestricted disclosure thereof.
(v) The consummation of the transactions
contemplated hereby or by any of the other Company Documents will not alter or
impair in any material respect the rights of any Company to any of the
Intellectual Property, to any material trade secret of any Company, or under
any of the Intellectual Property Licenses.
(b) No claim with respect to the Intellectual
Property, any material trade secret of any Company, or any Intellectual
Property License that, if adversely determined, would materially and adversely
affect the ability of any Company to conduct its business as presently
conducted and as proposed to be conducted, is currently pending or, to the best
knowledge of TSI, has been asserted, or overtly threatened by any Person, nor
does TSI know of any grounds for any claim against any Company: (A) to the
effect that any other Person infringes on any of the Intellectual Property or
Intellectual Property Licenses or misappropriates any trade secret or know-how
or other proprietary rights material to any Company; (B) challenging the
ownership, validity or effectiveness of any of the Intellectual Property, any
of the Intellectual Property Licenses or material trade secrets of such
Company; or (C) challenging any license, sublicense or other legally
enforceable right of any Company under any
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<PAGE> 13
Intellectual Property or any of the Intellectual Property Licenses.
(c) To the best of TSI's knowledge, none of the
Companies has violated or infringed, and is not currently violating or
infringing, and none of the Companies has received any communications alleging
that any of the Companies (or any of its employees or consultants) has violated
or infringed or, by conducting its business as proposed would violate or
infringe, any patents (whether utility or design), patent applications,
trademarks, service marks, trade names, copyrights (including rights to mask
works), trade secrets, confidential and proprietary information, protected
designs, know-how and processes (collectively, the "PROPRIETARY ASSETS") of any
other person or entity.
(d) TSI is not aware that any employee or
consultant of any of the Companies is obligated under any agreement (including
licenses, covenants or commitments of any nature) or subject to any judgment,
decree or order of any court or administrative agency, or any other restriction
that would interfere with the use of his or her best efforts to carry out his
or her duties for any of the Companies or to promote the interests of any of
the Companies or that could conflict with any of the Companies' businesses as
proposed to be conducted. The carrying on of each of the Companies' businesses
by the employees and contractors of each such Company and the conduct of each
of the Companies' businesses as presently proposed, will not, to the best of
TSI's knowledge, conflict with or result in a breach of the terms, conditions
or provisions of, or constitute a default under, any contract, covenant or
instrument under which any of such employees or contractors or any of the
Companies is now obligated. TSI does not believe it is or will be necessary to
utilize any inventions of any employees of any of the Companies (or persons any
of the Companies currently intends to hire) made prior to their employment by
(or not assigned to) any such Company. At no time during the conception of or
reduction of any of the Companies' Proprietary Assets to practice was any
developer, inventor or other contributor to such patents operating under any
grants from any governmental entity or agency or private source, performing
research sponsored by any governmental entity or agency or private source or
subject to any employment agreement or invention assignment or nondisclosure
agreement or other obligation with any third party that could adversely affect
any of the Companies' rights in such Proprietary Assets.
2.10 Insurance. Each of the Companies has in full force
and effect (i) fire and casualty insurance policies, with extended coverage,
sufficient in amount (subject to reasonable deductibles) to allow it to replace
any of its properties that might be damaged or destroyed, and (ii) other
insurance in such amounts, and against such risks, as is customary for
companies similar to the Companies, in each case with reputable insurance
companies.
2.11 Labor Union Activities; Employee Relations. No
employee of any of the Companies is represented by any labor union or covered
by any collective bargaining agreement; nor, to the best knowledge of TSI, has
any labor union sought to represent any employee of any of the Companies.
There is no strike or other labor dispute involving any of the Companies
pending, or to the best knowledge of TSI, threatened. To the best knowledge of
TSI, no officer or key employee intends to terminate his employment with any of
the Companies. To the best
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knowledge of TSI, no officer or key employee of any of the Companies is a party
to or bound by any Contract, or subject to any restrictions (including, without
limitation, any non-competition restriction), which would restrict the right of
such person to participate in the affairs of any of the Companies. Except as
disclosed in the Draft Registration Statement, the employment of each officer
and key employee of each of the Companies is terminable at will.
2.12 ERISA. Part 2.12 of Schedule 1 hereto includes (and
separately identifies) a true and complete list of all "employee benefit
plans," within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended, ("ERISA"), any arrangement described in
Section 2.8(e), or any other plan, agreement, policy, or arrangement (whether
written or unwritten, domestic or foreign, insured or self-insured), currently
or previously established, maintained, sponsored, or contributed to (or with
respect to which any obligation to contribute has been undertaken) by any
Company (each a "PLAN" and, collectively, the "PLANS"). No entity would be, or
has ever been, deemed a single employer with any Company under Sections 414(b),
(c), (m) or (o) of the Internal Revenue Code of 1986, as amended (the "CODE"),
or Section 4001 of ERISA. No Plan is or has ever been subject to Title IV of
ERISA, Section 302 of ERISA or Section 412 of the Code. Each Plan intended to
qualify under Section 401(a) of the Code has been qualified since its inception
and has received a determination letter from the Internal Revenue Service
("IRS") that the Plan is so qualified and nothing has occurred that caused or
could cause the loss of such qualification or the imposition of any penalty or
tax liability. The Companies have complied in all material respects with all
obligations relating to the Plans and each Plan complies and has been
maintained and operated in all material respects in accordance with its terms
and applicable law, including without limitation, ERISA and the Code. The
Companies have no liability, actual or contingent, with respect to any Plan
other than to make payments to or under the terms of any Plan or applicable
law.
2.13 Litigation. There is no action, suit, proceeding,
audit or investigation by or before any court or other Governmental Authority
(collectively, "ACTIONS") pending or, to the best knowledge of TSI, threatened
against any of the Companies, or affecting any of the properties or assets of
any of the Companies (including, without limitation, any of its Permits) which,
individually or in the aggregate, could have a material adverse effect on the
Condition of the Companies taken as a whole, nor, to the best knowledge of TSI,
is there any reasonable basis for any such Action. To the best knowledge of
TSI, there is no Action against any director, officer or employee of any of the
Companies in connection with the business of any of the Companies that, in the
event of an adverse judgment against any such Person, could have a material
adverse effect on the Condition of the Companies taken as a whole, nor, to the
best knowledge of TSI, is there any reasonable basis for any such Action. The
foregoing includes, without limitation, any Action pending or, to TSI's best
knowledge, threatened (or any reasonable basis therefor known to TSI) involving
the prior employment of any employees of any of the Companies, their use in
connection with the business of any of the Companies of any information or
techniques allegedly proprietary to any of their former employers, or their
obligations under any agreements with prior employers. None of the Companies
or any of their respective assets or properties, nor, to the best knowledge of
TSI, any shareholder, director,
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officer or employee of any of the Companies, in connection with such Companies'
respective businesses, is subject to any order, judgment, writ, injunction,
decree, ruling or decision (collectively, an "ORDER") of any Governmental
Authority which is material to the Condition of any such Company. There is no
Action by any of the Companies currently pending or which any of the Companies
intends to initiate which is material to the Condition of any such Company.
2.14 Compliance with Laws; Permits. To the best knowledge
of TSI, none of the Companies has violated or failed to comply with, in any
material respect, any statute, law, ordinance, rule, regulation or policy of
any Governmental Authority (collectively, "LAWS") to which it or any of its
properties or assets is subject. To the best knowledge of TSI, each of the
Companies has all permits, licenses, orders, certificates, authorizations and
approvals of any Governmental Authority, including without limitation, all
facility and other security clearances required by the U. S. Department of
Defense (collectively, the "PERMITS"), that are material to the conduct of its
business as presently conducted or as described in the Draft Registration
Statement; all such Permits are in full force and effect; no violations or
notices of failure to comply have been issued or recorded in respect of any
such Permits; and, to the best knowledge of TSI, no reasonable basis for
revoking or suspending any of the Permits exists. All applications, reports,
notices and other documents required to be filed by the Companies with all
Governmental Authorities have been timely filed and are complete and correct in
all material respects as filed or as amended prior to the date hereof. None of
the Companies nor, to the best knowledge of TSI, any of their respective
officers or agents has made any illegal or improper payments to, or provided
any illegal or improper inducement for, any governmental official or other
Person in an attempt to influence any such Person to take or to refrain from
taking any action relating to any of the Companies.
2.15 Taxes. All federal, state, city, county, local and
foreign income, franchise, sales, use and value added tax returns and reports,
and all other material tax returns and reports required to be filed by any
Company in any jurisdiction (collectively, "RETURNS") have been timely filed.
All such Returns are true, correct and complete in all material respects. All
taxes, assessments, fees, interest, penalties and other charges with respect
thereto (collectively, "TAXES") due or claimed to be due from any of the
Companies have been paid, except to the extent reserved against on the
Financial Statements. No income tax return of any of the Companies has been
audited by the applicable Governmental Authority, and there are in effect no
waivers of the applicable statute of limitations for Taxes in any jurisdiction
for any of the Companies for any period.
2.16 Environmental Matters. The business, assets and
properties of each of the Companies are and have been operated and maintained
in all material respects in compliance with all applicable federal, state,
city, county and local environmental protection laws and regulations
(collectively, the "ENVIRONMENTAL LAWS"). No event has occurred that, with or
without the passage of time or the giving of notice, or both, would constitute
a non-compliance by any of the Companies in any material respect with, or a
material violation by any of the Companies of, the Environmental Laws. None of
the Companies nor any of their respective
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predecessors has caused or permitted to exist, as a result of an intentional or
unintentional act or omission, a disposal, discharge or release of solid
wastes, pollutants or hazardous substances, on or from any site which currently
is or formerly was owned, leased, occupied or used by any of the Companies or
any predecessor company, except where such disposal, discharge or release was
in compliance with the Environmental Laws. There is no site: (i) which is
listed, or proposed for listing on a registry or inventory of inactive
hazardous waste sites maintained by any Governmental Authority and which
currently is or formerly was owned, leased, occupied or used by any of the
Companies or any predecessor company, or (ii) with respect to which any of the
Companies or any predecessor company has received notice that such Company is
considered to be a potentially responsible person for cleanup or other
liability in respect of Environmental Laws.
2.17 Transactions with Affiliates. Except for employment
and compensation arrangements described in the Draft Registration Statement (as
hereinafter defined) and as provided in the notes to the Financial Statements,
none of the Companies has directly or indirectly engaged in any material
transaction (as defined for purposes of clause 3(iii)(m) of Article 9 of the
Amended and Restated Articles) with any past or present Principal Shareholder
of TSI or with any of his Affiliates, associates or relatives, and none of the
Companies has any obligation to or claim against any past or present Principal
Shareholder of TSI or any of his Affiliates, associates or relatives, and no
such Person has any obligation to or claim against any of the Companies.
Except for employment and compensation arrangements described in the Draft
Registration Statement and as provided in the Notes to the Financial
Statements, all products, services or benefits provided to any Company by any
such Person, or provided by any Company to any such Person, are set forth on
Part 2.18 of Schedule 1 hereto. No past or present Principal Shareholder of
any of the Companies, nor any of his Affiliates, associates or relatives, has
any direct or indirect interest of any kind in any business or entity which is
competitive with the Companies, except for the ownership as a passive investor
of less than 5% of any class of securities that is traded on any national
securities exchange or the Nasdaq National Market.
2.18 Registration Rights. Except as provided in the
Registration Rights Agreement, no Person has, and as of the Closing no Person
will have, demand, "piggy-back," or other rights to cause any of the Companies
to file any registration statement under the Securities Act of 1933 (the
"SECURITIES ACT") relating to any securities of any of the Companies or to
participate in any such registration statement.
2.19 No Brokers or Finders. None of the Companies nor any
of their respective Affiliates has entered or will enter into any agreement
pursuant to which any of the Companies or Alcatel will be liable, as a result
of the transactions contemplated by this Agreement or any of the other Company
Documents, for any claim of any person for any commission, fee or other
compensation as finder or broker.
2.20 Investment Company Act. Neither TSI nor any of its
Subsidiaries is an "investment company", nor is TSI or any of its Subsidiaries
directly or indirectly controlled by
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or acting on behalf of any Person which is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
2.21 Employee Confidentiality Agreements. Each employee
and officer of each of the Companies has executed a Confidentiality Agreement
in substantially the form attached hereto as Exhibit F. TSI is not aware,
after reasonable investigation, that any such employee or officer is in
violation thereof, and TSI and each of the Subsidiaries will make reasonable
efforts to prevent any such violation.
2.22 Disclosure. The representations and warranties made
by TSI in this Section 2 (including on the Schedules hereto) do not fail to
state any material fact necessary in order to make the statements contained
herein or in any other Company Documents not misleading. In addition to and
not in limitation of the foregoing, the draft dated November 27, 1996 of a
Registration Statement on Form S-1 with respect to the shares of Common Stock
(the "DRAFT REGISTRATION STATEMENT") contains all statements which are required
to be stated therein in accordance with the Securities Act and the regulations
promulgated thereunder (except for information that is permitted under
Securities Act Rule 430A to be omitted from a registration statement at the
time it becomes effective), and does not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. TSI covenants that
any initial public offering and sale of Common Stock (whether or not as
contemplated by the Draft Registration Statement) that is made pursuant to a
registration statement that is declared effective under the Securities Act
within six months of the date hereof will be made in accordance with the
Securities Act and all other applicable securities and blue sky laws.
3. Representations and Warranties of Alcatel. Alcatel hereby
represents and warrants to, and agrees with, TSI as follows:
3.1 Organization. Alcatel is duly organized, validly
existing and in good standing under the laws of the Netherlands.
3.2 Authorization. Alcatel has all requisite power and
authority to execute, deliver and perform this Agreement and the other Company
Documents to which it is a party and to consummate the transactions
contemplated hereby or thereby. The execution, delivery and performance of
this Agreement and the other Company Documents to which it is a party, and the
consummation of the transactions contemplated hereby or thereby, have been duly
and validly authorized by all necessary action on the part of Alcatel. This
Agreement and each other Company Document to which Alcatel is a party has been
duly executed and delivered by Alcatel and constitutes its legal, valid and
binding obligation, enforceable against Alcatel in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency
or other similar laws affecting the enforceability of creditors' rights in
general or by general principles of equity.
3.3 No Intended Resale. The Series A Stock is being
acquired by Alcatel for
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investment for its own account and not with a view to the resale or
distribution thereof in violation of applicable security laws.
3.4 Disclosure of Information. Alcatel has had full
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Series A Stock, and has had an
opportunity to ask questions and receive answers from TSI regarding the terms
and conditions of the offering of the Series A Stock and to obtain additional
information (to the extent TSI possessed such information or could acquire it
without unreasonable effort or expense) necessary to verify any information
furnished to Alcatel or to which Alcatel had access. Neither the foregoing nor
any other provision of this Section 3, however, in any way limits or modifies
the representations and warranties made by TSI in Section 2 or Alcatel's
ability to rely thereon.
3.5 Investment Experience. Alcatel understands that the
purchase of the Series A Stock involves substantial risk. Alcatel acknowledges
that it is able to bear the economic risk of its investment in the Series A
Stock and has such knowledge and experience in financial or business matters
that it is capable of evaluating the merits and risks of this investment in the
Series A Stock.
3.6 Accredited Investor Status. Alcatel is an
"accredited investor" within the meaning of Regulation D promulgated under the
Securities Act and within the meaning of the definition of such term set forth
in any applicable state securities laws.
3.7 Restricted Securities. Alcatel understands that the
Series A Stock is characterized as "restricted securities" under the Securities
Act inasmuch as it is being acquired from TSI in a transaction not involving a
public offering and that under the Securities Act and applicable regulations
thereunder such securities may be resold without registration under the
Securities Act only in certain limited circumstances. In this connection,
Alcatel represents that it is familiar with Rule 144 promulgated under the
Securities Act as presently in effect, and understands such resale limitations
imposed thereby and by the Securities Act. Alcatel understands that TSI is
under no obligation to register any of the securities sold hereunder except as
provided in the Registration Rights Agreement. Alcatel understands that no
public market now exists for the Series A Stock or the Conversion Common Stock
(collectively, the "RESTRICTED SECURITIES"), and no assurance can be given that
a public market will ever exist for any Restricted Securities.
3.8 Further Limitations on Disposition. Without in any
way limiting the representations set forth above, and subject to any
restrictions in the Company Documents, Alcatel further agrees not to make any
disposition of all or any portion of the Restricted Securities unless and
until:
(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
such registration statement; or
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(b) Alcatel shall have notified TSI of the
proposed disposition and shall have furnished TSI, at the
expense of Alcatel or its transferee, with an opinion of
counsel, reasonably satisfactory to TSI, that such disposition
will not require registration of such securities under the
Securities Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required by TSI: (i) for
any transfer of any Restricted Securities in compliance with SEC Rule 144 or
Rule 144A; or (ii) for any transfer of any Restricted Securities by Alcatel to
an Affiliate of Alcatel; provided that in each of the foregoing cases the
transferee agrees in writing to be subject to the terms of this Section 3.8 to
the same extent as if the transferee were an original party hereto.
3.9 Legends. It is understood that the instruments and
certificates evidencing the Restricted Securities will bear the legends set
forth below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
(b) For any Series A Stock a legend in the form
of the following:
THE SHARES EVIDENCED BY THIS CERTIFICATE: (1) ARE
CONVERTIBLE INTO SHARES OF COMMON STOCK OF TEMPLATE SOFTWARE,
INC. AT THE OPTION OF THE REGISTERED HOLDER AT ANY TIME PRIOR
TO AUTOMATIC CONVERSION THEREOF; AND (2) AUTOMATICALLY CONVERT
INTO COMMON STOCK OF TEMPLATE SOFTWARE, INC. IN THE EVENT OF A
PUBLIC OFFERING MEETING CERTAIN REQUIREMENTS, ALL PURSUANT TO
AND UPON THE TERMS AND CONDITIONS SPECIFIED IN TEMPLATE
SOFTWARE, INC.'s AMENDED AND RESTATED ARTICLES OF
INCORPORATION. A COPY OF SUCH AMENDED AND RESTATED ARTICLES
OF INCORPORATION MAY BE OBTAINED, WITHOUT CHARGE, AT TEMPLATE
SOFTWARE, INC.'S PRINCIPAL OFFICE.
The legend set forth in (a) above shall be removed by TSI from any certificate
or instrument
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evidencing Restricted Securities upon delivery to TSI of an opinion by counsel,
reasonably satisfactory to TSI, that a registration statement under the
Securities Act is at that time in effect with respect to the legended security
or that such security can be freely transferred in a public sale without such a
registration statement being in effect.
4. Additional Deliveries. Simultaneously with the execution and
delivery of this Agreement, TSI has delivered or caused to be delivered to
Alcatel: (i) the opinion of Hunton & Williams dated as of the date hereof and
(b) a copy of the Financial Statements accompanied by the opinion of Coopers &
Lybrand, LLP.
5. Certain Post-Closing Covenants of TSI. TSI covenants and
agrees as follows:
5.1 Observer Rights. TSI shall give to Alcatel notice of
each meeting of the Board of Directors of TSI and of each executive or other
similar committee thereof at the same time and in the same manner as notice is
given to the directors of TSI or such Subsidiary. At any time that a designee
of the holders of a majority of the Series A Stock or the Conversion Common
Stock is not serving as a member of the Board of Directors of TSI, one (1)
designee of Alcatel shall be entitled to attend in person, as an observer, all
meetings held in person and to listen to telephone meetings of the Board of
Directors of TSI and of each such committee thereof solely for the purpose of
allowing Alcatel to have current information with respect to the affairs of
such Company; provided that such observer agrees in writing not to disclose any
confidential information obtained at such meetings or contained in any
materials provided to the directors or the members of such committees to any
person other than the holders of the Series A Stock or the Conversion Common
Stock. TSI shall provide to Alcatel in connection with each meeting its
respective observer designee is entitled to attend, whether or not present at
such meeting, copies of all notices, minutes, consents, and all other materials
or information that it provides to the directors or committee members with
respect to such meeting, at the same time such materials and information are
given to the directors (except that materials and information provided to
directors of TSI or such Subsidiary at meetings at which a designee of Alcatel
is not present shall be provided to Alcatel promptly after the meeting). If
the Board of Directors of any of TSI or any such committee thereof proposes to
take any action by written consent in lieu of a meeting, TSI shall, to the
extent reasonably practicable, give written notice thereof to Alcatel prior to
the effective date of such consent describing in reasonable detail the nature
and substance of such action, and in any case shall send to such observer a
copy of the instrument pursuant to which such proposed written consent is to be
effected no later than its first circulation to the members of the Board of
Directors or such committee generally. TSI shall bear all travel and related
expenses incurred by the observer designees of Alcatel associated with
attending such meetings. The provision of this Section 5.1 shall survive the
Closing, the issuance of the Series A Stock and the Conversion Common Stock and
any public offering of any capital stock or other securities of TSI, and shall
continue as long as Alcatel, its Affiliates and their respective assignees
shall, directly or indirectly, beneficially own in the aggregate at least 3% of
the then fully diluted shares of Common Stock. For purposes hereof, "FULLY
DILUTED COMMON SHARES" shall mean, as of any date: the sum of (i) the
outstanding shares of Common Stock as of that date and (ii) the additional
shares of Common Stock that would be
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taken into account for purposes of calculating fully diluted earnings per share
for the period from the end of TSI's last fiscal year through such date under
the treasury-stock method in accordance with generally accepted accounting
principles.
5.2 Information.
(a) Alcatel and its assignees shall be entitled
to receive, and TSI agrees to provide to Alcatel and its assignees,
the following; provided, however, that TSI's obligations under this
Section 5.2(a) shall be suspended at any time that TSI is subject to
the reporting obligations of Sections 13 or 15(d) of the Securities
Exchange Act of 1934 (the "EXCHANGE ACT"):
(i) As soon as available, but in any
event not later than forty-five (45) days after the
end of each month, the unaudited consolidated balance
sheet as at the end of such month of TSI and its
subsidiaries and the related unaudited consolidated
statements of operations, shareholders' equity and
cash flows for such month and for the elapsed period
in such fiscal year, all in reasonable detail and
stating in comparative form the figures as of the end
of and for the comparable period of the preceding
fiscal year and budgeted figures for the period. All
such financial statements shall be complete and
correct in all material respects and shall be
accompanied by a certificate of the Chief Executive
Officer, President or Chief Financial Officer of TSI
to such effect.
(ii) As soon as available, but in any
event not later than 45 days after the end of each
fiscal quarter, the unaudited consolidated balance
sheet of TSI and its subsidiaries as at the end of
such fiscal quarter and the related unaudited
consolidated statements of operations, shareholders'
equity and cash flows of TSI and its subsidiaries for
such fiscal quarter and for the elapsed period in
such fiscal year, all in reasonable detail and
stating in comparative form the figures as of the end
of and for the comparable periods of the preceding
fiscal year and budgeted figures for the period. All
such financial statements shall be complete and
correct in all material respects, shall be prepared
in accordance with generally accepted accounting
principles applied on a consistent basis throughout
the periods reflected therein (except that such
financial statements may omit notes and would be
subject to normal year-end adjustments which are not,
in the aggregate, material) and shall be accompanied
by a certificate of the Chief Executive Officer,
President or Chief Financial Officer of TSI to such
effect.
(iii) As soon as available, but in any
event within 90 days after the end of each fiscal
year of TSI, the audited consolidated and unaudited
consolidating balance sheet of TSI and its
subsidiaries as at the end of
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such fiscal year and the related audited consolidated
statements and unaudited consolidating statements of
operations, shareholders' equity and cash flows of
TSI and its subsidiaries for such fiscal year, all in
reasonable detail and stating in comparative form the
figures as at the end of and for the previous fiscal
year and budgeted figures for the fiscal year
accompanied by an opinion of an accounting firm of
nationally recognized standing selected by TSI with
respect to the consolidated statements, which opinion
shall state that such accounting firm's audit was
conducted in accordance with generally accepted
auditing standards and, accordingly, included such
tests of accounting records and such other auditing
procedures as were considered necessary under the
circumstances and which opinion shall not be subject
to any qualification resulting from a limit on the
scope of the examination of the financial statements
or the underlying data or which could be eliminated
by changes in the financial statements or the notes
thereto or by the creation of or increase in a
reserve or a decreased carrying value of assets. All
such financial statements shall be complete and
correct in all material respects and prepared in
reasonable detail and in accordance with generally
accepted accounting principles applied, except as
stated therein, on a consistent basis throughout the
periods reflected therein.
(iv) Promptly after receipt, copies of
all management letters from accountants and all
certificates prepared by or for TSI or its
subsidiaries as to compliance, defaults, material
adverse changes, material litigation or similar
matters, but only to the extent that the delivery
thereof would not result in the loss of any generally
recognizable privilege otherwise applicable thereto.
(v) Within 30 days after TSI obtains
knowledge of the commencement or written threat of
commencement of any material litigation (including,
without limitation, any litigation relating to any
Intellectual Property or any of the Intellectual
Property Licenses) or proceeding against any of the
Companies or their respective assets, written notice
by TSI of the nature and extent of such litigation or
proceeding.
(vi) Promptly, but in any event within
fifteen (15) days, after any distribution to its
shareholders generally or to specific shareholders by
agreement, to its directors, to prospective investors
or to the financial community of an annual report,
proxy statement, registration statement or other
similar report or communication, a copy of each such
report, proxy statement, registration statement or
other similar report or communication; and promptly,
but in any event within two (2) business days, after
released, copies of all press releases and other
statements made available generally by any of the
Companies to the public concerning material
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<PAGE> 23
developments.
(vii) Within 60 days after the end of each
fiscal year, a list of shareholders and other
security holders, showing the authorized and
outstanding shares by class (including the Common
Stock equivalents of any convertible security), the
holdings of each shareholder (both before giving
effect to dilution and on a fully-diluted basis) and
the holdings of each Person that holds options,
warrants or convertible securities (both before
giving effect to dilution and on a fully diluted
basis).
(viii) Promptly, but in any event not later
than ten (10) days after execution, copies of any
agreement entered into by TSI or any of its
subsidiaries, with any shareholder, director, officer
or employee of TSI or any of its subsidiaries or any
past or present Principal Shareholder or Affiliate.
(ix) At any time that the holders of the
Series A Stock have not elected a director or
designated an observer pursuant to Sections 3(ii) or
3(iv) of the Amended and Restated Articles, all
materials or documents that such observer would be
entitled to receive, which shall be delivered at the
same time that such materials or documents are
delivered to the members of the board of directors or
any applicable committee.
(x) From time to time, and promptly,
such additional information and financial data
regarding results of operations, financial condition,
business, affairs or prospects of TSI and its
subsidiaries, including without limitation cash flow
analyses and projections, as is available to TSI that
Alcatel shall reasonably request.
(b) Filings and Shareholder Reports. TSI shall
deliver to Alcatel, simultaneously with its filing with the Securities
and Exchange Commission, any national securities exchange, the Nasdaq
National Market or the National Association of Securities Dealers,
Inc., a copy of each publicly available annual, periodic or special
report or proxy statement or registration statement of TSI. To the
extent not covered by the preceding sentence, TSI shall also deliver,
simultaneously with its mailing or transmission, any annual or other
report or communication provided to any class or group of shareholders
of TSI, and any press release and other public statements.
(c) Other Information. TSI shall provide, from
time to time, such additional information regarding TSI or its
subsidiaries as Alcatel may reasonably request, including without
limitation, any information or reports required by reason of reporting
or regulatory requirements to which Alcatel, or any Person controlling
Alcatel is subject. At any time that the Holders of the Series A
Stock have not elected a director or designated an observer, pursuant
to the provisions of the Amended and Restated
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<PAGE> 24
Articles referred to above, or if such director or observer is not a
member or observer of any committee of the Board effecting such
grants, TSI shall give Alcatel reasonable prior notice of the grant of
any options or other rights or awards to any officer, employee,
director or consultant under any employee incentive plan.
5.3 Annual Meetings. At any time that it is not subject
to the reporting requirements of Sections 13 or 15(d) of the Exchange Act, TSI
will hold an annual meeting of all shareholders to elect directors in
accordance with the Amended and Restated Articles and at which information with
respect to its business will be furnished and discussed.
5.4 Exemption from Investment Company Act. TSI shall
conduct its business so that neither TSI nor any of its subsidiaries shall
become an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.
5.5 Accounting and Reserves. TSI shall, and TSI shall
cause each of its subsidiaries to, maintain a standard and uniform system of
accounting and shall keep proper books and records and accounts in which full,
true and correct entries shall be made of its transactions, all in accordance
with generally accepted accounting principles applied on a consistent basis
through all periods, and shall set aside on such books for each fiscal year all
such proper reserves for depreciation, obsolescence, amortization, bad debts
and other purposes in connection with its operations as are required by such
principles so applied.
5.6 Assistance in Sales. Anything in this Agreement or
the Shareholders Agreement to the contrary notwithstanding, in the event that
it becomes unlawful for Alcatel or any of its Affiliates to continue to hold
all or any of the Series A Stock or the Conversion Common Stock or any other
securities received as a distribution on or in respect of or exchange for any
of such stock, or restrictions are imposed on Alcatel or any Affiliate of
Alcatel by any Law that, in the reasonable judgement of Alcatel, make it unduly
burdensome to continue to hold all or any of such securities, then Alcatel may
sell or otherwise dispose of all or any of such securities, TSI shall use
reasonable efforts to assist Alcatel and/or any such Affiliate in disposing of
such securities in a prompt and orderly manner, and, at the request of Alcatel
and/or any such Affiliate, TSI shall provide (and authorize Alcatel and/or any
such Affiliate to provide) financial and other information concerning TSI and
its subsidiaries to any prospective purchaser of such interest.
5.7 Additional Covenants.
(a) When applicable, TSI shall file the reports
required to permit sales under Rule 144 of the Securities Act.
(b) During any period in which TSI is not subject
to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, TSI shall make available information required to be provided by
Rule 144A(d)(4), upon request.
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<PAGE> 25
(c) TSI shall use the proceeds from the sale of
the Series A Stock pursuant hereto for working capital and general
corporate purposes, including acquisitions of or investments in
products, technologies or businesses that broaden or enhance the
Companies' current product or service offerings; provided, however,
that TSI may use up to one-third of said proceeds to repurchase shares
of its outstanding Common Stock at prices per share not to exceed $16.
(d) TSI shall provide to Alcatel for its review
copies of each registration statement or prospectus prepared in
connection with any initial public offering of equity securities of
TSI, and each pre-effective or post-effective amendment or supplement
thereto, prior to filing with the Securities and Exchange Act, and no
reference in any such registration statement or prospectus to Alcatel
or any Affiliate of Alcatel, the transactions contemplated by this
Agreement or any of the Company Documents, or any other transaction or
agreement between Alcatel or any of its Affiliates and TSI or any of
its Affiliates, without the prior written consent of Alcatel, which
consent shall not be unreasonably withheld. Nothing in this Section
5.7(d) shall be deemed to prohibit TSI from making any disclosure in
any such registration statement or prospectus that, based on advice of
its counsel, it believes is required under applicable Laws.
6. Miscellaneous.
6.1 Standstill. Alcatel and any of its Affiliates
controlled by it shall not purchase or otherwise acquire beneficial ownership
of any shares of Common Stock or any securities convertible into, or
exchangeable or exercisable for, shares of Common Stock if beneficial ownership
of such shares of Common Stock or other securities, together with all other
shares of Common Stock and securities convertible into, or exchangeable or
exercisable for, Common Stock beneficially owned by Alcatel or any of its
Affiliates and assuming the conversion, exchange or exercise of all such
securities that are convertible into, or exchangeable or exercisable for,
Common Stock, would in the aggregate exceed 19.9% of the then outstanding
shares of Common Stock. Notwithstanding anything in the foregoing to the
contrary, the restrictions set forth in this Section 6.1 shall (i) terminate
upon any sale, directly or indirectly, in a single transaction or a series of
related transactions, including (without limitation) by means of merger,
consolidation or reorganization, in which any Person or group of Persons
acquires beneficial ownership of, or the right to acquire beneficial ownership
of, an aggregate of 50% or more of the outstanding shares of Common Stock, and
(ii) shall not be deemed to have been breached as a result of any change in the
outstanding shares of Common Stock not effected by Alcatel or any of its
Affiliates or as a result of the operation of the Series A Stock's conversion
rights.
6.2 Tax Expenses. TSI shall pay all stamp, documentary
and other taxes which may be payable in connection with the execution, delivery
and performance of this Agreement, and the purchase and sale of the Series A
Common Stock and the Conversion Common Stock.
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<PAGE> 26
6.3 Publicity. Except as may be required by Law, TSI and
Alcatel shall use the name of, or make reference to, the other party or any of
such other party's Affiliates or any of the transactions contemplated hereby in
any press release or in any public manner only in accordance with the mutual
agreement of TSI and Alcatel, it being understood that the parties agree to
promote publicly Alcatel's investment in TSI and such other relationships that
may arise between the parties in a mutually advantageous manner consistent with
applicable law.
6.4 Indemnification. TSI agrees to indemnify Alcatel and
each officer, director, employee, agent, shareholder and Affiliate of Alcatel
(collectively, the "INDEMNIFIED PARTIES") for, and hold each Indemnified Party
harmless from and against: (i) any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement, and (ii) any and all out-of-pocket costs and expenses of
any and every kind, including, without limitation, reasonable fees and
disbursements of counsel for such Indemnified Parties (all of which expenses
periodically shall be reimbursed as incurred), in each case, arising out of or
suffered or incurred in connection with any of the following: (a) any
misrepresentation or any breach of any warranty made by TSI herein or in any of
the other Company Documents, or (b) any breach or non-fulfillment of any
covenant or agreement made by TSI herein or in any of the other Company
Documents.
6.5 Survival. All representations, warranties, covenants
and agreements contained in or made pursuant to this Agreement or contained in
any certificate delivered pursuant to this Agreement, shall remain operative
and in full force and effect, regardless of any investigation made by or on
behalf of any party hereto, and shall survive the transfer and payment for the
Securities and the consummation of the transactions contemplated hereby;
provided, however, that (except as follows) the representations and warranties
of TSI made herein shall terminate on the second anniversary of the date
hereof; and provided, further, that (i) the representations and warranties
contained in Sections 2.12, 2.15 and 2.18 shall survive until the sixtieth day
after the expiration of the applicable statutes of limitations relating to the
subject matter of such representations and warranties, and (ii) no such
expiration shall affect any claim asserted prior thereto.
6.6 Assignment. This Agreement and all the provisions
hereof shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns, except that neither this
Agreement nor any rights or obligations hereunder shall be assigned or
delegated by TSI without the prior written consent of Alcatel. Prior to the
Closing, Alcatel may assign this Agreement and its rights hereunder to any of
its Affiliates. After the Closing, Alcatel may assign this Agreement and its
rights hereunder, in whole or in part, to (i) any Affiliate of Alcatel or (ii)
any other transferee of shares of Series A Stock or Conversion Common Stock
constituting or convertible into, as the case may be, at least 25% of the
aggregate shares of Convertible Common Stock issued or issuable upon conversion
of the Series A Stock.
6.7 Amendment; Waiver. Any term, covenant, agreement or
condition of this Agreement may be amended, and compliance therewith may be
waived (either generally or in
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<PAGE> 27
a particular circumstance and either retroactively or prospectively), by one or
more substantially concurrent written instruments signed by TSI and by Alcatel.
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon TSI and Alcatel.
6.8 APPLICABLE LAW. THE INTERNAL LAWS OF THE STATE OF
NEW YORK SHALL GOVERN THE INTERPRETATION, VALIDITY AND PERFORMANCE OF THE TERMS
OF THIS AGREEMENT, REGARDLESS OF THE LAW THAT MIGHT BE APPLIED UNDER PRINCIPLES
OF CONFLICTS OF LAW.
6.9 JUDICIAL PROCEEDINGS. ANY JUDICIAL PROCEEDING
INVOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE RIGHTS OR INTERESTS OF TSI OR ALCATEL OR THE BREACH OR ALLEGED
BREACH OF THIS AGREEMENT, WHETHER ARISING DURING OR AT OR AFTER THE TERMINATION
OF THIS AGREEMENT (EACH OF THE FOREGOING DISPUTES, CONTROVERSIES AND CLAIMS
HEREINAFTER REFERRED TO AS AN "AGREEMENT DISPUTE"), SHALL BE BROUGHT ONLY IN A
FEDERAL OR STATE COURT LOCATED IN THE COUNTY, CITY AND STATE OF NEW YORK, AND
EACH OF THE PARTIES HERETO (i) UNCONDITIONALLY ACCEPTS THE EXCLUSIVE
JURISDICTION OF SUCH COURTS AND ANY RELATED APPELLATE COURT AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY AND (ii) IRREVOCABLY WAIVES
ANY OBJECTION SUCH PARTY MAY NOW HAVE OR HEREAFTER HAS AS TO THE VENUE OF ANY
SUCH PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM. EACH OF THE PARTIES HERETO HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING AN AGREEMENT DISPUTE.
6.10 Notices. All notices and other communications
provided for herein shall be dated and in writing and shall be deemed to have
been duly given (x) on the date of delivery, if delivered personally or by
telecopier, receipt confirmed, or (y) on the second following business day, if
delivered by a recognized overnight courier service offering overnight delivery
or on the third following business day if such courier offers second-day
delivery, in each case, to the party to whom it is directed at the following
address (or at such other address as any party hereto shall hereafter specify
by notice in writing to the other parties hereto):
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(i) If to TSI, to it at the following address:
45365 Vintage Park Plaza
Dulles, Virginia 20166
Telecopy: (704) 318-8325
Attention: Chief Executive Officer
with a copy to:
Hunton & Williams
1751 Pinnacle Drive
Suite 1700
McLean, Virginia 22102
Telecopy: (703) 714-7410
Attention: Joseph W. Conroy, Esq.
(ii) If to Alcatel, to it at the following address:
33 rue Emeriau
75725 Paris Cedex 15,
France
Telecopy: 011-331-4058-5920
Attention: M. Pascal Durand Barthez
with a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Telecopy: (212) 969-2900
Attention: Peter G. Samuels, Esq.
6.11 Integration. This Agreement and the documents
referred to herein or delivered pursuant hereto or pursuant to such documents,
including all exhibits and schedules, contain the entire understanding of the
parties with respect to their subject matter and supersede all prior agreements
and understandings between the parties with respect to their subject matter.
6.12 Severability. Each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
6.13 Descriptive Headings. The section and other headings
contained in this
24
<PAGE> 29
Agreement are for convenience of reference only and shall not affect the
meaning or interpretation of this Agreement.
6.14 Counterparts. This Agreement may be executed in two
or more counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which together shall be deemed to be one
and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
TEMPLATE SOFTWARE, INC.
By: /s/ Joseph M. Fox
---------------------------------------
Name: Joseph M. Fox
Title: Chairman
ALCATEL N.V.
By: Compagnie Financiere Alcatel
By: /s/ M. Jozef Cornu
---------------------------------------
Name: M. Jozef Cornu
Title:
25
<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of
November 27, 1996 among TEMPLATE SOFTWARE, INC., a Virginia corporation (the
"Company"), and Alcatel N.V., a company limited by shares with ordinary
structure organized under the laws of the Netherlands (the "Investor").
RECITALS:
A. Concurrently with the execution of this Agreement, the Investor is
acquiring from the Company shares of the Company's Series A Convertible
Preferred Stock, par value $0.01 per share, pursuant to the Convertible
Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement").
B. By entering into this Agreement, the Company wishes to provide a
further inducement to the Investor to purchase the Company's Series A Stock
pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Definitions. For purposes of this Agreement:
(a) "Common Shares" means shares of Common Stock, par value $0.01
per share of the Company.
(b) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(c) "Form S-3" means such form under the Securities Act as in effect
on the date hereof or any registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(d) "Holder" means any Person owning or having the right to acquire
Registrable Securities, or any assignee thereof in accordance with Section 11.
(e) "Initiating Holders" means the Holder(s) initiating a
registration request under Section 2.
(f) "majority in interest of the Initiating Holders" means
Initiating Holders owning or having the right to acquire a majority of the
Registrable Securities which all Initiating Holders own or have the right to
acquire.
<PAGE> 2
(g) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, association, trust or any other entity or
organization.
(h) "Qualifying Request" means a request from any of the Holders or
any of their affiliates, partners or assignees that in the aggregate possess at
least fifty percent (50%) of the Registrable Securities outstanding as of the
date of such request.
(i) "Register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(j) "Registrable Securities" means (1) any Common Shares issuable or
issued upon conversion of the Series A Stock, and (2) any Common Shares issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, or upon conversion of, such Series A
Stock or Common Shares or other warrants, rights or securities; provided,
however, that any Registrable Securities sold by a Person in a transaction in
which such Person's rights under this Agreement are not assigned pursuant to
Section 11 below shall cease to be Registrable Securities from and after the
time of such sale.
(k) The number of shares of "Registrable Securities then
outstanding" means and shall be determined by the number of Common Shares
outstanding, and the number of Common Shares issuable, which are Registrable
Securities.
(l) "SEC" means the Securities and Exchange Commission.
(m) "Securities Act" means the Securities Act of 1933, as amended.
(n) "Series A Stock" means the Series A Convertible Preferred Stock,
par value $0.01 per share, of the Company.
(o) "Violation" means any of the following statements, omissions or
violations: (i) any untrue statement or alleged untrue statement of a material
fact contained in a registration statement under this Agreement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto or any documents filed under state securities or "blue
sky" laws in connection therewith, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law.
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<PAGE> 3
2. Request for Registration.
(a) If, after the earlier of (i) the third anniversary of the date
of this Agreement or (ii) the first anniversary of the initial public offering
of the Company's securities, the Company shall receive a written Qualifying
Request that the Company file a registration statement under the Securities Act,
then the Company shall, within ten (10) days of the receipt thereof, give
written notice of such request to all Holders and shall, subject to the
limitations of Section 2(b) below, use its best efforts to effect as soon as
practicable, and in any event within sixty (60) days of the receipt of such
request, the registration under the Securities Act of all Registrable Securities
which the Holders request to be registered within twenty (20) days of the
mailing of such notice by the Company in accordance with Section 18 below;
provided, however, that the Company shall not have any obligation to effect a
registration statement pursuant hereto unless the Registrable Securities
requested by all Holders to be registered pursuant to such request in the
aggregate either (i) constitute at least 25% of all Registrable Securities then
outstanding or (ii) have a fair market value, as of the date such request is
made, of at least $10,000,000. For purposes of clause (ii) of the preceding
sentence, the fair market value of such Registrable Securities shall be based on
the average daily closing price of a share of Common Stock for the twenty (20)
consecutive trading days ended immediately prior to the date such notice is
received, as reported on the consolidated transaction reporting system or, if
the Common Stock is not then included in the consolidated transaction reporting
system, on the principal market for the Common Stock; if the Common Stock is not
then listed or admitted to trading on any national securities exchange or the
National Market System, the fair market value shall be based on the average of
the highest daily reported bid prices during such period as reported on Nasdaq
or, if the Common Stock is not then quoted on Nasdaq, as determined in good
faith by the Company's Board of Directors.
(b) If Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2,
and the Company shall include such information in the written notice referred to
in Section 2(a). In such event, the right of any Holder to include such Holder's
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. A majority in interest of the Initiating Holders shall select
the managing underwriter or underwriters in such underwriting, provided that
such underwriter(s) shall be reasonably satisfactory to the Company. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in Section 4(f)) enter into an
underwriting agreement in customary form with the underwriter or underwriters so
selected for such underwriting by a majority in interest of the Initiating
Holders; provided, however, that no Holder shall be required to make any
representations or warranties except as they relate to such Holder's ownership
of shares and authority to enter into the underwriting agreement and to such
Holder's intended method of distribution, and the liability of such Holder shall
be limited to an amount equal to the net proceeds from the offering received by
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<PAGE> 4
such Holder. Notwithstanding any other provision of this Section 2, if the
underwriter advises the Initiating Holders that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise the Company, and the Company shall so advise all Holders
of Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated (i) first to the Holders of Registrable
Securities that have elected to participate in such underwritten offering, pro
rata according to the number of Registrable Securities held by each such Holder,
(ii) thereafter, to the extent additional securities may be included in the
offering, to the Company, and (iii) thereafter, to the extent additional
securities may be included in such offering in accordance with the next
succeeding sentence, to the holders of such securities that have elected to
participate in such underwritten offering, pro rata according to the number of
such securities by each holder thereof.
(c) The Company shall be obligated to effect only two (2)
registrations pursuant to this Section 2 but, except as otherwise provided in
Section 6 hereof, an offering which is not consummated shall not be counted for
this purpose; provided, however, that the Company shall be obligated to effect
as many registrations as may be requested by Holders pursuant to any Qualifying
Request in the event and so long as a registration pursuant to Form S-3 or any
similar "short-form" registration statement is available; provided further,
however, that, in the event of a registration pursuant to Form S-3 or any
similar "short form" registration statement, the Company shall include in such
registration additional information that is not required to be included under
the Securities Act but which the underwriters designated by the Initiating
Holders in accordance with this Agreement reasonably request be included for
marketing purposes.
(d) In the event of a registration of Registrable Securities
pursuant to this Section 2, the Company shall make available such officers and
employees of the Company as the underwriters designated by the Initiating
Holders in accordance with this Agreement may reasonably request for purposes of
cooperating with such underwriter's marketing efforts.
(e) Notwithstanding the foregoing, if the Company shall furnish to
Initiating Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its shareholders for such
registration statement to be filed by reason of a material pending transaction
and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer such filing for a period of
not more than one hundred twenty (120) days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
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<PAGE> 5
3. Company Registration.
(a) If (but without any obligation to do so) the Company proposes to
register (including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its securities under the Securities
Act in connection with the public offering of such securities solely for cash,
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with Section
18, the Company shall, subject to the provisions of Section 8, use its best
efforts to cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered. The
Company shall have no obligation under this Section 3 to make any offering of
its securities, or to complete an offering of its securities that it proposes to
make, and shall incur no liability to any Holder for its failure to do so.
(b) The Company shall not have any obligations under Section 3(a)
with respect to any proposed registration of: (i) securities under a
registration on Form S-8 relating solely to the sale of securities to
participants in a Company stock plan or to other compensatory arrangements to
the extent includable on Form S-8, or a registration on Form S-4; (ii)
securities as part of an initial public offering of such securities occurring
before the first anniversary of the date hereof; or (iii) securities as part of
an initial public offering which is solely a "primary" offering of such
securities by the Company (i.e., in which securities held by any person or
entity other than the Company are not registered).
4. Obligations of the Company. Whenever required under this Agreement
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities being registered thereunder, keep
such registration statement effective for up to ninety (90) days or until the
Holders have completed the distribution referred to in such registration
statement, whichever occurs first (but in any event for at least any period
required under the Securities Act); provided, however, that before filing such
registration statement or any amendments thereto, the Company will furnish to
the Holders copies of all such documents proposed to be filed. The running of
the ninety (90) day period provided for in the preceding sentence shall be
tolled during any period of time in which any stop order relating to such
registration statement is in effect and during any period from the date that TSI
gives any notice provided for in Section 4(g) until such time as any amendment
or supplement required in connection therewith has been filed and is effective
and adequate copies thereof have been provided to the Holders for delivery under
the Securities Act.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
5
<PAGE> 6
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of such
registration statement and of each amendment and supplement thereto (in each
case including all exhibits), such number of copies of the prospectus contained
in such registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 under the
Securities Act, in conformity with the requirements of the Securities Act, and
such other documents as Holders may reasonably request in order to facilitate
the disposition of Registrable Securities which they own or have the right to
acquire.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or "blue sky"
laws of such states or jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto (i) to qualify to do business in any state or
jurisdiction where it would not otherwise be required to qualify but for the
requirements of this clause (d), or (ii) to file a general consent to service of
process in any such state or jurisdiction.
(e) Use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
Company's business or operations to enable the seller or sellers thereof to
consummate the disposition of such Registrable Securities.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(h) Notify each Holder of Registrable Securities covered by such
registration statement and such Holder's underwriters, if any, and confirm such
advice in writing: (i) when the registration statement has become effective,
(ii) when any post-effective amendment to the registration statement becomes
effective, and (iii) of any request by the SEC for any amendment or supplement
to the registration statement or prospectus or for additional information.
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<PAGE> 7
(i) Notify each Holder of Registrable Securities if at any time the
SEC should institute or threaten to institute any proceedings for the purpose of
issuing, or should issue, a stop order suspending the effectiveness of the
Registration Statement. Upon the occurrence of any of the events mentioned in
the preceding sentence, the Company will use its best efforts to prevent the
issuance of any such stop order or to obtain the withdrawal thereof as soon as
possible. The Company will advise each Holder of Registrable Securities promptly
of any order or communication of any public board or body addressed to the
Company suspending or threatening to suspend the qualification of any
Registrable Securities for sale in any jurisdiction.
(j) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, (i) on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in such form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities, and (ii) on the date that the
registration statement with respect to such securities becomes effective, a
"comfort" letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities, and, if such securities are
being sold through underwriters, a reaffirmation of such letter on the date that
such Registrable Securities are delivered to the underwriters for sale.
(k) As soon as practicable after the effective date of the
registration statement, and in any event within sixteen (16) months thereafter,
have "made generally available to its security holders" (within the meaning of
Rule 158 under the Securities Act) an earning statement (which need not be
audited) covering a period of at least twelve (12) months beginning after the
effective date of the registration statement and otherwise complying with
Section 11(a) of the Securities Act.
5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
respect to the Registrable Securities of any Holder requesting registration of
Registrable Securities that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Holder's Registrable Securities. If any registration
statement or comparable statement under the Securities Act refers to the
Investor or any of its affiliates, by name or otherwise, as the holder of any
securities of the Company then, unless counsel to the Company advises the
Company that the Securities Act requires that such reference be included in any
such statement, each such holder shall have the right to require the deletion of
such reference to itself and its affiliates.
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<PAGE> 8
6. Expenses of Demand Registration. All expenses, other than
underwriting discounts and commissions relating to Registrable Securities,
incurred in connection with registrations, filings or qualifications pursuant to
Section 2, including without limitation all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel (selected by a majority in interest of the Initiating Holders) for the
selling Holders shall be borne by the Company; provided, however, that the
Company shall not be required to bear such expenses in connection with any
registration begun pursuant to Section 2 if the offering is not consummated
primarily as a result of any act or omission of any Initiating Holder (in which
case all participating Holders shall bear such expenses pro rata), unless a
majority in interest of the Initiating Holders agree to forfeit one (1) of the
demand registration(s) to which they are then entitled pursuant to Section 2;
provided further, however, that if the reason for such withdrawal was because
(a) the Holders have learned of a material adverse change in the condition
(financial or otherwise), business or prospects of the Company from that known
to the Holders at the time of their request or (b) there has occurred a material
adverse change in marketing factors related to the sale of Registrable
Securities to the public from those existing at the time of the Holders'
request, then the Holders shall not be required to pay any such expenses and
shall retain their rights pursuant to Section 2.
7. Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
3 for each Holder, including without limitation all registration, filing and
qualification fees, printers' and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
(selected by the Holders of a majority of the Registrable Securities being
registered), but excluding underwriting discounts and commissions relating to
Registrable Securities.
8. Underwriting Requirements. In connection with any offering involving
an underwriting of shares being issued by the Company, the Company shall not be
required under Section 3 to include any Holder's securities in such underwriting
unless such Holder accepts the terms of the underwriting as agreed upon between
the Company and the underwriters selected by the Company, and then only in such
quantity as will not, in the opinion of the underwriters, jeopardize the success
of the offering by the Company; provided, however, that no Holder participating
in such underwriting shall be required to make any representations or warranties
except as they relate to such Holder's ownership of shares and authority to
enter into the underwriting agreement and to such Holder's intended method of
distribution, and the liability of such Holder shall be limited to an amount
equal to the net proceeds from the offering received by such Holder. If the
total amount of securities, including Registrable Securities, requested by
holders to be included in such offering (the "Secondary Securities") exceeds the
amount of Secondary Securities that the underwriters reasonably believe
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of Secondary Securities, including
Registrable Securities, which the underwriters believe will not jeopardize the
success of the offering. The amount of Secondary Securities to be so included in
the offering shall be
8
<PAGE> 9
allocated among the holders of such securities pro rata according to the number
of such securities held by each such holder or as may be otherwise agreed upon
among such holders.
9. Indemnification. In the event any Registrable Securities are
included in a registration statement under this Agreement:
(a) The Company will indemnify and hold harmless each Holder, its
heirs, personal representatives and assigns, each of such Holder's partners,
each of such Holder's, and each of such Holder's partners', officers, directors,
employees and affiliates, any underwriter (as defined in the Securities Act) for
such Holder and each Person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon a Violation (provided, however,
that the Company will not be required to indemnify any of the foregoing Persons
on account of any losses, claims, damages or liabilities arising from a
Violation if and to the extent that such Violation was made in a preliminary
prospectus and was corrected in a subsequent prospectus that was required by law
to be delivered to the Person making the claim with respect to which
indemnification is sought hereunder (and such subsequent prospectus was made
available by the Company to permit delivery of such prospectus in a timely
manner), and such subsequent prospectus was not so delivered to such Person);
and the Company will pay to each such indemnified party, as incurred, any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 9(a) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case to a particular indemnified party for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by or on behalf of such indemnified party.
(b) Each selling Holder will indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
registration statement, each Person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling Person of any such
underwriter or other Holder, against any losses, claims, damages or liabilities
(joint or several) to which any of the foregoing Persons may become subject,
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by or on behalf of such Holder
expressly for use in connection with such registration; and each such Holder
will pay, as incurred, any legal or other expenses reasonably incurred by any
9
<PAGE> 10
Person intended to be indemnified pursuant to this Section 9(b), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 9(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holder, which consent shall not be unreasonably withheld; and
provided further, however, that, in no event shall the liability of any Holder
under this Section 9(b) exceed the net proceeds from the offering received by
such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the indemnified party under this Section 9 except if, and only to
the extent that, the indemnifying party is actually prejudiced thereby; and such
failure to deliver written notice to the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than under
this Section 9.
(d) The obligations of the Company and Holders under this Section 9
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
(e) Any indemnity agreements contained herein shall be in addition
to any other rights to indemnification or contribution which any indemnified
party may have pursuant to law or contract and shall remain operative and in
full force and effect regardless of any investigation made or omitted by or on
behalf of any indemnified party.
(f) If for any reason the foregoing indemnity is unavailable, then
the indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (i) in such proportion as is appropriate to reflect the relative
benefits received by the indemnifying party on the one hand and the indemnified
party on the other (taking into consideration, among other things, the fact that
the provision of the registration rights and indemnification hereunder is a
material inducement to the Investor to purchase Series A Stock pursuant to the
Purchase Agreement) or (ii) if the allocation provided by clause (i) above is
not permitted by
10
<PAGE> 11
applicable law or provides a lesser sum to the indemnified party than the amount
hereinafter calculated, in such proportion as is appropriate to reflect not only
the relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other (taking into consideration, among other things,
the fact that the provision of the registration rights and indemnification
hereunder is a material inducement to the Investor to purchase Series A Stock
pursuant to the Purchase Agreement) but also the relative fault of the
indemnifying party and the indemnified party as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by or on behalf of the indemnifying party or the
indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
Notwithstanding anything to the contrary in this Section 9, no Holder shall be
required, pursuant to this Section 9, to contribute any amount in excess of the
net proceeds received by such indemnifying party from the sale of Registrable
Securities in the offering to which the losses, claims, damages, liabilities or
expenses of the indemnified party relate.
10. Reports Under the Exchange Act. With a view to making available to
the Holders the benefits of Rule 144 under the Securities Act and any other rule
or regulation of the SEC that may at any time permit a Holder to sell securities
of the Company to the public without registration or pursuant to a registration
on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
(b) take such action as is necessary to enable the Holders to
utilize Form S-3 for the sale of their Registrable Securities;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 under
the Securities Act (at any time after the effective date of the first
registration statement filed by the Company) and the Securities Act and Exchange
Act (at any time after it has become subject to such reporting requirements) or
that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any
11
<PAGE> 12
rule or regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
11. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned in
whole or in part by a Holder to one or more of its partners or affiliates or to
one or more transferees or assignees of not less than twenty-five percent (25%)
of all Registrable Securities acquired by the Investor pursuant to the Purchase
Agreement, provided that such transferee or assignee delivers to the Company a
written instrument by which such transferee or assignee agrees to be bound by
the obligations imposed on Holders under this Agreement to the same extent as if
such transferee or assignee was a party hereto.
12. "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period requested by the underwriters in the Company's initial public
offering (not to exceed 180 days following the effective date of the
registration statement of the Company filed under the Securities Act in
connection with such offering), it shall not sell or otherwise transfer or
dispose of (other than to donees or affiliates who agree to be similarly bound)
any Common Shares or any securities of the Company convertible into Common
Shares held by it except Common Shares included in such registration.
13. Amendment; Waiver. Any provision of this Agreement may be amended
only with the written consent of the Company, the Holders of a majority of the
Registrable Securities then outstanding. The observance of any provision of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the party to be
charged; provided, however, that the Holders of a majority of the Registrable
Securities then outstanding may act on behalf of all such Holders of Registrable
Securities. Any amendment or waiver effected in accordance with this Section 13
shall be binding upon each Holder of Registrable Securities at the time
outstanding, each future Holder of all such securities, and the Company.
14. Changes in Registrable Securities. If, and as often as, there are
any changes in the Registrable Securities by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions of this Agreement, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Registrable Securities as so changed. Without limiting the
generality of the foregoing, the Company will require any successor by merger or
consolidation to assume and agree to be bound by the terms of this Agreement, as
a condition to any such merger or consolidation.
15. Exercise of Conversion Rights. Any election by any Holder to
convert shares of Series A Stock in connection with the registration of the
underlying Registrable Securities hereunder may be made contingent upon the
effectiveness of such registration statement or, in the case of an underwritten
offering, the closing of such offering.
12
<PAGE> 13
16. Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subject matter
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any Person, other than the parties hereto and their respective successors
and assigns, any rights, remedies, obligations, or liabilities under or by
reason of this Agreement, except as expressly provided herein.
17. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York as such laws are applied to agreements between
New York residents entered into and to be performed entirely within New York,
whether or not all parties hereto are residents of New York.
18. Successors and Assigns. The provisions hereof shall inure to the
benefit of, and be binding upon, the successors, permitted assigns (as provided
in Section 11), heirs, executors and administrators of the parties hereto.
19. Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon receipt by the party to be notified or on the second
following business day, if delivered by a recognized overnight courier service
offering overnight delivery, or on the third following business day, if such
courier offers second-day delivery, and addressed to the party to be notified
(a) if to a party other than the Company, at such party's address set forth at
the end of this Agreement or at such other address as such party shall have
furnished the Company in writing, or, until any such party so furnishes an
address to the Company, then to and at the address of the last holder of the
Registrable Securities covered by this Agreement who has so furnished an address
to the Company, or (b) if to the Company, at its address set forth at the end of
this Agreement, or at such other address as the Company shall have furnished to
the parties in writing.
20. Severability. Any invalidity, illegality or limitation on the
enforceability of this Agreement or any part thereof, by any party whether
arising by reason of the law of the respective party's domicile or otherwise,
shall in no way affect or impair the validity, legality or enforceability of
this Agreement with respect to other parties. If any provision of this Agreement
shall be judicially determined to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
21. Titles and Subtitles. The titles of the Sections of this Agreement
are for convenience of reference only and are not to be considered in construing
this Agreement.
22. Delays or Omissions; Remedies Cumulative. It is agreed that no
delay or omission to exercise any right, power or remedy accruing to the
parties, upon any breach or default of the Company under this Agreement, shall
impair any such right, power or remedy, nor shall it be construed to be a waiver
of any such breach or default, or any acquiescence therein, or of any similar
breach or default thereafter occurring; nor shall any
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<PAGE> 14
waiver of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character by a party of any
breach or default under this Agreement, or any waiver by a party of any
provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in writing and that all
remedies, either under this Agreement, or by law or otherwise afforded to a
party, shall be cumulative and not alternative.
23. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorney's fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
24. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY"
TEMPLATE SOFTWARE, INC.
Address:
45365 Vintage Park Plaza
Dulles, Virginia 20166
Attn: Chief Executive Officer
By:________________________________
Name:
Title:
"INVESTOR"
ALCATEL N.V.
By: Compagnie Financiere Alcatel
Address:
33 rue Emeriau
75725 Paris Cedex 15
France
Attn: M. Pascal Durand Barthez By:________________________________
Name:
Title:
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<PAGE> 1
Exhibit 4.3
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT (this "Agreement") is made as of November
27, 1996 among TEMPLATE SOFTWARE, INC., a Virginia corporation (the "Company"),
the shareholders listed on the signature pages to this Agreement (the "Named
Shareholders"), and ALCATEL N.V., a company limited by shares with ordinary
structure organized under the laws of the Netherlands (the "Investor").
RECITALS:
A. Concurrently with the execution of this Agreement, the Investor is
acquiring from the Company shares of the Company's Series A Convertible
Preferred Stock, par value $0.01 per share, pursuant to the Convertible
Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement").
B. The Company and the Named Shareholders wish to provide, by entering
into this Agreement, a further inducement to the Investor to purchase the
Company's Series A Stock pursuant to the Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Definitions. For purposes of this Agreement:
(a) "Common Shares" means shares of Common Stock, par value $0.01
per share, of the Company.
(b) "Fully Diluted Common Shares" means, as of any date, the sum of
(i) the outstanding Common Shares as of that date and (ii) the additional Common
Shares that would be taken into account for purposes of calculating fully
diluted earnings per share for the period from the end of the Company's last
fiscal year through such date under the treasury-stock method and in accordance
with generally accepted accounting principles.
(c) "Holder" means any Person owning or having the right to acquire
Investor Securities.
(d) "Initial Public Offering" means the initial public offering of
Common Shares registered under the Securities Act.
(e) "Investor Securities" means (1) the shares of Series A Stock
being acquired by the Investor pursuant to the Purchase Agreement, (2) any
Common Shares issuable or issued upon conversion of the Series A Stock, and (3)
any Common Shares or warrant, right or other security issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with
<PAGE> 2
respect to, or in exchange for or in replacement of, or upon conversion of, such
Series A Stock or Common Shares or other warrants, rights or securities.
(f) "majority in interest of the Holders" means the Holders owning
or having the right to acquire a majority of the Investor Securities then
outstanding which all Holders own or have the right to acquire.
(g) "Management Shareholder" means any individual who is an officer,
director (whether or not an employee) or management-level employee of the
Company.
(h) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, association, trust or any other entity or
organization.
(i) "Registration Rights Agreement" means the Registration Rights
Agreement of even date herewith between the Company and the Investor.
(j) "Rule 144 Sales" means sales pursuant to Rule 144 under the
Securities Act (or any successor rule or regulation) and in compliance with the
requirements of paragraphs (c), (e) and (f) of such Rule, without giving effect
to paragraph (k) of such rule.
(k) "Sale Event" means any (i) sale or other transfer for value of
the Company or any significant portion of its or its subsidiaries' capital stock
or assets (whether by means of stock or asset sale, merger, consolidation or
otherwise); or (ii) any sale or other transfer for value of Common Shares or
rights, options, warrants or other securities that are exercisable for, or
convertible into, Common Shares, or any combination of the foregoing, that in
the aggregate constitute or represent the right to acquire (as the case may be)
Common Shares equal to at least 5% of the Common Shares outstanding immediately
prior to such sale or other transfer excluding any (x) issuances of Common
Shares pursuant to a widely distributed underwritten public offering registered
under the Securities Act and not involving any breach by the Company of the
Registration Rights Agreement or (y) issuances or grants of options or Common
Shares to officers, directors, employees and consultants of the Company
constituting compensation to the recipient and made pursuant to any plan, grant
or award approved by the Company's Board of Directors.
(l) "Securities Act" means the Securities Act of 1933, as amended.
(m) "Series A Stock" means the Series A Convertible Preferred Stock,
par value $0.01 per share, of the Company.
2
<PAGE> 3
2. Right to Join; Reasonable Opportunity to Make Offer; Information.
(a) Right to Join.
(i) If any one or more of the Named Shareholders (the "Selling
Shareholders") propose, in a single transaction or series of related
transactions, to transfer for value Common Shares or rights, options, warrants,
or other securities that are exercisable for, or convertible into, Common
Shares, or any combination of the foregoing, that, together with related sales
by any Management Shareholders, constitute or represent the right to acquire (as
the case may be) Common Shares equal to at least 5% of the Common Shares then
outstanding to any Person or Persons, then the Selling Shareholders shall
refrain from effecting such transaction or transactions unless (A) such transfer
is a Rule 144 Sale, or (B) prior to the consummation thereof, each Holder of
Investor Securities shall have been afforded the opportunity to join in such
sale on a pro rata basis, as hereinafter provided. Any purported transfer
subject to this Section 2(a) not made in compliance with this Section 2(a) shall
be void and shall not be consummated upon the books and records of the Company.
(ii) Prior to the consummation of any transaction (including
any transaction in a series of transactions) subject to this Section 2(a), the
Selling Shareholders shall cause each Person or Persons that propose to acquire
Common Shares in the transaction or series of transactions (the "Proposed
Purchasers") to offer (the "Purchase Offer") in writing to each Holder of
Investor Securities to purchase that number of Common Shares from each Holder
that constitutes the same percentage of the aggregate Common Shares that such
Holder owns or has the right to acquire as the percentage determined by dividing
the number of Common Shares to be purchased by the Proposed Purchaser from the
Selling Shareholders by the aggregate number of Common Shares held by the
Selling Shareholders at the same price per Share (the "Joining Price"), and on
such other terms and conditions (the "Joining Terms"), as the Proposed Purchaser
has offered to purchase Common Shares to be acquired by it. Notwithstanding the
foregoing, if the Proposed Purchasers are acquiring Common Shares in a series of
related transactions, or in a single transaction or series of related
transactions from multiple Selling Shareholders or Management Shareholders, (i)
the Joining Price shall be the highest of the prices offered by any Proposed
Purchaser to any Selling Shareholder or any Management Shareholder in any one of
such transactions, and (ii) the Joining Terms shall be those terms offered by
any Proposed Purchaser to any Selling Shareholder or any Management Shareholder
in any one of such transactions which are most favorable to the offeree. Each
Holder shall have at least 30 days from the receipt of the Purchase Offer in
which to accept the Purchase Offer.
(iii) Any closing of a sale of Common Shares to a Proposed
Purchaser shall be structured in such a manner so as to permit any Holder
electing to have Investor Securities acquired by a Proposed Purchaser to convert
Series A Stock
3
<PAGE> 4
into Common Shares simultaneously with the transfer thereof to the
Proposed Purchaser.
(b) Certain Information. Without limiting any other provision of
this Agreement, no Named Shareholder shall, directly or indirectly, solicit any
proposal or participate in any discussions or negotiations with a view to, or
that could reasonably be expected to culminate in, a Sale Event without first
advising the Holders orally and in writing of his or her intent to do so. In
addition, the Named Shareholders shall promptly advise the Holders of any
request for information or any proposal for a Sale Event, or any inquiry which
could reasonably be expected to lead to a proposal for a Sale Event, the
material terms and conditions of such request, proposal or inquiry, and the
identity of the Person or Persons making the same. The Named Shareholders shall
use their best efforts to keep the Holders fully and currently apprised of the
status of any solicitations, discussions, negotiations, requests, proposals or
inquiries contemplated by this Section 2(b), and, in addition, shall provide the
Holders which such information regarding the same as any of them from time to
time may reasonably request.
(c) Reasonable Opportunity to Make Offer. Without limiting any
other provision of this Agreement, prior to an Initial Public Offering, no Named
Shareholder shall, directly or indirectly, consummate any transaction that would
constitute a Sale Event without first affording the Holders the reasonable
opportunity to make a higher offer with respect to such transaction.
(d) Family Transfers. The restrictions contained in this Section
2 with respect to transfers of Common Shares or rights, options, warrants, or
other securities or any beneficial interest therein shall not apply to any
transfer by an individual Named Shareholder to the spouse or issue of such Named
Shareholder or to a trust of which there are no beneficiaries other than such
Named Shareholder or the spouse or issue of such Named Shareholder. In addition,
the restrictions on transfers of shares contained in this Section 2 shall not
apply to a transfer by an individual Named Shareholder upon his or her death by
will, by the laws of descent or by operation of law. Each executor, beneficiary,
heir or other transferee under this Section 2(d) (and each successive transferee
thereof) shall be deemed to take such shares subject to all provisions of this
Agreement applicable to the transferor and as provided in Section 6 below,
including, without limitation, Section 2(e) below.
(e) Transfers of Options. Notwithstanding any other provision of
this Agreement to the contrary, no options or other securities (excluding Common
Shares) received by any Named Shareholder from, directly or indirectly, the
Company as compensation or incentive compensation shall be transferred by such
Named Shareholder except pursuant to Section 2(d).
4
<PAGE> 5
3. Reasonable Opportunity to Make Offer; Information.
(a) Reasonable Opportunity to Make Offer. Without limiting any other
provision of this Agreement, prior to an Initial Public Offering, the Company
shall not, directly or indirectly, consummate any transaction that would
constitute a Sale Event without first affording the Holders the reasonable
opportunity to make a higher offer with respect to such transaction.
(b) Certain Information. Without limiting any other provision of
this Agreement, the Company shall not, directly or indirectly, solicit any
proposal or participate in any discussions or negotiations with a view to, or
that could reasonably be expected to culminate in, a Sale Event without first
advising the Holders orally and in writing of its intent to do so. In addition,
the Company shall promptly advise the Holders of any request for information or
any proposal for a Sale Event, or any inquiry which could reasonably be expected
to lead to a proposal for a Sale Event, the material terms and conditions of
such request, proposal or inquiry, and the identity of the Person making the
same. The Company shall use its best efforts to keep the Holders fully and
currently apprised of the status of any solicitations, discussions,
negotiations, requests, proposals or inquiries contemplated by this Section
3(b), and, in addition, shall provide the Holders which such information
regarding the same as any of them from time to time may reasonably request.
4. Voting. From and after such time as there shall no longer be any
Series A Stock outstanding, at the request of a majority in interest of the
Holders:
(a) Nomination. The Company hereby agrees (and the Named
Shareholders hereby agree to use all reasonable efforts to cause) that there
shall be nominated by the Board of Directors for election as a director of the
Company one individual designated from time to time by a majority in interest of
the Holders (the "Alcatel Designee").
(b) Election. Each Named Shareholder hereby agrees to vote all
Common Shares owned or held beneficially or of record by such Named Shareholder,
to take all actions by written consent in lieu of a meeting, and to reasonably
cooperate (and the Company and each other Named Shareholder shall reasonably
cooperate) to expeditiously cause (i) any Alcatel Designee to be elected as a
member of the Board of Directors of the Company, (ii) any Alcatel Designee to be
appointed to serve on the Company's Executive Committee or any similar
committee, if there is such an Executive Committee or similar committee (it
being agreed that there shall be no obligation to establish an Executive
Committee or similar committee) and (iii) any Alcatel Designee (if the
membership of the Scientific Committee is to consist solely of directors) or any
Alcatel Designee or such other person as may be designated by a majority in
interest of the Holders (if the membership of the Scientific Committee is not to
consist solely of directors) to be appointed to serve on the Company's
Scientific Committee, if there is one, and if there is not, to cause the Board
of Directors to vote on the establishment of such a Scientific Committee.
5
<PAGE> 6
(c) Removal. To the extent then permitted under the Company's
Articles of Incorporation, each Named Shareholder agrees to vote all Common
Shares owned or held beneficially or of record by such Named Shareholder to
remove (with or without cause) any director designated by the Holders and
elected pursuant to Section 3(b) if a majority in interest of the Holders
requests such removal by written notice to the Company.
(d) Vacancies. In the event that a vacancy is created on the Board
of Directors by the death, disability, retirement, resignation or removal (with
or without cause) of a director designated by the Holders or there shall be no
director on the Board of Directors that has been designated by the Holders, each
Named Shareholder hereby agrees, upon written request by a majority in interest
of the Holders, to vote or take action by written consent, and to use his or her
reasonable efforts to cause the remaining directors to vote or take action by
written consent, for the election of a nominee to be designated by a majority in
interest of the Holders in the most expeditious manner that is reasonably
practicable, provided that such designee was not previously a director of the
Company who was removed for cause from the Board of Directors. The Company and
the other Named Shareholders shall reasonably cooperate in the expeditious
filling of any such vacancy.
(e) Meetings. Each Named Shareholder hereby agrees to take all
actions necessary to call, or use reasonable efforts to cause the Company and
the appropriate officers and directors of the Company to call, a special or
annual meeting of shareholders of the Company or to execute or cause to be
executed a consent in writing in lieu of any such meeting for the election as
members of the Board of Directors of those individuals designated in accordance
with, and otherwise to implement the intent of, Section 4 of this Agreement. The
Company shall reasonably cooperate in the calling of any such meeting or the
execution of any such consent.
5. Termination of Rights. All rights of Holders under Sections 2, 3 and
4 above shall terminate at such time as the Holders cease to own in the
aggregate at least three percent (3%) of the Fully Diluted Common Shares.
6. Assignment; Family Shares.
(a) Assignment. This Agreement shall be binding on and inure to the
benefit of the parties hereto and their respective legal representatives,
successors and assigns. The rights and obligations arising from this Agreement
shall be transferred in connection with the transfer by a Named Shareholder or a
Holder to any Person of any Common Shares or Investor Securities, respectively,
in compliance with this Agreement, other than in a registered public offering or
in Rule 144 Sales, and any such Person shall conclusively be deemed to have
agreed to be bound by this Agreement. Any transferee of
6
<PAGE> 7
Common Shares from a Named Shareholder (including, without limitation, any
transferee under Section 2(d) above, but excluding any transferee in a
registered public offering or a Rule 144 Sale) shall (i) as a condition
precedent to such transfer, execute and deliver an agreement reasonably
acceptable to a majority in interest of the Holders to take such shares subject
to all terms and provisions of this Agreement, and (ii) be deemed a Named
Shareholder for all purposes of this Agreement.
(b) Family Shares. Nothing herein shall be deemed to subject the
Common Shares currently owned by any adult family member of a Named Shareholder
to the provisions of Section 2 requiring the Named Shareholders to vote their
Common Shares (except in any case where the Named Shareholder has or shares the
power to vote such shares) or to the provisions of Sections 4 or 5 hereof.
7. Representations and Warranties. The parties acknowledge that certain
representations and warranties regarding this Agreement have been made by the
Company and the Investor in the Purchase Agreement. The Investor does hereby
confirm for the benefit of the Named Shareholders that the representations and
warranties made by it regarding this Agreement in the Purchase Agreement (all of
which are hereby incorporated herein by reference as if set forth in full
herein) are true and correct. In addition, each Named Shareholder does hereby
represent and warrant to the Investor as follows:
(a) Authority. Each of them is an individual having the capacity to
enter into this Agreement and to perform its obligations hereunder.
(b) Enforceability. This Agreement constitutes the valid and binding
obligation of each of them and is enforceable against each of them in accordance
with its terms, except as may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(c) No Conflicts, Etc. The execution, delivery and performance of
this Agreement by each of them will not constitute a violation by any of them of
any law or regulation applicable to them or any lease, agreement or commitment
to which any of them is a party. No consent, approval or authorization of, or
designation, declaration or filing with, any governmental authority is required
on the part of any of them in connection with the execution, delivery and
performance of this Agreement. Other than this Agreement, no Named Shareholder
is a party to any agreement relating to the voting or disposition of the Common
Shares.
(d) Litigation. There is no claim, litigation, proceeding or
governmental investigation pending or, to the best of their knowledge,
threatened, or any order, injunction or decree outstanding, against them that,
if adversely determined, might prohibit, restrict or interfere with the
performance of their obligations hereunder.
7
<PAGE> 8
8. Preemptive Rights. If at any time the Company shall issue any Common
Shares or any other capital stock or securities, options, warrants or other
rights convertible into, or exchangeable or exercisable for, Common Shares, the
Company and the Named Shareholders shall give the holders of the then
outstanding shares of Series A Stock (as defined in the Purchase Agreement), if
any, at least 30 days prior written notice of such issuance and the Company and
the Named Shareholders shall jointly and severally, cause such holders to have
the right to purchase, for cash, at the proposed issuance price, that percentage
of the securities or other proposed rights to be issued as the percentage of the
Common Shares into which such holders' shares of Series A Stock may then be
converted represents of the Common Shares outstanding immediately prior to such
issuance. The amount of the proposed issuance price of the securities or other
rights to be offered shall be calculated in accordance with Section (4)(iv)(e)
of Article 9 of the Amended and Restated Articles (as defined in the Purchase
Agreement). The provisions of this Section 8 shall not apply to any securities
that are: (i) excluded from the definition of Additional Shares of Common Stock
pursuant to clauses (I) through (IV) of Section (4)(iv)(a)(D) of Article 9 of
the Amended and Restated Articles (as defined in the Purchase Agreement), or
(ii) issuable as a dividend or distribution as provided in Section (4)(vi) of
Article 9 of the Amended and Restated Articles (as defined in the Purchase
Agreement) or upon a stock split or combination as provided in Section (4)(v) of
Article 9 of the Amended and Restated Articles (as defined in the Purchase
Agreement). The preemptive rights of the holders of Series A Stock set forth in
this Section 6 shall terminate upon (and shall not apply to the issuance of
shares of Common Stock in) the consummation of a Qualifying Public Offering (as
defined in the Purchase Agreement).
9. Miscellaneous.
(a) Changes in Securities. If, and as often as, there are any
changes in the Investor Securities or other securities of the Company by way of
stock split, stock dividend, combination or reclassification, or through merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions of this Agreement, as may
be required, so that the rights, privileges, duties and restrictions set forth
herein shall continue with respect to the Investor Securities or other
securities of the Company as so changed. Without limiting the generality of the
foregoing, the Company will require any successor by merger or consolidation, by
operation of law or by agreement, to assume (by execution and delivery of an
instrument in form and substance reasonably satisfactory to a majority in intent
of the Holders) and be bound by the terms of this Agreement, as a condition to
any such merger or consolidation.
(b) Legend. Each certificate representing Common Shares now or
hereafter owned by a Named Shareholder shall bear a legend in substantially the
following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO A SHAREHOLDERS AGREEMENT
DATED AS NOVEMBER 20, 1996, A COPY OF WHICH IS
8
<PAGE> 9
ON FILE AT THE OFFICE OF THE COMPANY AND WILL
BE FURNISHED TO PROSPECTIVE PURCHASERS UPON
REQUEST. SUCH SHAREHOLDERS AGREEMENT
PROVIDES, AMONG OTHER THINGS, FOR
RESTRICTIONS ON THE SALE OR TRANSFER OF THE
SHARES REPRESENTED BY THIS CERTIFICATE."
(c) Injunctive Relief. Each party hereto acknowledges that it will
be impossible to measure in money the damages that would be suffered if any
party fails to comply with any of the obligations herein imposed on such party
and that in the event of any such failure, an aggrieved person will be
irreparably damaged and will not have an adequate remedy at law. Any such Person
shall, therefore, be entitled to injunctive relief and/or specific performance
to enforce such obligations without the necessity of posting any bond or other
form of security, and if any action should be brought in equity to enforce any
of the provisions of this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at law.
(d) Further Assurances. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments, and
documents as any other party hereto reasonably may request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation of
the transactions contemplated hereby.
(e) Governing Law; Jurisdiction; Etc. This Agreement and the rights
and obligations of the parties hereunder shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York without giving
effect to the choice of law principles thereof. The courts of the State of New
York in New York County and the United States District Court for the Southern
District of New York shall have exclusive jurisdiction over the parties with
respect to any dispute or controversy among them arising under or in connection
with this Agreement, by execution and delivery of this Agreement, each of the
parties to this Agreement hereby submits to the jurisdiction of those courts,
including, but not limited to, the in personam and subject matter jurisdiction
of those courts, waives any objection to such jurisdiction on the grounds of
venue or forum non conveniens, the absence of in personam or subject matter
jurisdiction and any similar grounds, consents to service of process by mail (in
accordance with this Agreement) or any other manner permitted by law, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. EACH PARTY HERETO WAIVES A TRIAL BY JURY IN ANY ACTION
BROUGHT ON OR WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT EXECUTED IN
CONNECTION THEREWITH.
(f) Entire Agreement; Amendment; Waiver. This Agreement: (a)
contains the entire agreement among the parties hereto with respect to the
subject matter hereof, (b) supersedes all prior written agreements and
negotiations and oral understandings, if any, with respect thereto, and (c) may
not be amended or supplemented except by an instrument or counterparts thereof
in writing signed by the Company and by (i) Named
9
<PAGE> 10
Shareholders holding a majority of the Common Shares held by the Named
Shareholders, and (ii) Holders holding a majority of the Investor Securities. No
waiver of any term or provision of this Agreement shall be effective unless in
writing signed by the party to be charged. The waiver by any party of a breach
of any term or provision of this Agreement shall not be construed as a waiver of
any subsequent breach.
(g) Invalidity of Provision. The invalidity or unenforceability of
any provision of this Agreement in any jurisdiction shall not affect the
validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of this Agreement, including that
provision, in any other jurisdiction.
(h) Notice. All notices and other communications hereunder shall be
in writing, shall be sent by certified or registered mail (return receipt
requested) or by telecopier or shall be delivered by hand or by a recognized
overnight courier service and, unless otherwise provided herein, shall be deemed
to have been given or made when delivered against receipt or, in the case of
telecopy notice, when sent, receipt confirmed, to the party to whom such notice
is to be given at its address set forth below, or such other address for the
party as shall be specified by notice given pursuant hereto:
If to the Company, to it at:
Template Software, Inc.
45365 Vintage Park Plaza
Dulles, VA. 20166
Fax: 703-318-8325
Attn: Chief Executive Officer
with a copy to:
Hunton & Williams
1751 Pinnacle Drive
Suite 1700
McLean, VA. 22102
Fax: 703-714-7410
Attn: Joseph W. Conroy, Esq.
If to any Named Shareholder,
10
<PAGE> 11
to him or her at the address set forth
on the signature page set forth below
If to the Investor, to it at:
Alcatel N.V.
33 rue Emeriau
75725 Paris Cedex 15,
France
Telecopy: 011-331-4058-5920
Attention: M. Pascal Durand Barthez
with a copy to:
Proskauer Rose Goetz &
Mendelsohn LLP
1585 Broadway
New York, New York 10036
Telecopy: (212) 969-2900
Attn: Peter G. Samuels, Esq.
If to any other Holder, to it
at its address set forth in the records
of the Company
(i) Headings; Execution in Counterparts. The
headings and captions contained herein are for convenience of reference only and
shall not control or affect the meaning or construction of any provision hereof.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original and all of which together shall constitute one
and the same instrument.
[END OF TEXT]
11
<PAGE> 12
[EXECUTION PAGES]
IN WITNESS WHEREOF, this Shareholders Agreement has been
executed by or on behalf of each of the parties hereto as of the date first
above written.
"COMPANY"
TEMPLATE SOFTWARE, INC.
By:
---------------------------------
Name:
Title:
"INVESTOR"
ALCATEL N.V.
By: Compagnie Financiere Alcatel
By:
---------------------------------
Name:
Title:
"NAMED SHAREHOLDERS"
/s/ Joseph M. Fox
------------------------------------
JOSEPH M. FOX
3251-B Sutton Place
Washington, D.C. 20016
/s/ E. Linwood Pearce
------------------------------------
E. LINWOOD PEARCE
10831 Barnwood Lane
Potomac, MD 20854
/s/ Andrew B. Ferrentino
------------------------------------
ANDREW B. FERRENTINO
7904 Horshoe Lane
Potomac, MD 20859
12
<PAGE> 1
EXHIBIT 10.1
SOFTWARE ARCHITECTURE AND ENGINEERING, INC.
FIRST AMENDMENT
1986 INCENTIVE STOCK OPTION PLAN
The 1986 Incentive Stock Option Plan is hereby amended,
pursuant to paragraph 16 of said plan, in the following manner:
1. Paragraph 8 is hereby deleted in its entirety and the
following substituted in its place:
"8. Maximum Fair Market Value Upon Exercise.
The aggregate fair market value of the stock
(determined at the time the option is granted) with respect to which incentive
stock options are exercisable for the first time by such optionee during any
calendar year (under all such plans of the optionee's employer corporation and
its parent and subsidiary corporations) shall not exceed $100,000."
2. Paragraph 10 is hereby deleted in its entirety.
3. No options shall be granted under this Plan after
December 31, 1991.
<PAGE> 2
4. Effective Dates.
Paragraphs 1 and 2 of this Amendment shall be
effective as of January 1, 1987. Paragraph 3 of this Amendment shall be
effective as of January 1, 1992.
- 2 -
<PAGE> 3
SOFTWARE ARCHITECTURE AND ENGINEERING, INC.
1986 INCENTIVE STOCK OPTION PLAN
1. Purpose.
This Incentive Stock Option Plan (hereinafter called the
"Plan") for SOFTWARE ARCHITECTURE AND ENGINEERING, INC. (hereinafter called the
"Company") is intended to provide certain key employees with additional
incentive to promote the success of the Company, to increase their proprietary
interest in the success of the Company and to encourage them to remain in its
employ. These aims will be effectuated through the granting of incentive stock
options (hereinafter called "Options") as such term is defined under Section
422A of the Internal Revenue Code of 1954, as amended (hereinafter called the
"Code"), and the terms of the Plan shall be interpreted in accordance with this
intention.
2. Administration.
The Plan shall be administered by the Board of Directors of
the Company (hereinafter called the "Board"). The Board shall have authority,
subject to the terms of the Plan, to determine the employees to whom Options
shall be granted, the number of shares and the purchase price of the shares
covered by each Option, the time or times at which Options shall be granted,
and the terms and provisions of the instruments by which Options shall be
granted; to construe the provisions of the Plan; and to make all determinations
necessary or advisable for the administration of the Plan. The Board, within
its discretion, shall have the authority to appoint a committee of not less
than three of its members which shall have authority over this Plan in lieu of
the entire Board.
<PAGE> 4
- 2 -
3. Eligibility.
Options may be granted to those key employees of the Company
as the Board shall select from time to time on the basis of demonstrated
ability to contribute substantially to the future success of the Company. In
no event shall an Option be granted to any individual who, immediately after
such Option is granted, is considered to own stock possessing more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company.
4. Allotment of Shares.
A maximum of 300,000 authorized but unissued shares of the
Class B Non-Voting Common Stock of the Company (par value $0.01) are allotted
to the Plan. The Board may, in its discretion, use Treasury shares in lieu of
authorized but unissued shares for the Options. The aggregate number of shares
of stock for which Options may be granted shall be subject to adjustment in
accordance with the terms of Paragraph 15 below. Any shares subject to an
Option under the Plan, which Option for any reason expires or is terminated
unexercised as to such shares, may again be subjected to an Option under the
Plan.
5. Terms and Conditions of Options.
All Options granted pursuant to the Plan shall be authorized
by the Board of Directors and shall be evidenced by written agreements
(hereinafter called "Stock Option Agreements") in such form and containing such
terms and conditions as the Board shall determine.
6. Option Price.
The option price per share for each Option granted under the
Plan shall be not less than 100 percent of the fair market value of a share of
stock on the date of grant of such Option as determined by the
<PAGE> 5
-3-
Board. The fair market value shall be determined by the Board in the manner
prescribed by the Code and the regulations thereunder.
7. Period of Option.
Each Stock Option Agreement shall set forth the period for
which such Option is granted, which shall not exceed ten (10) years from the
date such Option is granted.
8. Maximum Fair Market Value Per Optionee.
The aggregate fair market value of the stock for which any
employee may be granted Options in any calendar year under this or any other
incentive stock option plan established by the Company shall not exceed
$100,000 plus any unused limit carryover to such year within the meaning of
Section 422A(c)(4) of the Code to such year.
9. Exercisability of Options.
Each Option shall become exercisable in one or more
installments at the time or times provided in the optionee's Stock Option
Agreement. An Optionee may choose to exercise any exercisable Option at any
time and from time to time, in whole or in part, until the expiration date of
the Option as stated in the Optionee's Stock Option Agreement or the
termination of the Option as specified in Paragraph 12 below.
10. Sequential Exercise.
No Option granted under this Plan shall be exercisable while
there is outstanding (within the meaning of Section 422A(c)(7) of the Code) any
incentive stock option which was granted, before the granting of such Option,
to the optionee to purchase stock in the Company.
<PAGE> 6
-4-
11. Method of Exercise and Payment.
An Option may be exercised by submission of a completed Notice
of Exercise form to any officer of the Company. Such forms shall be available
at the offices of the Company. At the time any Option is exercised, the
optionee or anyone permitted to exercise the Option subsequent to the
optionee's death, shall make full payment of the option price by check payable
to the Company.
12. Termination of Employment.
(a) Termination Without Cause.
If an optionee ceases to be employed by the Company other than
by reason of death, disability, termination for cause or retirement, then any
Option or Options granted to the optionee under the Plan, to the extent the
Options are exercisable as of the date of the optionee's termination of
employment, may be exercised by the optionee within three (3) months after his
termination date. To the extent any Option is not exercisable as of the
optionee's termination date or is not actually exercised by the optionee within
said three-month period, the Option shall be deemed terminated and cancelled as
of the optionee's termination date.
(b) Termination For Cause.
If an optionee ceases to be employed by the Company due to the
termination of his employment for cause, then any Option or Options granted to
the optionee under the Plan (whether or not otherwise currently exercisable)
shall terminate as of the date of the optionee's termination of employment.
The optionee's termination of employment shall be deemed "for cause" if such
termination is a result of any of the following:
<PAGE> 7
-5-
1. Insubordination or neglect by the optionee of the
optionee's duties and obligations to the Company;
2. Breach by the optionee of any employment contract,
nondisclosure agreement or other contract with the
Company;
3. Conviction of the optionee of a crime amounting to a
felony; and
4. Commission of any acts injurious to the Company or to
the reputation of the Company.
(c) Retirement.
If an optionee ceases to be employed by the Company by reason
of his retirement at his Retirement Date, than any Option or Options granted to
the optionee under the Plan, to the extent such Options are exercisable at or
within three (3) months after the optionee's Retirement Date, may be exercised
by the optionee within said three (3) month period. To the extent any Option
is not exercisable prior to the expiration of said three-month period, such
Option shall be deemed terminated and cancelled as of the optionee's Retirement
Date. To the extent any exercisable Option is not exercised within said
three-month period, such option shall continue in effect in accordance with its
original terms and shall expire on its stated expiration date. However, the
Option shall cease to be an incentive stock option (as defined in Section 422A
of the Code) upon the expiration of said three-month period and shall
thereafter be treated as a nonqualified stock option. For purposes of this
Plan, an optionee's Retirement Date shall mean any date on which an optionee
retires on or after reaching the Normal Retirement Date as specified in the
Company's qualified retirement plans.
(d) Disability or Death.
If an optionee's employment with the Company is terminated by
reason of the optionee's disability or death, then any Option or Options
<PAGE> 8
-6-
granted to the optionee under the Plan, to the extent such Options are
exercisable at or within three (3) months after the Optionee's disability
termination date or death, may be exercised within one (1) year after such
disability termination date or death. To the extent such Options are not
exercisable within three (3) months of the optionee's disability termination
date or death, such Options shall be deemed terminated and cancelled as of said
disability termination date or date of death. To the extent that any
exercisable Option is not exercised within said one-year period, such Option
shall continue in effect in accordance with its original terms and shall expire
on its stated expiration date. However, the Option shall cease to be an
incentive stock option (as defined in Section 422A of the Code) upon the
expiration of said one-year period and shall thereafter be treated as a
nonqualified stock option. The term "disability" shall be defined for purposes
of this Plan in the same manner as such term is defined in Section 105(d)(4) of
the Code and the term "disability termination date" shall be defined as the
date on which the optionee terminates employment with the Company due to such a
disability. Any Options which are exercisable hereunder subsequent to an
optionee's death may be exercised by the personal representative of the
optionee's estate or by any person who acquires the Option by will or by the
laws of descent and distribution.
13. Non-Transferability of Option.
No Option shall be assignable or transferable by the optionee
except by will or the laws of descent and distribution, and during the lifetime
of the optionee each Option shall be exercisable only by the optionee. Upon
any attempt to transfer, assign, pledge, hypothecate or
<PAGE> 9
-7-
otherwise dispose of an Option or any of the rights of the optionee thereunder
(other than by will or the laws of descent and distribution), such Option shall
immediately become null and void and the rights and privileges of the optionee
thereunder shall immediately terminate. No optionee shall have any rights as a
stockholder with respect to any shares subject to an Option until payment of
the purchase price for such shares and delivery of a certificate evidencing
ownership of such shares.
14. Restrictions on Disposition of Stock.
The following restrictions are hereby imposed upon any shares
of stock acquired pursuant to this Plan (and any shares of stock issued
pursuant to a stock dividend or stock split thereon or any securities issued in
lieu thereof or in substitution or exchange therefor):
(a) One Year Holding Requirement.
No shares of stock shall be sold, assigned, transferred, or
otherwise disposed of within the one (1) year period after the transfer of such
shares to the optionee, unless the Board, in its sole discretion, consents in
writing to an earlier disposition.
(b) Purchase Option of Company.
No shares of stock shall be sold or assigned unless or until
the shareholder has given notice to the Company acknowledging the receipt by
the shareholder of a bona fide written purchase offer for such shares and
describing the terms thereof. Such notice shall be in writing and delivered to
the Company by certified mail, return receipt requested. The Company shall
have the right for a period of sixty (60) days from the receipt of such notice
to purchase such shares from the shareholder at the price and upon the terms
set forth in such bona
<PAGE> 10
-8-
fide purchase offer. In the event the Company does not elect to purchase such
shares, the shareholder shall be free to sell such shares in strict compliance
with the terms of such bona fide purchase offer, provided that such sale is
consummated within thirty (30) days from the earlier of the date the Company
notifies the shareholder that it will not purchase such shares, or the
expiration of the sixty day notice period described above. This subparagraph
(b) shall become null and void as of the date of the Company's initial public
offering.
(c) No shares of stock shall be sold or otherwise
disposed of except pursuant to an effective registration statement under the
Securities Act of 1933, as amended, the Maryland securities laws and the
securities laws of any other state or by operation of law, except in a
transaction which, in the opinion of counsel for the Company, is exempt from
registration under said Act and any other applicable securities laws.
All stock certificates issued under the Plan will contain
appropriate legends containing the transfer restrictions described in (a), (b)
and (c) above.
15. Adjustment in Event of Change of Stock.
In the event of a reorganization, recapitalization, stock
split, stock dividend, combination or exchange of shares, merger,
consolidation, rights offering, or any other change in the corporate structure
or stock of the Company, the Board shall make such adjustment as it may deem
equitably required in the number and kind of shares authorized by and for the
Plan, the number and kind of shares covered
<PAGE> 11
-9-
by the Options granted and in the option price. The determination of the Board
as to any adjustment shall be final and conclusive.
16. Amendment of Plan.
The Board may terminate, amend or modify the Plan at any time;
provided, however, that no change shall be made that increases (except pursuant
to Paragraph 15) the total number of shares covered by the Plan or affects any
change in who may receive Options under the Plan or materially increases the
benefits accruing to optionees hereunder unless such change is authorized by
the stockholders of the Company. Notwithstanding the foregoing, the Board may
amend the Plan without stockholder approval to the extent necessary to permit
the options granted under the Plan to qualify as incentive stock options under
the requirements of Section 422A of the Code. No amendment, modification or
termination of the Plan shall in any manner affect any Option theretofore
granted to an optionee under the Plan without the consent of the optionee or
the transferee of such Option.
17. Term of the Plan.
The Plan shall be effective as of May 15, 1986, the date of
its adoption by the Board of Directors and its approval by the stockholders of
the Company. The Plan shall terminate on May 14, 1996, or on such earlier date
as may be determined by the Board of Directors. Termination of the Plan,
however, shall not affect the rights of optionees under Options theretofore
granted to them, and all unexpired Options shall continue in force and
operation after termination of the Plan except as they may lapse or be
terminated by the terms and conditions contained in the respective Stock Option
Agreements. No Options shall be granted pursuant to the Plan after May 14,
1996.
<PAGE> 1
EXHIBIT 10.2
SOFTWARE ARCHITECTURE AND ENGINEERING, INC.
1992 INCENTIVE STOCK OPTION PLAN
1. Purpose.
This Incentive Stock Option Plan (hereinafter called the
"Plan") for SOFTWARE ARCHITECTURE AND ENGINEERING, INC. (hereinafter called the
"Company") is intended to provide certain key employees with additional
incentive to promote the success of the Company, to increase their proprietary
interest in the success of the Company and to encourage them to remain in its
employ. These aims will be effectuated through the granting of incentive stock
options (hereinafter called "Options") as such term is defined under Section
422 of the Internal Revenue Code of 1986, as amended (hereinafter called the
"Code"), and the terms of the Plan shall be interpreted in accordance with this
intention.
2. Administration.
The Plan shall be administered by the Board of Directors of
the Company (hereinafter called the "Board"). The Board shall have authority,
subject to the terms of the Plan, to determine the employees to whom Options
shall be granted, the number of shares and the purchase price of the shares
covered by each Option, the time or times at which Options shall be granted,
and the terms and provisions of the instruments by which Options shall be
granted; to construe the provisions of the Plan; and to make all determinations
necessary or advisable for the administration of the Plan.
<PAGE> 2
The Board, within its discretion, shall have the authority to appoint a
committee of not less than three of its members which shall have authority over
this Plan in lieu of the entire Board.
3. Eligibility.
Options may be granted to those key employees of the Company
as the Board shall select from time to time on the basis of demonstrated
ability to contribute substantially to the future success of the Company. In
no event shall an Option be granted to any individual who, at the time such
Option is granted, is considered to own stock possessing more than ten percent
(10%) of the combined voting power of all classes of stock of the Company, its
parent or subsidiary corporations.
4. Allotment of Shares.
A maximum of 500,000 authorized but unissued shares of the
Class A Voting Common Stock of the Company (par value $0.01) are allotted to
the Plan. The Board may, in its discretion, use Treasury shares in lieu of
authorized but unissued shares for the Options. The aggregate number of shares
of stock for which Options may be granted shall be subject to adjustment in
accordance with the terms of Paragraph 15 below. Any shares subject to an
Option under the Plan, which Option for any reason expires or is terminated
unexercised as to such shares, may again be subjected to an Option under the
Plan.
- 2 -
<PAGE> 3
5. Terms and Conditions of Options.
All Options granted pursuant to the Plan shall be authorized
by the Board of Directors and shall be evidenced by written agreements
(hereinafter called "Stock Option Agreements") in such form and containing such
terms and conditions as the Board shall determine.
6. Option Price.
The option price per share for each Option granted under the
Plan shall be not less than 100 percent of the fair market value of a share of
stock on the date of grant of such Option as determined by the Board. The fair
market value shall be determined by the Board in the manner prescribed by the
Code and the regulations thereunder.
7. Period of Option.
Each Stock Option Agreement shall set forth the period for
which such Option is granted, which shall not exceed ten (10) years from the
date such Option is granted.
8. Maximum Fair Market Value - Exercisability.
The aggregate fair market value of the stock (determined at
the time the option is granted) with respect to which incentive stock options
are exercisable for the first time by such optionee during any calendar year
(under all such plans of the optionee's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000
9. Exercisability of Options.
Each Option shall become exercisable in one or more
instalments at the time or times provided in the optionee's
- 3 -
<PAGE> 4
Stock Option Agreement. An Optionee may choose to exercise any exercisable
Option at any time and from time to time, in whole or in part, until the
expiration date of the Option as stated in the Optionee's Stock Option
Agreement or the termination of the Option as specified in Paragraph 12 below.
10. Method of Exercise and Payment.
An Option may be exercised by submission of a completed Notice
of Exercise form to any officer of the Company. Such forms shall be available
at the offices of the Company. At the time any Option is exercised, the
optionee or anyone permitted to exercise the Option subsequent to the
optionee's death, shall make full payment of the option price by check payable
to the Company.
11. Termination of Employment.
(a) Termination Without Cause.
If an optionee ceases to be employed by the Company other than
by reason of death, disability, termination for cause or retirement, then any
Option or Options granted to the optionee under the Plan, to the extent the
Options are exercisable as of the date of the optionee's termination of
employment, may be exercised by the optionee within three (3) months after his
termination date. To the extent any Option is not exercisable as of the
optionee's termination date or is not actually exercised by the optionee within
said three-month period, the Option shall be deemed terminated and cancelled as
of the optionee's termination date.
- 4 -
<PAGE> 5
(b) Termination For Cause.
If an optionee ceases to be employed by the Company due to the
termination of his employment for cause, then any Option or Options granted to
the optionee under the Plan (whether or not otherwise currently exercisable)
shall terminate as of the date of the optionee's termination of employment.
The optionee's termination of employment shall be deemed "for cause" if such
termination is a result of any of the following:
1. Insubordination or neglect by the optionee of the optionee's
duties and obligations to the Company;
2. Breach by the optionee of any employment contract,
nondisclosure agreement or other contract with the Company;
3. Conviction of the optionee of a crime amounting to a felony;
and
4. Commission of any acts injurious to the Company or to the
reputation of the Company.
(c) Retirement.
If an optionee ceases to be employed by the Company by reason of his
retirement at his Retirement Date, than any Option or Options granted to the
optionee under the Plan, to the extent such Options are exercisable at or
within three (3) months after the optionee's Retirement Date, may be exercised
by the optionee within said three (3) month period. To the extent any Option
is not exercisable prior to the expiration of said three-month period, such
Option shall be deemed terminated and cancelled as of the optionee's
- 5 -
<PAGE> 6
Retirement Date. To the extent any exercisable Option is not exercised within
said three-month period, such option shall continue in effect in accordance
with its original terms and shall expire on its stated expiration date.
However, the Option shall cease to be an incentive stock option (as defined in
Section 422A of the Code) upon the expiration of said three-month period and
shall thereafter be treated as a nonqualified stock option. For purposes of
this Plan, an optionee's Retirement Date shall mean any date on which an
optionee retires on or after reaching the Normal Retirement Date as specified
in the Company's qualified retirement plans.
(d) Disability or Death.
If an optionee's employment with the Company is terminated by reason
of the optionee's disability or death, then any Option or Options granted to
the optionee under the Plan, to the extent such Options are exercisable at or
within three (3) months after the Optionee's disability termination date or
death, may be exercised within one (1) year after such disability termination
date or death. To the extent such Options are not exercisable within three (3)
months of the optionee's disability termination date or death, such Options
shall be deemed terminated and cancelled as of said disability termination date
or date of death. To the extent that any exercisable Option is not exercised
within said one-year period, such Option shall continue in effect in accordance
with its original terms and shall expire on its
- 6 -
<PAGE> 7
stated expiration date. However, the Option shall cease to be an incentive
stock option (as defined in Section 422A of the Code) upon the expiration of
said one-year period and shall thereafter be treated as a nonqualified stock
option. The term "disability" shall be defined for purposes of this Plan in
the same manner as such term is defined in Section 105(d)(4) of the Code and
the term "disability termination date" shall be defined as the date on which
the optionee terminates employment with the Company due to such a disability.
Any Options which are exercisable hereunder subsequent to an optionee's death
may be exercised by the personal representative of the optionee's estate or by
any person who acquires the Option by will or by the laws of descent and
distribution.
12. Non-Transferability of Option.
No Option shall be assignable or transferable by the optionee except by
will or the laws of descent and distribution, and during the lifetime of the
optionee each Option shall be exercisable only by the optionee. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of an
Option or any of the rights of the optionee thereunder (other than by will or
the laws of descent and distribution), such Option shall immediately become
null and void and the rights and privileges of the optionee thereunder shall
immediately terminate. No optionee shall have any rights as a stockholder with
respect to any shares subject to an Option until payment of the purchase price
for such shares
- 7 -
<PAGE> 8
and delivery of a certificate evidencing ownership of such shares.
13. Restrictions on Disposition of Stock.
The following restrictions are hereby imposed upon any shares of stock
acquired pursuant to this Plan (and any shares of stock issued pursuant to a
stock dividend or stock split thereon or any securities issued in lieu thereof
or in substitution or exchange therefor):
(a) One Year Holding Requirement.
No shares of stock shall be sold, assigned, transferred, or otherwise
disposed of within the one (1) year period after the transfer of such shares to
the optionee, unless the Board, in its sole discretion, consents in writing to
an earlier disposition.
(b) Stock Redemption Agreement.
No shares of stock shall be sold or assigned, transferred, or
otherwise disposed of except pursuant to the terms and conditions of a Stock
Redemption Agreement by and between the Class A stockholders and the Company.
(c) No shares of stock shall be sold or otherwise disposed of
except pursuant to an effective registration statement under the Securities Act
of 1933, as amended, the Maryland securities laws and the securities laws of
any other state or by operation of law, except in a transaction which, in the
opinion of counsel for the Company, is exempt from registration under said Act
and any other applicable securities laws.
- 8 -
<PAGE> 9
All stock certificates issued under the Plan will contain appropriate
legends containing the transfer restrictions described in (a), (b) and (c)
above.
14. Adjustment in Event of Change of Stock.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination or exchange of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or stock of the
Company, the Board shall make such adjustment as it may deem equitably required
in the number and kind of shares authorized by and for the Plan, the number and
kind of shares covered by the Options granted and in the option price. The
determination of the Board as to any adjustment shall be final and conclusive.
15. Amendment of Plan.
The Board may terminate, amend or modify the Plan at any time;
provided, however, that no change shall be made that increases (except pursuant
to Paragraph 14) the total number of shares covered by the Plan or affects any
change in who may receive Options under the Plan or materially increases the
benefits accruing to optionees hereunder unless such change is authorized by
the stockholders of the Company. Notwithstanding the foregoing, the Board may
amend the Plan without stockholder approval to the extent necessary to permit
the options granted under the Plan to qualify as incentive stock options under
the requirements of Section 422A of the Code. No amendment, modification or
termination
- 9 -
<PAGE> 10
of the Plan shall in any manner affect any Option theretofore granted to an
optionee under the Plan without the consent of the optionee or the transferee
of such Option.
16. Term of the Plan.
The Plan shall be effective as of January 1, 1992, the date of its
adoption by the Board of Directors and its approval by the stockholders of the
Company. The Plan shall terminate on December 31, 2001, or on such earlier
date as may be determined by the Board of Directors. Termination of the Plan,
however, shall not affect the rights of optionees under Options theretofore
granted to them, and all unexpired Options shall continue in force and
operation after termination of the Plan except as they may lapse or be
terminated by the terms and conditions contained in the respective Stock Option
Agreements. No Options shall be granted pursuant to the Plan after December
31, 2001.
- 10 -
<PAGE> 1
EXHIBIT 10.3
TEMPLATE SOfTWARE, INC.
1992 INCENTIVE STOCK OPTION PLAN
CLASS B STOCK
1. Purpose.
This Incentive Stock Option Plan (hereinafter called the "Plan") for
Template Software, Inc. (hereinafter called the "Company") is intended to
provide certain key employees with additional incentive to promote the success
of the Company, to increase their proprietary interest in the success of the
Company and to encourage them to remain in its employ. These aims will be
effectuated through the granting of incentive stock options (hereinafter called
"Options") as such term is defined under Section 422A of the Internal Revenue
Code of 1986, as amended (hereinafter called the "Code"), and the terms of the
Plan shall be interpreted in accordance with this intention.
2. Administration.
The Plan shall be administered by the Board of Directors of the
Company (hereinafter called the "Board"). The Board shall have authority,
subject to the terms of the Plan, to determine the employees to whom Options
shall be granted, the number of shares and the purchase price of the shares
covered by each Option, the time or times at which Options shall be granted,
and the terms and provisions of the instruments by which Options shall be
granted; to construe the provisions of the Plan; and to make all determinations
necessary or advisable for the administration of the Plan. The Board, within
its discretion, shall have the authority to appoint a committee of not less
than three of its members which shall have authority over this Plan in lieu of
the entire Board.
3. Eligibility.
Options may be granted to those key employees of the Company as the
Board shall select from time to time on the basis of demonstrated ability to
contribute substantially to the future success of the Company. In no event
shall an Option be granted to any individual who, at the time such Option is
granted, is considered to own stock possessing more than ten percent (10%) of
the combined voting power of all classes of stock of the Company, its parent or
subsidiary corporations.
<PAGE> 2
4. Allotment of Shares.
A maximum of 1,000,000 authorized but unissued shares of the Class B
Nonvoting Common Stock of the company (par value $0.01) are allotted to the
Plan. The Board may, in its discretion, use Treasury shares in lieu of
authorized but unissued shares for the Options. The aggregate number of shares
of stock for which Options may be granted shall be subject to adjustment in
accordance with the terms of Paragraph 15 below. Any shares subject to an
Option under the Plan, which Option for any reason expires or is terminated
unexercised as to such shares, may again be subjected to an Option under the
Plan.
5. Terms and Conditions of Options.
All Options granted pursuant to the Plan shall be authorized by the
Board of Directors and shall be evidenced by written agreements (hereinafter
called "Stock Option Agreements") in such form and containing such terms and
conditions as the Board shall determine.
6. Option Price.
The option price per share for each Option granted under the Plan
shall be not less than 100 percent of the fair market value of a share of stock
on the date of grant of such Option as determined by the Board. The fair
market value shall be determined by the Board in the manner prescribed by the
Code and the regulations thereunder.
7. Period of Option.
Each Stock Option Agreement shall set forth the period for which such
Option is granted, which shall not exceed ten (10) years from the date such
Option is granted.
8. Maximum Fair Market Value Upon Exercise.
The aggregate fair market value of the stock (determined at the time
the option is granted) with respect to which incentive stock options are
exercisable for the first time by such optionee during any calendar year (under
all such plans of the optionee's employer corporation and its parent and
subsidiary corporations) shall not exceed $100,000.
<PAGE> 3
9. Exercisability of Qptions.
Each Option shall become exercisable in one or more installments at
the time or times provided in the optionee's Stock Option Agreement. An
Optionee may choose to exercise any exercisable Option at any time and from
time to time, in whole or in part, until the expiration date of the Option as
stated in the Optionee's Stock Option Agreement or the termination of the
Option as specified in Paragraph 12 below.
10. Method of Exercise and Payment.
An Option may be exercised by submission of a completed Notice of
Exercise form to any officer of the Company. Such forms shall be available at
the offices of the Company. At the time any Option is exercised, the optionee
or anyone permitted to exercise the Option subsequent to the optionee's death,
shall make full payment of the option price by check payable to the Company.
11. Termination of Employment.
(a) Termination Without Cause.
If an optionee ceases to be employed by the Company other than by
reason of death, disability, termination for cause or retirement, then any
Option or Options granted to the optionee under the Plan, to the extent the
Options are exercisable as of the date of the optionee's termination of
employment, may be exercised by the optionee within three (3) months after his
termination date. To the extent any Option is not exercisable as of the
optionee's termination date or is not actually exercised by the optionee within
said three-month period, the Option shall be deemed terminated and cancelled as
of the optionee's termination date.
(b) Termination For Cause.
If an optionee ceases to be employed by the Company due to the
termination of his employment for cause, then any Option or Options granted to
the optionee under the Plan (whether or not otherwise currently exercisable)
shall terminate as of the date of the optionee's termination of employment.
The optionee's termination of employment shall be deemed "for cause" if such
termination is a result of any of the following:
1. Insubordination or neglect by the optionee of the optionee's
duties and obligations to the Company;
2. Breach by the optionee of any employment contract,
nondisclosure agreement or other contract with the Company;
<PAGE> 4
3. Conviction of the optionee of a crime amounting to a felony;
and
4. Commission of any acts injurious to the Company or to the
reputation of the Company.
(c) Retirement.
If an optionee ceases to be employed by the Company by reason of his
retirement at his Retirement Date, then any Option or Options to the optionee
under the Plan, to the extent such Options are exercisable at or within three
(3) months after the optionee's Retirement Date, may be exercised by the
optionee within said three (3) month period. To the extent any Option is not
exercisable prior to the expiration of said three-month period, such Option
shall be deemed terminated and cancelled as of the optionee's Retirement Date.
To the extent any exercisable Option is not exercised within said three-month
period, such option shall continue in effect in accordance with its original
terms and shall expire on its stated expiration date. However, the Option
shall cease to be an incentive stock option (as defined in Section 422A of the
Code) upon the expiration of said three-month period and shall thereafter be
treated as a nonqualified stock option. For purposes of this Plan, an
optionee's Retirement Date shall mean any date on which an optionee retires on
or after reaching the Normal Retirement Date as specified in the company's
qualified retirement plans.
(d) Disability or Death.
If an optionee's employment with the Company is terminated by reason
of the optionee's disability or death, then any Option or Options granted to
the optionee under the Plan, to the extent such Options are exercisable at or
within three (3) months after the Optionee's disability termination date or
death, may be exercised within one (1) year after such disability termination
date or death. To the extent such Options are not exercisable within three (3)
months of the optionee's disability termination date or death, such Options
shall be deemed terminated and cancelled as of said disability termination date
or date of death. To the extent that any exercisable Option is not exercised
within said one-year period, such Option shall continue in effect in accordance
with its original terms and shall expire on its stated expiration date.
However, the Option shall cease to be an incentive stock option (as defined in
Section 422A of the Code) upon the expiration of said one-year period and shall
thereafter be treated as a nonqualifted stock option. The term "disability"
shall be defined for purposes of this Plan in the same manner as such term is
defined in Section 105(d)(4) of the code and the term "disability termination
date" shall be defined as the date on which the optionee terminates employment
with the Company due to such a
<PAGE> 5
disability. Any Options which are exercisable hereunder subsequent to an
optionee's death may be exercised by the personal representative of the
optionee's estate or by any person who acquires the Option by will or by the
laws of descent and distribution.
12. Non-Transferability of Option.
No Option shall be assignable or transferable by the optionee except
by will or the laws of decent and distribution, and during the lifetime of the
optionee each Option shall be exercisable only by the optionee. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of an
Option or any of the rights of the optionee thereunder (other than by will or
the laws of descent and distribution), such Option shall immediately become
null and void and the rights and privileges of the optionee thereunder shall
immediately terminate. No optionee shall have any rights as a stockholder with
respect to any shares subject to an Option until payment of the purchase price
for such shares and delivery of a certificate evidencing ownership of such
shares.
13. Restrictions on Disposition of Stock.
The following restrictions are hereby imposed upon any shares of stock
acquired pursuant to this Plan (and any shares of stock issued pursuant to a
stock dividend or stock split thereon or any securities issued in lieu thereof
or in substitution or exchange therefor):
(a) One Year Holding Requirement.
No shares of stock shall be sold, assigned, transferred, or otherwise
disposed of within the one (1) year period after the transfer of such shares to
the optionee, unless the Board, in its sole discretion, consents in writing to
an earlier disposition.
(b) Purchase Option of Company.
No shares of stock shall be sold or assigned unless or until the
shareholder has given notice to the Company acknowledging the receipt by the
shareholder of a bona fide written purchase offer for such shares and
describing the terms thereof. Such notice shall be in writing and delivered to
the Company by certified mail, return receipt requested. The Company shall
have the right for a period of sixty (60) days from the receipt of such notice
to purchase such shares from the shareholder at the price and upon the terms
set forth in such bona fide purchase offer. In the event the Company does not
elect to purchase such shares, the shareholder shall be free to sell such
shares in strict compliance with the terms of such bona fide purchase offer,
provided that such sale is consummated within thirty (30) days from the earlier
of the date the Company notifies the shareholder that it will not
<PAGE> 6
purchase such shares, or the expiration of the sixty day notice period
described above. This subparagraph (b) shall become null and void as of the
date of the Company's initial public offering.
(c) No shares of stock shall be sold or otherwise disposed of
except pursuant to an effective registration statement under the Securities Act
of 1933, as amended, the Maryland securities laws and the securities laws of
any other state or by operation of law, except in a transaction which, in the
opinion of counsel for the company, is exempt from registration under said Act
and any other applicable securities laws.
All stock certificates issued under the Plan will contain appropriate
legends containing the transfer restrictions described in (a), (b) and (c)
above.
14. Adjustment in Event of Change of Stock.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination or exchange of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or stock of the
Company, the Board shall make such adjustment as it may deem equitably required
in the number and kind of shares authorized by and for the Plan, the number and
kind of shares covered by the Options granted and in the option price. The
determination of the Board as to any adjustment shall be final and conclusive.
15. Amendment of Plan.
The Board may terminate, amend or modify the Plan at any time;
provided, however, that no change shall be made that increases (except pursuant
to Paragraph 14) the total number of shares covered by the Plan or affects any
change in who may receive Options under the Plan or materially increases the
benefits accruing to optionees hereunder unless such change is authorized by
the stockholders of the Company. Notwithstanding the foregoing, the Board may
amend the Plan without stockholder approval to the extent necessary to permit
the options granted under the Plan to qualify as incentive stock options under
the requirements of Section 422A of the code. No amendment, modification or
termination of the Plan shall in any manner affect any Option theretofore
granted to an optionee under the Plan without the consent of the optionee or
the transferee of such Option.
<PAGE> 7
16. Term of the Plan.
The Plan shall be effective as of January 1, 1992, the date of its
adoption by the Board of Directors and its approval by the stockholders of the
Company. The Plan shall terminate on December 31, 2001, or on such earlier
date as may be determined by the Board of Directors. Termination of the Plan,
however, shall not affect the rights of optionees under Options theretofore
granted to them, and all unexpired Options shall continue in force and
operation after termination of the Plan except as they may lapse or be
terminated by the terms and conditions contained in the respective Stock Option
Agreements. No Options shall be granted pursuant to the Plan after December
31, 2001.
<PAGE> 1
EXHIBIT 10.4
SOFTWARE ARCHITECTURE AND ENGINEERING, INC.
1992 NON-STATUTORY STOCK OPTION PLAN
1. Purpose.
This Non-Statutory Stock Option Plan (hereinafter called the "Plan")
for SOFTWARE ARCHITECTURE AND ENGINEERING, INC. (hereinafter called the
"Company") is intended to provide certain key employees with additional
incentive to promote the success of the Company, to increase their proprietary
interest in the success of the Company and to encourage them to remain in its
employ. These aims will be effectuated through the granting of stock options
(hereinafter called "Options") which are not intended to qualify as incentive
stock options under Section 422 of the Internal Revenue Code of 1986, as
amended (hereinafter called the "Code"), and the terms of the Plan shall be
interpreted in accordance with this intention.
2. Administration.
The Plan shall be administered by the Board of Directors of the Company
(hereinafter called the "Board"). The Board shall have authority, subject to
the terms of the Plan, to determine the employees to whom Options shall be
granted, the number of shares and the purchase price of the shares covered by
each Option, the time or times at which Options shall be granted, and the terms
and provisions of the instruments by which Options shall be granted; to
construe the provisions of the Plan; and to make all determinations
<PAGE> 2
necessary or advisable for the administration of the Plan. The Board,
within its discretion, shall have the authority to appoint a
committee of not less than three of its members which shall have
authority over this Plan in lieu of the entire Board.
3. Eligibility.
Options may be granted to those key employees of the Company as
the Board shall select from time to time on the basis of demonstrated
ability to contribute substantially to the future success of the
Company.
4. Allotment of Shares.
A maximum of 250,000 authorized but unissued shares of the Class A
Voting Common Stock of the Company (par value $0.01) are allotted to the Plan.
The Board may, in its discretion, use Treasury shares in lieu of authorized but
unissued shares for the Options. The aggregate number of shares of stock for
which Options may be granted shall be subject to adjustment in accordance with
the terms of Paragraph 14 below. Any shares subject to an Option under the
Plan, which Option for any reason expires or is terminated unexercised as to
such shares, may again be subjected to an Option under the Plan.
- 2 -
<PAGE> 3
5. Terms and Conditions of Options.
All Options granted pursuant to the Plan shall be authorized by the
Board of Directors and shall be evidenced by written agreements (hereinafter
called "Non Statutory Stock Option Agreements") in such form and containing
such terms and conditions as the Board shall determine.
6. Option Price.
The option price per share for each Option granted under the Plan shall
be not less than 100 percent of the fair market value of a share of stock on
the date of grant of such Option as determined by the Board.
7. Period of Option.
Each Stock Option Agreement shall set forth the period for which such
Option is granted, which shall not exceed ten (10) years from the date such
Option is granted.
8. Exercisability of Options.
Each Option shall become exercisable in one or more instalments at the
time or times provided in the optionee's Stock Option Agreement. An Optionee
may choose to exercise any exercisable Option at any time and from time to
time, in whole or in part, until the expiration date of the Option as stated
in the Optionee's Non-Statutory Stock Option Agreement or the termination of the
Option as specified in Paragraph 10 below.
9. Method of Exercise and Payment.
An option may be exercised by submission of a
- 3 -
<PAGE> 4
completed Notice of Exercise form to any officer of the Company. Such
forms shall be available at the offices of the Company. At the time
any Option is exercised, the optionee or anyone permitted to exercise
the Option subsequent to the optionee's death, shall make full
payment of the option price by check payable to the Company.
10. Termination of Employment.
(a) Termination Without Cause.
If an optionee ceases to be employed by the Company other than by
reason of death, disability, termination for cause or retirement, then any
Option or Options granted to the optionee under the Plan, to the extent the
Options are exercisable as of the date of the optionee's termination of
employment, may be exercised by the optionee within three (3) months after his
termination date. To the extent any Option is not exercisable as of the
optionee's termination date or is not actually exercised by the optionee within
said three-month period, the Option shall be deemed terminated and cancelled as
of the optionee's termination date.
(b) Termination For Cause.
If an optionee ceases to be employed by the Company due to the
termination of his employment for cause, then any Option or Options granted to
the optionee under the Plan (whether or not otherwise currently exercisable)
shall terminate as of the date of the optionee's termination of employment. The
optionee's termination of employment shall be deemed "for cause" if such
termination is a result of any
- 4 -
<PAGE> 5
of the following:
1. Insubordination or neglect by the optionee of the optionee's
duties and obligations to the Company;
2. Breach by the optionee of any employment contract, nondisclosure
agreement or other contract with the Company;
3. Conviction of the optionee of a crime amounting to a felony; and
4. Commission of any acts injurious to the Company or to the
reputation of the Company.
(c) Retirement.
If an optionee ceases to be employed by the Company by reason of his
retirement at his Retirement Date, than any Option or Options granted to the
optionee under the Plan, to the extent such Options are exercisable at or
within three (3) months after the optionee's Retirement Date, shall continue in
effect in accordance with the original terms and shall expire on the stated
expiration date. To the extent any Option is not exercisable prior to the
expiration of said three-month period, such Option shall be deemed terminated
and cancelled as of the optionee's Retirement Date. For purposes of this Plan,
an optionee's Retirement Date shall mean any date on which an optionee retires
on or after reaching the Normal Retirement Date as specified in the Company's
qualified retirement plans.
(d) Disability or Death.
If an optionee's employment with the Company is terminated by reason of
the optionee's disability or death,
- 5 -
<PAGE> 6
then any Option or Options granted to the optionee under the Plan, to the
extent such Options are exercisable at or within three (3) months after the
Optionee's disability termination date or death, shall continue in effect in
accordance with the original terms and shall expire on the stated expiration
date. To the extent such Options are not exercisable within three (3) months of
the optionee's disability termination date or death, such Options shall be
deemed terminated and cancelled as of said disability termination date or date
of death. The term "disability" shall be defined for purposes of this Plan in
the same manner as such term is defined in Section 22(e) of the Code, or any
successor provision thereto, and the term "disability termination date" shall
be defined as the date on which the optionee terminates employment with the
Company due to such a disability. Any Options which are exercisable hereunder
subsequent to an optionee's death may be exercised by the personal
representative of the optionee's estate or by any person who acquires the
Option by will or by the laws of descent and distribution.
11. Non-Transferability of Option.
No Option shall be assignable or transferable by the optionee except by
will or the laws of descent and distribution, and during the lifetime of the
optionee each Option shall be exercisable only by the optionee. Upon any
attempt to transfer, assign, pledge, hypothecate or otherwise dispose of an
Option or any of the rights of the optionee
- 6 -
<PAGE> 7
thereunder (other than by will or the laws of descent and distribution), such
Option shall immediately become null and void and the rights and privileges of
the optionee thereunder shall immediately terminate. No optionee shall have any
rights as a stockholder with respect to any shares subject to an Option until
payment of the purchase price for such shares and delivery of a certificate
evidencing ownership of such shares.
12. Restrictions on Disposition of Stock.
The following restrictions are hereby imposed upon any shares of stock
acquired pursuant to this Plan (and any shares of stock issued pursuant to a
stock dividend or stock split thereon or any securities issued in lieu thereof
or in substitution or exchange therefor):
(a) Stock Redemption Agreement.
No shares of stock shall be sold or assigned, transferred, or otherwise
disposed of except pursuant to the terms and conditions of a Stock Redemption
Agreement by and between the Class A stockholders and the Company.
(b) No shares of stock shall be sold or otherwise disposed of
except pursuant to an effective registration statement under the Securities Act
of 1933, as amended, the Maryland securities laws and the securities laws of
any other state or by operation of law, except in a transaction which, in the
opinion of counsel for the Company, is exempt from registration under said Act
and any other applicable securities laws.
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<PAGE> 8
All stock certificates issued under the Plan will contain appropriate
legends containing the transfer restrictions described in (a) and (b) above.
13. Adjustment in Event of Change of Stock.
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination or exchange of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or stock of the
Company, the Board shall make such adjustment as it may deem equitably required
in the number and kind of shares authorized by and for the Plan, the number and
kind of shares covered by the Options granted and in the option price. The
determination of the Board as to any adjustment shall be final and conclusive.
14. Amendment of Plan.
The Board may terminate, amend or modify the Plan at any time;
provided, however, that no change shall be made that increases (except pursuant
to Paragraph 13) the total number of shares covered by the Plan or affects any
change in who may receive Options under the Plan or materially increases the
benefits accruing to optionees hereunder unless such change is authorized by
the stockholders of the Company. No amendment, modification or termination of
the Plan shall in any manner affect any Option theretofore granted to an
optionee under the Plan without the consent of the optionee or the transferee
of such Option.
- 8 -
<PAGE> 9
15. Term of the Plan.
The Plan shall be effective as of January 1, 1992. The Plan shall
terminate on December 31, 2001, or on such earlier date as may be determined by
the Board of Directors. Termination of the Plan, however, shall not affect the
rights of optionees under Options theretofore granted to them, and all
unexpired Options shall continue in force and operation after termination of
the Plan except as they may lapse or be terminated by the terms and conditions
contained in the respective Stock Option Agreements. No Options shall be
granted pursuant to the Plan after December 31, 2001.
- 9 -
<PAGE> 1
EXHIBIT 10.5
TEMPLATE SOFTWARE, INC.
1996 EQUITY INCENTIVE PLAN
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I DEFINITIONS..................................................... 1
1.01. Administrator................................................... 1
1.02. Affiliate....................................................... 1
1.03. Agreement....................................................... 1
1.04. Board........................................................... 1
1.05. Code............................................................ 1
1.06. Committee....................................................... 1
1.07. Common Stock.................................................... 1
1.08. Company......................................................... 1
1.09. Corresponding SAR............................................... 1
1.10. Exchange Act.................................................... 1
1.11. Fair Market Value............................................... 2
1.12. Initial Value................................................... 2
1.13. Incentive Award................................................. 2
1.14. Option.......................................................... 2
1.15. Participant..................................................... 2
1.16. Plan............................................................ 2
1.17. SAR............................................................. 2
1.18. Stock Award..................................................... 3
1.19. Ten Percent Shareholder......................................... 3
ARTICLE II PURPOSES........................................................ 3
ARTICLE III ADMINISTRATION.................................................. 4
ARTICLE IV ELIGIBILITY..................................................... 5
ARTICLE V STOCK SUBJECT TO PLAN........................................... 6
5.01. Shares Issued................................................... 6
5.02. Aggregate Limit................................................. 6
5.03. Reallocation of Shares.......................................... 6
ARTICLE VI OPTIONS......................................................... 7
6.01. Award........................................................... 7
6.02. Option Price.................................................... 7
6.03. Maximum Option Period........................................... 7
6.04. Nontransferability.............................................. 8
6.05. Transferable Options............................................ 8
6.06. Employee Status................................................. 9
6.07. Exercise........................................................ 9
6.08. Payment......................................................... 10
6.09. Installment Payment............................................. 10
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
6.10. Shareholder Rights.............................................. 11
6.11. Disposition of Stock............................................ 12
ARTICLE VII SARS............................................................ 12
7.01. Award........................................................... 12
7.02. Maximum SAR Period.............................................. 12
7.03. Nontransferability.............................................. 13
7.04. Transferable SARs............................................... 13
7.05. Exercise........................................................ 13
7.06. Employee Status................................................. 14
7.07. Settlement...................................................... 14
7.08. Shareholder Rights.............................................. 14
ARTICLE VIII STOCK AWARDS.................................................... 15
8.01. Award........................................................... 15
8.02. Vesting......................................................... 15
8.03. Performance Objectives.......................................... 15
8.04. Employee Status................................................. 16
8.05. Shareholder Rights.............................................. 16
ARTICLE IX INCENTIVE AWARDS................................................ 17
9.01. Award........................................................... 17
9.02. Terms and Conditions............................................ 17
9.03. Nontransferability.............................................. 18
9.04. Transferable Incentive Awards................................... 18
9.05. Employee Status................................................. 18
9.06. Shareholder Rights.............................................. 18
ARTICLE X ADJUSTMENT UPON CHANGE IN COMMON
STOCK........................................................... 19
ARTICLE XI COMPLIANCE WITH LAW AND APPROVAL OF
REGULATORY BODIES............................................... 20
ARTICLE XII GENERAL PROVISIONS ............................................. 21
12.01. Effect on Employment and
Service......................................................... 21
12.02. Unfunded Plan................................................... 21
12.03. Rules of Construction........................................... 21
ARTICLE XIII AMENDMENT....................................................... 22
ARTICLE XIV DURATION OF PLAN................................................ 22
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE XV EFFECTIVE DATE OF PLAN.......................................... 23
</TABLE>
<PAGE> 5
TEMPLATE SOFTWARE, INC.
1996 EQUITY INCENTIVE PLAN
ARTICLE I
DEFINITIONS
1.01. Administrator means the Committee and any delegate of the Committee that
is appointed in accordance with Article III.
1.02. Affiliate means any "subsidiary" or "parent" corporation (within the
meaning of Section 424 of the Code) of the Company.
1.03. Agreement means a written agreement (including any amendment or supplement
thereto) between the Company and a Participant specifying the terms and
conditions of a Stock Award, an Incentive Award or an Option or SAR granted to
such Participant.
1.04. Board means the Board of Directors of the Company.
1.05. Code means the Internal Revenue Code of 1986, and any amendments thereto.
1.06. Committee means the Executive Compensation Committee of the Board.
1.07. Common Stock means the common stock of the Company.
1.08. Company means Template Software, Inc.
1.09. Corresponding SAR means an SAR that is granted in relation to a particular
Option and that can be exercised only upon the surrender to the Company,
unexercised, of that portion of the Option to which the SAR relates.
1.10. Exchange Act means the Securities Exchange Act of 1934, as amended and as
in effect on the date of this Agreement.
<PAGE> 6
1.11. Fair Market Value means, on any given date, the closing price of a share
of Common Stock as reported on the NASDAQ National Market System ("NASDAQ")
composite tape on such date, or if the Common Stock was not traded on the NASDAQ
on such day, then on the next preceding day that the Common Stock was traded on
such exchange, all as reported by such source as the Administrator may select.
1.12. Initial Value means, with respect to an SAR, the Fair Market Value of one
share of Common Stock on the date of grant.
1.13. Incentive Award means an award which, subject to such terms and conditions
as may be prescribed by the Administrator, entitles the Participant to receive a
cash payment from the Company or an Affiliate.
1.14. Option means a stock option that entitles the holder to purchase from the
Company a stated number of shares of Common Stock at the price set forth in an
Agreement.
1.15. Participant means an employee of the Company or an Affiliate, including an
employee who is a member of the Board, or an individual who provides services to
the Company or an Affiliate, who satisfies the requirements of Article IV and is
selected by the Administrator to receive a Stock Award, an Option, an SAR, an
Incentive Award or a combination thereof.
1.16. Plan means the Template Software, Inc. 1996 Equity Incentive Plan.
1.17. SAR means a stock appreciation right that in accordance with the terms of
an Agreement entitles the holder to receive, with respect to each share of
-2-
<PAGE> 7
Common Stock encompassed by the exercise of such SAR, the amount determined by
the Administrator and specified in an Agreement. In the absence of such a
determination, the holder shall be entitled to receive, with respect to each
share of Common Stock encompassed by the exercise of such SAR, the excess of the
Fair Market Value on the date of exercise over the Initial Value. References to
"SARs" include both Corresponding SARs and SARs granted independently of
Options, unless the context requires otherwise.
1.18. Stock Award means Common Stock awarded to a Participant under Article
VIII.
1.19. Ten Percent Shareholder means any individual owning more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of an Affiliate. An individual shall be considered to own any voting stock
owned (directly or indirectly) by or for his brothers, sisters, spouse,
ancestors or lineal descendants and shall be considered to own proportionately
any voting stock owned (directly or indirectly) by or for a corporation,
partnership, estate or trust of which such individual is a shareholder, partner
or beneficiary.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company and its Affiliates in
recruiting and retaining individuals with ability and initiative by enabling
such persons to
-3-
<PAGE> 8
participate in the future success of the Company and its Affiliates and to
associate their interests with those of the Company and its shareholders. The
Plan is intended to permit the grant of both Options qualifying under Section
422 of the Code ("incentive stock options") and Options not so qualifying, and
the grant of SARs, Stock Awards and Incentive Awards. No Option that is intended
to be an incentive stock option shall be invalid for failure to qualify as an
incentive stock option. The proceeds received by the Company from the sale of
Common Stock pursuant to this Plan shall be used for general corporate purposes.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Administrator. The
Administrator shall have authority to grant Stock Awards, Incentive Awards,
Options and SARs upon such terms (not inconsistent with the provisions of this
Plan) as the Administrator may consider appropriate. Such terms may include
conditions (in addition to those contained in this Plan) on the exercisability
of all or any part of an Option or SAR or on the transferability or
forfeitability of a Stock Award or Incentive Award. Notwithstanding any such
conditions, the Administrator may, in its discretion, accelerate the time at
which any Option or SAR may be exercised, or the time at which a Stock Award may
become transferable or nonforfeitable or the time at which an Incentive Award
may be settled. In addition, the Administrator shall have complete authority to
interpret all provisions of this Plan; to prescribe the
-4-
<PAGE> 9
form of Agreements; to adopt, amend, and rescind rules and regulations
pertaining to the administration of the Plan; and to make all other
determinations necessary or advisable for the administration of this Plan. The
express grant in the Plan of any specific power to the Administrator shall not
be construed as limiting any power or authority of the Administrator. Any
decision made, or action taken, by the Administrator or in connection with the
administration of this Plan shall be final and conclusive. Neither the
Administrator nor any member of the Committee shall be liable for any act done
in good faith with respect to this Plan or any Agreement, Option, SAR, Stock
Award or Incentive Award. All expenses of administering this Plan shall be borne
by the Company.
The Committee, in its discretion, may delegate to one or more
officers of the Company or the Executive Committee of the Board, all or part of
the Committee's authority and duties with respect to grants and awards to
individuals who are not subject to the reporting and other provisions of Section
16 of the Exchange Act. The Committee may revoke or amend the terms of a
delegation at any time but such action shall not invalidate any prior actions of
the Committee's delegate or delegates that were consistent with the terms of the
Plan.
ARTICLE IV
ELIGIBILITY
Any employee of the Company or an Affiliate (including a
corporation that becomes an Affiliate after the adoption of this Plan) or a
person who provides
-5-
<PAGE> 10
services to the Company or an Affiliate (including a corporation that becomes an
Affiliate after the adoption of this Plan) is eligible to participate in this
Plan if the Administrator, in its sole discretion, determines that such person
has contributed significantly or can be expected to contribute significantly to
the profits or growth of the Company or an Affiliate. Directors of the Company
who are employees of the Company or an Affiliate may be selected to participate
in this Plan.
ARTICLE V
STOCK SUBJECT TO PLAN
5.01. Shares Issued. Upon the award of shares of Common Stock pursuant to a
Stock Award the Company may issue shares of Common Stock from its authorized but
unissued Common Stock. Upon the exercise of any Option or SAR the Company may
deliver to the Participant (or the Participant's broker if the Participant so
directs), shares of Common Stock from its authorized but unissued Common Stock.
5.02. Aggregate Limit. The maximum aggregate number of shares of Common Stock
that may be issued under this Plan pursuant to the exercise of SARs and Options
and the grant of Stock Awards is 1,000,000 shares. The maximum aggregate number
of shares that may be issued under this Plan shall be subject to adjustment as
provided in Article X.
5.03. Reallocation of Shares. If an Option is terminated, in whole or in part,
for any reason other than its exercise or the exercise of a Corresponding SAR
that
-6-
<PAGE> 11
is settled with Common Stock, the number of shares of Common Stock allocated to
the Option or portion thereof may be reallocated to other Options, SARs and
Stock Awards to be granted under this Plan. If an SAR is terminated, in whole or
in part, for any reason other than its exercise or the exercise of a related
Option, the number of shares of Common Stock allocated to the SAR or portion
thereof may be reallocated to other Options, SARs and Stock Awards to be granted
under this Plan.
ARTICLE VI
OPTIONS
6.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom an Option is to be granted and will
specify the number of shares of Common Stock covered by such awards.
6.02. Option Price. The price per share for Common Stock purchased on the
exercise of an Option shall be determined by the Administrator on the date of
grant, but shall not be less than the Fair Market Value on the date the Option
is granted. Notwithstanding the preceding sentence, the price per share for
Common Stock purchased on the exercise of any Option that is an incentive stock
option granted to an individual who is a Ten Percent Shareholder on the date
such option is granted, shall not be less than one hundred ten percent (110%) of
the Fair Market Value on the date the Option is granted.
6.03. Maximum Option Period. The maximum period in which an Option may be
exercised shall be determined by the Administrator on the date of grant, except
-7-
<PAGE> 12
that no Option that is an incentive stock option shall be exercisable after the
expiration of ten years from the date such Option was granted. In the case of an
incentive stock option that is granted to a Participant who is a Ten Percent
Shareholder on the date of grant, such Option shall not be exercisable after the
expiration of five years from the date of grant. The terms of any Option that is
an incentive stock option may provide that it is exercisable for a period less
than such maximum period.
6.04. Nontransferability. Except as provided in Section 6.05, each Option
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. In the event of any such transfer, the Option and
any Corresponding SAR that relates to such Option must be transferred to the
same person or persons or entity or entities. During the lifetime of the
Participant to whom the Option is granted, the Option may be exercised only by
the Participant. No right or interest of a Participant in any Option shall be
liable for, or subject to, any lien, obligation, or liability of such
Participant.
6.05. Transferable Options. Section 6.04 to the contrary notwithstanding, if the
Agreement provides, an Option that is not an incentive stock option may be
transferred by a Participant to the Participant's children, grandchildren,
spouse, one or more trusts for the benefit of such family members or a
partnership in which such family members are the only partners; provided,
however, that Participant may not receive any consideration for the transfer. In
addition to transfers described in the preceding sentence the Administrator may
grant Options that are not incentive stock
-8-
<PAGE> 13
options that are transferable on other terms and conditions as may be permitted
under Securities Exchange Commission Rule 16b-3 as in effect from time to time.
The holder of an Option transferred pursuant to this section shall be bound by
the same terms and conditions that governed the Option during the period that it
was held by the Participant. In the event of any such transfer, the Option and
any Corresponding SAR that relates to such Option must be transferred to the
same person or persons or entity or entities.
6.06. Employee Status. For purposes of determining the applicability of Section
422 of the Code (relating to incentive stock options), or in the event that the
terms of any Option provide that it may be exercised only during employment or
within a specified period of time after termination of employment, the
Administrator may decide to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not be
deemed interruptions of continuous employment.
6.07. Exercise. Subject to the provisions of this Plan and the applicable
Agreement, an Option may be exercised in whole at any time or in part from time
to time at such times and in compliance with such requirements as the
Administrator shall determine; provided, however, that incentive stock options
(granted under the Plan and all plans of the Company and its Affiliates) may not
be first exercisable in a calendar year for stock having a Fair Market Value
(determined as of the date an Option is granted) exceeding $100,000. An Option
granted under this Plan may be exercised with respect to any number of whole
shares less than the full number for
-9-
<PAGE> 14
which the Option could be exercised. A partial exercise of an Option shall not
affect the right to exercise the Option from time to time in accordance with
this Plan and the applicable Agreement with respect to the remaining shares
subject to the Option. The exercise of an Option shall result in the termination
of any Corresponding SAR to the extent of the number of shares with respect to
which the Option is exercised.
6.08. Payment. Unless otherwise provided by the Agreement, payment of the Option
price shall be made in cash or a cash equivalent acceptable to the
Administrator. If the Agreement provides, payment of all or part of the Option
price may be made by surrendering shares of Common Stock to the Company. If
Common Stock is used to pay all or part of the Option price, the sum of the cash
and cash equivalent and the Fair Market Value (determined as of the day
preceding the date of exercise) of the shares surrendered must not be less than
the Option price of the shares for which the Option is being exercised.
6.09. Installment Payment. If the Agreement provides, and if the Participant is
employed by the Company on the date the Option is exercised, payment of all or
part of the Option price may be made in installments. In that event the Company
shall lend the Participant an amount equal to not more than ninety percent (90%)
of the Option price of the shares acquired by the exercise of the Option. This
amount shall be evidenced by the Participant's promissory note and shall be
payable in not more than five equal annual installments, unless the amount of
the loan exceeds the maximum loan value for the shares purchased, which value
shall be established from time to time by regulations of the Board of Governors
of the Federal Reserve
-10-
<PAGE> 15
System. In that event, the note shall be payable in equal quarterly installments
over a period of time not to exceed five years. The Administrator, however, may
vary such terms and make such other provisions concerning the unpaid balance of
such purchase price in the case of hardship, subsequent termination of
employment, absence on military or government service, or subsequent death of
the Participant as in its discretion are necessary or advisable in order to
protect the Company, promote the purposes of the Plan and comply with
regulations of the Board of Governors of the Federal Reserve System relating to
securities credit transactions.
The Participant shall pay interest on the unpaid balance at the
minimum rate necessary to avoid imputed interest or original issue discount
under the Code. All shares acquired with cash borrowed from the Company shall be
pledged to the Company as security for the repayment thereof. In the discretion
of the Administrator, shares of stock may be released from such pledge
proportionately as payments on the note (together with interest) are made,
provided the release of such shares complies with the regulations of the Federal
Reserve System relating to securities credit transactions then applicable. While
shares are so pledged, and so long as there has been no default in the
installment payments, such shares shall remain registered in the name of the
Participant, and he shall have the right to vote such shares and to receive all
dividends thereon.
6.10. Shareholder Rights. No Participant shall have any rights as a shareholder
with respect to shares subject to his Option until the date of exercise of such
Option.
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6.11. Disposition of Stock. A Participant shall notify the Company of any sale
or other disposition of Common Stock acquired pursuant to an Option that was an
incentive stock option if such sale or disposition occurs (i) within two years
of the grant of an Option or (ii) within one year of the issuance of the Common
Stock to the Participant. Such notice shall be in writing and directed to the
Secretary of the Company.
ARTICLE VII
SARS
7.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom SARs are to be granted and will specify
the number of shares covered by such awards. For purposes of the preceding
sentence, an Option and Corresponding SAR shall be treated as a single award. In
addition no Participant may be granted Corresponding SARs (under all incentive
stock option plans of the Company and its Affiliates) that are related to
incentive stock options which are first exercisable in any calendar year for
stock having an aggregate Fair Market Value (determined as of the date the
related Option is granted) that exceeds $100,000.
7.02. Maximum SAR Period. The maximum period in which an SAR may be exercised
shall be determined by the Administrator on the date of grant, except that no
Corresponding SAR that is related to an incentive stock option shall be
exercisable after the expiration of ten years from the date such related Option
was granted. In the case of a Corresponding SAR that is related to an incentive
stock
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option granted to a Participant who is a Ten Percent Shareholder, such
Corresponding SAR shall not be exercisable after the expiration of five years
from the date such related Option was granted. The terms of any Corresponding
SAR that is related to an incentive stock option may provide that it is
exercisable for a period less than such maximum period.
7.03. Nontransferability. Except as provided in Section 7.04, each SAR granted
under this Plan shall be nontransferable except by will or by the laws of
descent and distribution. In the event of any such transfer, Corresponding SAR
and the related Option must be transferred to the same person or persons or
entity or entities. During the lifetime of the Participant to whom the SAR is
granted, the SAR may be exercised only by the Participant. No right or interest
of a Participant in any SAR shall be liable for, or subject to, any lien,
obligation, or liability of such Participant.
7.04. Transferable SARs. Section 7.03 to the contrary notwithstanding, the
Administrator may grant transferable SARs to the extent that, and on such terms
as, may be permitted by Securities Exchange Commission Rule 16b-3 as in effect
from time to time. In the event of any such transfer, Corresponding SAR and the
related Option must be transferred to the same person or person or entity or
entities. The holder of an SAR transferred pursuant to this section shall be
bound by the same terms and conditions that governed the SAR during the period
that it was held by the Participant.
7.05. Exercise. Subject to the provisions of this Plan and the applicable
Agreement, an SAR may be exercised in whole at any time or in part from time to
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time at such times and in compliance with such requirements as the Administrator
shall determine; provided, however, that a Corresponding SAR that is related to
an incentive stock option may be exercised only to the extent that the related
Option is exercisable and only when the Fair Market Value exceeds the option
price of the related Option. An SAR granted under this Plan may be exercised
with respect to any number of whole shares less than the full number for which
the SAR could be exercised. A partial exercise of an SAR shall not affect the
right to exercise the SAR from time to time in accordance with this Plan and the
applicable Agreement with respect to the remaining shares subject to the SAR.
The exercise of a Corresponding SAR shall result in the termination of the
related Option to the extent of the number of shares with respect to which the
SAR is exercised.
7.06. Employee Status. If the terms of any SAR provide that it may be exercised
only during employment or within a specified period of time after termination of
employment, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability or other reasons
shall not be deemed interruptions of continuous employment.
7.07. Settlement. At the Administrator's discretion, the amount payable as a
result of the exercise of an SAR may be settled in cash, Common Stock, or a
combination of cash and Common Stock. No fractional share will be deliverable
upon the exercise of an SAR but a cash payment will be made in lieu thereof.
7.08. Shareholder Rights. No Participant shall, as a result of receiving an SAR
award, have any rights as a shareholder of the Company or any Affiliate until
the
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date that the SAR is exercised and then only to the extent that the SAR is
settled by the issuance of Common Stock.
ARTICLE VIII
STOCK AWARDS
8.01. Award. In accordance with the provisions of Article IV, the Administrator
will designate each individual to whom a Stock Award is to be made and will
specify the number of shares of Common Stock covered by such awards.
8.02. Vesting. The Administrator, on the date of the award, may prescribe that a
Participant's rights in the Stock Award shall be forfeitable or otherwise
restricted for a period of time or subject to such conditions as may be set
forth in the Agreement. If a Stock Award is not nonforfeitable and transferable
upon its grant, the period of restriction shall be at least three years;
provided, however, that the minimum period of restriction shall be at least one
year in the case of a Stock Award that will become transferable and
nonforfeitable on account of the satisfaction of performance objectives
prescribed by the Administrator.
8.03. Performance Objectives. In accordance with Section 8.02, the Administrator
may prescribe that Stock Awards will become vested or transferable or both based
on objectives stated with respect to the Company's, an Affiliate's or an
operating unit's return on equity, earnings per share, total earnings, earnings
growth, return on capital, return on assets, or Fair Market Value. If the
Administrator, on the date of award, prescribes that a Stock Award shall become
nonforfeitable and transferable only upon the attainment of performance
objectives
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stated with respect to one or more of the foregoing criteria, the shares subject
to such Stock Award shall become nonforfeitable and transferable only to the
extent that the Administrator certifies that such objectives have been achieved.
8.04. Employee Status. In the event that the terms of any Stock Award provide
that shares may become transferable and nonforfeitable thereunder only after
completion of a specified period of employment, the Administrator may decide in
each case to what extent leaves of absence for governmental or military service,
illness, temporary disability, or other reasons shall not be deemed
interruptions of continuous employment.
8.05. Shareholder Rights. Prior to their forfeiture (in accordance with the
applicable Agreement and while the shares of Common Stock granted pursuant to
the Stock Award may be forfeited or are nontransferable), a Participant will
have all rights of a shareholder with respect to a Stock Award, including the
right to receive dividends and vote the shares; provided, however, that during
such period (i) a Participant may not sell, transfer, pledge, exchange,
hypothecate, or otherwise dispose of shares of Common Stock granted pursuant to
a Stock Award, (ii) the Company shall retain custody of the certificates
evidencing shares of Common Stock granted pursuant to a Stock Award, and (iii)
the Participant will deliver to the Company a stock power, endorsed in blank,
with respect to each Stock Award. The limitations set forth in the preceding
sentence shall not apply after the shares of Common Stock granted under the
Stock Award are transferable and are no longer forfeitable.
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ARTICLE IX
INCENTIVE AWARDS
9.01. Award. The Administrator shall designate Participants to whom Incentive
Awards are made. All Incentive Awards shall be finally determined exclusively by
the Administrator under the procedures established by the Administrator;
provided, however, that no Participant may receive an Incentive Award payment in
any calendar year that exceeds the lesser of (i) 75% of the Participant's base
salary (prior to any salary reduction or deferral elections) as of the date of
grant of the Incentive Award or (ii) $250,000.
9.02. Terms and Conditions. The Administrator, at the time an Incentive Award is
made, shall specify the terms and conditions which govern the award. Such terms
and conditions shall prescribe that the Incentive Award shall be earned only to
the extent that the Company, an Affiliate or an operating unit, during a
performance period of at least one year, achieves objectives based on return on
equity, earnings per share, total earnings, earnings growth, return on capital,
return on assets or Fair Market Value. Such terms and conditions also may
include other limitations on the payment of Incentive Awards including, by way
of example and not of limitation, requirements that the Participant complete a
specified period of employment with the Company or an Affiliate or that the
Company, an Affiliate, or the Participant attain stated objectives or goals (in
addition to those prescribed in accordance with the preceding sentence) as a
prerequisite to payment under an Incentive Award. The Administrator, at the time
an Incentive Award is made, shall also specify when
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amounts shall be payable under the Incentive Award and whether amounts shall be
payable in the event of the Participant's death, disability, or retirement.
9.03. Nontransferability. Except as provided in Section 9.04, Incentive Awards
granted under this Plan shall be nontransferable except by will or by the laws
of descent and distribution. No right or interest of a Participant in an
Incentive Award shall be liable for, or subject to, any lien, obligation, or
liability of such Participant.
9.04. Transferable Incentive Awards. Section 9.03 to the contrary
notwithstanding, the Administrator may grant transferable Incentive Awards to
the extent that, and on such terms and conditions as may be permitted by,
Securities Exchange Commission Rule 16b-3 as in effect from time to time. The
holder of an Incentive Award transferred pursuant to this section shall be bound
by the same terms and conditions that governed the Incentive Award during the
period that it was held by the Participant.
9.05. Employee Status. If the terms of an Incentive Award provide that a payment
will be made thereunder only if the Participant completes a stated period of
employment, the Administrator may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability or other reasons
shall not be deemed interruptions of continuous employment.
9.06. Shareholder Rights. No Participant shall, as a result of receiving an
Incentive Award, have any rights as a shareholder of the Company or any
Affiliate on account of such award.
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ARTICLE X
ADJUSTMENT UPON CHANGE IN COMMON STOCK
The maximum number of shares as to which Options, SARs and Stock
Awards may be granted under this Plan, and the terms of outstanding Stock
Awards, Options, and SARs, shall be adjusted as the Committee shall determine to
be equitably required in the event that (a) the Company (i) effects one or more
stock dividends, stock split-ups, subdivisions or consolidations of shares or
(ii) engages in a transaction to which Section 424 of the Code applies or (b)
there occurs any other event which, in the judgment of the Committee
necessitates such action. Any determination made under this Article X by the
Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property,
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to, the
maximum number of shares as to which Options, SARs and Stock Awards may be
granted, or the terms of outstanding Stock Awards, Options or SARs.
The Committee may make Stock Awards and may grant Options and SARs
in substitution for performance shares, phantom shares, stock awards, stock
options, stock appreciation rights, or similar awards held by an individual who
becomes an employee of the Company or an Affiliate in connection with a
transaction described
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in the first paragraph of this Article X. Notwithstanding any provision of the
Plan (other than the limitation of Section 5.02), the terms of such substituted
Stock Awards or Option or SAR grants shall be as the Committee, in its
discretion, determines is appropriate.
ARTICLE XI
COMPLIANCE WITH LAW AND
APPROVAL OF REGULATORY BODIES
No Option or SAR shall be exercisable, no Common Stock shall be
issued, no certificates for shares of Common Stock shall be delivered, and no
payment shall be made under this Plan except in compliance with all applicable
federal and state laws and regulations (including, without limitation,
withholding tax requirements), any listing agreement to which the Company is a
party, and the rules of all domestic stock exchanges on which the Company's
shares may be listed. The Company shall have the right to rely on an opinion of
its counsel as to such compliance. Any share certificate issued to evidence
Common Stock when a Stock Award is granted or for which an Option or SAR is
exercised may bear such legends and statements as the Administrator may deem
advisable to assure compliance with federal and state laws and regulations. No
Option or SAR shall be exercisable, no Stock Award shall be granted, no Common
Stock shall be issued, no certificate for shares shall be delivered, and no
payment shall be made under this Plan until the Company has obtained such
consent or approval as the Administrator may deem advisable from regulatory
bodies having jurisdiction over such matters.
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ARTICLE XII
GENERAL PROVISIONS
12.01. Effect on Employment and Service. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any individual any right to continue in the employ or
service of the Company or an Affiliate or in any way affect any right and power
of the Company or an Affiliate to terminate the employment or service of any
individual at any time with or without assigning a reason therefor.
12.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
12.03. Rules of Construction. Headings are given to the articles and sections of
this Plan solely as a convenience to facilitate reference. The reference to any
statute, regulation, or other provision of law shall be construed to refer to
any amendment to or successor of such provision of law.
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ARTICLE XIII
AMENDMENT
The Board may amend or terminate this Plan from time to time;
provided, however, that no amendment may become effective until shareholder
approval is obtained if (i) the amendment increases the aggregate number of
shares of Common Stock that may be issued under the Plan, (ii) the amendment
changes the class of individuals eligible to become Participants or (iii) the
amendment materially increases the benefits that may be provided under the Plan.
No amendment shall, without a Partici- pant's consent, adversely affect any
rights of such Participant under any outstanding Stock Award, Option, SAR or
Incentive Award outstanding at the time such amendment is made.
ARTICLE XIV
DURATION OF PLAN
No Stock Award, Option, SAR or Incentive Award may be granted under
this Plan after October 17, 2006. Stock Awards, Options, SARs and Incentive
Awards granted before that date shall remain valid in accordance with their
terms.
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ARTICLE XV
EFFECTIVE DATE OF PLAN
Options, SARs and Incentive Awards may be granted under this Plan
upon its adoption by the Board, provided that no Option, SAR or Incentive Award
shall be effective or exercisable unless this Plan is approved by a majority of
the votes entitled to be cast by the Company's shareholders, voting either in
person or by proxy, at a duly held shareholders' meeting within twelve months of
such adoption. Stock Awards may be granted under this Plan upon the later of its
adoption by the Board or its approval by shareholders in accordance with the
preceding sentence.
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is made and entered into as of the 24th day of
October, 1996, by and between TEMPLATE SOFTWARE, INC., a Virginia corporation
(the "Company") and E. Linwood Pearce (the "Executive").
RECITALS
A. The Company desires to retain Executive to provide the services
hereinafter set forth.
B. Executive is willing to provide such services to the Company on
the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the promises and the terms and conditions set forth in
this Agreement, the parties agree as follows:
1. EMPLOYMENT AND TERM. The Company agrees to employ the Executive and
the Executive agrees to work for the Company, subject to the terms and
conditions below, for a term of two years, beginning October 24, 1996, and
ending October 23, 1998.
2. COMPENSATION; BENEFITS. Subject to the terms and conditions of this
Agreement, the Company shall pay to the Executive a base salary as set forth on
Schedule A, attached hereto and made a part hereof, payable in accordance with
the Company's regular payroll policies. In addition to this base salary, the
Executive shall be entitled to the benefits and bonuses described on Schedule
A, subject to the terms and conditions described therein. In addition, the
Executive shall be entitled to receive such other benefits including, but not
limited to, vacation, holidays and sick leave, as the Company generally
provides to its employees holding similar positions as that of the Executive.
Notwithstanding the foregoing, the Company reserves the right to adopt, amend
or discontinue any employee benefit plan or policy in accordance with
then-applicable law.
3. DUTIES. The Executive shall initially be employed as Chief Executive
Officer. The Executive shall diligently and conscientiously devote his full
time and attention and his best efforts to discharge the duties assigned to him
by the Company. The Executive shall perform such duties as may be assigned to
him from time to time by the Company's Board of Directors.
4. RIGHT TO CONTRACT; CONFLICT OF INTEREST. The Executive hereby
represents and warrants to the Company that (i) he has full right and authority
to enter into this Agreement and to perform his obligations hereunder, and (ii)
the execution and delivery of this Agreement by the Executive and the
performance of the Executive's obligations hereunder will not conflict with or
breach any agreement, order or decree to which the Executive is a party or by
which he is bound. During the term of this Agreement, the Executive shall not
directly or indirectly consult, advise, be retained or employed by, or in any
manner perform any service with any other business or entity engaged in a like
or competing business to that of the Company without first obtaining consent in
writing from the Company.
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5. TRANSFER BY COMPANY. If at any time during the term of this
Agreement, the Company transfers the Executive to another location, the Company
will reimburse the Executive for all reasonable moving expenses incurred as a
result of such transfer. In the event that the Executive terminates this
Agreement without cause pursuant to Section 8 hereof within one year after any
such transfer, the Executive shall refund to the Company all amounts paid to
him by the Company as moving expenses (including temporary housing and
incidental expenses) pursuant to this Section 5. The Executive agrees that any
amounts owing to the Company under this Section 5 may be deducted from any
salary, bonuses or other amounts owed to him by the Company, consistent with
applicable law.
6. TERMINATION BY THE COMPANY.
(a) The Company shall have the right to terminate this Agreement with
or without cause at any time during the term of this Agreement by giving
written notice to the Executive. The termination shall become effective on the
date specified in the notice, which termination date shall not be a date prior
to the date 5 days following the date of the notice of termination itself. In
the event that the Executive is terminated for cause, the Company shall pay the
Executive salary through the day on which such termination is effective. In
the event that the Executive is terminated without cause, the Company shall pay
to the Executive compensation equal to the greater of (i) the compensation due
to Executive through the end of the term of this Agreement, and (ii) twelve
(12) months of the Executive's salary and bonus accrued of the effective date
of termination.
(b) For purposes of this Section 6, "cause" shall mean (i) a material
breach by the Executive of any covenant or condition hereunder; (ii) a material
neglect of duty by the Executive; or (iii) the commission by the Executive of
any act or omission constituting gross negligence, dishonesty, fraud, immoral
or disreputable conduct which is, or in the reasonable opinion of the Company's
Board of Directors is likely to be, harmful to the Company or its reputation.
7. TERMINATION BY DEATH OR DISABILITY OF THE EXECUTIVE.
(a) In the event of the Executive's death during the term of this
Agreement, all obligations of the parties hereunder shall terminate
immediately, and the Company shall pay to the Executive's beneficiary or
estate, the salary and other compensation due the Executive through the day on
which his death shall have occurred.
(b) If the Executive is unable to perform his duties hereunder due to
mental, physical or other disability for a period of 90 consecutive business
days, as determined by the Company, or for 90 business days in any period of 12
consecutive months, this Agreement may be terminated by the Company, at its
option, by written notice to the Executive, effective on the termination date
specified in such notice, provided such termination date shall not be a date
prior to the date of the notice of termination itself. In this case, the
Company will pay the Executive the salary and other compensation due him
through the day on which such termination is effective.
8. TERMINATION BY THE EXECUTIVE.
(a) The Executive may voluntarily terminate this Agreement at any
time, with or without cause, by giving 30 days written notice to the Company.
Any such termination, if without cause, shall become effective on the date
specified in such notice, provided that the Company may elect to have such
termination become effective on a date after, but not more than 14 days after,
the date of the notice. If
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such termination is with cause, it shall become effective on the 30 days after
the date of such notice, provided the Company has failed to cure the cause
specified in the notice.
(b) After the date of any such termination, the Executive shall be
entitled to the salary due him through the day on which such termination
becomes effective, unless such termination was for cause, in which case he
shall be entitled to receive from the Company compensation equal to the
compensation the Executive would have received had the Company terminated this
Agreement without cause pursuant to Section 6(a).
(c) In the event the Executive terminates this Agreement without
cause, or the Company terminates this Agreement with cause, in either case
within one year after the commencement of the Executive's employment with the
Company, the Executive shall refund to the Company all amounts, if any, paid
him by the Company as moving expenses (including temporary housing and
incidental expenses). The Executive agrees that any amounts owing to the
Company as moving expenses under this Section 8 may be deducted from any salary
or bonuses owed to him by the Company, consistent with applicable law.
(d) For purposes of this Section 8, "cause" shall mean a material
failure by the Company to perform its obligations under this Agreement.
9. SUSPENSION. In the event the Company has reasonable cause to believe
that there exists cause for termination of this Agreement as defined in Section
6, immediately upon written notice to the Executive, the Company may but shall
not be obligated to suspend the Executive, with pay, for a period not to exceed
four (4) weeks, either as a disciplinary measure or in order to investigate the
Company's belief that such cause exists. No such suspension shall prevent the
Company from thereafter exercising its rights to terminate this Agreement in
accordance with its terms.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) Non-Competition. The Executive agrees that, during his employment
hereunder, and for a period of two (2) months after the later of (1) the
effective date of termination of this Agreement, (ii) the date on which the
Executive's period of compensated severance hereunder expires, or (iii) the
date of entry by a court of competent jurisdiction of a final judgment
enforcing this covenant, he will not, in any geographic area where the Company
engages in its Business (as defined below) or maintains sales or service
representatives or employees:
(A) compete with the Company, or any subsidiary or affiliate of
the Company;
(B) interfere with or disrupt, or attempt to interfere with or
disrupt, the relationship, contractual or otherwise, between the Company, or
any subsidiary or affiliate of the Company, and any customer, supplier or
employee of the Company, or any such subsidiary or affiliate;
(b) Non-Solicitation. The Executive agrees that, during his
employment hereunder, and for a period of two (2) years after the later of (i)
the effective date of termination of this Agreement, (ii) the date on which the
Executive's period of compensated severance hereunder expires, or (iii) the
date of entry by a court of competent jurisdiction of a final judgment
enforcing this covenant, he will not offer employment to any current employee
of the Company or solicit (directly or indirectly, either individually
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or in connection with any employer or other business partner) any current
employee of the Company to accept employment elsewhere.
(c) The following terms, as used in this Section 10 shall have the
meanings set forth below:
(A) The term "complete" means to engage in competition, directly
or indirectly, individually or through a family member or other person acting
on the Executive's behalf, as an employee, officer, director, proprietor,
partner or stockholder or other security holder (other than of a corporation
listed on a national securities exchange or the securities of which are
regularly traded in the over-the-counter market, provided that the Executive at
no time owns in excess of 5% of the outstanding, securities of such corporation
entitled to vote for the election of directors) of any firm, corporation or
entity of any nature whatsoever.
(B) The term "affiliate" means any person, firm or corporation,
directly or indirectly through one or more intermediaries, controlling,
controlled by or under common control with the Company.
(d) The Executive further acknowledges that this Section 10 is an
independent covenant within this Agreement, and that this covenant shall
survive any termination of Agreement and shall be treated as an independent
covenant for the purposes of enforcement. With respect to this covenant, the
Executive hereby acknowledges receipt of Ten Dollars ($10.00) and other good
and valuable consideration stated herein including the consideration of his
continued employment by the Company.
(e) The Executive shall, during the term of this Agreement and
thereafter, notify any prospective employer of the terms and conditions of this
Agreement regarding confidentiality, non-disclosure and non-competition.
11. CONFIDENTIALITY AND NON-DISCLOSURE.
(a) The Executive shall hold in strict confidence and shall not,
either during the term of this Agreement or after the termination hereof,
disclose, directly or indirectly, to any third party, person, firm, corporation
or other entity, irrespective of whether such person or entity is a competitor
of the Company or is engaged in a business similar to that of the Company, any
trade secrets or other proprietary or confidential information of the Company
or any subsidiary or affiliate (as defined in Section 10) of the Company
obtained by the Executive from or through his employment hereunder. The
Executive hereby acknowledges and agrees that all proprietary information
referred to in this Section 11 shall be deemed trade secrets of the Company and
of its subsidiaries and affiliates, as defined in Section 10, and that the
Executive shall take such steps, undertake such actions and refrain from taking
such other actions, as mandated by the provisions hereof and by the provisions
of the Virginia Uniform Trade Secret Act. Executive further acknowledges that
the Company's products and titles consist of copyrighted material, and
Executive shall exercise his best efforts to prevent the use of such
copyrighted material by any person or entity which has not prior thereto been
authorized to use such information by the Company.
(b) The Executive further hereby agrees and acknowledges that any
disclosure of any proprietary information prohibited herein, or any breach of
the provisions of Sections 4 or 10 of this Agreement, may result in irreparable
injury and damage to the Company which will not be adequately compensable in
monetary damages, that the Company will have no adequate remedy at law
therefor, and that the Company may obtain such preliminary, temporary or
permanent mandatory or restraining
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injunctions, orders or decrees as may be necessary to protect the company
against, or on account of, any breach by the Executive of the provisions
contained in Sections 4, 10 or 11.
(c) The Executive further agrees that, upon termination of this
Agreement, whether voluntary or involuntary or with or without cause, the
Executive shall notify any new employer, partner, associate or any other firm
or corporation with whom the Executive shall become associated in any capacity
whatsoever of the provisions of this Section 11, and that the Company may give
such notice to such firm, corporation or other person.
12. ASSIGNMENT AND DISCLOSURE OF INVENTIONS.
(a) From and after the date the Executive first became employed with
the Company, the Executive hereby agrees to promptly disclose in confidence to
the Company all inventions, improvements, designs, original works of
authorship, formulas, processes, compositions of matter, computer software
programs, databases, mask works, and trade secrets ("Inventions"), whether or
not patentable, copyrightable or protectible as trade secrets, that are made or
conceived or first reduced to practice or created by the Executive, either
alone or jointly with others, during the period of the Executive's employment,
whether or not in the course of the Executive's employment.
(b) The Executive hereby acknowledges that copyrightable works
prepared by the Executive within the scope of the Executive's employment are
"works for hire" under the Copyright Act and that the Company will be
considered the author thereof. The Executive hereby agrees that all Inventions
that (a) are developed using equipment, supplies, facilities or trade secrets
of the Company, (b) result from work performed by the Executive for the
Company, or (c) relate to the Company's business or current or anticipated
research and development, will be the sole and exclusive property of the
Company and are hereby assigned by the Executive to the Company.
13. SEVERABILITY. The Company and the Executive recognize that the laws
and public policies of the Commonwealth of Virginia are subject to varying
interpretations and change. It is the intention of the Company and of the
Executive that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies of the
Commonwealth of Virginia, but that the unenforceability (to the modification to
conform to such laws or public policies) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder of this Agreement.
Accordingly, if any provisions of this Agreement shall be determined to be
invalid or unenforceable, either in whole or in part, this Agreement shall be
deemed amended to delete or modify, as necessary, the offending provision or
provisions and to alter the balance of this Agreement in order to render it
valid and enforceable.
14. ASSIGNMENT. Neither the rights nor obligations under this Agreement
may be assigned by either party, in whole or in part, by operation of law or
otherwise, except that it shall be binding upon and inure to the benefit of any
successor of the Company and its subsidiaries and affiliates, whether by
merger, reorganization or otherwise, or any purchaser of all or substantially
all of the assets of the Company.
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<PAGE> 6
15. NOTICES. Any notice expressly provided for under this Agreement shall
be in writing, shall be given either manually or by mail and shall be deemed
sufficiently given when actually received by the party to be notified or when
mailed, if mailed by certified or registered mail, postage prepaid, addressed
to such party at their addresses as set forth below. Either party may, by
notice to the other party, given in the manner provided for herein, change
their address for receiving such notices.
(a) If to the Company, to:
Template Software, Inc.
45365 Vintage Park Plaza, Suite 100
Dulles, Virginia 20166
Attn: President
with a copy to:
Hunton & Williams
1751 Pinnacle Drive, Suite 1700
McLean, Virginia 22102
Attn: Joseph W. Conroy, Esquire
(b) If to the Executive, to
E. Linwood Pearce
c/o Template Software, Inc.
45365 Vintage Park Plaza, Suite 100
Dulles, Virginia 20166
16. GOVERNING LAW. This Agreement shall be executed, construed and
performed in accordance with the laws of the Commonwealth of Virginia without
reference to conflict of laws principles.
17. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
18. ENTIRE AGREEMENT, AMENDMENTS. This Agreement constitutes and embodies
the entire agreement between the parties in connection with the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings in connection with such subject matter. No covenant or
condition not expressed in this Agreement shall affect or be effective to
interpret, change or restrict this Agreement. In the event of a conflict or
inconsistency between the terms of this Agreement and the Company's policies
regarding employees, the terms of this Agreement shall supersede the
conflicting or inconsistent Company policies. No change, termination or
attempted waiver of any of the provisions of this Agreement shall be binding
unless in writing signed by the Executive and on behalf of the Company by an
officer thereunto duly authorized by the Company's Board of Directors. No
modification, waiver, termination, rescission, discharge or cancellation of
this Agreement shall affect the right of any party to enforce any other
provision or to exercise any right or remedy in the event of any other default.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TEMPLATE SOFTWARE, INC.
By: /s/ JOSEPH M. FOX
------------------------------------
Name: Joseph M. Fox
-----------------------------------
Title: Chairman
----------------------------------
Date: 11/13/96
----------------------------------
EXECUTIVE:
/s/ E. LINWOOD PEARCE
---------------------------------------
E. Linwood Pearce
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<PAGE> 8
SCHEDULE A
1. Salary to be established by the Board of Directors.
2. Bonus compensation in an amount to be determined annually by the Board of
Directors.
3. Current annual salary is $170,000 for FY 1996.
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<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is made and entered into as of the 24th day of
October, 1996, by and between TEMPLATE SOFTWARE, INC., a Virginia corporation
(the "Company") and Joseph M. Fox (the "Executive").
RECITALS
A. The Company desires to retain Executive to provide the services
hereinafter set forth.
B. Executive is willing to provide such services to the Company on
the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the promises and the terms and conditions set forth in
this Agreement, the parties agree as follows:
1. EMPLOYMENT AND TERM. The Company agrees to employ the Executive and
the Executive agrees to work for the Company, subject to the terms and
conditions below, for a term of two years, beginning October 24, 1996, and
ending October 23, 1998.
2. COMPENSATION; BENEFITS. Subject to the terms and conditions of this
Agreement, the Company shall pay to the Executive a base salary as set forth on
Schedule A, attached hereto and made a part hereof, payable in accordance with
the Company's regular payroll policies. In addition to this base salary, the
Executive shall be entitled to the benefits and bonuses described on Schedule
A, subject to the terms and conditions described therein. In addition, the
Executive shall be entitled to receive such other benefits including, but not
limited to, vacation, holidays and sick leave, as the Company generally
provides to its employees holding similar positions as that of the Executive.
Notwithstanding the foregoing, the Company reserves the right to adopt, amend
or discontinue any employee benefit plan or policy in accordance with
then-applicable law.
3. DUTIES. The Executive shall initially be employed as Chairman. The
Executive shall diligently and conscientiously devote his full time and
attention and his best efforts to discharge the duties assigned to him by the
Company. The Executive shall perform such duties as may be assigned to him
from time to time by the Company's Board of Directors.
4. RIGHT TO CONTRACT; CONFLICT OF INTEREST. The Executive hereby
represents and warrants to the Company that (i) he has full right and authority
to enter into this Agreement and to perform his obligations hereunder, and (ii)
the execution and delivery of this Agreement by the Executive and the
performance of the Executive's obligations hereunder will not conflict with or
breach any agreement, order or decree to which the Executive is a party or by
which he is bound. During the term of this Agreement, the Executive shall not
directly or indirectly consult, advise, be retained or employed by, or in any
manner perform any service with any other business or entity engaged in a like
or competing business to that of the Company without first obtaining consent in
writing from the Company.
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<PAGE> 2
5. TRANSFER BY COMPANY. If at any time during the term of this Agreement,
the Company transfers the Executive to another location, the Company will
reimburse the Executive for all reasonable moving expenses incurred as a result
of such transfer. In the event that the Executive terminates this Agreement
without cause pursuant to Section 8 hereof within one year after any such
transfer, the Executive shall refund to the Company all amounts paid to him by
the Company as moving expenses (including temporary housing and incidental
expenses) pursuant to this Section 5. The Executive agrees that any amounts
owing to the Company under this Section 5 may be deducted from any salary,
bonuses or other amounts owed to him by the Company, consistent with applicable
law.
6. TERMINATION BY THE COMPANY.
(a) The Company shall have the right to terminate this Agreement with
or without cause at any time during the term of this Agreement by giving
written notice to the Executive. The termination shall become effective on the
date specified in the notice, which termination date shall not be a date prior
to the date 5 days following the date of the notice of termination itself. In
the event that the Executive is terminated for cause, the Company shall pay the
Executive salary through the day on which such termination is effective. In
the event that the Executive is terminated without cause, the Company shall pay
to the Executive compensation equal to the greater of (i) the compensation due
to Executive through the end of the term of this Agreement, and (ii) twelve
(12) months of the Executive's salary and bonus accrued of the effective date
of termination.
(b) For purposes of this Section 6, "cause" shall mean (i) a material
breach by the Executive of any covenant or condition hereunder; (ii) a material
neglect of duty by the Executive; or (iii) the commission by the Executive of
any act or omission constituting gross negligence, dishonesty, fraud, immoral
or disreputable conduct which is, or in the reasonable opinion of the Company's
Board of Directors is likely to be, harmful to the Company or its reputation.
7. TERMINATION BY DEATH OR DISABILITY OF THE EXECUTIVE.
(a) In the event of the Executive's death during the term of this
Agreement, all obligations of the parties hereunder shall terminate
immediately, and the Company shall pay to the Executive's beneficiary or
estate, the salary and other compensation due the Executive through the day on
which his death shall have occurred.
(b) If the Executive is unable to perform his duties hereunder due to
mental, physical or other disability for a period of 90 consecutive business
days, as determined by the Company, or for 90 business days in any period of 12
consecutive months, this Agreement may be terminated by the Company, at its
option, by written notice to the Executive, effective on the termination date
specified in such notice, provided such termination date shall not be a date
prior to the date of the notice of termination itself. In this case, the
Company will pay the Executive the salary and other compensation due him
through the day on which such termination is effective.
8. TERMINATION BY THE EXECUTIVE.
(a) The Executive may voluntarily terminate this Agreement at any
time, with or without cause, by giving 30 days written notice to the Company.
Any such termination, if without cause, shall become effective on the date
specified in such notice, provided that the Company may elect to have such
termination become effective on a date after, but not more than 14 days after,
the date of the notice. If
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<PAGE> 3
such termination is with cause, it shall become effective on the 30 days after
the date of such notice, provided the Company has failed to cure the cause
specified in the notice.
(b) After the date of any such termination, the Executive shall be
entitled to the salary due him through the day on which such termination
becomes effective, unless such termination was for cause, in which case he
shall be entitled to receive from the Company compensation equal to the
compensation the Executive would have received had the Company terminated this
Agreement without cause pursuant to Section 6(a).
(c) In the event the Executive terminates this Agreement without
cause, or the Company terminates this Agreement with cause, in either case
within one year after the commencement of the Executive's employment with the
Company, the Executive shall refund to the Company all amounts, if any, paid
him by the Company as moving expenses (including temporary housing and
incidental expenses). The Executive agrees that any amounts owing to the
Company as moving expenses under this Section 8 may be deducted from any salary
or bonuses owed to him by the Company, consistent with applicable law.
(d) For purposes of this Section 8, "cause" shall mean a material
failure by the Company to perform its obligations under this Agreement.
9. SUSPENSION. In the event the Company has reasonable cause to believe
that there exists cause for termination of this Agreement as defined in Section
6, immediately upon written notice to the Executive, the Company may but shall
not be obligated to suspend the Executive, with pay, for a period not to exceed
four (4) weeks, either as a disciplinary measure or in order to investigate the
Company's belief that such cause exists. No such suspension shall prevent the
Company from thereafter exercising its rights to terminate this Agreement in
accordance with its terms.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) Non-Competition. The Executive agrees that, during his employment
hereunder, and for a period of two (2) months after the later of (i) the
effective date of termination of this Agreement, (ii) the date on which the
Executive's period of compensated severance hereunder expires, or (iii) the
date of entry by a court of competent jurisdiction of a final judgment
enforcing this covenant, he will not, in any geographic area where the Company
engages in its Business (as defined below) or maintains sales or service
representatives or employees:
(A) compete with the Company, or any subsidiary or affiliate of
the Company;
(B) interfere with or disrupt, or attempt to interfere with or
disrupt, the relationship, contractual or otherwise, between the Company, or
any subsidiary or affiliate of the Company, and any customer, supplier or
employee of the Company, or any such subsidiary or affiliate;
(b) Non-Solicitation. The Executive agrees that, during his
employment hereunder, and for a period of two (2) years after the later of (i)
the effective date of termination of this Agreement, (ii) the date on which the
Executive's period of compensated severance hereunder expires, or (iii) the
date of entry by a court of competent jurisdiction of a final judgment
enforcing this covenant, he will not offer employment to any current employee
of the Company or solicit (directly or indirectly, either individually
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<PAGE> 4
or in connection with any employer or other business partner) any current
employee of the Company to accept employment elsewhere.
(c) The following terms, as used in this Section 10 shall have the
meanings set forth below:
(A) The term "compete" means to engage in competition, directly or
indirectly, individually or through a family member or other person acting on
the Executive's behalf, as an employee, officer, director, proprietor, partner
or stockholder or other security holder (other than of a corporation listed on
a national securities exchange or the securities of which are regularly traded
in the over-the-counter market, provided that the Executive at no time owns in
excess of 5% of the outstanding securities of such corporation entitled to vote
for the election of directors) of any firm, corporation or entity of any nature
whatsoever.
(B) The term "affiliate" means any person, firm or corporation,
directly or indirectly through one or more intermediaries, controlling,
controlled by or under common control with the Company.
(d) The Executive further acknowledges that this Section 10 is an
independent covenant within this Agreement, and that this covenant shall
survive any termination of Agreement and shall be treated as an independent
covenant for the purposes of enforcement. With respect to this covenant, the
Executive hereby acknowledges receipt of Ten Dollars ($10.00) and other good
and valuable consideration stated herein including the consideration of his
continued employment by the Company.
(e) The Executive shall, during the term of this Agreement and
thereafter, notify any prospective employer of the terms and conditions of this
Agreement regarding confidentiality, non-disclosure and non-competition.
11. CONFIDENTIALITY AND NON-DISCLOSURE
(a) The Executive shall hold in strict confidence and shall not,
either during the term of this Agreement or after the termination hereof,
disclose, directly or indirectly, to any third party, person, firm, corporation
or other entity, irrespective of whether such person or entity is a competitor
of the Company or is engaged in a business similar to that of the Company, any
trade secrets or other proprietary or confidential information of the Company
or any subsidiary or affiliate (as defined in Section 10) of the Company
obtained by the Executive from or through his employment hereunder. The
Executive hereby acknowledges and agrees that all proprietary information
referred to in this Section 11 shall be deemed trade secrets of the Company and
of its subsidiaries and affiliates, as defined in Section 10, and that the
Executive shall take such steps, undertake such actions and refrain from taking
such other actions, as mandated by the provisions hereof and by the provisions
of the Virginia Uniform Trade Secret Act. Executive further acknowledges that
the Company's products and titles consist of copyrighted material, and
Executive shall exercise his best efforts to prevent the use of such
copyrighted material by any person or entity which has not prior thereto been
authorized to use such information by the Company.
(b) The Executive further hereby agrees and acknowledges that any
disclosure of any proprietary information prohibited herein, or any breach of
the provisions of Sections 4 or 10 of this Agreement, may result in irreparable
injury and damage to the Company which will not be adequately compensable in
monetary damages, that the Company will have no adequate remedy at law
therefor, and that the Company may obtain such preliminary, temporary or
permanent mandatory or restraining
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<PAGE> 5
injunctions, orders or decrees as may be necessary to protect the company
against, or on account of, any breach by the Executive of the provisions
contained in Sections 4, 10 or 11.
(c) The Executive further agrees that, upon termination of this
Agreement, whether voluntary or involuntary or with or without cause, the
Executive shall notify any new employer, partner, associate or any other firm
or corporation with whom the Executive shall become associated in any capacity
whatsoever of the provisions of this Section 11, and that the Company may give
such notice to such firm, corporation or other person.
12. ASSIGNMENT AND DISCLOSURE OF INVENTIONS.
(a) From and after the date the Executive first became employed with
the Company, the Executive hereby agrees to promptly disclose in confidence to
the Company all inventions, improvements, designs, original works of
authorship, formulas, processes, compositions of matter, computer software
programs, databases, mask works, and trade secrets ("Inventions"), whether or
not patentable, copyrightable or protectible as trade secrets, that are made or
conceived or first reduced to practice or created by the Executive, either
alone or jointly with others, during the period of the Executive's employment,
whether or not in the course of the Executive's employment.
(b) The Executive hereby acknowledges that copyrightable works
prepared by the Executive within the scope of the Executive's employment are
"works for hire" under the Copyright Act and that the Company will be
considered the author thereof. The Executive hereby agrees that all Inventions
that (a) are developed using equipment, supplies, facilities or trade secrets
of the Company, (b) result from work performed by the Executive for the
Company, or (c) relate to the Company's business or current or anticipated
research and development, will be the sole and exclusive property of the
Company and are hereby assigned by the Executive to the Company.
13. SEVERABILITY. The Company and the Executive recognize that the laws
and public policies of the Commonwealth of Virginia are subject to varying
interpretations and change. It is the intention of the Company and of the
Executive that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies of the
Commonwealth of Virginia, but that the unenforceability (to the modification to
conform to such laws or public policies) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder of this Agreement.
Accordingly, if any provisions of this Agreement shall be determined to be
invalid or unenforceable, either in whole or in part, this Agreement shall be
deemed amended to delete or modify, as necessary, the offending provision or
provisions and to alter the balance of this Agreement in order to render it
valid and enforceable.
14. ASSIGNMENT. Neither the rights nor obligations under this Agreement
may be assigned by either party, in whole or in part, by operation of law or
otherwise, except that it shall be binding upon and inure to the benefit of any
successor of the Company and its subsidiaries and affiliates, whether by
merger, reorganization or otherwise, or any purchaser of all or substantially
all of the assets of the Company.
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<PAGE> 6
15. NOTICES. Any notice expressly provided for under this Agreement shall
be in writing, shall be given either manually or by mail and shall be deemed
sufficiently given when actually received by the party to be notified or when
mailed, if mailed by certified or registered mail, postage prepaid, addressed
to such party at their addresses as set forth below. Either party may, by
notice to the other party, given in the manner provided for herein, change
their address for receiving such notices.
(a) If to the Company, to:
Template Software, Inc.
45365 Vintage Park Plaza, Suite 100
Dulles, Virginia 20166
Attn: President
with a copy to:
Hunton & Williams
1751 Pinnacle Drive, Suite 1700
McLean, Virginia 22102
Attn: Joseph W. Conroy, Esquire
(b) If to the Executive, to
Joseph M. Fox
c/o Template Software, Inc.
45365 Vintage Park Plaza, Suite 100
Dulles, Virginia 20166
16. GOVERNING LAW. This Agreement shall be executed, construed and
performed in accordance with the laws of the Commonwealth of Virginia without
reference to conflict of laws principles.
17. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
18. ENTIRE AGREEMENT; AMENDMENTS. This Agreement constitutes and embodies
the entire agreement between the parties in connection with the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings in connection with such subject matter. No covenant or
condition not expressed in this Agreement shall affect or be effective to
interpret, change or restrict this Agreement. In the event of a conflict or
inconsistency between the terms of this Agreement and the Company's policies
regarding employees, the terms of this Agreement shall supersede the
conflicting or inconsistent Company policies. No change, termination or
attempted waiver of any of the provisions of this Agreement shall be binding
unless in writing signed by the Executive and on behalf of the Company by an
officer thereunto duly authorized by the Company's Board of Directors. No
modification, waiver, termination, rescission, discharge or cancellation of
this Agreement shall affect the right of any party to enforce any other
provision or to exercise any right or remedy in the event of any other default.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TEMPLATE SOFTWARE, INC.
By: /s/ E. L. PEARCE
-------------------------------------
Name: E. L. Pearce
-----------------------------------
Title: CEO
----------------------------------
Date: 11/13/96
-----------------------------------
EXECUTIVE:
/s/ JOSEPH M. FOX
----------------------------------------
Joseph M. Fox
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<PAGE> 8
SCHEDULE A
1. Salary to be established by the Board of Directors.
2. Bonus compensation in an amount to be determined annually by the Board of
Directors.
3. Current annual salary is $170,000 for FY 1996.
-8-
<PAGE> 1
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, is made and entered into as of the 24th day of
October, 1996, by and between TEMPLATE SOFTWARE, INC., a Virginia corporation
(the "Company") and Andrew B. Ferrentino (the "Executive").
RECITALS
A. The Company desires to retain Executive to provide the services
hereinafter set forth.
B. Executive is willing to provide such services to the Company on
the terms and conditions hereinafter set forth.
AGREEMENT
In consideration of the promises and the terms and conditions set forth in
this Agreement, the parties agree as follows:
1. EMPLOYMENT AND TERM. The Company agrees to employ the Executive and
the Executive agrees to work for the Company, subject to the terms and
conditions below, for a term of two years, beginning October 24, 1996, and
ending October 23, 1998.
2. COMPENSATION; BENEFITS. Subject to the terms and conditions of this
Agreement, the Company shall pay to the Executive a base salary as set forth on
Schedule A, attached hereto and made a part hereof, payable in accordance with
the Company's regular payroll policies. In addition to this base salary, the
Executive shall be entitled to the benefits and bonuses described on Schedule
A, subject to the terms and conditions described therein. In addition, the
Executive shall be entitled to receive such other benefits including, but not
limited to, vacation, holidays and sick leave, as the Company generally
provides to its employees holding similar positions as that of the Executive.
Notwithstanding the foregoing, the Company reserves the right to adopt, amend
or discontinue any employee benefit plan or policy in accordance with
then-applicable law.
3. DUTIES. The Executive shall initially be employed as President. The
Executive shall diligently and conscientiously devote his full time and
attention and his best efforts to discharge the duties assigned to him by the
Company. The Executive shall perform such duties as may be assigned to him
from time to time by the Company's Board of Directors.
4. RIGHT TO CONTRACT; CONFLICT OF INTEREST. The Executive hereby
represents and warrants to the Company that (i) he has full right and authority
to enter into this Agreement and to perform his obligations hereunder, and (ii)
the execution and delivery of this Agreement by the Executive and the
performance of the Executive's obligations hereunder will not conflict with or
breach any agreement, order or decree to which the Executive is a party or by
which he is bound. During the term of this Agreement, the Executive shall not
directly or indirectly consult, advise, be retained or employed by, or in any
manner perform any service with any other business or entity engaged in a like
or competing business to that of the Company without first obtaining consent in
writing from the Company.
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<PAGE> 2
5. TRANSFER BY COMPANY. If at any time during the term of this
Agreement, the Company transfers the Executive to another location, the Company
will reimburse the Executive for all reasonable moving expenses incurred as a
result of such transfer. In the event that the Executive terminates this
Agreement without cause pursuant to Section 8 hereof within one year after any
such transfer, the Executive shall refund to the Company all amounts paid to
him by the Company as moving expenses (including temporary housing and
incidental expenses) pursuant to this Section 5. The Executive agrees that any
amounts owing to the Company under this Section 5 may be deducted from any
salary, bonuses or other amounts owed to him by the Company, consistent with
applicable law.
6. TERMINATION BY THE COMPANY.
(a) The Company shall have the right to terminate this Agreement with
or without cause at any time during the term of this Agreement by giving
written notice to the Executive. The termination shall become effective on the
date specified in the notice, which termination date shall not be a date prior
to the date 5 days following the date of the notice of termination itself. In
the event that the Executive is terminated for cause, the Company shall pay the
Executive salary through the day on which such termination is effective. In
the event that the Executive is terminated without cause, the Company shall pay
to the Executive compensation equal to the greater of (i) the compensation due
to Executive through the end of the term of this Agreement, and (ii) twelve
(12) months of the Executive's salary and bonus accrued of the effective date
of termination.
(b) For purposes of this Section 6, "cause" shall mean (i) a material
breach by the Executive of any covenant or condition hereunder; (ii) a material
neglect of duty by the Executive; or (iii) the commission by the Executive of
any act or omission constituting gross negligence, dishonesty, fraud, immoral
or disreputable conduct which is, or in the reasonable opinion of the Company's
Board of Directors is likely to be, harmful to the Company or its reputation.
7. TERMINATION BY DEATH OR DISABILITY OF THE EXECUTIVE.
(a) In the event of the Executive's death during the term of this
Agreement, all obligations of the parties hereunder shall terminate
immediately, and the Company shall pay to the Executive's beneficiary or
estate, the salary and other compensation due the Executive through the day on
which his death shall have occurred.
(b) If the Executive is unable to perform his duties hereunder due to
mental, physical or other disability for a period of 90 consecutive business
days, as determined by the Company, or for 90 business days in any period of 12
consecutive months, this Agreement may be terminated by the Company, at its
option, by written notice to the Executive, effective on the termination date
specified in such notice, provided such termination date shall not be a date
prior to the date of the notice of termination itself. In this case, the
Company will pay the Executive the salary and other compensation due him
through the day on which such termination is effective.
8. TERMINATION BY THE EXECUTIVE.
(a) The Executive may voluntarily terminate this Agreement at any
time, with or without cause, by giving 30 days written notice to the Company.
Any such termination, if without cause, shall become effective on the date
specified in such notice, provided that the Company may elect to have such
termination become effective on a date after, but not more than 14 days after,
the date of the notice. If
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<PAGE> 3
such termination is with cause, it shall become effective on the 30 days after
the date of such notice, provided the Company has failed to cure the cause
specified in the notice.
(b) After the date of any such termination, the Executive shall be
entitled to the salary due him through the day on which such termination
becomes effective, unless such termination was for cause, in which case he
shall be entitled to receive from the Company compensation equal to the
compensation the Executive would have received had the Company terminated this
Agreement without cause pursuant to Section 6(a).
(c) In the event the Executive terminates this Agreement without
cause, or the Company terminates this Agreement with cause, in either case
within one year after the commencement of the Executive's employment with the
Company, the Executive shall refund to the Company all amounts, if any, paid
him by the Company as moving expenses (including temporary housing and
incidental expenses). The Executive agrees that any amounts owing to the
Company as moving expenses under this Section 8 may be deducted from any salary
or bonuses owed to him by the Company, consistent with applicable law.
(d) For purposes of this Section 8, "cause" shall mean a material
failure by the Company to perform its obligations under this Agreement.
9. SUSPENSION. In the event the Company has reasonable cause to believe
that there exists cause for termination of this Agreement as defined in Section
6, immediately upon written notice to the Executive, the Company may but shall
not be obligated to suspend the Executive, with pay, for a period not to exceed
four (4) weeks, either as a disciplinary measure or in order to investigate the
Company's belief that such cause exists. No such suspension shall prevent the
Company from thereafter exercising its rights to terminate this Agreement in
accordance with its terms.
10. NON-COMPETITION AND NON-SOLICITATION.
(a) Non-Competition. The Executive agrees that, during his employment
hereunder, and for a period of two (2) months after the later of (i) the
effective date of termination of this Agreement, (ii) the date on which the
Executive's period of compensated severance hereunder expires, or (iii) the
date of entry by a court of competent jurisdiction of a final judgment
enforcing this covenant, he will not, in any geographic area where the Company
engages in its Business (as defined below) or maintains sales or service
representatives or employees:
(A) compete with the Company, or any subsidiary or affiliate of
the Company;
(B) interfere with or disrupt, or attempt to interfere with or
disrupt, the relationship, contractual or otherwise, between the Company, or
any subsidiary or affiliate of the Company, and any customer, supplier or
employee of the Company, or any such subsidiary or affiliate;
(b) Non-Solicitation. The Executive agrees that, during his
employment hereunder, and for a period of two (2) years after the later of (i)
the effective date of termination of this Agreement, (ii) the date on which the
Executive's period of compensated severance hereunder expires, or (iii) the
date of entry by a court of competent jurisdiction of a final judgment
enforcing this covenant, he will not offer employment to any current employee
of the Company or solicit (directly or indirectly, either individually
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<PAGE> 4
or in connection with any employer or other business partner) any current
employee of the Company to accept employment elsewhere.
(c) The following terms, as used in this Section 10 shall have the
meanings set forth below:
(A) The term "compete" means to engage in competition, directly or
indirectly, individually or through a family member or other person acting on
the Executive's behalf, as an employee, officer, director, proprietor, partner
or stockholder or other security holder (other than of a corporation listed on
a national securities exchange or the securities of which are regularly traded
in the over-the-counter market, provided that the Executive at no time owns in
excess of 5% of the outstanding securities of such corporation entitled to vote
for the election of directors) of any firm, corporation or entity of any nature
whatsoever.
(B) The term "affiliate" means any person, firm or corporation,
directly or indirectly through one or more intermediaries, controlling,
controlled by or under common control with the Company.
(d) The Executive further acknowledges that this Section 10 is an
independent covenant within this Agreement, and that this covenant shall
survive any termination of Agreement and shall be treated as an independent
covenant for the purposes of enforcement. With respect to this covenant, the
Executive hereby acknowledges receipt of Ten Dollars ($10.00) and other good
and valuable consideration stated herein including the consideration of his
continued employment by the Company.
(e) The Executive shall, during the term of this Agreement and
thereafter, notify any prospective employer of the terms and conditions of this
Agreement regarding confidentiality, non-disclosure and non-competition.
11. CONFIDENTIALITY AND NON-DISCLOSURE.
(a) The Executive shall hold in strict confidence and shall not,
either during the term of this Agreement or after the termination hereof,
disclose, directly or indirectly, to any third party, person, firm, corporation
or other entity, irrespective of whether such person or entity is a competitor
of the Company or is engaged in a business similar to that of the Company, any
trade secrets or other proprietary or confidential information of the Company
or any subsidiary or affiliate (as defined in Section 10) of the Company
obtained by the Executive from or through his employment hereunder. The
Executive hereby acknowledges and agrees that all proprietary information
referred to in this Section 11 shall be deemed trade secrets of the Company and
of its subsidiaries and affiliates, as defined in Section 10, and that the
Executive shall take such steps, undertake such actions and refrain from taking
such other actions, as mandated by the provisions hereof and by the provisions
of the Virginia Uniform Trade Secret Act. Executive further acknowledges that
the Company's products and titles consist of copyrighted material, and
Executive shall exercise his best efforts to prevent the use of such
copyrighted material by any person or entity which has not prior thereto been
authorized to use such information by the Company.
(b) The Executive further hereby agrees and acknowledges that any
disclosure of any proprietary information prohibited herein, or any breach of
the provisions of Sections 4 or 10 of this Agreement, may result in irreparable
injury and damage to the Company which will not be adequately compensable in
monetary damages, that the Company will have no adequate remedy at law
therefor, and that the Company may obtain such preliminary, temporary or
permanent mandatory or restraining
-4-
<PAGE> 5
injunctions, orders or decrees as may be necessary to protect the company
against, or on account of, any breach by the Executive of the provisions
contained in Sections 4, 10 or 11.
(c) The Executive further agrees that, upon termination of this
Agreement, whether voluntary or involuntary or with or without cause, the
Executive shall notify any new employer, partner, associate or any other firm
or corporation with whom the Executive shall become associated in any capacity
whatsoever of the provisions of this Section 11, and that the Company may give
such notice to such firm, corporation or other person.
12. ASSIGNMENT AND DISCLOSURE OF INVENTIONS.
(a) From and after the date the Executive first became employed with
the Company, the Executive hereby agrees to promptly disclose in confidence to
the Company all inventions, improvements, designs, original works of
authorship, formulas, processes, compositions of matter, computer software
programs, databases, mask works, and trade secrets ("Inventions"), whether or
not patentable, copyrightable or protectible as trade secrets, that are made or
conceived or first reduced to practice or created by the Executive, either
alone or jointly with others, during the period of the Executive's employment,
whether or not in the course of the Executive's employment.
(b) The Executive hereby acknowledges that copyrightable works
prepared by the Executive within the scope of the Executive's employment are
"works for hire" under the Copyright Act and that the Company will be
considered the author thereof. The Executive hereby agrees that all Inventions
that (a) are developed using equipment, supplies, facilities or trade secrets
of the Company, (b) result from work performed by the Executive for the
Company, or (c) relate to the Company's business or current or anticipated
research and development, will be the sole and exclusive property of the
Company and are hereby assigned by the Executive to the Company.
13. SEVERABILITY. The Company and the Executive recognize that the laws
and public policies of the Commonwealth of Virginia are subject to varying
interpretations and change. It is the intention of the Company and of the
Executive that the provisions of this Agreement shall be enforced to the
fullest extent permissible under the laws and public policies of the
Commonwealth of Virginia, but that the unenforceability (to the modification to
conform to such laws or public policies) of any provision or provisions hereof
shall not render unenforceable, or impair, the remainder of this Agreement.
Accordingly, if any provisions of this Agreement shall be determined to be
invalid or unenforceable, either in whole or in part, this Agreement shall be
deemed amended to delete or modify, as necessary, the offending provision or
provisions and to alter the balance of this Agreement in order to render it
valid and enforceable.
14. ASSIGNMENT. Neither the rights nor obligations under this Agreement
may be assigned by either party, in whole or in part, by operation of law or
otherwise, except that it shall be binding upon and inure to the benefit of any
successor of the Company and its subsidiaries and affiliates, whether by
merger, reorganization or otherwise, or any purchaser of all or substantially
all of the assets of the Company.
-5-
<PAGE> 6
15. NOTICES. Any notice expressly provided for under this Agreement
shall be in writing, shall be given either manually or by mail and shall be
deemed sufficiently given when actually received by the party to be notified or
when mailed, if mailed by certified or registered mail, postage prepaid,
addressed to such party at their addresses as set forth below. Either party
may, by notice to the other party, given in the manner provided for herein,
change their address for receiving such notices.
(a) If to the Company, to:
Template Software, Inc.
45365 Vintage Park Plaza, Suite 100
Dulles, Virginia 20166
Attn: President
with a copy to:
Hunton & Williams
1751 Pinnacle Drive, Suite 1700
McLean, Virginia 22102
Attn: Joseph W. Conroy, Esquire
(b) If to the Executive, to
Andrew B. Ferrentino
c/o Template Software, Inc.
45365 Vintage Park Plaza, Suite 100
Dulles, Virginia 20166
16. GOVERNING LAW. This Agreement shall be executed, construed and
performed in accordance with the laws of the Commonwealth of Virginia without
reference to conflict of laws principles.
17. HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
18. ENTIRE AGREEMENT, AMENDMENTS. This Agreement constitutes and embodies
the entire agreement between the parties in connection with the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings in connection with such subject matter. No covenant or
condition not expressed in this Agreement shall affect or be effective to
interpret, change or restrict this Agreement. In the event of a conflict or
inconsistency between the terms of this Agreement and the Company's policies
regarding employees, the terms of this Agreement shall supersede the
conflicting or inconsistent Company policies. No change, termination or
attempted waiver of any of the provisions of this Agreement shall be binding
unless in writing signed by the Executive and on behalf of the Company by an
officer thereunto duly authorized by the Company's Board of Directors. No
modification, waiver, termination, rescission, discharge or cancellation of
this Agreement shall affect the right of any party to enforce any other
provision or to exercise any right or remedy in the event of any other default.
[SIGNATURE PAGE FOLLOWS]
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
TEMPLATE SOFTWARE, INC.
By: /s/ JOSEPH M. FOX
---------------------------------
Name: Joseph M. Fox
-------------------------------
Title: Chairman
------------------------------
Date: 11/13/96
-------------------------------
EXECUTIVE:
/s/ ANDREW B. FERRENTINO
------------------------------------
Andrew B. Ferrentino
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<PAGE> 8
SCHEDULE A
1. Salary to be established by the Board of Directors.
2. Bonus compensation in an amount to be determined annually by the Board of
Directors.
3. Current annual salary is $170,000 for FY 1996.
-8-
<PAGE> 1
EXHIBIT 10.9
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT, is made as of the 16th day of January, 1996, by and
between Template Software, Inc., a Maryland corporation with a place of
business at 13100 Worldgate Drive, Suite 340, Herndon, VA 22070 (hereinafter
"Consultant") and Wyatt Preferred Choice, LLC, with a place of business at 1850
M Street N.W., Suite 750, Washington, DC 20036 (hereinafter "Buyer").
1. Services to be provided. While this Agreement is in effect and as
requested by Buyer, Consultant shall provide computer programming, system
analysis, design, training, data processing, consulting or related services
(the "Services") as further described in Schedule A (the "Work Order") and in
such additional Work Orders that the parties may sign from time to time. The
Work Order shall set forth, at a minimum, (a) the statement of work, (b) the
payment schedule for the applicable services, (c) the schedule of milestones,
(d) deliverables and delivery dates, (e) acceptance criteria (fixed price Work
Orders only), and (f) reporting requirements.
2. Changes to Services. Either party may request a change to the
Services set forth in a Work Order pursuant to a written change order ("Change
Order"). Each Change Order shall identify specifically and modifications to
the Services as described in a Work Order, including, without limitation,
modifications to tasks, timetables, deliverables, fees and charges, and
staffing. Within ten (10) days after the receipt of a Change Order, the
parties shall discuss the availability of personnel and resources to fulfill
such Change Order and the resulting adjustments to the Services as described in
the Work Order. Consultant, or Buyer, as applicable, shall have no obligation
to commence work in connection with any Change Order until such Change Order is
executed by both parties. Each Change Order executed by Buyer and Consultants
shall be incorporated into and constitute an amendment to this Agreement. The
terms of any Change Order shall control over any inconsistent provisions set
forth in the Agreement or any Work Order.
3. Progress Reports. Upon Buyer request from time to time, Consultant
shall provide Buyer with a status report of Consultant's activities relating to
a Work Order, including an explanation of actual or anticipated problem areas.
4. Work Rules and Regulations. Unless otherwise set forth in the Work
Order, Consultant shall perform Services at the location of Consultant set
forth in the first paragraph of this Agreement, or such other places as may be
required from time to time and mutually agreed to by the parties. Unless
otherwise stated in the Work Order, the employees and contractors of each party
shall observe the work rules and security regulations while performing work on
the others parties premises.
Development Agreement Page 1
<PAGE> 2
5. Fees and Expenses.
(a) The fee paid to the Consultant and the method and timing of
the payment shall be stated in the Work Order.
(b) The fees for the services do not include local, state, or
federal sales, use, excise or similar taxes or duties, and such taxes shall be
the sole responsibility of the Buyer. In no event shall the Buyer be
responsible for taxes based on the income of the Consultant.
6. Term and Termination.
(a) This Agreement shall become effective as of the date first
written above and shall continue until December 31, 1997, provided that this
Agreement shall not terminate until the completion of all Work Orders executed
by the parties. The parties may mutually agree to extend the term of this
Agreement.
(b) Either party may terminate this Agreement immediately if the
other party breaches or is in default of any material obligation hereunder
which default is incapable of cure within thirty (30) days after receipt of
notice of such default (or such additional cure period as the non-defaulting
party may authorize in its sole discretion).
(c) Either party may terminate this Agreement if the other (i)
becomes insolvent; (ii) makes a general assignment for the benefit of
creditors; (iii) files or has filed against it a petition of bankruptcy
pursuant to Chapter 7 of the Bankruptcy Code or Chapter II or 13 of the
Bankruptcy Code and such party does not within sixty (60) days of such filing,
assume the obligations under this Agreement as a debtor-in-possession; (iv)
suffers or permits the appointment of a receiver for its business; or (v) has
wound up or liquidated, voluntary or otherwise. If the above events occurs,
that party shall immediately notify the other party of its occurrence.
7. Consequences of Termination.
(a) Upon termination of the Agreement for any reason, Buyer's sole
obligation, subject to specific termination provisions set forth in the
applicable Work Orders, shall be to pay Consultant for services actually
rendered under this Agreement. For fixed price Work Orders, such payment shall
be the Service Fees prorated based upon days elapsed in the period of
performance.
(b) Upon termination of any Work Order due to Consultant's breach
of this Agreement or such Work Order, Consultant shall within fifteen (15) days
thereafter, provide Buyer with all work-in progress, memoranda, notes, records,
drawings, manuals, computer software, and other documents or materials that
relate to the Services provided pursuant to such Work Order.
(c) The following sections shall survive the expiration or
termination of this Agreement for any reason: 7 through 15 and 17 through 21.
8. Work Product and Inventions. ALL materials developed, generated or
produced by Consultant or Consultant Personnel under a Work Order, including
computer software, documentation, flow charts, diagrams, specifications,
reports and data ("Work Product") shall be
Development Agreement Page 2
<PAGE> 3
Buyer's sole and exclusive property. Consultant and Consultant Personnel shall
have no proprietary interest in the Work Product. An invention, product,
computer program, or specification, which is produced as a result of this
Agreement or any Work Order, whether patentable or unpatentable, which is made,
or first actually or constructively reduced to practice by Consultant or
Consultant Personnel ("Inventions") shall be Buyer's property. Consultant
shall promptly disclose all Inventions to Buyer. Notwithstanding the
foregoing, Work Product and Inventions shall not include Consultant Property or
extensions thereto which are identified in the Work Order.
9. License. Prior to providing Services under this Agreement pursuant to
any Work Order, Consultant shall either license or identify to Buyer in
writing, any technology, information, computer programs or other documentation
owned by or licensed to Consultant which will be useful or necessary to use the
Work Product ("Consultant Property"). Consultant and Buyer shall execute a
license agreement relating to the use of such Consultant Property in the form
attached hereto as Schedule B (the "License Agreement").
10. Proprietary Information. While performing the Services, Consultant
has been or may be given access to information which Buyer considers to be
proprietary and confidential (collectively, "Proprietary Information") which
includes without limitation;
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including information relating
to product plans, marketing strategies, finance, operations, customer
relationships, customer profiles, sales estimates, business plans, and internal
performance results relating to the past, present or future business activities
of Buyer, its Affiliates and the customers, clients and suppliers of any of the
foregoing;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and secret in
the sense that its confidentiality affords Buyer a competitive advantage over
its competitors.
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object code,
flow charts, data, databases, inventions, know-how, show-how and trade secrets,
whether or not patentable, or copyrightable;
(d) Work Product and Inventions; and
(e) all documents, inventions, substances, engineering and
laboratory notebooks, drawings, diagrams, specifications, bills or material,
equipment, prototypes and models, and any other tangible manifestation of the
foregoing which now exist or come into the control or possession of Consultant.
Consultant shall use reasonable care to safeguard the Proprietary
Information and to prevent the unauthorized use of disclosure thereof. Unless
one of Buyer's officers has given written permission, Consultant shall not
disclose to anyone outside of Buyer, or use in other than Buyer's business any
Proprietary Information received from Buyer or for Buyer from any other Person.
These restrictions shall apply during and after Consultant's engagement with
Buyer. Any
Development Agreement Page 3
<PAGE> 4
copies or reproductions of the Proprietary Information shall bear the patent,
copyright, trademark or proprietary notices contained in the original. Upon
Buyer's request, but in any event upon termination of this Agreement,
Consultant shall surrender to Buyer all memoranda, note, records, drawings,
manuals, computer software, and other documents or materials (and all copies of
them) relating to or containing Proprietary Information. Consultant shall
disclose or give access to Proprietary Information only to Consultant Personnel
having a need-to-know in connection with Consultant's engagement with Buyer and
only for use in connection therewith. Consultant shall advise Consultant
Personnel having access to or developing Proprietary Information of the
confidential and proprietary nature thereof. If Consultant learns of any
unauthorized use, or disclosure of Proprietary Information by any Consultant
Personnel or former Consultant Personnel it shall promptly advise Buyer in
writing.
11. Irreparable Harm. Consultant acknowledges that use or disclosure of
any Proprietary Information in a manner inconsistent with this Agreement will
give rise to irreparable injury to Buyer inadequately compensable in damages.
Accordingly, in addition to any other legal remedies which may be available, at
law or in equity, Buyer shall be entitled to equitable or injunctive relief
against the unauthorized use or disclosure of Proprietary Information.
12. Warranties. Consultant represents and warrants that: (a) Consultant
is a corporation, duly organized, validly existing and in good standing under
the laws of the State of Maryland; (b) Consultant has full power and authority
to execute, deliver and perform this Agreement, each Work Order and any
agreement supplementary hereto; (c) this Agreement, each Work Order and any
agreement supplementary hereto has been duly authorized, executed and delivered
by Consultant and is the legal, valid and binding obligation of Consultant in
accordance with their respective terms; (d) Consultant has the proper skill,
training and background to perform in a competent and professional manner the
work set forth in each Work Order; (e) the Services shall not be performed in
violation of any applicable law, rule or regulation, and Consultant shall have
obtained all permits necessary (if any) to comply with such laws, rules and
regulations; (f) Consultant has not had notice of, or knowledge of any basis
for, a claim against Consultant that the Work Product, Inventions or Services
infringe any Intellectual Property of any Person; (g) Consultant has full
right, title and authority to perform the obligations and grant the rights and
licenses granted in this Agreement; and (h) Buyer shall receive free, good and
clear title to all Work Product and Inventions. As used herein, the term
"Intellectual Property" means any patent, trademark, service mark, trade dress,
logo, trade name, copyright, mask work, trade secret, confidential information
or other proprietary right.
13. Personal Injury and Property Damage. Consultant shall be liable for
and shall indemnify, defend and hold Buyer, its officers and directors,
harmless against any claim, loss or damage, including reasonable attorneys'
fees, arising from the gross negligence or willful misconduct of Consultant or
Consultant Personnel for personal injury or death, or damage to personal or
real property.
Development Agreement Page 4
<PAGE> 5
14. Intellectual Property Indemnification. Consultant shall indemnify,
defend and hold harmless Buyer, its Affiliates, any end user and their
respective successors, and assigns, including any customers, from all losses,
liabilities, damages, and claims (including taxes), and all related costs and
expenses, including reasonable attorneys' fees and costs of investigation,
litigation, settlement, judgment, interest and penalties ("Claim") relating to
the Work Product, Inventions or Services supplied hereunder, based on any
actual or alleged infringement of a third Person's Intellectual Property. If
any such claim arises, or if in Consultant's judgment is likely to arise, Buyer
agrees to allow Consultant, at Consultant's option, to procure the right for
Buyer, its Affiliates and their respective end users to continue to exercise
its rights and licenses granted herein, or to replace or modify the Work
Product, Inventions or Services in a functionally equivalent manner so they
become non-infringing. The foregoing remedial actions, however, shall not
relieve Consultant of its indemnity obligations with respect to any Claim that
may be incurred with respect to Work Product, Inventions or Services supplied
hereunder. Notwithstanding the foregoing, Consultant's obligations shall not
apply to any Claim that may be incurred with respect to the Work Product,
Inventions or Services supplied hereunder if (a) the applicable Work Product,
Inventions or Services were performed or prepared (as applicable) at Buyer's
specific instruction.
15. Conditions of Indemnity. The foregoing indemnity obligations shall be
contingent upon: (a) Buyer giving written notice to Consultant of any claim,
demand, or action for which indemnity is sought promptly after Buyer becomes
aware of such claim, demand or action and (b) Buyer cooperating fully in the
defense or settlement of any such claim, demand, or action.
16. Insurance. While Consultant is performing the Services, Consultant
shall, at its own cost and expense, obtain and maintain in full force and
effect, the following insurance coverage: (a) workers' compensation and
disability insurance with minimum limits of $100,000; (c) automobile liability
insurance with minimum limits of $500,000/$100,000 for bodily injury and
$100,000 for property damage; and (d) general comprehensive liability insurance
for suitable umbrella insurance with minimum single limit coverage of
$1,000,000.
17. Exclusion of Certain Damages. In no event shall either party or their
respective affiliates be liable to the other or any of their affiliates for any
consequential, indirect, special, or incidental damages or lost profits of any
kind whatsoever, regardless of the basis of the claim, whether in contract,
tort, strict liability, or other legal or equitable theory, whether or not such
party has been advised of the possibility of such potential loss or damage.
The foregoing limitations shall not apply to consultant's obligations of
indemnity set forth in Section 14.
18. Limitation of Liability. Except for claims pursuant to Section 14, in
no event shall either party or any affiliate of either party be liable for
amounts in excess of the direct damages for its breach of this Agreement up to
the amount set forth in the Work Order relating thereto.
19. Solicitation of Personnel. Subject to the limitations imposed by
applicable law, during the term of this Agreement and for one (1) year
afterward, neither party shall solicit the employment,
Development Agreement Page 5
<PAGE> 6
directly or indirectly, of any employee of the other party with whom such party
had contact pursuant to this Agreement.
20. Independent Contractors. Buyer and Consultant are acting hereunder as
independent contractors. Consultant shall not be considered or deemed to be an
agent, employee, joint venturer, or partner of Buyer. Consultant Personnel
shall not be considered employees of Buyer and shall not be entitled to any
benefits that Buyer grants its employees. If any federal, state or local
government agency, any court or any other applicable entity determines that any
Consultant Personnel is an employee of Buyer for any purpose, Consultant shall
indemnify, defend and hold harmless Buyer, its officers and directors from all
liabilities, costs and expenses (including but not limited to reasonable
attorneys' fees) associated with such determination. Consultant shall be
responsible for the conduct of Consultant Personnel.
21. General. This Agreement and its Schedules constitute the complete and
exclusive statement of agreement between the parties, which supersedes and
merges all prior proposals and all other agreements, oral and written, between
the parties relating to the subject matter of this Agreement. This Agreement
may be modified only in writing signed by both parties. As used herein, "Person"
shall mean any general limited partnership, limited partners, corporation,
limited liability company, joint venture, trust, business trust, governmental
agency, cooperative, association, individual or other entity, and the heirs,
executors, administrators, legal representatives, successors and assigns of
such Person as the context may require. The waiver or failure of either party
to exercise any right provided for herein shall not be deemed a waiver of any
further right hereunder. This Agreement is personal to Consultant and
Consultant may not assign its rights or delegate its duties or obligations
under this Agreement to any Person, except as provided for in a Work Order.
Buyer may assign this Agreement to any Affiliate, or as part of the sale of
that part of its business which includes the Work Product and Inventions or
pursuant to a merger, consolidation or other reorganization, without
Consultant's consent, upon notice to Consultant. This Agreement shall bind and
benefit Buyer, its successors and assigns. This Agreement and performance
hereunder and actions related hereto shall be governed by the internal laws of
the Commonwealth of Virginia without giving effect to those principles
governing conflicts of laws. Any notice given under this Agreement shall be in
writing and addressed as shown on page 1. A notice shall be effective (a) upon
receipt if delivered by hand or (b) three (3) days after deposit in the U.S.
mails, postage prepaid, certified mail return receipt requested. Either party
may change its address at any time by giving written notice of the change. In
the event of a conflict between this Agreement, any Work Order or a Change
Order, the terms of a Change Order which conflict with the terms of a Work
Order or the Agreement shall prevail over the terms of the relevant Work Order
or Agreement; and the terms of a Work Order which conflict with the terms of
the Agreement shall prevail over the terms of the Agreement.
Development Agreement Page 6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
Template Software, Inc. Wyatt Preferred Choice, LLC
By: Andrew B. Ferrentino By: Lew Priven
----------------------------- -----------------------
Name: Andrew B. Ferrentino Name: Lew Priven
----------------------------- -----------------------
Title: President Title: Chief Operating Officer
----------------------------- -----------------------
Development Agreement Page 7
<PAGE> 1
EXHIBIT 10.10
Cooperative Agreement Under 10 U.S.C. 2371
between
The United States of America
U.S. Air Force, Air Force Material Command
Rome Laboratory
26 Electronic Parkway
Griffiss AFB, NY 13441-4514
with
Object Technology for Rapid Software Development Consortium
13100 Worldgate Drive
Suite 340
Herndon, VA 22070
Concerning Object Technology for Rapid Software Development
Agreement No.: F30602-95-2-0006
PR/ARPA Order No.: AO#C540/PR C-5-2753
Total Amount of the Agreement: $11,903,054
Government share: $5,897,817
Consortium share: $6,005,237
Authority: 10 U.S.C. 2511/2371
Catalog of Federal Domestic Assistance number: Technology Reinvestment
Projects-12.911
For: Object Technology for Rapid For: The United States of America
Software Development Consortium Rome Laboratory
Joseph M. Fox 4-5-95 Carla Wallaesa 4/7/95
- ---------------------------------- -------------------------------------
Signature Date Signature Effective Date
Joseph M. Fox, Chairman CARLA WALLAESA
- ---------------------------------- -------------------------------------
Name, Title Name, Grants Officer
Agreement No.: F30602-95-2-0006 Page 1
<PAGE> 2
Agreement No. F30602-95-2-0006
Table of Contents
<TABLE>
<CAPTION>
Articles Page
- -------- ----
<S> <C> <C>
Part I Administrative Information
------ --------------------------
Article 1 Definitions 4
Article 2 Administrative Requirements 5
Article 3 Administrative Responsibilities 5
Part II Term
------- ----
Article 4 Recognition of Pre-Award Costs 6
Article 5 Term of the Agreement 6
Article 6 Termination 7
Article 7 Extending the Term 7
Part III Management of the Project
-------- -------------------------
Article 8 Scope and Management of the Program 7
Article 9 Consortium Administration 8
Article 10 Consortium Management Committee 8
Article 11 Program Management Planning Process 9
Article 12 Modifications 9
Article 13 Title to Property 10
Part IV Financial Matters
------- -----------------
Article 14 Cost Principles 10
Article 15 Standards for Financial Management Systems 10
Article 16 Allotted Funding 11
Article 17 Payment 11
Article 18 Program Income 11
Article 19 Cost Sharing and Matching 12
Part V Disputes
------ --------
Article 20 Disputes 12
Part VI Intellectual Property Rights
------- ----------------------------
Article 21 Inventions 13
Article 22 Data Rights 14
Article 23 Foreign Access to Technology 16
Part VII Technical and Financial Reporting
-------- ---------------------------------
Article 24 Quarterly Reports 18
Article 25 Annual Program Plan 18
Article 26 Special Technical Reports 19
Article 27 Final Report 19
</TABLE>
2
<PAGE> 3
Agreement No. F30602-95-2-0006
<TABLE>
<S> <C> <C>
Part VIII Miscellaneous Performance Issues
--------- --------------------------------
Article 28 Limitation of Liability 19
Article 29 Using Technical Information Resources 20
Article 30 Procurement Standards 20
Part IX Certifications
------- --------------
Article 31 Certification 20
Attachments
- -----------
1 Project Plan and Statement of Work
2 Schedule of Milestones
3 Cost Matching Summary and Schedule
</TABLE>
3
<PAGE> 4
Agreement No. F30602-95-2-0006
PART I. ADMINISTRATIVE INFORMATION
Article 1. Definitions
The term "parties" as used herein shall refer to the Object Technology for
Rapid Software Development Consortium and the United States of America,
hereinafter called the Government, represented by Rome Laboratory.
The term "agreement" as used herein shall refer to these articles and the
attachments hereto.
The term "agreement year" as used herein shall refer to each consecutive
twelve month period from the effective date of this agreement throughout the
term of the agreement.
The term "consortium" as used herein shall refer to the Object
Technology for Rapid Software Development Consortium which was formed in
accordance with the Articles of Collaboration ("Consortium Agreement") entered
into between the Consortium Members.
The term "program" as used herein shall refer to the Object Technology
for Rapid Software Development effort.
The term "Code" as used herein shall mean computer programming code,
including both Object Code and Source Code.
"Object Code" is the computer programming code substantially in binary
form. It is directly executable by a computer after processing, but without
compilation or assembly.
"Source Code" is the computer programming code, other than Object Code, and
related Source Code level system documentation, comments and procedural code,
such as job control language. It may be printed out or displayed in a form
readable and understandable by a programmer of ordinary skill.
The term "Computer Software" as used herein shall mean computer programs and
computer data bases, and Computer Software Documentation.
The term "Computer Software Documentation" as used herein shall mean Technical
Data, including computer listings and printouts, in human readable form which:
Document the design and details of Computer Software
Explains the capabilities of the Computer Software, and
Provides operating instructions for using the Computer Software to obtain
desired results from the computer.
The term "consortium participants" or "members" as used herein shall
refer to the members of the consortium as follows:
4
<PAGE> 5
Agreement No. F30602-95-2-0006
Template Software, Inc.
IBM Corporation
Honeywell Technology Center
ISX Corporation
Article 2. Administrative Requirements
A. This agreement will be implemented under the terms and conditions stated
herein and administered in accordance with the Interim-Guidance draft of DOD
3210.6-R, the DOD Grant and Agreement Regulations (DODGARs) (4 Feb 94) Parts
22, 25, 28, 31, 34, 36, and 37, except as modified by the terms and conditions
stated herein.
B. In the event of a conflict between the terms of this agreement and other
governing documents, the following shall be the order of precedence, in
descending order:
1. The articles in this agreement
2. The attachments to this agreement
3. The Articles of Collaboration.
Article 3. Administrative Responsibilities
A. Government representatives are:
Grants Officer/Agreement Administrator: Carla Wallaesa
Rome Laboratory/PKPF
26 Electronic Parkway
Griffiss Air Force Base,
NY 13441-4514
Phone:(315) 330-7092
FAX: (315) 330-4256
Grants Administration Office: Rome Laboratory/PKPF
26 Electronic Parkway
Griffiss Air Force Base,
NY 13441-4514
Government Program Manager: Howard Shrobe
3701 North Fairfax Drive
Arlington, VA 22203
Phone: (703) 696-4466
FAX: (703) 696-2202
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Agreement No. F30602-95-2-0006
Government Program Monitor Nancy Roberts
Rome Laboratory/C3AB
525 Brooks Road
Griffiss Air Force Base, NY 13441-4505
Phone:(315) 330-2925
Fax: (315) 330-2807
Payment Office: Rome Laboratory/FMFC
(submit invoices to the Grants Officer)
Servicing Staff Judge Advocate's
office (for invention reporting):
Rome Laboratory/JA
26 Electronic Parkway
Griffiss Air Force Base, NY 13441-4514
B. Consortium representatives are:
Consortium Administrator and Remittance Address: Kimberly Osgood
Template Software, Inc.
13100 Worldgate Drive
Suite 340
Herndon, VA 22070
Consortium Program Manager: Charles Droz
Template Software, Inc.
13100 Worldgate Drive
Suite 340
Herndon, VA 22070
Phone: (703) 413-3016
FAX: (703) 413-7137
PART II. TERM
Article 4. Recognition of Pre-Award Costs
Costs incurred by the Consortium after October 20, 1994 and In-Kind
Contributions of $1,520,900 shall be determined allowable to the same extent as
if incurred after award.
Article 5. Term of the Agreement
The term of this agreement commences on the effective date shown on the face of
the agreement, and continues for twenty-four (24) months unless terminated as
provided herein. If all funds are expended prior to the end of the term, the
parties have no obligation to continue performance and may elect to cease
performance at that point. Articles in this agreement which by their express
terms or by necessary implication,
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apply for periods of time other than as specified in this article shall be
given effect, notwithstanding this article.
Article 6. Termination
A. This agreement may be terminated by either party upon written notice to the
other party, based upon a reasonable determination that the project will not
produce beneficial results commensurate with the expenditure of resources.
Such written notice shall be preceded by consultation between the parties. In
the event of a termination, the Government shall have license rights consistent
with the Article below entitled "Data Rights" to Data developed under this
Agreement through such termination so long as the Government makes all payments
for the Government share of actual costs expended through the date of
termination.
B. The Government and the consortium, acting through its Consortium Management
Committee, will negotiate in good faith a reasonable and timely adjustment of
all outstanding issues between the Parties at the time of termination. The
Government shall reimburse the consortium for the Government share of the
obligations properly incurred by the consortium prior to termination and the
Government share of those noncancellable obligations that remain after the
termination.
Article 7. Extending the Term
If the parties agree, the term of this agreement may be extended if funds are
available and research opportunities reasonably warrant. Any extension shall
be formalized through modification of the agreement by the grants officer and
the consortium program administrator.
PART III. MANAGEMENT OF THE PROJECT
Article 8. Scope and Management of the Program
A. This agreement recognizes the relationship contemplated in the document
identified as "Consortium Agreement - Articles of Collaboration for Object
Technology for Rapid Software Development", which binds consortium members and
brings them within the scope of this agreement. The Government and the
consortium are bound to each other by a duty of good faith and best effort to
achieve the goals of this agreement. This agreement is not intended to be, nor
shall it be construed as, by implication or otherwise, a partnership, a
corporation, or other business organization. This Agreement is not a
procurement contract or grant agreement for the purposes of FAR Subpart
31.205-18.
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B. The consortium shall use its best efforts to perform a coordinated research
and development program carried out in accordance with the statement of work
entitled "Object Technology for Rapid Software Development" Attachment 1 to
this agreement. The consortium shall submit all documentation required by Part
VIII, Technical and Financial Reporting.
C. The overall management, including technical, programmatic, reporting,
financial and administrative matters, of the coordinated research program
established under this agreement shall be accomplished by the CMC. The
Government program manager may interact with the consortium to promote
effective collaboration between the consortium and the Government.
Article 9. Consortium Administration
A. In accordance with the Articles of Collaboration, the consortium member that
will act on behalf of the consortium in executing this agreement, and any
future modifications to it, is the consortium administrator, Template Software,
Inc. All financial transactions between the Government and the consortium,
including payment, will be made with the consortium administrator.
B. The CMC will immediately notify the grants officer in writing if at any time
the Articles of Collaboration are changed such that these duties are assigned
to another member.
Article 10. Consortium Management Committee
A. In accordance with the Articles of Collaboration, the CMC shall be comprised
of one representative from each consortium member "Voting Representative", and
may bind the consortium members in project decisions. All decisions shall be
made by unanimous vote of the Voting Representatives of the CMC. However, the
following CMC decisions are always subject to Government approval:
1. Changes to the Articles of Collaboration if such changes substantially
alter the relationship of the consortium as originally agreed upon when this
agreement was executed;
2. Changes to, or elimination of, any Government funding allocation to any
consortium member.
3. Technical and/or funding revisions to this agreement; and
4. Admission, replacement, or deletion of consortium members.
The Consortium shall notify the Government of the above decisions in writing
and the Government shall provide the Consortium written notice of its approval
or disapproval within 10 days of such notification or extended time period
mutually agreed upon by the
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parties. In the event the Government does not provide such notification within
the time period stated, the decision will be deemed approved by the Government.
B. The CMC will establish a schedule of quarterly technical meetings ("TRP
Meetings") and notify all consortium members and the Government program manager
of the schedule. In the event of a change to the schedule, the CMC will
notify all consortium members and the Government program manager at least
thirty (30) days in advance of the next meeting.
C. A quorum of representatives of consortium members is required at all TRP
Meetings. In addition, every TRP Meeting must include the Government program
manager or designee. Other Government personnel, as deemed appropriate, may
also participate.
Article 11. Program Management Planning Process
A. For the first agreement year, the consortium will follow the annual program
plan that is contained in the Statement of Work (Attachment 1), and the
Schedule of Milestones (Attachment 2).
B. The CMC, with Government program manager involvement, will prepare an
Annual Program Plan in the first quarter of each subsequent agreement year.
This Plan will be presented for review and approval by the CMC concurrent
with the appropriate quarterly meeting of the CMC attended by the consortium
members, the Government program manager, and other Government personnel as
appropriate.
C. The Annual Program Plan provides a detailed schedule of project activities,
commits the consortium to use its best efforts to meet specific performance
objectives and includes forecasted expenditures. The Annual Program Plan will
consolidate all prior adjustments in the program schedule, including
revisions/modifications to milestones.
Article 12. Modifications
A. Modifications to this agreement may be proposed by either party. Only the
grants officer has the authority to act on behalf of the Government to modify
this agreement. The CMC will make recommendations for any modifications to
this agreement in writing, including justifications to support any changes to
the statement of work and/or the milestones, and submit them to the government
program manager with a copy to the grants officer. The CMC shall detail the
technical, chronological, and financial impact of the proposed modification to
the program.
B. The grants officer may unilaterally issue minor or administrative agreement
modifications, e.g., changes in the paying office or appropriation data, or
changes to Government personnel identified in the agreement.
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Article 13. Title to Property
Title to all real property and nonexpendable tangible personal property
purchased by the consortium or members with federal funds under this agreement
is vested in the Government. The consortium must obtain the prior approval of
the grants officer before making any such purchases of real property or
nonexpendable tangible personal property with federal funds under this award.
PART IV. FINANCIAL MATTERS
Article 14. Cost Principles
A. Federal funds and funds counted as the consortium's cost share or match,
determined pursuant to Article 15 below, shall be used only for costs that:
1. A reasonable and prudent person would incur, in carrying out the
advanced research project contemplated by this agreement; and
2. Are consistent with the purposes stated in the governing Congressional
authorization and appropriation, 10 U.S.C 2511.
B. The parties recognize that the consortium, as a conduit, does not incur nor
does it allocate any costs of its own to the consortium member costs directly
incurred pursuant to this agreement.
Article 15. Standards for Financial Management Systems
A. The consortium members shall maintain adequate records to account for the
control and expenditure of Federal funds received and the participant's cost
sharing or matching required under this agreement.
B. The consortium members shall establish and maintain accounting systems
that:
1. Comply with Generally Accepted Accounting Principles.
2. Control and properly document all cash receipts and
disbursements.
C. The Consortium shall ensure that an audit of activities under this Agreement
shall be conducted once within 12 months after the expiration or termination of
this Agreement where such audit shall not extend beyond a two week period.
1. Selection of Auditors
The Consortium Members shall select an auditor(s), herein defined as an
independent certified public accountant(s) who will review Consortium and
Consortium Member expenditures.
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2. Scope of Audit and Audit Objectives
The auditor shall determine that the Consortium Member has fully accounted
for the funding under this Agreement. The auditor shall issue a report which
will include the auditor's opinion as to the amount of allowable costs under
this agreement in accordance with the cost principles set forth in Article 14.
The Consortium Member shall provide the Government a copy of the audit report
within 30 days of its issuance by the auditor.
D. The Government reserves the right, once within 18 months after the
expiration or termination of this Agreement, to examine the Consortium Members'
direct cost financial records, which are limited to the records in connection
with the direct charges of labor, travel, equipment, supplies, contracts, and
materials under this agreement. This audit does not include the right to audit
the content of the indirect pools. The Grants Officer or designee shall notify
the Consortium in writing of his or her request to examine such direct cost
financial records and the Consortium Members shall provide such records to the
Government for examination at a mutually agreeable location within a reasonable
time after such notification. Such examination shall be performed during
business hours, on business days and shall be subject to the security
requirements of the Consortium Members.
Article 16. Allotted Funding
The following funds are allotted to this agreement:
Fund Cite(s) Amount
------------ ------
970400.1302 D14 4713 4V10000 0C5400 52753 $5,897,817.00
63570E 503901 F03901 (C5400001)
Article 17. Payment
The consortium shall be reimbursed by submitting Requests for Advance or
Reimbursement (SF 270s). The original and two copies of each request for
reimbursement shall be submitted by the consortium administrator to the Grants
Administration Office no more frequently than semi-monthly. Payments will be
made within thirty (30) calendar days after of receipt of the invoices by the
Government unless the billing is improper.
Article 18. Program Income
All income earned by the Consortium or the Consortium Members during the term
of this Agreement shall be used to finance the non-Government share of the
project. Program Income in excess of the non-Government share of the project,
if any, shall accrue to the Consortium or the Consortium Member, respectively.
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Article 19. Cost Sharing and Matching
A. The parties estimate that the statement of work for this agreement can only
be accomplished with the consortium aggregate resource contribution of
$6,005,237 and federal funds of $5,897,817 from October 20, 1994 through
twenty-four 24 months after the effective date of this Agreement. The
consortium agrees to provide the resources in the manner shown in Attachment
3. Failure of either party to provide its respective total contribution may
result in a proportional reduction in funding by the grants officer.
B. The consortium's contributions may count as cost sharing or matching only to
the extent that they are used for authorized purposes of the agreement, and
such purposes are consistent with applicable cost principles.
PART V. DISPUTES
Article 20. Disputes
A. General. Parties shall communicate with one another in good faith and in a
timely and cooperative manner when raising issues under this article. The
Department of Defense's policy is to try to resolve all issues concerning
agreements by mutual agreement at the grants officer's level.
B. Dispute Resolution Process.
1. Any disagreement, claim or dispute between the Government and the
consortium concerning questions of fact or law arising from or in connection
with this agreement, whether or not involving an alleged breach of this
agreement, may be raised only under this article.
2. Whenever disputes, disagreements, or misunderstandings arise, the
parties shall attempt to resolve the issue(s) involved by discussion and mutual
agreement as soon as practicable. Failing resolution by mutual agreement, the
consortium shall submit to the grants officer the written, relevant facts,
identifying unresolved issues and specifying the clarification or remedy
sought. Within 60 calendar days of receipt of the written claim or issue in
dispute, the grants officer shall either:
a. Prepare a written decision on the issue, including the basis for the
decision, or
b. Notify the consortium of a specific date when he or she will
render a written decision, if more time is required to do so. The notice will
include the reason for delaying the decision.
3. In the event the consortium decides to appeal the decision of the
grants officer, they must do so within 30 calendar days of receipt of the
decision. The appeal must be submitted, in writing, to the Rome Laboratory
Commander. The Commander
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shall conduct a review of the matter and issue a written decision within 30
calendar days of receipt of the written appeal. Any such decision is not
subject to further administrative review and shall be final and binding unless
the Consortium member, at this point seeks a final remedy in the court of
competent jurisdiction or appropriate administrative authority.
PART VI. INTELLECTUAL PROPERTY RIGHTS
Article 21. Inventions
A. Part 401 of Title 37, Code of Federal Regulations, is incorporated by
reference, in its entirety. The applicable clause is found at 37 CFR
401.14(a), and is modified as follows: replace the word "contractor" with
"consortium"; replace the words "agency," "Federal Agency" and "funding Federal
Agency" with "government"; replace the word "contract" with "agreement"; delete
paragraphs (g)(2), (g)(3) and the words "to be performed by a small business
firm or domestic nonprofit organization" from paragraph (g)(1); paragraph (1),
Communications, point of contact on matters relating to this clause will be the
servicing Staff Judge Advocate's office identified elsewhere in this agreement,
and, in 401.14(c)(1), line 3, delete "two" and substitute "four"; Line 5,
after "." the period mark, insert "Such disclosure shall be deemed to be notice
of election by the Consortium Member to retain title to Subject Invention."
B. Pursuant to 401.1(a)(2), an invention which is made at any time outside the
research activities of this agreement is deemed a Background Invention in which
the Government shall have no rights, and title to all such Background
Inventions which may be used in the performance of this Agreement shall at all
times remain with the Consortium Member.
C. The consortium shall file Invention (Patent) Reports at the end of the term
for this agreement. Final reports are due 60 days after the expiration of the
final performance period. The consortium shall use DD Form 882, Report of
Inventions and Subcontracts, to file an inventions report. Negative reports
are also required. The consortium shall submit the original and one copy to
the servicing Staff Judge Advocate's office, one copy to the Grants
Administration Office, and one copy to the grants officer, if different from
the Grants Administration Office.
D. Final payment cannot be made nor can the agreement be closed out until the
consortium delivers to the Government all disclosures of subject inventions
required by this agreement, an acceptable final report pursuant to the article
entitled "Final Report," and all confirmatory instruments.
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Article 22. Data Rights
A. "Data," as used in this Article, means recorded information, regardless
of form or method of recording, which includes but is not limited to,
Technical Data, Computer Software, trade secrets, and mask works. The
term does not include financial, administrative, cost, pricing, or
management information and does not include Subject Inventions included
under Article 21.
"Technical Data," as used in this article, means recorded information of a
scientific or technical nature (including computer software documentation)
regardless of the form or method of the recording. The term does not
include Computer Software or Data incidental to Agreement administration,
such as financial and/or management information.
B. The Parties agree to the following categories of Data:
1. Category A, "Background Data," as used in this article, means Data, the
development of which was paid for by other than Government funds or Consortium
cash contributions under this Agreement. This Data may have been developed or
created by a Consortium Member prior to the effective date of this Agreement or
outside of the work to be performed under this Agreement and includes Data
which may be contributed to the Program by a Member as an In-Kind Contribution.
2. Category B is Data developed by the Consortium in performance of the
work specified under this Agreement and paid for by the Govemment, in whole or
in part, and which cannot be disclosed without compromising Category A Data.
3. Category C is Data developed by the Consortium in performance of the
work specified under this Agreement and paid for by Government funds or
Consortium cash contributions and excludes Category A and B Data.
C. The allocation of principal rights are as follows:
1. Ownership rights to Data and Technical Data generated under this
Agreement shall vest in its Consortium Member(s) which develops such Data
and/or Technical Data.
2. Each Consortium Member shall retain title to its Category A Data and no
rights in Category A Data shall be granted to the Government.
3. In the event a Consortium Member does not reduce to practical
application items, components, and processes developed under this Agreement
within five years after the conclusion of this Agreement, the Government shall
obtain the paid-up right to use, duplicate, or disclose Category B Data
specifically developed under this Agreement and described in the Statement of
Work attached hereto, in whole or in part, and in any manner, for Government
purposes only, but such rights do not include the right to use, duplicate or
disclose Source Code or prepare derivative works based upon any Code included
in such Category B Data. Any rights or license to the Government for Code
shall be for Object Code only. Government purposes includes competitive
procurement and does not include the right to have or permit others to use,
duplicate or
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Agreement No. F30602-95-2-0006
disclose Category B Data for commercial or non-federal purposes. Execution of
the Commercialization Plan within five (5) years after completion of this
Agreement will be deemed as effective steps to achieving practical application
of items, components, and processes developed in the Performance of this
Agreement.
4. Two years after the conclusion of this Agreement, the Government shall
obtain the paid-up right to use, duplicate, or disclose Category C Data
specifically developed under this Agreement and described in the Statement of
Work attached hereto, in whole or in part, and in any manner, for Government
purposes only, but such rights do not include the right to use, duplicate or
disclose Source Code or prepare derivative works based upon any Code included
in such Category C Data. Any rights or license to the Government for Code
shall be for Object Code only. Government purposes include competitive
procurement and does not include the right to have or permit others to use,
duplicate or disclose Category C Data for commercial or non-federal purposes.
5. Each Consortium Member will prepare a list of Category A and B Data (as
practicable) for incorporation into this Agreement for the first year within a
reasonable period following the date of this Agreement and subsequent years, as
part of the annual planning process. Following mutual agreement of the Parties
on the Category A and B Data, the grants officer will incorporate this list by
written modification.
D. Each Consortium Member reserves the right to protect by copyright original
works developed under this Agreement. Each Consortium Member(s) hereby grants
license rights to the Government in such copyrighted materials of the same
scope as the rights set forth in Paragraphs C.3 and C.4 above. Both Parties
understand and agree that the license rights granted to the Government in this
Section in the case of Code is to the Object Code forms of computer programs
only.
E. Any Data delivered under this Agreement shall be marked with the following
legend: "Use, duplication, or disclosure is subject to the restrictions as
stated in Cooperative Agreement F30602-95-2-0006 between Rome Lab and the
Object Technology for Rapid Software Development Consortium."
F. Technical Data Exclusion:
1. No deliverables are identified in a Statement of Work dated 3 Apr 1995
and in the event the Statement of Work is subsequently modified to include
deliverables such deliverables shall be provided with data rights in accordance
with this Article as described below.
2. The following will not be required for delivery or disclosure under
this Agreement, or as a result of any modification thereto, regardless of the
point in time at which the development occurs. These limitations are based
upon the fact that the items described below have been identified as "Developed
Exclusively at Private Expense" as defined by DoD FAR Supplement 252.227-7013
(a)(12) or subject to a patent to which the Government will not have a
license.
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Agreement No. F30602-95-2-0006
a. Consortium Member's design and development information,
manufacturing, test processes, techniques and associated support tools for
Object Oriented Programming including all Code, Computer Software
Documentation, specifications, design concepts, test results and the like.
b. Any Consortium Member's intellectual property or deliverables which
are not specifically identified in the Statement of Work to this Agreement.
G. Except as specifically granted in this Agreement, the Government shall have
no other license in Data by implication, estoppel or otherwise.
Article 23. Foreign Access to Technology
This article shall remain in effect during the term of the agreement and for
five (5) years thereafter.
A. Definitions
"Foreign firm or institution" means a firm or institution organized or
existing under the laws of a country other than the United States, its
territories, or possessions or Canada. The term includes, for purposes of this
agreement, any agency or instrumentality of a foreign government, and firms,
institutions or business organizations which are owned or substantially
controlled by foreign governments, firms, institutions, or individuals.
"Know-how" means all information including, but not limited to
discoveries, formulas, materials, inventions, processes, ideas, approaches,
concepts, techniques, methods, software, programs, documentation, procedures,
firmware, hardware, technical data, specifications, devices, apparatus and
machines.
"Technology" means discoveries, innovations, know-how and inventions,
whether patentable or not, including computer software, recognized under U.S.
law as intellectual creations to which rights of ownership accrue, including,
but not limited to, patents, trade secrets, mask works, and copyrights
developed under this agreement.
B. General. The parties agree that research findings and technology
developments under the attached Statement of Work may constitute a significant
enhancement to the national defense, and to the economic vitality of the United
States. Accordingly, access to important technology developments under this
agreement by foreign firms or institutions must be carefully controlled. The
controls contemplated in this article are in addition to, and are not intended
to change or supersede, the provisions of the International Traffic in Arms
Regulation (22 CFR pt. 121 et seq.), the DOD Industrial Security Regulation
(DOD 5220.22-R) and the Department of Commerce Export Regulation
(15 CFR pt. 770 et. seq.)
C. Restrictions on Sale or Transfer of Technology to Foreign Firms or
Institutions.
1) In order to promote the national security interests of the United
States and to effectuate the policies that underlie the regulations cited
above, the procedures stated in subparagraphs C.2, C.3, and C.4 below shall
apply to any transfer of Technology to
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Agreement No. F30602-95-2-0006
Foreign Firms or Institutions. For purposes of this paragraph, a transfer
includes a sale of a company to a Foreign Firm or Institution and sales or
licensing of Technology to a Foreign Firm or Institution. As it relates to
sales of a company to a Foreign Firm or Institution, subparagraph C.5 below
will apply in lieu of the procedures stated in subparagraphs C.2, C.3 and C.4
Transfers do not include:
a. sales of products or components, or
b. licenses of software or documentation related to sales of
products or components, or
c. transfer to foreign subsidiaries of the Consortium
participants, or
d. transfer which provides access to Technology to a Foreign
Firm or Institution which is an approved source of supply or source for the
conduct of research under this Agreement provided that such transfer shall be
limited to that necessary to allow the firm or institution to perform its
approved role under this Agreement, or
e. non-exclusive licensing agreements, including, but not limited
to, non-exclusive patent licensing agreements, provided the agreements do not
include the transfer of any "know how", or
f. transfer of technology brought to the Consortium as In-Kind
contribution.
2. The consortium shall provide timely notice to the Government of any
proposed transfer from the consortium of technology developed with Government
funding under this agreement to foreign firms or institutions. If the
Government determines that the transfer may have adverse consequences to the
national security interests of the United States, the consortium, its vendors,
and the Government shall jointly endeavor to find alternatives to the proposed
transfer which obviate or mitigate potential adverse consequences of the
transfer but which provide substantially equivalent benefits to the consortium.
3. In any event, the consortium shall provide written notice to the
Government program manager of any proposed transfer to a foreign firm or
institution at least 60 calendar days prior to the proposed date of transfer.
Such notice shall cite this article and shall state specifically what is to be
transferred and the general terms of the transfer. Within thirty calendar days
of receipt of the consortium's written notification, the grants officer shall
advise the consortium whether it consents to the proposed transfer. In cases
where the Government does not concur or sixty calendar days after receipt and
the Government provides no decision, the consortium may utilize the procedures
under the article entitled "Disputes." No transfer shall take place until a
decision is rendered.
4. Except as provided in subparagraph C.1 above and in the event the
transfer of technology to foreign firms or institutions is approved by the
Government, the consortium shall negotiate a license with the Government to the
technology under terms that are reasonable under the circumstances prior to
such transfer.
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5) All Consortium Members, through the Consortium, shall file the
appropriate notifications to the Committee on Foreign Investment in the US
(CFIUS) under the Defense Production Act, and its implementing regulations 31
CFR Part 800 if there is a merger, acquisition or takeover of a Consortium
Member by a foreign interest (as defined under 31 CFR 800.209). CFIUS has
jurisdiction and CFIUS determination to allow or block a pending merger,
acquisition, or takeover of a Consortium Member shall be final. The consortium
will provide the Grants Officer a copy of such appropriate notifications made
to CFIUS.
D. Lower Tier Agreements. The consortium shall include this article, suitably
modified, to identify the parties, in all subcontracts or lower tier
agreements, regardless of tier, for experimental, development, or research
work.
PART VII. TECHNICAL AND FINANCIAL REPORTING
Article 24. Quarterly Reports
On or before ninety calendar days after the effective date of this agreement
and quarterly thereafter throughout the term of this agreement, the CMC shall
submit a quarterly report. Two copies shall be submitted or otherwise provided
to the Government program manager, and one copy shall be submitted to the
grants officer. The report will have two major sections:
A. Technical Status Report. The technical status report will detail technical
progress to date and report on all problems, technical issues or major
developments during the reporting period. The technical status report will
include a report on the status of consortium collaborative activities during
the period.
B. Business Status Report. The business status report shall provide summarized
details of the resource status of this agreement, including the status of the
contributions by all participants. This report will include a quarterly
accounting of current expenditures as outlined in the Annual Program Plan. Any
major deviations shall be explained with discussion of proposed actions to
address the deviations.
Article 25. Annual Program Plan
The CMC shall submit to the Government program manager one copy of the Annual
Program Plan described in the article entitled "Program Management Planning
Process." This plan shall be submitted not later than 30 calendar days
following the annual plan review as described in the article entitled "Program
Management Planning Process."
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Article 26. Special Technical Reports
As agreed to by the consortium and the Government program manager, the CMC
shall submit to the Government program manager one copy of special reports on
significant events such as significant target accomplishments by the
consortium/consortium members, significant tests, experiments, or symposia.
Article 27. Final Report
A. Within 60 calendar days of completion or termination of this agreement, the
CMC shall submit a Final Report consisting of two parts, one addressing the
technical achievements and the second recapping the business/financial aspects
of the agreement. The technical portion of the report should be suitable for
publication and is to provide a recap of the program, discussing program
accomplishments. With the approval of the Government program manager, reprints
of published articles may be submitted or attached to the technical portion of
the Final Report. The business portion of the report shall contain a separate
discussion of total costs incurred, total costs contributed by each consortium
member with an explanation for any deviations from the original business plan.
The original and two copies shall be submitted to the Government program
manager.
B. The CMC shall mark the final report delivered with the following
distribution statement in accordance with MIL STD 1806:
"Distribution Statement A. Approved for public release: distribution is
unlimited"
PART VII. MISCELLANEOUS PERFORMANCE ISSUES
Article 28. Limitation of Liability
A. The consortium and consortium members agree to indemnify and hold harmless
and defend the government, its employees and agents, against any liability or
loss for any claim, including the cost of litigation, made by an employee or
agent of the recipient, or persons claiming through them, for death, injury,
loss or damage to their person or property arising in connection with the
agreement, except to the extent that such death, injury, loss or damage arises
solely from the negligence or willful misconduct of government employees.
B. The government shall not be liable to the consortium or consortium members
whether directly or by way of contribution or indemnity, for any claim made by
any person or other entity for personal injury or death, or for property damage
or loss, arising in any way from this agreement, including, but not limited to,
the later use, sale or other disposition of research and technical
developments, whether by resulting products or otherwise, whether made or
developed under this agreement, or whether contributed by either party,
pursuant to this agreement, except as provided under the
19
<PAGE> 20
Agreement No. F30602-95-2-0006
Federal Tort Claims Act (28 U.S.C. 2671 et seq.) or other Federal law where
sovereign immunity has been waived. The consortium and consortium members
shall indemnify the government against all such claims or proceedings and shall
hold the government harmless for any resulting liabilities and lawsuits
provided the recipient is reasonably notified of such claims and proceedings.
C. Claims for damages of any nature whatsoever pursued under this Agreement
shall be limited to direct damages only up to the aggregate amount of the
Government's funding disbursed as of the time the dispute arises. No claims
for consequential, punitive, special and incidental damages, claims for lost
profits, or other indirect damages shall be allowed. The Government agrees
that there is no joint and several liability within the Consortium. The
Consortium disclaims any liability for consequential, indirect, or special
damages, except when such damages are caused by willful misconduct of the
Consortium Management Committee personnel. In no event shall the liability of
a Consortium Member or any other entity performing research activities under
this Agreement exceed the funding it has received up to the time of incurring
such liability.
Article 29. Using Technical Information Resources
To the extent practical, the consortium will use the technical information
resources of the Defense Technical Information Center (DTIC) and other
Government or private facilities to investigate recent and on-going research
and avoid needless duplication of scientific and engineering effort.
Article 30. Procurement Standards
The consortium and consortium members will:
A. Follow basic principles of business intended to produce rational decisions
and fair treatment in all contracts entered into under this agreement.
B. Comply with federal statutes, executive orders, regulations, and other legal
requirements applicable to contracts entered into under this agreement.
PART IX. CERTIFICATIONS
Article 31. Certification
By signing the agreement or accepting funds under the agreement, the consortium
agrees that each consortium member is providing the:
A. Certification at Appendix C, 32 CFR Part 25 regarding Drug-Free Workplace
Requirements.
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<PAGE> 21
Agreement No. F30602-95-2-0006
B. Certification at Appendix A, 32 CFR Part 25 regarding Debarment, Suspension,
and Other Responsibility Matters-Primary Covered Transactions.
C. Certification at Appendix A, 32 CFR Part 28 regarding Lobbying.
D. Assurance at 32 CFR Part 56.9(b) regarding Nondiscrimination on the Basis of
Handicap in Programs and Activities Assisted or Conducted by the Department of
Defense.
E. Assurance at 32 CFR 195.6 regarding Nondiscrimination in Federally Assisted
Programs of the Department of Defense-Effectuation of Title IV of the Civil
Rights Act of 1964.
21
<PAGE> 22
Page 1 of 1
Cooperative Agreement Under 10 U.S.C. 2371
between
The United States of America
U.S. Air Force, Air Force Materiel Command
Rome Laboratory/PKPF
26 Electronic Pky
Rome NY 13441-4514
with
Object Technology for Rapid Software Development Consortium
13100 Worldgate Drive
Suite 340
Herndon, VA 22070
Agreement No.: F30602-95-2-0006, Modification No. P00002
Authority: 10 U.S.C. 2511/2371
ARPA Order: C540
1. The purpose of this modification is as follows:
(a) Page 1 is revised by changing "Griffiss AFB NY 13441-4514" to "Rome
NY 13441-4514."
(b) Attachment No. 1, Statement of Work, dated 3 April 1995 is hereby
deleted in its entirety, and the revised Statement of Work, dated 20 November
1995 is substituted in lieu thereof.
(c) Attachment No. 2, Schedule of Milestones, dated 3 April 1995 is hereby
deleted in its entirety, and the revised Schedule of Milestones, dated 20
November 1995 is substituted in lieu thereof.
2. There is no monetary change to the subject agreement as a result of this
modification.
For: Object Technology for Rapid For: The United States of America
Software Development Consortium Rome Laboratory
Joseph M. Fox Carla Wallaesa 2/28/96
- --------------------------------- ----------------------------
Signature Date Signature Effective Date
CARLA WALLAESA
Grants Officer
- --------------------------------- ----------------------------
Name, Title Name, Grants Officer
<PAGE> 1
EXHIBIT 10.11
DEVELOPMENT AGREEMENT
THIS DEVELOPMENT AGREEMENT, is made as of the 15th day of September,
1995, by and between First Data Resources Inc. ("FDR"), a Delaware corporation,
with a place of business at 700 Hansen Way, Palo Alto, California 94304, and
Template Software, Inc. ("Consultant"), a Maryland corporation, with a place of
business at 13100 Worldgate Drive, Suite 340, Herndon, Virginia 22070.
1. Services To Be Provided. While this Agreement is in effect and as
requested by FDR, Consultant shall provide computer programming, system
analysis, design, training, data processing, consulting or related services
(the "Services") as further described in Schedule A (the "Work Order") and in
such additional Work Orders that the parties may sign from time to time.
Consultant shall provide the Services for FDR or for the client whose name is
shown on the Work Order. The Work Order shall state detailed procedures and
practices that shall be followed while performing the Services, including
acceptance of the Services, and at a minimum, shall set forth: (a) the
statement of work; (b) a designation of Project Managers; (c) the payment
schedule for the applicable Services; (d) the schedule of milestones; (e)
deliverables and delivery dates; (f) acceptance criteria; (g) consequences of
deliverables which are not acceptable to FDR; (h) provisions relating to
non-competition; (i) project milestone and schedule reporting requirements; and
(j) consequences of termination.
2. Changes to Services. Either party may request a change to the
Services set forth in a Work Order pursuant to a written change order ("Change
Order"). Each Change Order shall identify with specificity any modifications to
the Services as described in a Work Order, including, without limitation,
modifications to tasks, timetables, deliverables, fees and charges and
staffing. Within ten (10) days after the receipt of a Change Order, the parties
shall discuss the availability of personnel and resources to fulfill such
Change Order and the resulting adjustments to the Services as described in such
Work Order. Consultant, or FDR, as applicable, shall have no obligation to
commence work in connection with any Change Order until such Change Order is
executed by both parties. Each Change Order executed by FDR and Consultant
shall be incorporated into and constitute an amendment to this Agreement. The
terms of any Change Order shall control over any inconsistent provisions set
forth in the Agreement or any Work Order.
<PAGE> 2
3. Progress Reports; Project Managers. (a) Upon FDR's request from
time to time, Consultant shall provide FDR with a status report of Consultant's
activities relating to a Work Order, including an explanation of actual or
anticipated problem areas.
(b) Each Work Order shall specify a "Project Manager" for each
party. Consultant and Consultant's Project Manager shall give due consideration
to all comments, suggestions, directions and recommendations of FDR and FDR's
Project Manager with respect to Consultant's performance hereunder. If
Consultant's Project Manager is unable to continue to serve due to physical
disability or termination of employment, Consultant shall use commercially
reasonable efforts to appoint a successor Project Manager, subject to FDR's
prior approval, which approval shall not be unreasonably withheld or delayed.
4. Competitive Services Retained by FDR; Noncompetition. FDR may
retain the services of other Persons to undertake the same or similar services
as those performed by Consultant and may independently develop or acquire
materials or programs that are similar to, or competitive with, the Services.
5. Work Rules and Regulations. Unless otherwise set forth in the
Work Schedule, Consultant shall perform the Services at the location of
Consultant set forth in the first paragraph of this Agreement, or such other
places as may be required from time to time and mutually agreed to by the
parties. Unless otherwise stated in the Work Order, Consultant and its
partners, principals, directors, agents, contractors or employees ("Consultant
Personnel") shall follow FDR's work schedule, holiday schedule, work rules and
security regulations when performing Services at locations of FDR.
6. Fees and Expenses. (a) The fee paid to Consultant and the
method and timing of payment shall be stated in the Work Order. Unless approved
in writing by FDR or set forth in an applicable Work Order, Consultant shall be
responsible for any expenses Consultant and Consultant Personnel may incur in
connection with performance of the Services.
(b) The fees for the Services do not include local, state or
federal sales, use, excise or similar taxes or duties, and such taxes shall be
the sole responsibility of FDR. In no
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<PAGE> 3
event shall FDR be responsible for taxes based on the income of Consultant.
7. Term and Termination. (a) This Agreement shall be effective as of
the date first written above and shall continue until September 14, 1996,
provided that this Agreement shall not terminate until the completion of all
Work Orders executed by the parties or if the parties mutually agree to extend
the term of this Agreement.
(b) FDR may terminate this Agreement and any related Work Order
without cause upon thirty (30) days prior written notice to Consultant.
(c) Either party may terminate this Agreement immediately if the other
party breaches or is in default of any material obligation hereunder which
default is incapable of cure or which, being capable of cure, has not been
cured within thirty (30) days after receipt of notice of such default (or such
additional cure period as the non-defaulting party may authorize in its sole
discretion).
(d) Either party may terminate this Agreement if the other (i) becomes
insolvent; (ii) makes a general assignment for the benefit of creditors; (iii)
files or has filed against it a petition of bankruptcy pursuant to Chapter 7 of
the Bankruptcy Code or Chapter 11 or 13 of the Bankruptcy Code and such party
does not within sixty (60) days of such filing, assume the obligations under
this Agreement as a debtor-in-possession; (iv) suffers or permits the
appointment of a receiver for its business; or (v) has wound up or liquidated,
voluntarily or otherwise. If any of the above events occurs, that party shall
immediately notify the other party of its occurrence.
8. Consequences of Termination. (a) Upon termination of this
Agreement for any reason, FDR's sole obligation, subject to specific
termination provisions set forth in the applicable Work Order, shall be to pay
Consultant for Services actually rendered and accepted under this Agreement.
For fixed price Work Orders, such payment shall be the Service Fees prorated
based upon the days elapsed in the period of performance.
(b) Upon termination of any Work Order due to Consultant's breach of
this Agreement or such Work Order or by
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<PAGE> 4
FDR without cause, Consultant shall within ten (10) days thereafter, provide
FDR with all work-in-progress, memoranda, notes, records, drawings, manuals,
computer software, and other documents or materials (and all copies of them)
that relate to the Services provided pursuant to such Work Order. Consultant
acknowledges that FDR or such third party as FDR designates may complete such
work-in-progress.
(c) The following sections shall survive the expiration or
termination of this Agreement for any reason: 4, 8 through 17 and 19 through
24.
9. Work Product and Inventions. All materials developed,
generated or produced by Consultant or Consultant Personnel under a Work Order,
including computer software, documentation, flow charts, diagrams,
specifications, reports and data ("Work Product") shall be FDR's sole and
exclusive property. The foregoing notwithstanding, Work Product shall not
include Consultant Property, the porting of the SNAP software to the Sequent
hardware, or such other modifications to the Consultant Property which are
identified in the Work Order. Consultant and Consultant Personnel shall have
no proprietary interest in the Work Product. Any invention, product, computer
program, or specification, which is produced as a result of this Agreement or
any Work Order, whether patentable or unpatentable, which is made, conceived or
first actually or constructively reduced to practice by Consultant or Consultant
Personnel ("Inventions") shall be FDR's property. Consultant shall promptly
disclose all Inventions to FDR.
10. Ownership. Consultant agrees that the Work Product is a
work specially ordered and commissioned for use as contribution to a collective
work and is a work made for hire pursuant to U.S. Copyright Law. If the Work
Product or any portion of it is not considered a work made for hire, or if
Consultant may be entitled to claim any other ownership interest in the Work
Product or Inventions, Consultant hereby transfers, conveys, assigns, and
relinquishes exclusively to FDR all of Consultant's worldwide right, title, and
interest in and to such materials, under patent, copyright, trade secret and
trademark law, in perpetuity or for the longest period otherwise permitted by
law. Consultant shall perform any acts that may be deemed necessary or
desirable by FDR to evidence more fully transfer of
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<PAGE> 5
ownership to FDR of the Work Product and Inventions at FDR's cost and expense.
11. License. (a) Prior to providing Services under this Agreement
pursuant to any Work Order, Consultant shall either license or identify to FDR
in writing, any technology, information, computer programs or other
documentation owned by or licensed to Consultant which will be useful or
necessary to use the Work Product ("Consultant Property"). Contemporaneously
with the execution of this Agreement, Consultant and FDR shall execute a license
agreement relating to the use of such Consultant Property in the form attached
hereto as Schedule B (the "License Agreement").
(b) Consultant acknowledges that FDR will be using the Work Product,
Inventions and Consultant Property in connection with the Venture. Consultant
agrees that if the Venture is terminated or otherwise dissolved, FDR may assign
the License Agreement to such third party that will be assuming FDR's
obligations of the Venture, provided that such third party agrees in writing to
be bound by the terms and conditions of such License Agreement.
12. Proprietary Information. While performing the Services,
Consultant has been or may be given access to information which FDR considers to
be proprietary and confidential (collectively, "Proprietary Information") which
includes without limitation:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including information relating
to product plans, marketing strategies, finance, operations, customer
relationships, customer profiles, sales estimates, business plans, and internal
performance results relating to the past, present or future business activities
of FDR, its Affiliates and the customers, clients and suppliers of any of the
foregoing;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and secret in
the sense that its confidentiality affords FDR a competitive advantage over its
competitors;
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<PAGE> 6
(c) all confidential or proprietary concepts, documentation, reports,
data, specifications, computer software, source code, object code, flow charts,
data, databases, inventions, know-how, show-how and trade secrets, whether or
not patentable, or copyrightable;
(d) Work Product and Inventions; and
(e) all documents, inventions, substances, engineering and laboratory
notebooks, drawings, diagrams, specifications, bills or material, equipment,
prototypes and models, and any other tangible manifestation of the foregoing
which now exist or come into the control or possession of Consultant.
Consultant shall use reasonable care to safeguard the Proprietary
Information and to prevent the unauthorized use or disclosure thereof. Unless
one of FDR's officers has given written permission, Consultant shall not
disclose to anyone outside of FDR, or use in other than FDR's business any
Proprietary Information received from FDR or for FDR from any other Person.
These restrictions shall apply during and after Consultant's engagement with
FDR. Any copies or reproductions of the Proprietary Information shall bear the
patent, copyright, trademark or proprietary notices contained in the original.
Upon FDR's request, but in any event upon termination of this Agreement,
Consultant shall surrender to FDR all memoranda, notes, records, drawings,
manuals, computer software, and other documents or materials (and all copies of
them) relating to or containing Proprietary Information. When Consultant
returns the materials, Consultant shall certify in writing that Consultant has
returned all materials containing or relating to Proprietary Information.
Consultant shall disclose or give access to Proprietary Information only to
Consultant Personnel having a need-to-know in connection with Consultant's
engagement with FDR and only for use in connection therewith. Consultant shall
advise Consultant Personnel having access to or developing Proprietary
Information of the confidential and proprietary nature thereof. If Consultant
learns of any unauthorized use, or disclosure of Proprietary Information by any
Consultant Personnel or former Consultant Personnel it shall promptly advise
FDR in writing. Consultant shall also abide by the software license,
nondisclosure and confidentiality agreements entered into by FDR with third
parties ("Third Party Agreements"), and those third parties shall be third
party beneficiaries of this Agreement.
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<PAGE> 7
13. Irreparable Harm. Consultant acknowledges that use or
disclosure of any Proprietary Information in a manner inconsistent with this
Agreement or breach of Third Party Agreements will give rise to irreparable
injury to FDR or such third parties inadequately compensable in damages.
Accordingly, in addition to any other legal remedies which may be available, at
law or in equity, FDR or such third parties shall be entitled to equitable or
injunctive relief against the unauthorized use or disclosure of Proprietary
Information or breach or threatened breach of Third Party Agreements.
14. Warranties. Consultant represents and warrants that: (a)
Consultant is a corporation, duly organized, validly existing and in good
standing under the laws of the State of Maryland; (b) Consultant has full
power and authority to execute, deliver and perform this Agreement, each Work
Order and any agreement supplementary hereto; (c) this Agreement, each Work
Order and any agreement supplementary hereto has been duly authorized, executed
and delivered by Consultant and is the legal, valid and binding obligation of
Consultant in accordance with their respective terms; (d) Consultant has the
proper skill, training and background to perform in a competent and
professional manner the work set forth in each Work Order and all Services
shall be performed in accordance with such Work Order; (e) Consultant possesses
the necessary equipment, personnel and other expertise necessary to provide the
Services as set forth herein; (f) Consultant Personnel rendering Services shall
have appropriate technical skills, training, experience and expertise to enable
Consultant to perform its responsibilities set forth herein; (g) the Services
shall not be performed in violation of any applicable law, rule or regulation,
and Consultant shall have obtained all permits necessary (if any) to comply
with such laws, rules and regulations; (h) upon delivery, all Work Product
shall conform to the specifications in a Work Order or otherwise agreed to in
writing by Consultant and FDR; (i) the Work Product does not contain any virus;
(j) the Work Product does not contain any software lock, drop dead device or
similar device; (k) no claim of any infringement of any Intellectual Property
of any other Person has been made or asserted in respect of the Work Product,
Inventions or Services; (l) Consultant has not had notice of, or knowledge of
any basis for, a claim against Consultant that the Work Product, Inventions or
Services infringe any Intellectual Property of any Person; and (m) the
provision of Services hereunder and the Work Product and Inventions do not
infringe upon
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<PAGE> 8
the proprietary rights or Intellectual Property of any other Person; (n)
Consultant has full right, title and authority to perform the obligations and
grant the rights and licenses granted in this Agreement; (o) FDR shall receive
free, good and clear title to all Work Product and Inventions. As used herein,
the term "Intellectual Property" means any patent, trademark, service mark,
trade dress, logo, trade name, copyright, mask work, trade secret, confidential
information or other proprietary right; and (p) Consultant Personnel have each
executed an agreement with Consultant obligating Consultant Personnel to
maintain the confidential nature of Proprietary Information and to use the same
only as is consistent with the obligations of Consultant set forth herein.
15. Personal Injury and Property Damage. Consultant shall be
liable for and shall indemnify, defend and hold FDR, its officers and
directors, harmless against any claim, loss or damage, including reasonable
attorneys' fees, arising from the fault or negligence of Consultant or
Consultant Personnel for personal injury or death, or damage to personal or
real property. Consultant shall make no claims against FDR for any damages to
Consultant, either for personal injury, including death, or for injury to
property of any nature, unless such loss is exclusively the result of FDR's
gross negligence or willful misconduct.
16. Intellectual Property Indemnification. Consultant shall
indemnify, defend and hold harmless FDR, its Affiliates, any end user and their
respective successors, and assigns, including any customers, from all losses,
liabilities, damages, and claims (including taxes), and all related costs and
expenses, including reasonable attorneys' fees and costs of investigation,
litigation, settlement, judgment, interest and penalties ("Claim") relating to
the Consultant Property, Work Product, Inventions or Services supplied
hereunder, based on any actual or alleged infringement of a third Person's
Intellectual Property. If any such claim arises, or if in Consultant's judgment
is likely to arise, FDR agrees to allow Consultant, at Consultant's option, to
procure the right for FDR, its Affiliates and their respective end users to
continue to exercise its rights and licenses granted herein, or to replace or
modify the Consultant Property, Work Product, Inventions or Services in a
functionally equivalent manner so they become noninfringing. The foregoing
remedial actions, however, shall not relieve Consultant of its indemnity
obligations with respect to any Claim that may be
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<PAGE> 9
incurred with respect to Consultant Property, Work Product, Inventions or
Services supplied hereunder. Notwithstanding the foregoing, Consultant's
obligations shall not apply to any Claim that may be incurred with respect to
the Consultant Property, Work Product, Inventions or Services supplied
hereunder if (a) the applicable Work Product, Inventions or Services were
performed or prepared (as applicable) at FDR's specific instruction; (b)
Consultant notified FDR in writing that such Work Product, Inventions or
Services would infringe a third Person's Intellectual Property; and (c) FDR
instructed Consultant in writing to proceed with the preparation or provision
(as applicable) of such Work Product, Inventions or Services.
17. Conditions of Indemnity. The foregoing indemnity
obligations shall be contingent upon: (a) FDR giving written notice to
Consultant of any claim, demand, or action for which indemnity is sought
promptly after FDR becomes aware of such claim, demand or action; (b) FDR
cooperating fully in the defense or settlement of any such claim, demand, or
action; and (c) Consultant obtaining the prior written agreement of FDR to any
settlement or proposal of settlement, which agreement shall not unreasonably be
withheld or delayed.
18. Insurance. While Consultant is performing the Services,
Consultant shall, at its own cost and expense, obtain and maintain in full
force and effect, the following insurance coverage: (a) workers' compensation
and disability insurance in statutory amounts; (b) employer's liability
insurance with minimum limits of $100,000; (c) automobile liability insurance
with minimum limits of $500,000/$100,000 for bodily injury and $100,000 for
property damage; and (d) general comprehensive liability insurance or suitable
umbrella insurance with minimum single limit coverage of $1,000,000.
19. Exclusion of Certain Damages. IN NO EVENT SHALL EITHER PARTY
OR THEIR RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER OR ANY OF THEIR
AFFILIATES FOR ANY CONSEQUENTIAL, INDIRECT, SPECIAL, OR INCIDENTAL DAMAGES OR
LOST PROFITS OF ANY KIND WHATSOEVER, REGARDLESS OF THE BASIS OF THE CLAIM,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHER LEGAL OR EQUITABLE
THEORY, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
POTENTIAL LOSS OR DAMAGE. THE FOREGOING LIMITATIONS SHALL NOT APPLY TO
CONSULTANT'S OBLIGATIONS OF INDEMNITY SET FORTH IN SECTION 16.
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<PAGE> 10
20. Limitation of Liability. EXCEPT FOR CLAIMS PURSUANT TO SECTION
16, IN NO EVENT SHALL EITHER PARTY OR ANY AFFILIATE OF EITHER PARTY BE LIABLE
FOR AMOUNTS IN EXCESS OF THE DIRECT DAMAGES FOR ITS BREACH OF THIS AGREEMENT UP
TO A CUMULATIVE TOTAL AMOUNT SET FORTH IN THE WORK ORDERS RELATING HERETO.
21. Solicitation of Personnel. Subject to the limitations imposed
by applicable law, during the term of this Agreement and for one (1) year
afterward, neither party shall solicit the employment of any employee of the
other party with whom such party had contact pursuant to this Agreement.
22. Independent Contractors. FDR and Consultant are acting
hereunder as independent contractors. Consultant shall not be considered or
deemed to be an agent, employee, joint venturer, or partner of FDR. Consultant
Personnel shall not be considered employees of FDR and shall not be entitled to
any benefits that FDR grants its employees. If any federal, state or local
government agency, any court or any other applicable entity determines that any
Consultant Personnel is an employee of FDR for any purpose, Consultant shall
indemnify, defend and hold harmless FDR, its officers and directors from all
liabilities, costs and expenses (including but not limited to reasonable
attorneys' fees) associated with such determination. Consultant shall be
responsible for the conduct of Consultant Personnel.
23. Publicity and Use of Trademarks. Consultant shall not use the
name, logo, trademarks, trade names or any facsimile thereof of FDR in
publicity releases, promotional material, advertising, marketing or business
generating efforts without getting FDR's prior written consent.
24. General. This Agreement and its Schedules constitute the
complete and exclusive statement of agreement between the parties, which
supersedes and merges all prior proposals and all other agreements, oral and
written, between the parties relating to the subject matter of this Agreement.
This Agreement may be modified only in writing signed by both parties.
Consultant agrees that FDR or any Affiliate of FDR may execute Work Orders in
accordance with the provisions of this Agreement. The Affiliate of FDR
executing any Work Order shall be considered to be the "FDR" as that term is
used in this Agreement with respect to that Work Order. As used herein, the
term "Affiliate" shall mean, with respect to any Person, any other Person
which, direct-
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<PAGE> 11
ly or indirectly, owns or controls, is owned or controlled by, or is under
common ownership or common control with such Person. As used in the previous
sentence, "control" means the power to direct the management or affairs of a
Person and "ownership" means the beneficial ownership of more than 50% of the
equity securities of the Person. As used herein, "Person" shall mean any
general limited partnership, limited partnership, corporation, limited
liability company, joint venture, trust, business trust, governmental agency,
cooperative, association, individual or other entity, and the heirs, executors,
administrators, legal representatives, successors and assigns of such Person as
the context may require. The waiver or failure of either party to exercise any
right provided for herein shall not be deemed a waiver of any further right
hereunder. This Agreement is personal to Consultant and Consultant may not
assign or subcontract its rights or delegate its duties or obligations under
this Agreement to any Person, except as provided for in a Work Order. FDR may
assign this Agreement to any Affiliate, or as part of the sale of that part of
its business which includes the Work Product and Inventions or pursuant to a
merger, consolidation or other reorganization, without Consultant's consent,
upon notice to Consultant. This Agreement shall bind and benefit FDR, its
successors and assigns. This Agreement and performance hereunder and actions
related hereto shall be governed by the internal laws of the State of Nebraska
without giving effect to those principles governing conflicts of laws. Any
notice given under this Agreement shall be in writing and addressed as shown on
page 1. A notice shall be effective (a) upon receipt if delivered by hand or
(b) three (3) days after deposit in the U.S. mails, postage prepaid, certified
mail return receipt requested. Either party may change its address at any time
by giving written notice of the change. In the event of a conflict between this
Agreement, any Work Order or a Change Order, the terms of a Change Order which
conflict with the terms of a Work Order or the Agreement shall prevail over the
terms of the relevant Work Order or Agreement; and the terms of a Work Order
which conflict with the terms of the Agreement shall prevail over the terms of
the Agreement.
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<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
TEMPLATE SOFTWARE, INC. FIRST DATA RESOURCES INC.
By: Joseph M Fox By: S. Loftesness
---------------------- -----------------------
Name: Joseph M Fox Name: S. Loftesness
---------------------- -----------------------
Title: Chairman Title: FDC/EFS EVP
---------------------- -----------------------
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<PAGE> 1
EXHIBIT 10.12
DISTRIBUTOR AGREEMENT
BETWEEN
TEMPLATE SOFTWARE, INC.
AND
KRYSTAL INGENIERIE
FOR
SNAP DEVELOPMENT AND RUN-TIME SOFTWARE
JANUARY 20, 1993
PROPRIETARY INFORMATION
NOT FOR USE OR DISCLOSURE OUTSIDE
TEMPLATE SOFTWARE, INC. AND KRYSTAL INGENIERIE
EXCEPT UNDER WRITTEN AGREEMENT
<PAGE> 2
DISTRIBUTOR AGREEMENT
TABLE OF CONTENTS
Article I Agreement
Article II Definitions
Article III Grant of License
Article IV DISTRIBUTOR Representations and Obligations
Article V Support
Article VI Reporting and Payment
Article VII Warranties, Limitations of Liabilities and Remedies
Article VIII Intellectual Property
Article IX Indemnities
Article X Confidentiality
Article XI Term and Termination
Article XII Independent Relationship
Article XIII Notices
Article XIV Miscellaneous
ADDENDA
Addendum A Identification and Description of the "Licensed Product(s)"
Addendum B Development License Platform and Price
Addendum C "End User" License Terms
Addendum D Territory Assignment
Addendum E TEMPLATE SOFTWARE Standard License Agreement
Addendum F List of Platforms on Which "Licensed Product(s)" Is Supported
Addendum G Training Requirements
Addendum H Maintenance Terms
Addendum I DISTRIBUTOR "Internal Use" Price List
Addendum J DISTRIBUTOR Royalty Schedule
Addendum K "Licensed Product(s)" Standard Price List
Addendum L Sales Quota
Addendum M Format of Sales Report
Addendum N Format of Sales Forecast Report
Addendum O Royalty Credits for Sales made by Others in the Territory
Addendum P DISTRIBUTOR Training Certification Requirements
EXHIBIT A Business Plan
<PAGE> 3
DISTRIBUTOR AGREEMENT
This agreement is made between TEMPLATE SOFTWARE, INC. (TEMPLATE SOFTWARE), a
Maryland corporation with its principal offices at 13100 Worldgate Drive, Suite
340, Herndon, Virginia 22070-4382, USA and KRYSTAL Ingenierie (DISTRIBUTOR), a
French corporation with its principal offices at 13, rue Edmond Micholet 94270
Le KREMLIN BICETRE.
ARTICLE I - AGREEMENT
TEMPLATE SOFTWARE owns a proprietary software product and related Documentation
(collectively "Licensed Product(s)") that is described in Addendum A. TEMPLATE
SOFTWARE hereby agrees to grant DISTRIBUTOR a license to use the Licensed
Product(s) and sublicense the Licensed Product(s) to End Users and DISTRIBUTOR
hereby agrees to accept the license from TEMPLATE SOFTWARE on the terms set
forth in this Agreement and Addenda referenced herein.
ARTICLE II - DEFINITIONS
A. "Confidential Information" shall mean all the Licensed Product(s)
Source code and Object Code, Licensed Product(s) architecture, Licensed
Product(s) plans and futures, this Agreement and any and all
information contained therein, and any information clearly marked by
TEMPLATE SOFTWARE as "Confidential Information", except any part which:
1. Is or becomes publicly available through no act or failure on the
part of DISTRIBUTOR, DISTRIBUTOR's customer, or End User; or
2. Was or is rightfully learned or obtained by DISTRIBUTOR,
DISTRIBUTOR's customer, or End User from a source other than
TEMPLATE SOFTWARE; or
3. Becomes independently available to DISTRIBUTOR, DISTRIBUTOR's
customer or End User as a matter of right from a third party; or
4. Is expressly authorized by any subsequent agreement between the
parties.
B. "Development Versions" shall mean the Object Code comprising the
development environment provided by the Licensed Product(s) to aid in
the development of an application.
C. "Documentation" shall mean the user manuals provided to End-User for
use with the Licensed Product(s), as revised from time to time.
D. "End User" shall mean a customer within the Territory to whom
DISTRIBUTOR grants a sublicense to use the Licensed Product(s).
E. "End User Maintenance" shall mean the maintenance of the Licensed
Products as provided by DISTRIBUTOR to the End User pursuant to a
maintenance agreement between the End User and DISTRIBUTOR.
F. "Event of Default" shall mean failure by DISTRIBUTOR to meet its
obligations under this Agreement including (without limitation) failure
to collect an amount of money in License Fees and Maintenance Fees
equal to the Sales Quota and failure to pay Product Royalties to
TEMPLATE SOFTWARE.
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G. "Internal Use" shall mean development, implementation and processing of
licensee data and applications.
H. "License Fee" shall mean an amount of money equal to the license fee
paid by an End User to use the Licensed Product(s) pursuant to an End
User licensing agreement for the Licensed Product(s) between
DISTRIBUTOR and such End User.
I. "Licensed Product(s)" shall mean TEMPLATE SOFTWARE's proprietary
Run-Time Versions and Development Versions and their related
Documentation, as described in Addendum A, in Object Code format.
J. "Maintenance Fee" shall mean an amount of money equal to the
maintenance fee paid to DISTRIBUTOR by an End User pursuant to an End
User maintenance agreement between DISTRIBUTOR and such End User.
K. "Object Code" shall mean machine executable computer programs, or
computer programs in the form used to build machine-executable computer
programs, which result from the compilation and/or assembly of Source
Code.
L. "Product Royalty" shall mean an amount of money equal to the greater
of: one half of the Sales Quota for the calendar year or one half of
the aggregate License Fees and Maintenance Fees collected by
DISTRIBUTOR from End Users during the calendar year.
M. "Run-Time Version" shall mean the Object Code libraries provided as
part of the Licensed Product(s).
N. "Sales Quota" shall mean the minimum License Fees and Maintenance Fees
to be collected by DISTRIBUTOR as set forth in Addendum L.
O. "Source Code" shall mean a computer program in the form of a symbolic
programming language, which when compiled and/or assembled is
transformed into Object Code.
P. "Territory" shall mean the country or countries, or other definable
group that is defined in Addendum D.
Q. "Updates" shall mean any revisions or enhancements to the Licensed
Product(s), or any part thereof, that are not included in the Licensed
Product(s) at the time of execution of this Agreement, that improve the
Licensed Product(s) and are related to, and not separately priced from,
the Licensed Product(s).
ARTICLE III - GRANT OF LICENSE
A. License to Development Version - TEMPLATE SOFTWARE hereby grants the
DISTRIBUTOR, a non-exclusive, non-transferable license to use the
Licensed Product(s), on the terms and conditions set forth in this
Agreement, in the quantities, on the platforms and at the price set
forth in Addendum B, for the Term of this Agreement, to (i) develop and
support applications for demonstration purposes only, (ii) market and
promote the Licensed Product(s) to DISTRIBUTOR's customers in the
Territory, and (iii) support and provide End User Maintenance for End
Users, and conduct End User training provided DISTRIBUTOR has become
certified to conduct End User training in accordance with Addendum P.
B. TEMPLATE SOFTWARE hereby grants DISTRIBUTOR an exclusive,
non-transferable right to sublicense Licensed Products to End Users in
the Territory provided the End User executes a sublicense agreement
("Sublicense Agreement"), for the Licensed Product set forth in
Addendum C. Sublicense Agreements shall be in French and shall be
between DISTRIBUTOR
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and the End User. DISTRIBUTOR warrants that the Sublicense Agreement
shall contain the same semantic content as TEMPLATE SOFTWARE's Standard
License Agreement as contained in Addendum E including, but not limited
to, the Sections 4 - Assignment of Use, 3.e - Use, 7 - Warranty of
Performance, 9 - Trade Secret, Security and Confidentiality, and 11 -
Liability. DISTRIBUTOR further warrants that the Sublicense Agreement
shall contain an assignment clause that will effectuate the assignment
of the Sublicense Agreement to TEMPLATE SOFTWARE in the event of
Termination as required in Article XI(E)(3) and a clause prohibiting
any export of the Licensed Product(s) from France without DISTRIBUTOR's
advanced written permission. All applications developed by End Users
with the Development Version of the Licensed Product(s)
("Applications") must include a Run-time Version of the Licensed
Product(s). The End User who develops an Application can use such
Application at the sites and locations identified in the Sublicense
Agreement. DISTRIBUTOR shall have the right to license Run-time
Versions of the Licensed Product(s) for Applications for use outside
the Territory. In no case is the DISTRIBUTOR granted the right to
license Development Versions of the Licensed Product(s) for use outside
the Territory unless the Development Versions are priced at the
prevailing price of the country in which the Development Version of the
Licensed Product(s) will be used and the distributor of record for that
country is credited with such sale.
C. TEMPLATE SOFTWARE reserves the right to market and license Licensed
Products, either directly or through third parties, for use in the
Territory provided the End User in the Territory is (i) an affiliate
of a multinational corporation, (ii) a representative of a non-French
governmental body, (iii) a customer of a third party vendor who has
acquired the right to market the Licensed Product(s) pursuant to OEM
agreements or VAR agreements between such third party vendor and
TEMPLATE SOFTWARE or (iv) customers of UNISYS, Axil or, NCR, and
further provided that the royalties received by TEMPLATE SOFTWARE from
such transactions shall be treated as specified in Addendum O. TEMPLATE
SOFTWARE shall not be obligated hereunder to pay DISTRIBUTOR any moneys
for the royalties paid to TEMPLATE SOFTWARE by third parties (including
their affiliates and subsidiaries) defined in (iii) and (iv) of this
Article III, Section C. TEMPLATE SOFTWARE shall reserve the right to
enter into such agreements at its sole discretion.
D. TEMPLATE SOFTWARE hereby grants DISTRIBUTOR an exclusive,
non-transferable right to enter into Value Added Reseller (VAR)
contracts between DISTRIBUTOR and licensees provided DISTRIBUTOR
acquires the advanced approval from TEMPLATE SOFTWARE of the form and
substance of each VAR agreement.
E. License(s) for Internal Use - TEMPLATE SOFTWARE shall grant
DISTRIBUTOR, at the DISTRIBUTOR's request, licenses for additional
Run-Time and Development copies of the Licensed Product(s), for its
Internal Use, over and above the copies granted in Section A. of this
Article III, provided DISTRIBUTOR is not in default of any provision of
this Agreement. With respect to any such licenses, TEMPLATE SOFTWARE
shall grant, and DISTRIBUTOR shall accept, a license(s) to such
Run-Time and Development copies of the Licensed Product(s) in
accordance with TEMPLATE SOFTWARE's Standard License Agreements in
Addendum E. DISTRIBUTOR shall pay the then current rate for maintenance
of Internal Use copies purchased pursuant to this Article III.E.
ARTICLE IV - DISTRIBUTOR REPRESENTATIONS AND OBLIGATIONS
A. DISTRIBUTOR hereby represents that it will (i) market and license the
Licensed Product(s) and related services on a best efforts basis,
including training, installation assistance, End User Maintenance and
other forms of computer support, to potential customers in the
Territory. The License Fees and Maintenance Fees (increased by the
amount paid to DISTRIBUTOR by TEMPLATE SOFTWARE under the terms of
Article III.C) collected by DISTRIBUTOR in each calendar year shall
equal or exceed the Sales Quota for such calendar year. If the License
Fees and Maintenance Fees (increased by the amount paid to DISTRIBUTOR
by TEMPLATE
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SOFTWARE under the terms of Article III.C) collected by DISTRIBUTOR
during any calendar year do not equal or exceed the Sales Quota,
TEMPLATE SOFTWARE shall have the right to terminate this Agreement for
default as described in Article XI.B.
B. Execution of Sublicense Agreements - DISTRIBUTOR shall obtain duly
executed Sublicense Agreements for Licensed Products as set forth in
Addendum C, prior to delivery of Licensed Products to its customers.
DISTRIBUTOR shall retain such Sublicense Agreements on file for the
Term of this Agreement and provide TEMPLATE SOFTWARE a copy of each
Sublicense Agreement for the Licensed Products licensed in order that
TEMPLATE SOFTWARE can ship the Licensed Product(s) in accordance with
Article V.A.
C. TEMPLATE SOFTWARE shall provide DISTRIBUTOR with an International Price
List in US dollars, which shall be that no greater than 125% of the US
Price List, within ten (10) days from the date of the execution of this
Agreement. TEMPLATE SOFTWARE shall convert such International Price
List to French Francs ("France Price List") twenty (20) days thereafter
at the conversion rate listed in Wall Street Journal at the date of the
execution of this Agreement (with a reasonable rounding factor). Such
International Price List and converted France Price List shall be
attached to this Agreement as Addendum K. TEMPLATE SOFTWARE shall
review the exchange rate every ninety days and reserves the right to
adjust the France Price List if the currency exchange rate from US
dollars to French Francs varies by five percent (5%) from the last
conversion rate used provided such adjustments shall not exceed a 25%
cumulative increase over any twelve month period. DISTRIBUTOR shall not
vary the prices for the Licensed Product(s) from those set forth in the
France Price List by 20% without specific written agreement from
TEMPLATE SOFTWARE. TEMPLATE SOFTWARE shall use its best efforts to
respond to all of DISTRIBUTOR's special pricing requests within two (2)
business days from written receipt of the same.
D. Reverse Compiling and Modifying the Licensed Product(s) - Except as
provided in European Community Directive on Protection of Proprietary
Rights in Computer Programs, DISTRIBUTOR shall not modify, reverse
compile or otherwise reverse engineer the Licensed Product(s) or any
part thereof.
E. DISTRIBUTOR agrees to assign, at a minimum, one designated sales
representative and two technical representatives for the Territory for
the Term of this Agreement. DISTRIBUTOR further agrees to add sales and
technical representatives that support the business growth as reflected
in the increase in Sales Quota.
F. DISTRIBUTOR shall prepare and submit a Sales Report (Addendum M) and a
Sales Forecast Report (Addendum N) within thirty (30) days from the
calendar quarter end for all orders executed in the quarter and
forecasted for the next quarters.
G. Copies of the Licensed Product(s) - DISTRIBUTOR shall not make copies
of the Licensed Product(s) except to provide a backup or archive copy.
All reproductions shall contain any proprietary or copyright notices
appearing in the Licensed Product(s). DISTRIBUTOR shall be limited to
making no more than two (2) backup copies of the Licensed Product(s).
H. Export of Licensed Products - Unless provided otherwise herein,
DISTRIBUTOR shall not have the right to export any Licensed Products
outside the Territory.
I. Trained Personnel - DISTRIBUTOR shall have its personnel trained
according to Addendum G and shall be responsible for the product
training of the customers.
J. DISTRIBUTOR shall be solely responsible for the promotion, marketing,
installation, training, End User Maintenance and technical support of
Licensed Products sublicensed to End Users.
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K. DISTRIBUTOR shall translate all marketing materials, Documentation and
this Agreement into languages other than English as may be required to
promote and implement the Licensed Product(s) in the Territory.
DISTRIBUTOR shall pay all costs incidental to such translations. Such
translations shall be the sole and exclusive property of TEMPLATE
SOFTWARE and TEMPLATE SOFTWARE shall own any and all copyrights, trade
secrets, trademarks, or service marks therein ("Intellectual Property
Rights"). DISTRIBUTOR shall cooperate with TEMPLATE SOFTWARE in helping
to secure such Intellectual Property Rights. DISTRIBUTOR shall have the
right to use such translations only for purposes of promoting and
implementing the Licensed Product(s) to customers in the Territory as
provided under this Agreement. DISTRIBUTOR shall provide TEMPLATE
SOFTWARE with copies of such translations. In the event of conflict
between any such translation and the corresponding English version, the
meaning of the English version shall prevail. DISTRIBUTOR shall
indemnify, release and hold harmless TEMPLATE SOFTWARE against any and
all claims resulting from or arising out of errors, misstatements,
misrepresentations or false claims in any such translations.
L. DISTRIBUTOR shall not make any express or implied representation to its
customers that the Licensed Product(s) functions, performs or is usable
on any equipment other than the equipment listed on Addendum F.
M. DISTRIBUTOR shall conduct End User training only with training
instructors who are Certified by TEMPLATE SOFTWARE in accordance with
Addendum P and only with TEMPLATE SOFTWARE's training materials (or
TEMPLATE SOFTWARE's approved translated training materials).
ARTICLE V - SUPPORT
A. TEMPLATE SOFTWARE shall ship to the DISTRIBUTOR the English version of
the Licensed Products and related Documentation within five (5)
business days after receiving copy of an executed Sublicense Agreement
between the DISTRIBUTOR and an End User or for Internal Use copies, an
executed license agreement between TEMPLATE SOFTWARE and DISTRIBUTOR.
B. Training - TEMPLATE SOFTWARE will provide training for DISTRIBUTOR's
personnel in accordance with Addendum G. Such training will take place
at TEMPLATE SOFTWARE's offices. TEMPLATE SOFTWARE shall provide
DISTRIBUTOR five (5) copies of training materials for the Licensed
Product(s) for End User Training conducted by the DISTRIBUTOR.
Additional copies can be provided to the DISTRIBUTOR at TEMPLATE
SOFTWARE's cost of producing and shipping the same.
C. Technical Assistance - TEMPLATE SOFTWARE shall provide DISTRIBUTOR with
technical assistance with regard to the Licensed Product(s) by
telephone during normal business hours.
D. Maintenance of Licensed Product(s) - TEMPLATE SOFTWARE will provide
DISTRIBUTOR maintenance of the Licensed Product(s) licensed pursuant to
Article III.A. for the Term of this Agreement in accordance with the
terms in Addendum H.
E. Updates to Licensed Product(s) - TEMPLATE SOFTWARE will provide
DISTRIBUTOR Updates during the Term of this Agreement to the Licensed
Product(s) as such Updates are officially released. TEMPLATE SOFTWARE
shall support the last version of the Licensed Product(s) for a period
of three (3) months after the official release of such Updates.
Thereafter, TEMPLATE SOFTWARE shall only provide support for the
current version of the Licensed Product(s). TEMPLATE SOFTWARE shall
ship to the DISTRIBUTOR one copy of Updates for each End User who is
under a current maintenance agreement with DISTRIBUTOR.
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F. TEMPLATE SOFTWARE SHALL NOT HAVE ANY RESPONSIBILITY TO PROVIDE
TECHNICAL ASSISTANCE, INSTALLATION, END USER MAINTENANCE OR SUPPORT
SERVICES DIRECTLY TO ANY END USER OF A LICENSED PRODUCT(S).
G. Development Plans and Suggestions - TEMPLATE SOFTWARE will inform
DISTRIBUTOR generally about all development plans for the Licensed
Product(s). DISTRIBUTOR is encouraged to make written suggestions for
future changes or enhancements to the Licensed Product(s). TEMPLATE
SOFTWARE will evaluate all such suggestions, but does not guarantee
that any of the suggestions will be implemented in future Updates.
H. Marketing Materials - TEMPLATE SOFTWARE shall provide DISTRIBUTOR with
initial copies of marketing materials as may be from time to time
specified in the then current Business Plan by mutual agreement of
TEMPLATE SOFTWARE and DISTRIBUTOR. DISTRIBUTOR shall be responsible for
paying for any marketing materials provided by TEMPLATE SOFTWARE. All
marketing materials prepared and translated into local languages by
DISTRIBUTOR shall be reviewed and approved by TEMPLATE SOFTWARE before
their release. DISTRIBUTOR shall be responsible for the entire cost
related to the language translation of marketing materials.
ARTICLE VI - REPORTING AND PAYMENT
A. Sales Report and Sales Forecast Report - DISTRIBUTOR shall submit a
Sales Report and a Sales Forecast Report.
1. Within 30 days after the end of each calendar quarter,
DISTRIBUTOR shall submit the Sales Report. Such Sales Report
shall contain, at a minimum, the following information for the
immediately preceding quarter:
For new licenses:
a. Name and address and authorized contact of End User;
b. Licensed Product identification;
c. Platform type;
d. Date of license;
e. Number of Run-Time Versions and Development Versions
sublicensed;
f. License Fees;
g. Applicable discounts from French Price List for the order;
h. Initial Maintenance Fees combined with the initial order
including maintenance period; and
i. Shipping and Handling payable to TEMPLATE SOFTWARE pursuant
to Article VI(E).
For End User Maintenance:
a. End User Maintenance Fees including maintenance period; and
b. End Users that Declined End User Maintenance
The Sales Report shall also include a list of any Run-Time and
Development copies of the Licensed Product(s), and applicable
maintenance, licensed for the Internal Use of DISTRIBUTOR in the
quarter pursuant to Article III, Section E and the applicable
license fees plus Shipping and Handling payable to TEMPLATE
SOFTWARE.
2. Within the first five (5) days of every quarter, DISTRIBUTOR
shall send a Sales Forecast Report by means of facsimile
transmission. Such report shall include a projection of potential
revenue for the quarter. Information such as the names and
locations of
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prospects, potential order type, percentage of confidence of
order achievement, hardware platform, and order revenue value of
the potential order is required.
B. DISTRIBUTOR shall send a Money Collection Report by means of facsimile
transmission to TEMPLATE SOFTWARE within the first five (5) days of
every month. Such report shall include information about money
collected in the prior month related to the Licensed Product(s) sales
and applicable maintenance. TEMPLATE SOFTWARE shall send to DISTRIBUTOR
a corresponding invoice based on such Money Collection Report. TEMPLATE
SOFTWARE reserves the right to include as amounts due on such invoice,
that amount which represents one half of the License Fee calculated
using the France Price List for any License Product shipped pursuant to
Article V, Section A that has not been reported on the Money Collection
Report within ninety (90) days of such shipment unless DISTRIBUTOR
terminates the Sublicense Agreement relating to such unpaid License
Fee, has the Licensed Product(s) returned and notifies TEMPLATE
SOFTWARE of the same in writing.
C. Payment for the license fees and applicable maintenance fees for
Licensed Product(s) licensed for DISTRIBUTOR's Internal Use -
DISTRIBUTOR shall pay for any additional Run-Time and Development
copies, and applicable maintenance of the Licensed Product(s) licensed
for DISTRIBUTOR's Internal Use, pursuant to Article III, Section E, in
accordance with DISTRIBUTOR Internal Use Price List in Addendum I,
within thirty (30) days from the end of the calendar quarter in which
they were licensed.
D. Product Royalties - DISTRIBUTOR shall pay TEMPLATE SOFTWARE Product
Royalties.
E. Shipping and Handling - DISTRIBUTOR shall pay TEMPLATE SOFTWARE for
Shipping and Handling in connection with the shipping of DISTRIBUTOR
requested Licensed Products and Documentation to DISTRIBUTOR or
End-Users in accordance with the then current Price List.
F. Payment of one half of License Fees and one half of Maintenance Fees is
due and payable within five (5) days from the date of TEMPLATE
SOFTWARE's invoice. Shipping and Handling is payable within thirty (30)
days from the end of each quarter.
G. Price Changes - TEMPLATE SOFTWARE reserves the right to vary its
International Price List, Addendum K, for the Licensed Product(s) every
twelve (12) months upon ninety (90) days written notice. TEMPLATE
SOFTWARE shall convert such price changes to French Francs in
accordance to the procedure in Article IV, Section C, within ninety
(90) days of such written notice. Such converted International Price
List shall be the new France Prices List on the ninetieth day after the
written notice of the price change.
H. DISTRIBUTOR shall pay a license fee for each Run-Time Version of the
Licensed Product(s) embedded in "KRYSTAL Patrimoine" and/or "KRYSTAL
Securite" pursuant to Article VIII, Section C. Such license fee for
each Run-Time Version so embedded shall be equal to the greater of,
fifteen percent (15%) of the list price of "KRYSTAL Patrimoine" and/or
"KRYSTAL Securite", or $1,000. All such license fees shall be reported
on the Sales Report, invoiced by TEMPLATE SOFTWARE in accordance with
Section B of this Article and payable to TEMPLATE SOFTWARE in
accordance to Section C of this Article.
I. Currency - All payments by DISTRIBUTOR to TEMPLATE SOFTWARE shall be
made payable in French Francs by wire transfer to TEMPLATE SOFTWARE's
designated bank as indicated below. TEMPLATE SOFTWARE may change the
designated bank and related information by providing DISTRIBUTOR a
minimum of three days advanced written notice prior to any change.
Societe Generale, Paris
for credit to Signet Bank
Account Number: 001014427480
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For further credit to:
Template Software, Inc.
J. Late Payments - Payments not made by the due date shall be late. Late
payments shall accrue interest at one and one half percent per month,
or the maximum rate of interest allowed by the law of the Commonwealth
of Virginia of the United States of America, if less.
K. Taxes, Tariffs and Duties - DISTRIBUTOR shall be solely responsible for
all sales and use taxes, duties, tariffs, and other taxes on goods or
services furnished under this Agreement, provided that TEMPLATE
SOFTWARE shall be responsible for its own franchise and income taxes.
DISTRIBUTOR shall indemnify and hold harmless TEMPLATE SOFTWARE from
and against any taxes duties, tariffs and penalties levied by or on
behalf of any taxing entity or governmental authority with respect to
the DISTRIBUTORS obligations hereunder.
L. Expenses of DISTRIBUTOR - DISTRIBUTOR is solely responsible for any
expenses it incurs in the performance of its responsibilities under
this Agreement.
M. Audit - TEMPLATE SOFTWARE may audit DISTRIBUTOR's books and records
pertaining to the licensing of the Licensed Product(s) and the payment
of the applicable royalties, during normal office hours, at its own
expense, on ten (10) days notice.
ARTICLE VII - WARRANTIES, LIMITATIONS OF LIABILITY, AND REMEDIES
A. Warranty of Title and Authority - TEMPLATE SOFTWARE warrants that it
owns all rights, title and interest in the Licensed Product(s), and has
full power and authority to fulfill its obligations under this
Agreement.
B. Limited Warranty of Performance - TEMPLATE SOFTWARE further warrants
for a period of ninety (90) days from the execution of this Agreement
that the Licensed Product(s) will perform in accordance with its
specifications as contained in the Documentation.
C. Disclaimer of Warranties - EXCEPT FOR THE EXPRESS WARRANTIES STATED IN
SECTIONS VII(A) AND (B), TEMPLATE SOFTWARE DISCLAIMS, AND DISTRIBUTOR
HEREBY WAIVES, ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE REGARDING THE LICENSED PRODUCT(S) AND DOCUMENTATION.
TEMPLATE SOFTWARE DISCLAIMS, AND DISTRIBUTOR HEREBY WAIVES, RELEASES,
INDEMNIFIES AND AGREES TO HOLD HARMLESS TEMPLATE SOFTWARE FROM ANY
LIABILITY OR RESPONSIBILITY TO DISTRIBUTOR OR ANY CUSTOMER OF
DISTRIBUTOR FOR A LICENSED PRODUCT(S) THAT IS MODIFIED BY DISTRIBUTOR
OR CUSTOMER IN ANY WAY.
D. Limitation of Remedies - In the event of a breach of the express
warranties under this Agreement, DISTRIBUTOR's exclusive remedy shall
be prompt repair or replacement by TEMPLATE SOFTWARE of defective
Licensed Product(s) or, at TEMPLATE SOFTWARE's option, a refund of all
amounts paid by DISTRIBUTOR to TEMPLATE SOFTWARE for defective Licensed
Product(s) upon return of all copies of them to TEMPLATE SOFTWARE. In
no event shall either party be liable for indirect, incidental,
exemplary, or consequential damages, including loss of profits, or any
cause of action arising under or related to this Agreement, whether in
contract, tort, or strict liability, except in any action based on the
unauthorized disclosure, or use of Confidential Information or trade
secrets of TEMPLATE SOFTWARE; or any action based on TEMPLATE
SOFTWARE's copyrights, patents, trademarks, trade secrets, trade names,
or other proprietary rights.
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E. The parties expressly agree that the United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this
Agreement.
F. DISTRIBUTOR warrants, covenants and agrees that, in the performance of
this Agreement and in connection with the sales of Licensed
Product(s), it has not and will not in the future, directly or
indirectly offer, pay, promise to pay, or authorize the payment of any
money or offer, promise to give or authorize the giving of anything of
value to:
1. any government official, any political party or official
thereof, or any candidate for political office; or
2. any other person while knowing or having reason to know
that all or a portion of such money or thing of value will
be offered, given or promised directly or indirectly, to
any such official, to any such political party of official
thereof, or to any candidate for political office:
for the purpose of
1. influencing any action or decision of such official, party
or official thereof, or candidate in his or its official
capacity, including a decision to fail to perform his or
its official functions;
2. inducing such official, party or official thereof, or
candidate to use his or its influence with any government
or instrumentality thereof to effect or influence any act
or decision of such government or instrumentality;
in order to assist DISTRIBUTOR in obtaining or retaining
business for or with or directing business to any person.
ARTICLE VIII - INTELLECTUAL PROPERTY
A. Ownership - All Licensed Product(s) and Updates shall be the sole
property of TEMPLATE SOFTWARE, including (without limitation) ownership
rights to patents, copyrights, trademarks, trade secrets and all other
property interests incidental thereto. All Licensed Product(s), in
whole or in part, shall be marked with such copyright, patent, or other
notices, proprietary legends, or restrictions as TEMPLATE SOFTWARE may
require. DISTRIBUTOR does not have the right to transfer, and shall not
attempt to transfer, TEMPLATE SOFTWARE ownership to the Licensed
Product(s).
B. Trademark - This Agreement does not grant DISTRIBUTOR any right, title,
interest, or license in or to any trademark or servicemark of TEMPLATE
SOFTWARE, except as may be approved in writing by TEMPLATE SOFTWARE.
C. Noncompetition - Except as otherwise provided herein, DISTRIBUTOR shall
not develop, market or sell any product that is competitive with the
Licensed Product(s) and shall not assist any other entity to sell or
supply, directly or indirectly, software products that perform the same
or comparable functions as the Licensed Product(s). DISTRIBUTOR can
market their "KRYSTAL Patrimoine" and "KRYSTAL Securite" applications
which include a run-time version of KBMS product from AICORP.
DISTRIBUTOR may, at its sole expense, convert such products to embed
the Run-Time Versions of the Licensed Product(s), subject to ten (10)
days advanced written notice to TEMPLATE SOFTWARE. The license fee
payable to TEMPLATE SOFTWARE by DISTRIBUTOR for each Run-Time Version
of the Licensed Product(s), so embedded, shall be calculated at the
greater of, fifteen percent (15%) of the list price of the converted
product, "KRYSTAL Patrimoine" and/or "KRYSTAL Securite", or $1,000.
Reporting
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and payment of license fees relating to such sales shall be in
accordance with Article VI, Section H.
ARTICLE IX - INDEMNITIES
A. By TEMPLATE SOFTWARE - TEMPLATE SOFTWARE hereby indemnifies and holds
harmless DISTRIBUTOR from and against any claims, actions, or demands
alleging that the Licensed Product(s) infringe upon any U.S. patent,
trademark, copyright, or other intellectual property right of any third
party under United States law or any state law thereof. DISTRIBUTOR
shall permit TEMPLATE SOFTWARE to replace or modify any affected
Licensed Product(s) so as to avoid infringement, or to procure the
right for DISTRIBUTOR to continue to use and remarket such items. If
neither alternative is reasonably possible, the infringing items shall
be returned to TEMPLATE SOFTWARE and TEMPLATE SOFTWARE's sole liability
to DISTRIBUTOR shall be to refund amounts paid for them by DISTRIBUTOR.
TEMPLATE SOFTWARE shall have no obligation and DISTRIBUTOR shall
indemnify and hold harmless TEMPLATE SOFTWARE under this Agreement with
respect to claims, actions, or demands alleging infringement which
arise by reason of the combination of non-infringing items with any
items not supplied by TEMPLATE SOFTWARE.
B. By DISTRIBUTOR - DISTRIBUTOR hereby indemnifies and holds harmless
TEMPLATE SOFTWARE from and against any claims, actions, or demands
arising with respect to this Agreement, including but not limited to
actions that arise due to DISTRIBUTOR's misrepresentation of the
Licensed Product(s) or its relationship with TEMPLATE SOFTWARE, with
the sole exception of those matters for which TEMPLATE SOFTWARE bears
responsibility under Article IX, Section A.
C. Conditions - The foregoing indemnities are conditioned on prompt
written notice of any claim, action, or demand for which indemnity is
sought, complete control of the defense and settlement thereof by the
indemnifying party, and cooperation of the other party in such defense
or settlement.
ARTICLE X - CONFIDENTIALITY
A. Safeguarding Confidential Information - DISTRIBUTOR shall insure that
unauthorized parties do not have access to Confidential Information.
DISTRIBUTOR shall prevent Confidential Information from being copied or
stolen. DISTRIBUTOR shall ensure that the obligation of confidentiality
is adhered to fully by any customer of DISTRIBUTOR. DISTRIBUTOR shall
limit access to Confidential Information to those employees of
DISTRIBUTOR having a specific need to know. DISTRIBUTOR shall obtain
written agreements from such employees and customers of DISTRIBUTOR to
maintain the confidentiality of the Confidential Information.
DISTRIBUTOR shall notify TEMPLATE SOFTWARE immediately of any violation
of a Licensed Product license or of any disclosure of Confidential
Information, and shall cooperate fully with TEMPLATE SOFTWARE to cure
the violation or disclosure. This Article X shall survive termination
or expiration of this Agreement.
B. Remedies - DISTRIBUTOR agrees that in the event of a breach or
threatened breach by DISTRIBUTOR, including its agents, directors, or
employees or any customer of DISTRIBUTOR, of this Article, TEMPLATE
SOFTWARE may have no adequate remedy in damages and shall be entitled
to an injunction against such breach, in addition to any other legal or
equitable remedies available to it. Any breach of this Article by
DISTRIBUTOR's agents, directors, or employees DISTRIBUTOR shall be the
joint and several responsibility of DISTRIBUTOR.
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<PAGE> 13
C. Unfair Competition - DISTRIBUTOR specifically and without reservation
agrees that its failure to observe its confidentiality, intellectual
property and indemnification obligations under this Agreement shall
constitute unfair competition and shall entitle TEMPLATE SOFTWARE to
immediate relief for breach as set forth herein.
ARTICLE XI - TERM AND TERMINATION
A. Term - This Agreement shall become effective on the date DISTRIBUTOR or
TEMPLATE SOFTWARE has executed it (whichever is later) and shall remain
in effect for an initial period of thirty-six (36) months ("Base Term")
except as provided otherwise hereunder. Prior to the expiration of the
Base Term or the Extended Term, TEMPLATE SOFTWARE shall have the right
(but not the obligation) to renew this Agreement for additional one (1)
year periods. Any such renewal period shall be ("Extended Term").
TEMPLATE SOFTWARE shall renew this Agreement in one year increments
provided DISTRIBUTOR is not in default hereunder, has made the Sales
Quota in each calendar year as required hereunder, and TEMPLATE
SOFTWARE and DISTRIBUTOR mutually agree upon the Sales Quota for any
such Extended Term as provided in Addendum L.2.
B. Default - If an Event of Default occurs, TEMPLATE SOFTWARE shall have
the right (but not the obligation) to terminate this Agreement by
sending termination notice ("Termination Notice") to DISTRIBUTOR. The
Termination Notice shall describe the Event of Default and state that
this Agreement shall be terminated if the Event of Default is not cured
by DISTRIBUTOR within thirty days after receipt of the Termination
Notice by DISTRIBUTOR. If the Event of Default is not cured by
DISTRIBUTOR within thirty (30) days after DISTRIBUTOR's receipt of the
Termination Notice, this Agreement shall be terminated as of such
thirtieth day.
C. Bankruptcy, Reorganization or Liquidation - This Agreement may be
terminated by either party, if the other party becomes subject to any
voluntary or involuntary reorganization or liquidation proceedings and
as a consequence of such proceedings this Agreement is repudiated.
D. Convenience - TEMPLATE SOFTWARE shall have the right (but not the
obligation) to terminate this Agreement for convenience by providing at
least six (6) months prior written notice and by paying a Termination
Fee to DISTRIBUTOR. If TEMPLATE SOFTWARE terminates this Agreement for
convenience during the first consecutive twelve month period of the
Base Term, the "Termination Fee" shall mean an amount of money equal to
the lesser of 3.6 million FF or provable expenses incurred by
DISTRIBUTOR in performing this Agreement during such first twelve month
period. If TEMPLATE SOFTWARE terminates this Agreement for convenience
during the second consecutive twelve month period of the Base Term, the
"Termination Fee" shall mean an amount of money equal to the lesser of
5.6 million FF or provable expenses incurred by DISTRIBUTOR in
performing this Agreement during the past consecutive twelve month
period. If TEMPLATE SOFTWARE terminates or elects to not renew this
Agreement for convenience after the second consecutive twelve month
period of the Base Term, the "Termination Fee" shall mean an amount of
money equal to the lesser of one half of the Sales Quotas or one half
of the actual License Fees for the last twenty-four month period
immediately preceding the date such Termination Fee is paid to
DISTRIBUTOR. Payment of Termination Fee by TEMPLATE SOFTWARE to
DISTRIBUTOR shall be in full satisfaction of any and all claims of
DISTRIBUTOR against TEMPLATE SOFTWARE. Payment of such Termination Fee
shall be made only after (i) DISTRIBUTOR ceases to deliver Licensed
Product(s) and receive payment for Sublicense Agreements pursuant to
this Article XI Section E.1., (ii) all Sublicense Agreements have been
assigned pursuant to this Article XI Section E.3, (iii) DISTRIBUTOR has
made all payments due TEMPLATE SOFTWARE hereunder and (iv) there
remains no outstanding disputes related to this Agreement.
E. Rights Upon Termination or Expiration of Term
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<PAGE> 14
1. Upon termination of this Agreement by TEMPLATE SOFTWARE,
DISTRIBUTOR shall cease to use, market, promote and
sublicense the Licensed Product(s). Notwithstanding the
above, DISTRIBUTOR shall retain the right for up to six
months after the termination of this Agreement to deliver
Licensed Product(s) and receive payment for Sublicense
Agreements that were entered into prior to the date of any
such expiration or termination of this Agreement.
2. Upon termination of this Agreement by DISTRIBUTOR under
Section C of this Article, DISTRIBUTOR rights shall be
defined in accordance with Section F - Escrow.
3. Upon any termination of this Agreement, except for
termination by DISTRIBUTOR under Section C of this Article,
TEMPLATE SOFTWARE shall assume full responsibility for the
licensing or sublicensing of the Licensed Products and the
provision of technical and other support services to
End-Users and shall be entitled to all fees for the use of
the Licensed Products and the furnishing of such services.
In furtherance thereof, DISTRIBUTOR shall be deemed to have
assigned to TEMPLATE SOFTWARE, or such other person or
entity as TEMPLATE SOFTWARE directs, all of its rights and
obligations under any and all Sublicense Agreements that
DISTRIBUTOR has entered into with End-Users, and
DISTRIBUTOR shall deliver to TEMPLATE SOFTWARE, or to such
other person, a duly executed written assignment of such
rights, together with such other documents as may be
necessary or advisable in the reasonable opinion of
TEMPLATE SOFTWARE to effectuate such assignment.
4. No termination of this Agreement shall affect the
obligation of DISTRIBUTOR to make license, royalty, or
maintenance payments which have become due to TEMPLATE
SOFTWARE prior to the effective date of such termination.
F. Escrow - TEMPLATE SOFTWARE has and shall continue to deposit all
current versions of the Licensed Product(s) in escrow for the purpose
of maintaining a secure backup copy of the Source Code for the
protection of TEMPLATE SOFTWARE and Licensed Product(s) licenses. Upon
written request from DISTRIBUTOR, TEMPLATE SOFTWARE or its authorized
escrow agent shall release to DISTRIBUTOR one copy of the most current
version of the Source Code for the Licensed Product(s) upon the
occurrence of one of the following events:
1. The cessation for a period of more than thirty (30) days of
all active business operations by TEMPLATE SOFTWARE, except
as provided below.
2. The filing of any bona-fide petition under the provisions
of the Federal Bankruptcy Act, or similar federal or state
statute, by or against TEMPLATE SOFTWARE, except as
provided below.
3. The application for appointment of a receiver for or the
making of a general assignment for the benefit of creditors
by TEMPLATE SOFTWARE, except as provided below.
4. The transfer, disposition or condemnation of all or
substantially all of the assets of TEMPLATE SOFTWARE, by
whatever means accomplished, to a party not intending to
continue TEMPLATE SOFTWARE's computer software operations.
Notwithstanding the occurrence of any of the events specified in 1.,
2., or 3. of this Section, TEMPLATE SOFTWARE or its escrow agent shall
not be required to deliver the requested Licensed Product(s) Source
Code to DISTRIBUTOR if TEMPLATE SOFTWARE or any other party has made
arrangements for the continued maintenance and support of the Licensed
Product(s).
DISTRIBUTOR may use Source Code received pursuant to this Section only
as necessary to modify, maintain and update the Licensed Product(s).
Receipt by DISTRIBUTOR of Licensed
14
<PAGE> 15
Product(s) Source Code Pursuant this Section does not affect the
proprietary rights of TEMPLATE SOFTWARE in the Licensed Product(s) or
Documentation and does not alter DISTRIBUTOR's obligation under this
Agreement to protect Confidential Information.
G. Waiver of Default - An Event of Default shall only be waived in
writing. Such writing must describe the Event of Default being waived,
state that the Event of Default is being waived and bear the signature
of the party waiving the Event of Default.
H. Waiver - This Agreement shall be only terminated or renewed as
expressly provided hereunder. DISTRIBUTOR hereby waives any and all
rights under the laws of France or otherwise to automatic renewal of
this Agreement, extended termination notice or the payment of damages,
claims or costs exceeding the amounts set forth above for termination
of this Agreement by TEMPLATE SOFTWARE. DISTRIBUTOR shall indemnify,
release and hold harmless TEMPLATE SOFTWARE from any and all costs,
claims and liabilities resulting from or arising out of termination of
this Agreement by TEMPLATE SOFTWARE except as expressly provided
hereunder.
I. Consequential Damages - TEMPLATE SOFTWARE shall not be liable to
DISTRIBUTOR for any consequential, exemplary, incidental or punitive
damages, regardless of whether TEMPLATE SOFTWARE has been advised of
the possibility of such damages in advance or whether such damages are
reasonably foreseeable.
ARTICLE XII - INDEPENDENT RELATIONSHIP
DISTRIBUTOR shall perform under this Agreement only as an independent
contractor. DISTRIBUTOR shall have the sole obligation to supervise, manage,
contract, direct, procure, perform or cause to be performed its obligation under
this Agreement. Nothing set forth in this Agreement shall be construed to create
the relationship of principal and agent between TEMPLATE SOFTWARE and
DISTRIBUTOR. DISTRIBUTOR shall not act or attempt to act or represent itself,
directly or by implication, as an agent of TEMPLATE SOFTWARE or in any manner
assume or create, or attempt to assume or create, any obligation on behalf of,
or in the name of TEMPLATE SOFTWARE. DISTRIBUTOR shall be solely responsible for
all taxes and insurance of its activities under this Agreement, including
franchise taxes, employment-related taxes, federal, state, and local income
taxes, and liability, health, and disability insurance. DISTRIBUTOR hereby
waives and agrees to indemnify and hold harmless TEMPLATE SOFTWARE against any
claims by DISTRIBUTOR's employees or customers against TEMPLATE SOFTWARE.
ARTICLE XIII - NOTICES
All notices or other communications required or contemplated herein shall be
deemed received (i) upon personal delivery in writing, (ii) upon confirmed
receipt of a wire communication (telex, twx, datafax, etc.), (iii) one day after
delivery by express courier, or (iv) three days after mailing by U.S. mail,
return receipt requested, to the other party's Contract Administrator at the
address below. Either party may change its address for notification purposes by
written notice to the other party.
A. For TEMPLATE SOFTWARE
1. Contract Administrator:
Director of Finance and Contracts,
13100 Worldgate Drive, Herndon, Virginia 22070.
2. Technical Liaison:
15
<PAGE> 16
, 13100 Worldgate Drive, Herndon, Virginia 220780, or
designee or successor.
B. For DISTRIBUTOR
1. Contract Administration:
Alain Kuhner, President, 13, rue Edmond
Micholet 94270 Le KREMLIN BICETRE
2. Technical Liaison:
Thierry Petie, Consultant, 13, rue Edmond
Micholet 94270 Le KREMLIN BICETRE
C. The Technical Liaison may clarify, explain, provide further details, handle
necessary technical matters, implement technical aspects, and develop
administrative procedures, but shall have no authority to change any of the
terms of this Agreement.
ARTICLE XIV - MISCELLANEOUS
A. Force Majuere - Neither party is liable for delay or failure in
performance resulting from acts beyond the reasonable control of such party,
including, but not limited to, any acts or omissions of any government or
governmental authority, natural disaster, act of a public enemy, riot,
sabotage, disputes or differences with workmen, acts of terrorism, power
failure, delays in transportation, acts of God, or any events reasonable
beyond the control of the parties.
B. Disputes - Any disputes arising under this Agreement relating to payment
shall be finally settled under the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by one or more arbitrators appointed in
accordance with the said rules. Any party to this Agreement shall have the
right to have recourse to and shall be bound by the Pre-arbitral Referee
Procedure of the International Chamber of Commerce in accordance with its
Rules. In the event of litigation or arbitration under this Agreement, the
prevailing party shall be entitled to recover its reasonable attorney's fees.
C. Assignment - Any assignments hereunder by DISTRIBUTOR without the written
consent of TEMPLATE SOFTWARE shall be void.
D. Severability - If any provision of this Agreement is held to be
unenforceable, the enforceability of remaining provisions shall be
unaffected.
E. Survival - The parties' rights and remedies relating to payment,
indemnification, liability and confidential and proprietary information shall
survive termination or expiration of the term of this Agreement.
F. Choice of Law - This Agreement shall be governed by law of the Commonwealth
of Virginia, USA except for its rules on conflicts of laws. Venue shall be in
the Commonwealth of Virginia, United States of America.
G. No Third Party Beneficiaries - The parties do not intend this Agreement to
create any enforceable rights by any third party.
H. Waiver - The waiver by either party of any provision or breach of this
agreement shall not waive any other term or succeeding breach. Any such
waiver must be in writing.
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<PAGE> 17
I. Entire Agreement- This Agreement, including its Addenda, is the complete,
final, and exclusive understanding between the parties relating to its
subject matter. This Agreement may not be modified or supplemented except in
a writing signed by both parties.
TEMPLATE SOFTWARE
NAME: E. L. Pearce
-----------------------------------
TITLE: Chief Executive,0fficer
-----------------------------------
DATE: /s/ illegible
-----------------------------------
DISTRIBUTOR
NAME: Alain Kuhner
-----------------------------------
TITLE: President
-----------------------------------
DATE:
/s/ illegible
-----------------------------------
<PAGE> 1
EXHIBIT 10.13
[TEMPLATE SOFTWARE LOGO]
DISTRIBUTOR AGREEMENT
BETWEEN
TEMPLATE SOFTWARE, INC.
AND
RCC INFORMATIESERVICES, B.V.
FOR
LICENSED SOFTWARE PRODUCTS
AUGUST 3, 1993
PROPRIETARY INFORMATION
NOT FOR USE OR DISCLOSURE OUTSIDE
TEMPLATE SOFTWARE, INC. AND RCC
EXCEPT UNDER WRITTEN AGREEMENT
<PAGE> 2
DISTRIBUTOR AGREEMENT
TABLE OF CONTENTS
Article I Agreement
Article II Definitions
Article III Grant of License
Article IV DISTRIBUTOR Representations and Obligations
Article V Support
Article VI Prices, Payment and Reporting
Article VII Warranties, Limitations of Liabilities and Remedies
Article VIII Intellectual Property
Article IX Indemnities
Article X Confidentiality
Article XI Term and Termination
Article XII Independent Relationship
Article XIII Notices
Article XIV Miscellaneous
ADDENDA
Addendum A Identification and Description of the "Licensed Product(s)"
Addendum B Development License Platform and Price
Addendum C "End User" Sublicense Agreement
Addendum D Territory Assignment
Addendum E TEMPLATE SOFTWARE Standard License Agreement
Addendum F List of Platforms on Which "Licensed Product(s)" Is Supported
Addendum G Training Requirements
Addendum H Maintenance Terms
Addendum I Marketing Material Price List
Addendum J DISTRIBUTOR Fee Schedule
Addendum K "Licensed Product(s)" Standard Price Lists
Addendum L Business Plan
Addendum M Format of Sales Forecast Report
Addendum N Fee Credits for Sales made by Others in the Territory
Addendum O DISTRIBUTOR Training Certification Requirements
<PAGE> 3
DISTRIBUTOR AGREEMENT
This Agreement is made between TEMPLATE SOFTWARE, INC. (TEMPLATE SOFTWARE), a
Maryland corporation with its principal offices at 13100 Worldgate Drive, Suite
340, Herndon, Virginia 22070-4382, USA and RCC Informatieservices b.v.,
(DISTRIBUTOR), a Dutch corporation with its principal offices at Fauststraat 1,
7323 BA Apeldoorn, the Netherlands.
ARTICLE I - AGREEMENT
TEMPLATE SOFTWARE owns a proprietary software product and related Documentation
(collectively "Licensed Product(s)") that is described in Addendum A. TEMPLATE
SOFTWARE hereby agrees to grant DISTRIBUTOR a license to use the Licensed
Product(s) and sublicense the Licensed Product(s) to End Users and DISTRIBUTOR
hereby agrees to accept the license from TEMPLATE SOFTWARE on the terms set
forth in this Agreement and Addenda referenced herein.
ARTICLE II - DEFINITIONS
A. "Business Plan" shall mean the document attached hereto as Addendum L
by mutual agreement of TEMPLATE SOFTWARE and DISTRIBUTOR, as amended
from time to time no less than annually by TEMPLATE SOFTWARE and
DISTRIBUTOR. Such Business Plan shall incorporate performance goals
for the DISTRIBUTOR.
B. "Confidential Information" shall mean all the Licensed Product(s)
Source and Object Code, Licensed Product(s) architecture, Licensed
Product(s) plans and futures, this Agreement and any and all
information contained therein and any information clearly marked by
TEMPLATE SOFTWARE as "Confidential Information", except any part
which:
1. Is or becomes publicly available through no act or
failure on the part of DISTRIBUTOR, DISTRIBUTOR's
customer, or End User; or
2. Was or is rightfully learned or obtained by
DISTRIBUTOR, DISTRIBUTOR's customer, or End User from
a source other than TEMPLATE SOFTWARE; or
3. Becomes independently available to DISTRIBUTOR,
DISTRIBUTOR's customer or End User as a matter of
right from a third party; or
4. Is expressly authorized by any subsequent agreement
between the parties.
C. "Development Versions" shall mean the Object Code comprising the
development environment provided by the Licensed Product(s) to aid in
the development of an application.
D. "Documentation" shall mean user manuals provided to End User for use
with the Licensed Product(s), as revised from time to time.
E. "End User" shall mean a customer within the Territory to whom
DISTRIBUTOR grants a sublicense to use the Licensed Product(s).
F. "End User Maintenance" shall mean the maintenance of the Licensed
Product(s) as provided by DISTRIBUTOR to the End User pursuant to a
maintenance agreement between the End User and DISTRIBUTOR.
G. "Internal Use" shall mean the authorized use of the Licensed
Product(s) for development, implementation and processing of licensee
data and applications and specifically does not include reselling,
leasing, marketing, licensing, sublicensing or distributing the
Licensed Product(s) to any other party.
Distributor Agreement 3
<PAGE> 4
H. "Object Code" shall mean machine executable computer programs, or
computer programs in the form used to build machine-executable
computer programs, which result from the compilation and/or assembly
of Source Code.
I. "Run-Time Version" shall mean the Object Code libraries provided as
part of the Licensed Product(s).
J. "Source Code" shall mean a computer program in the form of a symbolic
programming language, which when compiled and/or assembled is
transformed into Object Code.
K. "Licensed Product(s)" shall mean TEMPLATE SOFTWARE's proprietary
Run-Time and Development Versions and their related Documentation, as
described in Addendum A, in Object Code format.
L. "Territory" shall mean the country or countries, or other definable
group that is defined in Addendum D.
M. "Updates" shall mean any revisions or enhancements to the Licensed
Product(s), or any part thereof, that are not included in the Licensed
Product(s) at the time of execution of this Agreement, that improve
the Licensed Product(s) and are related to, and not separately priced
from, the Licensed Product(s).
N. "Applications" shall mean software programs developed using SNAP and
the SNAP Horizontal Template Family.
ARTICLE III - GRANT OF LICENSE
A. License to Development Version - TEMPLATE SOFTWARE hereby grants the
DISTRIBUTOR, a non-exclusive, non-transferable license to use the
Licensed Product(s), on the terms and conditions set forth in this
Agreement, in the quantities, on the platforms and at price set forth
in Addendum B, for the Term of this Agreement, to (i) develop and
support applications for demonstration purposes only, (ii) market and
promote the Licensed Product(s) to DISTRIBUTOR's customers in the
Territory, and (iii) support and provide End User Maintenance for End
Users, and conduct End User training provided DISTRIBUTOR has become
certified to conduct End User training in accordance with Addendum O.
B. TEMPLATE SOFTWARE hereby grants DISTRIBUTOR a exclusive,
non-transferable right to sublicense Licensed Products to End Users in
the Territory as identified in Addendum D for the End User's Internal
Use provided the End User executes a sublicense agreement ("Sublicense
Agreement"), for the Licensed Products set forth in Addendum C.
Sublicense Agreements shall be in Dutch and shall be between
DISTRIBUTOR and the End User. DISTRIBUTOR shall provide TEMPLATE
SOFTWARE with a copy of the Sublicense Agreement accurately translated
into English. DISTRIBUTOR warrants that the Sublicense Agreement
shall contain the same semantic content as TEMPLATE SOFTWARE's
Standard License Agreement as contained in Addendum E including, but
not limited to, the Sections 4 - Assignment of Use, 3.e - Use, 7 -
Warranty of Performance, 9 - Trade Secret, Security and
Confidentiality, and 11 - Liability. DISTRIBUTOR further warrants
that the Sublicense Agreement shall contain an assignment clause that
will effectuate the assignment of the Sublicense Agreement to TEMPLATE
SOFTWARE in the event of Termination as required in Article XI(E)(3)
and a clause prohibiting any export of the Licensed Product(s) from
the Territory. Any changes to the Sublicense Agreement set forth in
Addendum C shall be submitted to TEMPLATE SOFTWARE for approval, which
such approval shall not be unreasonably withheld, before DISTRIBUTOR
may use such Sublicense License Agreement for a Licensed Product(s).
TEMPLATE SOFTWARE hereby grants DISTRIBUTOR the non-exclusive right to
sublicense Run-time Versions of the Licensed Product(s) for
Applications developed inside the Territory for use outside the
Territory. In no case is the DISTRIBUTOR granted the right to
sublicense Development Versions of the Licensed Product(s) for use
outside the Territory unless the Development Versions are priced at
the prevailing price of the country in which the Development Version
of the Licensed Product(s) will be used and the distributor of record
for that country is compensated for such sale. TEMPLATE SOFTWARE
shall compensate DISTRIBUTOR for SNAP Development Licenses licensed
outside of the Territory for use in the Territory. (License fees
credited shall be based upon the net license fees received by TEMPLATE
SOFTWARE and does not include items identified in Article III C.)
Distributor Agreement 4
<PAGE> 5
C. Reserved Rights
1. TEMPLATE SOFTWARE reserves the right to market and
license Licensed Products, either directly or through
third parties, for use in the Territory provided the
End User in the Territory is (i) an affiliate of a
multinational corporation to which TEMPLATE SOFTWARE
has licensed products outside the Territory, (ii) a
representative of a governmental body outside of the
Territory, (iii) a customer of a third party vendor
who has acquired the right to market the Licensed
Product(s) pursuant to OEM agreements or VAR
agreements between such third party vendor and
TEMPLATE SOFTWARE to the extent that the sales of the
Licensed Product(s) is part of the sales of
product(s) of the third party or (iv) customers of
UNISYS, EDS, SUN, IBM, Apple, Novell, Sequent,
Taligent or NCR to the extent that the sales of the
Licensed Product(s) is part of the sales of
product(s) of UNISYS, EDS, SUN, IBM, Apple, Novell,
Sequent, Taligent or NCR, and further provided that
the fees received by TEMPLATE SOFTWARE from such
transactions shall be treated as specified in
Addendum N. TEMPLATE SOFTWARE shall not be obligated
hereunder to pay DISTRIBUTOR any moneys for the fees
paid to TEMPLATE SOFTWARE by third parties (including
their affiliates and subsidiaries) defined in (iii)
and (iv) of this Article III, Section C.1. TEMPLATE
SOFTWARE shall reserve the right to enter into
exclusive VAR and OEM Agreements at its sole
discretion.
2. TEMPLATE SOFTWARE reserves all rights not
specifically granted DISTRIBUTOR hereunder. Except
as expressly provided hereunder in connection with
the sublicensing of Licensed Product(s), TEMPLATE
SOFTWARE does not convey any Intellectual Property
Rights to DISTRIBUTOR hereunder unless expressly
provided otherwise herein. DISTRIBUTOR shall have no
right whatsoever to receive, review or otherwise use
or have access to the source code for the Licensed
Product(s). Licensed Products are permitted to be
sublicensed by DISTRIBUTOR only in Object Code form.
ARTICLE IV - DISTRIBUTOR REPRESENTATIONS AND OBLIGATIONS
A. DISTRIBUTOR hereby represents that it will (i) market and license the
Licensed Products and related services on a best efforts basis,
including training, installation assistance, End User Maintenance and
other forms of computer support, to potential customers in the
Territory and (ii) achieve the "Annual Minimum Fees", according to the
Business Plan which will be attached, made a part hereof and updated
annually. If the foregoing representation and undertaking proves to
be untrue at any time during the term of this Agreement, TEMPLATE
SOFTWARE may terminate this Agreement for default as described in
Article XI ("Term and Termination"). Nothing contained herein shall
obligate DISTRIBUTOR to paying TEMPLATE SOFTWARE royalties other than
those based upon actual sales.
B. Execution of Sublicense Agreements - DISTRIBUTOR shall obtain duly
executed Sublicense Agreements for Licensed Products as set forth in
Addendum C, prior to delivery of Licensed Products to its customers.
DISTRIBUTOR shall retain such Sublicense Agreements on file for the
Term of this Agreement and provide TEMPLATE SOFTWARE a copy of each
Sublicense Agreement for the Licensed Product(s) sublicensed in order
that TEMPLATE SOFTWARE can ship the Licensed Product(s) in accordance
with Article V, Section A.
C. DISTRIBUTOR shall not vary the prices for the Licensed Product(s) from
those set forth in the Price List Addendum K without specific written
agreement from TEMPLATE SOFTWARE.
D. Reverse Compiling and Modifying the Licensed Product(s) - Except as
provided in European Community Directive on Protection of Proprietary
Rights in Computer Programs, DISTRIBUTOR shall not modify, reverse
compile or otherwise reverse engineer the Licensed Product(s) or any
part thereof. Any attempted modification, reverse engineering or
reverse compilation of the Licensed Product(s) by DISTRIBUTOR will
void all of the licenses granted to DISTRIBUTOR in this Agreement and
shall cause immediate termination of this Agreement by TEMPLATE
SOFTWARE for default pursuant to Article XI ("Term and Termination").
Distributor Agreement 5
<PAGE> 6
E. DISTRIBUTOR agrees to assign, at a minimum, two designated sales
representative and two technical representatives for the Territory for
the Term of this Agreement. DISTRIBUTOR further agrees to add sales
and technical representatives that support the business growth in
accordance with the Business Plan, Addendum L.
F. DISTRIBUTOR shall prepare and submit a Sales Forecast Report (Addendum
M) within thirty (30) days from the calendar quarter end for all orders
executed in the quarter and forecasted for the next quarters.
G. Copies of the Licensed Product(s) - DISTRIBUTOR shall not make copies
of the Licensed Product(s) except to provide a backup or archive copy.
All reproductions shall contain any proprietary or copyright notices
appearing in the Licensed Product(s). DISTRIBUTOR shall be limited to
making no more than two (2) backup copies of the Licensed Product(s).
H. Export of Licensed Products - DISTRIBUTOR shall not have the right to
export any Licensed Product(s) outside the Territory. DISTRIBUTOR
agrees to indemnify, defend, and hold TEMPLATE SOFTWARE harmless from
all claims and cost resulting from a breach of this covenant.
I. Trained Personnel - DISTRIBUTOR shall have its personnel trained
according to Addendum G and shall be responsible for the product
training of End Users and customers within the Territory.
J. DISTRIBUTOR shall be solely responsible for the promotion, marketing,
installation, training, End User Maintenance and technical support of
Licensed Products sublicensed to End Users.
K. DISTRIBUTOR shall be solely responsible and bear the entire expense
for the accurate translation of the Documentation, and marketing
materials into languages other than English, as may be required to
promote and implement the Licensed Product(s) in the Territory.
DISTRIBUTOR shall not be obligated to translate such materials unless
required by its customers or the laws, statutes or regulations imposed
in the Territory. Such translations shall be the sole and exclusive
property of TEMPLATE SOFTWARE and TEMPLATE SOFTWARE shall own any and
all copyrights, trade secrets, trademarks, or service marks therein
("Intellectual Property Rights") DISTRIBUTOR shall cooperate with
TEMPLATE SOFTWARE in helping to secure such Intellectual Property
Rights. DISTRIBUTOR shall have the right to use such translations
only for purposes of promoting and implementing the Licensed
Product(s) to customers in the Territory as provided under this
Agreement. DISTRIBUTOR shall provide TEMPLATE SOFTWARE with copies of
such translations. In the event of conflict between any such
translation and the corresponding English version, the meaning of the
English version shall prevail. DISTRIBUTOR shall indemnify, release
and hold harmless TEMPLATE SOFTWARE against any and all claims
resulting from or arising out of errors, misstatements,
misrepresentations or false claims in any such translations.
L. DISTRIBUTOR shall not make any express or implied representation to
its customers that the Licensed Product(s) functions, performs or is
usable on any equipment other than the equipment listed on Addendum F.
M. DISTRIBUTOR shall conduct End User training only with training
instructors who are Certified by TEMPLATE SOFTWARE in accordance with
Addendum O and only with TEMPLATE SOFTWARE's training materials (or
TEMPLATE SOFTWARE's approved translated training materials.)
N. DISTRIBUTOR represents and warrants that it is and at all times during
the Term of this Agreement shall remain in good financial condition,
solvent and able to pay its bills when due. From time to time, on
reasonable notice by TEMPLATE SOFTWARE, DISTRIBUTOR shall furnish
financial reports as necessary to determine DISTRIBUTOR's financial
condition.
ARTICLE V - SUPPORT
A. TEMPLATE SOFTWARE shall use its best efforts to ship to the
DISTRIBUTOR the English version of the Licensed Products and related
Documentation within five (5) business days after receiving copy of an
executed Sublicense Agreement between the DISTRIBUTOR and an End User.
Distributor Agreement 6
<PAGE> 7
B. Training - TEMPLATE SOFTWARE will provide training for DISTRIBUTOR's
personnel in accordance with Addendum G. Such training will take place
at TEMPLATE SOFTWARE's offices.
C. Technical Assistance - TEMPLATE SOFTWARE shall provide DISTRIBUTOR
with reasonable amounts of technical assistance with the Licensed
Product(s) by telephone, fax or E-mail during normal business hours of
TEMPLATE SOFTWARE USA and during normal business hours in the
Territory, in order that DISTRIBUTOR may acquire an understanding of
the Licensed Product(s)'s functions, operations and applications. It
is understood that over time the DISTRIBUTOR is expected to learn and
be capable of handling technical issues independently. Emergency
situations can be handled per mutual agreement.
D. Maintenance of Licensed Product(s) - TEMPLATE SOFTWARE will provide
DISTRIBUTOR maintenance of the Licensed Product(s) licensed pursuant
to Article III.A. for the Term of this Agreement in accordance with
the terms in Addendum H.
E. Updates to Licensed Product(s) - TEMPLATE SOFTWARE will provide
DISTRIBUTOR Updates during the Term of this Agreement to the Licensed
Product(s) as such Updates are officially released. TEMPLATE SOFTWARE
shall only provide support for the current version of the Licensed
Product(s) after the official release of such Updates and the previous
version of the Licensed Product(s) until three months after the
official release of the current version. TEMPLATE SOFTWARE shall ship
to the DISTRIBUTOR one copy of Updates for each End User who is under
a current End User Maintenance agreement.
F. TEMPLATE SOFTWARE SHALL NOT HAVE ANY RESPONSIBILITY TO PROVIDE
TECHNICAL ASSISTANCE, INSTALLATION, END USER MAINTENANCE OR SUPPORT
SERVICES DIRECTLY TO ANY END USER OF A LICENSED PRODUCT(S).
G. Development Plans and Suggestions - TEMPLATE SOFTWARE will inform
DISTRIBUTOR generally about all development plans for the Licensed
Product(s). DISTRIBUTOR is encouraged to make written suggestions for
future changes or enhancements to the Licensed Product(s). TEMPLATE
SOFTWARE will evaluate all such suggestions, but does not guarantee
that any of the suggestions will be implemented in future Updates.
TEMPLATE SOFTWARE reserves the right to modify, replace or add to the
Licensed Product(s) in its discretion at any time.
H. Marketing Materials - TEMPLATE SOFTWARE shall provide DISTRIBUTOR and
DISTRIBUTOR shall pay for copies of marketing materials as may be from
time to time specified in the then current Business Plan by mutual
agreement of TEMPLATE SOFTWARE and DISTRIBUTOR at the prices set forth
in Addendum I. DISTRIBUTOR shall not copy such marketing materials for
distribution. All marketing materials prepared and translated into
local languages by DISTRIBUTOR shall be reviewed and approved by
TEMPLATE SOFTWARE before their release. DISTRIBUTOR shall be
responsible for the entire cost related to the language translation of
marketing materials.
ARTICLE VI - PRICES, PAYMENT AND REPORTING
A. Prices - A copy of TEMPLATE SOFTWARE's current suggested DISTRIBUTOR
list price for the Licensed Product(s) is based upon TEMPLATE
SOFTWARE's International Price List as set forth in Addendum K.
TEMPLATE SOFTWARE reserves the right to vary its International Price
List for the Licensed Product(s) no more frequently than every six (6)
months. Any change in TEMPLATE SOFTWARE's International Price List
shall be deemed as a revision to Addendum K forty-five (45) days after
such change is published by TEMPLATE SOFTWARE. Orders based upon and
substantiated by written price quotes provided to End-Users by
DISTRIBUTOR prior to any notice of price change shall be honored for
ninety (90) days after such change is published by TEMPLATE SOFTWARE.
B. Fees - DISTRIBUTOR shall pay TEMPLATE SOFTWARE in accordance with the
DISTRIBUTOR Fee Schedule in Addendum J (i) a License Fee for each
Licensed Product sublicensed by and shipped to DISTRIBUTOR, (ii) a
Maintenance Fee for each Licensed Product(s) maintained by
DISTRIBUTOR, and (iii) a Training Fee for each training course given
by DISTRIBUTOR.
Distributor Agreement 7
<PAGE> 8
C. Orders and Invoices - DISTRIBUTOR shall place Purchase Orders with
TEMPLATE SOFTWARE to cover Licensed Product(s), maintenance and
training courses which DISTRIBUTOR intends to sublicense to End Users.
TEMPLATE SOFTWARE shall invoice DISTRIBUTOR immediately upon shipment
of the Licensed Product(s) to fulfill such Purchase Orders. These
Purchase Orders shall include the following information:
1. For new licenses:
a. Name and address and authorized contact of
End User;
b. Licensed Product identification;
c. Platform type (hardware and operating
system);
d. Number of Run-Time Versions and Development
Versions sublicensed;
e. License Fees and Maintenance Fees payable;
f. Copy of the executed Sublicense Agreement or
License Schedule between the DISTRIBUTOR and
End User; and
g. Specific shipping instructions including any
proforma invoice requirements.
2. For End User Maintenance:
a. Name of End-User;
b. Licensed Product(s) maintained (including
current hardware/operating system
configuration);
c. Maintenance Fees payable; and
d. Maintenance period.
3. For Training Courses:
a. Dates of Training Courses;
b. Training Fees payable; and
c. Number of attendees and training sets
required.
D. Sales Forecast Report - Within the first five (5) days of every
quarter, DISTRIBUTOR shall submit a Sales Forecast Report by means of
facsimile transmission. Such report shall include a projection of
potential revenue for the quarter. Information such as the names and
locations of prospects, potential order type, percentage of confidence
and estimated time of order achievement, hardware platform, and order
revenue value of the potential order is required.
F. Payment of Fees - DISTRIBUTOR shall pay invoices on the 30th day after
the end of the month in which the invoice was issued.
G. Shipping and Handling - DISTRIBUTOR shall pay TEMPLATE SOFTWARE for
Shipping and Handling in connection with the shipping of DISTRIBUTOR
requested Licensed Products and Documentation.
H. Currency - All payments shall be made payable in US dollars to
TEMPLATE SOFTWARE by wire transfer to TEMPLATE SOFTWARE's designated
bank as such designated bank may be changed upon ten (10) days written
notice to DISTRIBUTOR.
I. Late Payments - Late payments shall accrue interest at one and one
half percent per month, or the maximum rate of interest allowed by
United States law, if less.
J. Taxes, Tariffs and Duties - DISTRIBUTOR shall be solely responsible
for all sales and use taxes, VAT taxes, duties, tariffs, and other
taxes on goods or services furnished under this Agreement, provided
that TEMPLATE SOFTWARE shall be responsible for its own franchise and
income taxes. DISTRIBUTOR shall indemnify and hold harmless TEMPLATE
SOFTWARE from and against any taxes, duties, tariffs and penalties
levied by or on behalf of any taxing entity or governmental authority
with respect to the DISTRIBUTOR's obligations hereunder.
Distributor Agreement 8
<PAGE> 9
J. Expenses of DISTRIBUTOR - DISTRIBUTOR is solely responsible for any
expenses it incurs in the performance of its responsibilities under
this Agreement.
K. Audit - TEMPLATE SOFTWARE or its designee may audit DISTRIBUTOR's
books and records pertaining to the licensing of the Licensed
Product(s) and payment of applicable fees, during normal office hours,
at its own expense, on ten (10) days notice.
ARTICLE VII - WARRANTIES, LIMITATIONS OF LIABILITY, AND REMEDIES
A. Warranty of Title and Authority - TEMPLATE SOFTWARE warrants that it
owns all rights, title and interest in the Licensed Product(s), and
has full power and authority to fulfill its obligations under this
Agreement.
B. Limited Warranty of Performance - TEMPLATE SOFTWARE further warrants
for a period of ninety (90) days from the execution of this Agreement
that the Licensed Product(s) will perform in accordance with its
specifications as contained in the Documentation.
C. Disclaimer of Warranties - EXCEPT FOR THE EXPRESS WARRANTIES STATED IN
SECTIONS VII(A) AND (B), TEMPLATE SOFTWARE DISCLAIMS, AND DISTRIBUTOR
HEREBY WAIVES, ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO ANY IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE REGARDING THE LICENSED PRODUCT(S) AND
DOCUMENTATION. TEMPLATE SOFTWARE DISCLAIMS AND DISTRIBUTOR HEREBY
WAIVES, RELEASES, INDEMNIFIES AND AGREES TO HOLD HARMLESS TEMPLATE
SOFTWARE FROM ANY LIABILITY OR RESPONSIBILITY TO DISTRIBUTOR OR ANY
CUSTOMER OF DISTRIBUTOR FOR A LICENSED PRODUCT(S) THAT IS MODIFIED BY
DISTRIBUTOR OR ANY CUSTOMER OF DISTRIBUTOR IN ANY WAY.
D. The parties expressly agree that the United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this
Agreement.
E. Limitation of Remedies - In the event of a breach of the express
warranties under this Agreement, DISTRIBUTOR's exclusive remedy shall
be prompt repair or replacement by TEMPLATE SOFTWARE of defective
Licensed Product(s) or, at TEMPLATE SOFTWARE's option, a refund of all
amounts paid by DISTRIBUTOR to TEMPLATE SOFTWARE for defective
Licensed Product(s) upon return of all copies of them to TEMPLATE
SOFTWARE.
F. Exclusion of Consequential Damages - IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR INDIRECT, INCIDENTAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES,
INCLUDING LOSS OF PROFITS, OR ANY CAUSE OF ACTION ARISING UNDER OR
RELATED TO THIS AGREEMENT, WHETHER IN CONTRACT, TORT, OR STRICT
LIABILITY, EXCEPT IN ANY ACTION BASED ON THE UNAUTHORIZED DISCLOSURE,
OR USE OF CONFIDENTIAL INFORMATION OR TRADE SECRETS OF TEMPLATE
SOFTWARE; OR ANY ACTION BASED ON TEMPLATE SOFTWARE'S COPYRIGHTS,
PATENTS, TRADEMARKS, TRADE SECRETS, TRADE NAMES, OR OTHER PROPRIETARY
RIGHTS. IN NO EVENT SHALL TEMPLATE SOFTWARE BE LIABLE TO ANY
END-USER, INSOFAR AS THE SUBLICENSE AGREEMENT EFFECTIVELY SO PROVIDE,
FOR ANY INDIRECT, SPECIAL, OR CONSEQUENTIAL DAMAGES, INCLUDING,
WITHOUT LIMITATION, LOST PROFITS, COSTS OF DELAY, ANY FAILURE OF
DELIVERY, COSTS OF LOST OR DAMAGED DATA OR DOCUMENTATION, OR
LIABILITIES TO THIRD PARTIES ARISING FROM ANY SOURCE.
G. DISTRIBUTOR warrants, covenants and agrees that, in the performance of
this Agreement and in connection with the sales of Licensed
Product(s), it has not and will not in the future, directly or
indirectly offer, pay, promise to pay, or authorize the payment of any
money or offer, promise to give or authorize the giving of anything of
value to:
1. any government official, any political party or
official thereof, or any candidate for political
office; or
Distributor Agreement 9
<PAGE> 10
2. any other person while knowing or having reason to
know that all or a portion of such money or thing of
value will be offered, given or promised directly or
indirectly, to any such official, to any such
political party of official thereof, or to any
candidate for political office:
for the purpose of
1. influencing any action or decision of such official,
party or official thereof, or candidate in his or its
official capacity, including a decision to fail to
perform his or its official functions;
2. inducing such official, party or official thereof, or
candidate to use his or its influence with any
government or instrumentality thereof to effect or
influence any act or decision of such government or
instrumentality;
in order to assist DISTRIBUTOR in obtaining or retaining
business for or with or directing business to any person.
ARTICLE VIII - INTELLECTUAL PROPERTY
A. Ownership - All Licensed Product(s) and Updates shall be the sole
property of TEMPLATE SOFTWARE, including (without limitation)
ownership rights to patents, copyrights, trademarks, trade secrets and
all other property interests incidental thereto. All Licensed
Product(s), in whole or in part, shall be marked with such copyright,
patent, or other notices, proprietary legends, or restrictions as
TEMPLATE SOFTWARE may require. DISTRIBUTOR does not have the right to
transfer, and shall not attempt to transfer, TEMPLATE SOFTWARE
ownership to the Licensed Product(s).
B. Trademark -
1. This Agreement does not grant DISTRIBUTOR any right,
title, interest, or license in or to any trademark or
servicemark of TEMPLATE SOFTWARE, except as may be
approved in writing by TEMPLATE SOFTWARE.
2. DISTRIBUTOR shall have the right to register the
names "Template Software Benelux" and "SNAP" in the
Territory provided upon termination or expiration of
this Agreement the trademark rights be immediately
assigned to TEMPLATE SOFTWARE.
C. Noncompetition - DISTRIBUTOR shall act as a direct distributor for any
product that is competitive with, or that performs the same or
comparable functions as the Licensed Product(s).
ARTICLE IX - INDEMNITIES
A. By TEMPLATE SOFTWARE - TEMPLATE SOFTWARE hereby indemnifies and holds
harmless DISTRIBUTOR from and against any claims, actions, or demands
alleging that the Licensed Product(s) infringe upon any U.S. patent,
trademark, copyright, or other intellectual property right of any
third party under United States law or any state law thereof.
DISTRIBUTOR shall permit TEMPLATE SOFTWARE to replace or modify any
affected License Product(s)s so as to avoid infringement, or to
procure the right for DISTRIBUTOR to continue to use and remarket such
items. If neither alternative is reasonably possible, the infringing
items shall be returned to TEMPLATE SOFTWARE and TEMPLATE SOFTWARE's
sole liability to DISTRIBUTOR shall be to refund amounts paid for them
by DISTRIBUTOR. TEMPLATE SOFTWARE shall have no obligation and
DISTRIBUTOR shall indemnify and hold harmless TEMPLATE SOFTWARE under
this Agreement with respect to claims, actions, or demands alleging
infringement which arise by reason of the combination of non-infringing
items with any items not supplied by TEMPLATE SOFTWARE.
B. By DISTRIBUTOR - DISTRIBUTOR hereby indemnifies and holds harmless
TEMPLATE SOFTWARE from and against any claims, actions, or demands
arising with respect to this Agreement, including but not limited to
actions that arise due to DISTRIBUTOR's misrepresentation of the
Licensed Product(s) or
Distributor Agreement 10
<PAGE> 11
its relationship with TEMPLATE SOFTWARE, with the sole exception of
those matters for which TEMPLATE SOFTWARE bears responsibility under
Article IX, Section A.
C. Conditions - the foregoing indemnities are conditioned on prompt
written notice of any claim, action, or demand for which indemnity is
sought, complete control of the defense and settlement thereof by the
indemnifying party, and cooperation of the other party in such defense
or settlement.
ARTICLE X - CONFIDENTIALITY
A. Safeguarding Confidential Information - DISTRIBUTOR shall ensure that
unauthorized parties do not have access to Confidential Information.
DISTRIBUTOR shall prevent Confidential Information from being copied
or stolen. DISTRIBUTOR shall ensure that the obligation of
confidentiality is adhered to fully by any customer of DISTRIBUTOR.
DISTRIBUTOR shall limit access to Confidential Information to those
employees of DISTRIBUTOR having a specific need to know. DISTRIBUTOR
shall obtain written agreements from such employees and customers of
DISTRIBUTOR to maintain the confidentiality of the Confidential
Information. DISTRIBUTOR shall notify TEMPLATE SOFTWARE immediately
of any violation of a Licensed Product license or of any disclosure of
Confidential Information, and shall cooperate fully with TEMPLATE
SOFTWARE to cure the violation or disclosure. This Article X shall
survive termination or expiration of this Agreement.
B. Remedies - DISTRIBUTOR agrees that in the event of a breach or
threatened breach by DISTRIBUTOR, including its agents, directors, or
employees or any customer of DISTRIBUTOR, of this Article, TEMPLATE
SOFTWARE may have no adequate remedy in damages and shall be entitled
to an injunction against such breach, in addition to any other legal
or equitable remedies available to it. Any breach of this Article by
DISTRIBUTOR's agents, directors, or employees or any customer of
DISTRIBUTOR shall be the joint and several responsibility of
DISTRIBUTOR.
C. Unfair Competition - DISTRIBUTOR specifically and without reservation
agrees that its failure to observe its confidentiality, intellectual
property and indemnification obligations under this Agreement shall
constitute unfair competition and shall entitle TEMPLATE SOFTWARE to
immediate relief for breach as set forth herein.
ARTICLE XI - TERM AND TERMINATION
A. Term - This Agreement shall become effective on the date DISTRIBUTOR
and TEMPLATE SOFTWARE has executed it (whichever is later) and shall
remain in effect until December 31, 1995 ("Base Term") unless extended
or terminated as provided otherwise hereunder. Prior to the
expiration of the Base Term or the Extended Term, TEMPLATE SOFTWARE
shall have the right (but not the obligation) to renew this Agreement
for additional one (1) year periods or, if agreed, for a different
period. Any such renewal period shall be ("Extended Term").
B. Default - This Agreement may be terminated by TEMPLATE SOFTWARE for
default, if DISTRIBUTOR fails to perform any of its material
obligations under this Agreement including, but not limited to,
failure to achieve eighty-five percent (85%) of the Annual Minimum
Royalties for any given calendar year, nonpayment of any moneys due
hereunder, or misinterpretation of the Licensed Product(s) or TEMPLATE
SOFTWARE to the customer, by submitting notice in writing to
DISTRIBUTOR of such material failure, provided the material failure is
not corrected by DISTRIBUTOR within thirty (30) days from such notice.
TEMPLATE SOFTWARE may terminate this Agreement immediately, by written
notice to DISTRIBUTOR, for any subsequent failure of DISTRIBUTOR to
perform any of its material obligations under this Agreement.
TEMPLATE SOFTWARE may terminate this Agreement immediately, by written
notice to DISTRIBUTOR, if DISTRIBUTOR has achieved eighty-five percent
(85%) of the Annual Minimum Royalties for any given calendar year and
has failed to achieve one-hundred percent (100%) of such Annual
Minimum Royalties within six (6) months of the subsequent year.
TEMPLATE SOFTWARE may terminate this Agreement immediately, by written
notice to DISTRIBUTOR, if DISTRIBUTOR modifies, reverse engineers or
reverse compiles the Licensed Product(s).
Distributor Agreement 11
<PAGE> 12
C. Bankruptcy, Reorganization or Liquidation - This Agreement may be
terminated by either party, if the other party becomes subject to any
voluntary or involuntary reorganization or liquidation proceedings and
as a consequence of such proceedings this Agreement is repudiated.
D. Convenience - Either party-may terminate this Agreement for
convenience upon at least one-hundred eighty (180) days prior written
notice to the other party.
E. Rights Upon Termination or Expiration of Term
1. Upon expiration of this Agreement or termination of
this Agreement by TEMPLATE SOFTWARE, DISTRIBUTOR
shall cease to use market, promote and sublicense the
Licensed Product(s).
2. Upon termination of this Agreement by DISTRIBUTOR
under Section C of this Article, DISTRIBUTOR rights
shall be defined in accordance with Section F -
Escrow.
3. Upon any termination or expiration of this Agreement,
except for termination by DISTRIBUTOR under Section C
of this Article, TEMPLATE SOFTWARE shall assume full
responsibility for the licensing or sublicensing of
the Licensed Products and the provision of technical
and other support services to End-Users and shall be
entitled to all fees for the use of the Licensed
Products and the furnishing of such services. In
furtherance thereof, DISTRIBUTOR shall be deemed to
have assigned to TEMPLATE SOFTWARE, or such other
person or entity as TEMPLATE SOFTWARE directs, all of
its rights and obligations under any and all license
agreements that DISTRIBUTOR has entered into with
End-Users, and DISTRIBUTOR shall deliver to TEMPLATE
SOFTWARE, or to such other person, a duly executed
written assignment of such rights, together with such
other documents as may be necessary or advisable in
the reasonable opinion of TEMPLATE SOFTWARE to
effectuate such assignment.
4. No termination or expiration of this Agreement shall
affect the obligation of DISTRIBUTOR to make fee
payments which have become due to TEMPLATE SOFTWARE
prior to the effective date of such termination or
expiration.
F. Escrow - TEMPLATE SOFTWARE has and shall continue to deposit all
current versions of the Licensed Product(s) in escrow for the purpose
of maintaining a secure backup copy of the Source Code for the
protection of TEMPLATE SOFTWARE and Licensed Product(s) licenses.
Upon written request from DISTRIBUTOR, TEMPLATE SOFTWARE or its
authorized escrow agent shall release to DISTRIBUTOR one copy of the
most current version of the Source Code (and TEMPLATE SOFTWARE will
provide DISTRIBUTOR any informal documentation) for the Licensed
Product(s) upon the occurrence of one of the following events:
1. The cessation for a period of more than thirty (30)
days of all active business operations by TEMPLATE
SOFTWARE, except as provided below.
2. The filing of any bona-fide petition under the
provisions of the Federal Bankruptcy Act, or similar
federal or state statute, by or against TEMPLATE
SOFTWARE, except as provided below.
3. The application for appointment of a receiver for or
the making of a general assignment for the benefit of
creditors by TEMPLATE SOFTWARE, except as provided
below.
4. The transfer, disposition or condemnation of all or
substantially all of the assets of TEMPLATE SOFTWARE,
by whatever means accomplished, to a party not
intending to continue TEMPLATE SOFTWARE's computer
software operations.
Notwithstanding the occurrence of any of the events specified in 1.,
2., or 3. of this Section, TEMPLATE SOFTWARE or its escrow agent shall
not be required to deliver the requested Licensed Product(s) Source
Code to DISTRIBUTOR if TEMPLATE SOFTWARE or any other party has made
arrangements for the continued maintenance and support of the Licensed
Product(s).
Distributor Agreement 12
<PAGE> 13
DISTRIBUTOR may use Source Code received pursuant to this Section only
as necessary to modify, maintain and update the Licensed Product(s).
Receipt by DISTRIBUTOR of Licensed Product(s) Source Code pursuant
this Section does not affect the proprietary rights of TEMPLATE
SOFTWARE in the Licensed Product(s) or Documentation and does not
alter DISTRIBUTOR's obligation under this Agreement to protect
Confidential Information.
G. Waiver of Default - An Event of Default shall only be waived in
writing. Such writing must describe the Event of Default being
waived, state that the Event of Default is being waived and bear the
signature of the party waiving the Event of Default.
H. Waiver - This Agreement shall be only terminated or renewed as
expressly provided hereunder. DISTRIBUTOR hereby waives any and all
rights under the laws of the countries in the Territory or otherwise
to automatic renewal of this Agreement, extended termination notice or
the payment of damages, claims or costs for termination of this
Agreement by TEMPLATE SOFTWARE. DISTRIBUTOR shall indemnify, release
and hold harmless TEMPLATE SOFTWARE from any and all costs, claims and
liabilities resulting from or arising out of termination of this
Agreement by TEMPLATE SOFTWARE except as expressly provided hereunder.
I. Consequential Damages - TEMPLATE SOFTWARE shall not be liable to
DISTRIBUTOR for any consequential, exemplary, incidental or punitive
damages, regardless of whether TEMPLATE SOFTWARE has been advised of
the possibility of such damages in advance or whether such damages are
reasonably foreseeable.
ARTICLE XII - INDEPENDENT RELATIONSHIP
DISTRIBUTOR shall perform under this Agreement only as an independent
contractor. DISTRIBUTOR shall have the sole obligation to supervise, manage,
contract, direct, procure, perform or cause to be performed its obligation
under this Agreement. Nothing set forth in this Agreement shall be construed
to create the relationship of principal and agent between TEMPLATE SOFTWARE and
DISTRIBUTOR. DISTRIBUTOR shall not act or attempt to act or represent itself,
directly or by implication, as an agent of TEMPLATE SOFTWARE or in any manner
assume or create, or attempt to assume or create, any obligation on behalf of,
or in the name of TEMPLATE SOFTWARE. DISTRIBUTOR shall be solely responsible
for all taxes, duties, tariffs and insurance of its activities under this
Agreement, including import duties, VAT taxes, franchise taxes,
employment-related taxes, federal, state, and local income taxes, and
liability, health, and disability insurance. DISTRIBUTOR hereby waives and
agrees to indemnify and hold harmless TEMPLATE SOFTWARE against any claims and
costs resulting from a breach of this Article XII.
ARTICLE XIII - NOTICES
All notices or other communications required or contemplated herein shall be
deemed received (i) upon personal delivery in writing, (ii) upon confirmed
receipt of a wire communication (telex, twx, datafax, etc.), (iii) one day after
delivery by express courier, or (iv) three days after mailing by U.S. mail,
return receipt requested, to the other party's Contract Administrator at the
address below. Either party may change its address for notification purposes
by written notice to the other party.
A. For TEMPLATE SOFTWARE
1. Contract Administrator:
Director of Finance & Contracts, 13100 Worldgate Drive,
Herndon, Virginia 22070.
2. Technical Liaison:
Director of Customer Support, 13100 Worldgate Drive, Herndon,
Virginia 22070.
Distributor Agreement 13
<PAGE> 14
B. For DISTRIBUTOR
1. Contract Administration:
-----------------------------------------------------------
2. Technical Liaison:
-----------------------------------------------------------
C. The Technical Liaison may clarify, explain, provide further details,
handle necessary technical matters, implement technical aspects, and
develop administrative procedures, but shall have no authority to
change any of the terms of this Agreement.
ARTICLE XIV - MISCELLANEOUS
A. Force Majeure - Neither party is liable for delay or failure in
performance resulting from acts beyond the reasonable control of such
party, including, but not limited to, any acts or omissions of any
government or governmental authority, natural disaster, act of a
public enemy, riot, sabotage, disputes or differences with workmen,
acts of terrorism, power failure, delays in transportation, acts of
God, or any events reasonable beyond the control of the parties.
B. Disputes - Any disputes arising under this Agreement relating to
payment shall be finally settled under the Rules of Conciliation and
Arbitration of the International Chamber of Commerce by one or more
arbitrators appointed in accordance with the said rules. In the event
of litigation or arbitration under this Agreement, the prevailing
party shall be entitled to recover its reasonable attorney's fees.
C. Assignment - Any assignments hereunder by DISTRIBUTOR without the
written consent of TEMPLATE SOFTWARE shall be void.
D. Severability - In the event that any provision hereof is found invalid
or unenforceable pursuant to judicial decree or decision, the
remainder of this Agreement shall remain valid and enforceable
according to its terms. WITHOUT LIMITING THE FOREGOING, IT IS
EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF THIS
AGREEMENT THAT PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF
WARRANTIES, OR EXCLUSION OF DAMAGES IS INTENDED BY THE PARTIES TO BE
SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO BE ENFORCED AS
SUCH. FURTHER, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT IN THE EVENT
ANY REMEDY HEREUNDER IS DETERMINED TO HAVE FAILED OF ITS ESSENTIAL
PURPOSE, ALL OTHER LIMITATIONS OF LIABILITY AND EXCLUSION OF DAMAGES
SET FORTH HEREIN SHALL REMAIN IN FULL FORCE AND EFFECT.
E. Survival - The parties' rights and remedies relating to payment,
indemnification, liability and confidential and proprietary
information shall survive termination or expiration of the term of
this Agreement.
F. Choice of Law - This Agreement shall be governed by law of the
Commonwealth of Virginia, USA except for its rules on conflicts of
laws. Venue shall be in the Commonwealth of Virginia, United States
of America.
G. Compliance With Law - DISTRIBUTOR shall comply with all applicable
country, federal, state, and local laws and regulations in performing
its duties hereunder and in any of its dealings with respect to the
Licensed Product(s).
H. No Third Party Beneficiaries - The parties do not intend this
Agreement to create any enforceable rights by any third party.
I. Waiver - The waiver by either party of any provision or breach of this
Agreement shall not waive any other term or succeeding breach. Any
such waiver must be in writing.
Distributor Agreement 14
<PAGE> 15
J. DISTRIBUTOR may transfer all rights hereunder in this Agreement to
Template Software Benelux b.v., which is in the process of
incorporation, represented by its founder RCC Informatieservices b.v.,
provided after incorporating, such incorporation is approved by
TEMPLATE SOFTWARE.
K. Entire Agreement - This Agreement, including its Addenda, is the
complete, final, and exclusive understanding between the parties
relating to its subject matter. This Agreement may not be modified or
supplemented except in a writing signed by both parties.
Template Software, Inc.
SIGNATURE: /s/ E. L. PEARCE
----------------------------------
NAME AND TITLE: E. L. Pearce, Chief Executive Officer
-----------------------------
DATE: August 12, 1993
---------------------------------------
DISTRIBUTOR
SIGNATURE: [SIG]
----------------------------------
NAME AND TITLE:
-----------------------------
DATE:
---------------------------------------
Distributor Agreement 15
<PAGE> 16
[RCC LETTERHEAD]
Template Software, Inc.
Attn. E.L. Pearce
13100 Worldgate Drive
Suite 340
Herndon
Virginia 22070-4382
USA
Ons kenmerk Inlichtingen bij Bijlagen Datum
U/95002112 E.H. van Valen 10 maart 1995
Uw brief Telefoon Onderwerp
3100 Distributor Agreement
Dear Lin,
Template Software Benelux b.v. has been incorporated and acts as the
distributor for the Benelux countries for more than one year now.
RCC wishes to transfer all rights of the Distributor Agreement, signed August,
1993, to Template Benelux b.v. according to ARTICLE XIV, Section J during the
period Template Software Benelux b.v. executes these activities.
Upon receival of the signed copy, we expect all communications with regards to
the Distributor Agreement or other business or technical issues to be handled
via Template Software Benelux b.v.
Furthermore we like to renew the Distributor Agreement according to ARTICLE XI,
Section A for at least one year, so it remains in effect until December 31,
1996.
Whenever Template Software Benelux b.v. terminates these activities all rights
of the Distributor Agreement return automatically to RCC informatieservices
b.v.
We would be pleased if you would sign the three copies of this letter and
return two of them to us.
Kind regards,
for approval,
/s/ E.H. VAN VALEN /s/ A. VELSTRA /s/ E.L. PEARCE
- ------------------ -------------- ---------------
E.H. van Valen A. Velstra E.L. Pearce
director Marketing director Template Software Inc.
& Sales Template Software
RCC informatie- Benelux b.v.
services b.v.
<PAGE> 17
[TEMPLATE SOFTWARE LETTERHEAD]
May 31, 1996
Mr. A. Velstra
Contemplate BV I.O.
per address Template Software Benelux B.V.
Fultonbann 16
3439 NE Nieurwegein
The Netherlands
Dear Mr. Velstra,
Based on the transfer of ownership of all of the Template Software Benelux B.V.
shares from RCC Information Services B.V. to Contemplate B.V.I.O., a start up
company owned by A. Velstra, now Director of Template Software Benelux B.V., we
confirm the following:
Template Software, Inc. hereby approves and authorizes the transfer of the
existing Distributor Agreement from RCC Information Services B.V. to
Contemplate B.V.I.O.
Template Software, Inc. and Contemplate B.V.I.O. hereby agree to enter into a
new Distributor Agreement for a three (3) year period ending December 31, 1999
on or before December 31, 1996 with (i) substantially similar terms to the
current Distributor Agreement, (ii) Annual Minimum Royalties, exclusive of
maintenance royalties, according to Addendum L equal to $175,000 - 1997,
$225,000 - 1998 and $275,000 - 1999, (iii) an option for Template Software Inc.
to purchase all or part of the shares in Template Software Benelux B.V. at a
fair and reasonable price if Template Software, Inc. decides to go public, or
if the parties agree that it is of mutual benefit, and (iv) the elimination of
language agreed to in the RCC letter dated March 10 1996: "whenever Template
Software Benelux B.V. terminates these activities all rights of the Distributor
Agreement return automatically to RCC Information Services B.V.".
Please sign below and return a copy to me for our files.
Regards, Agreed:
/s/ E. I. FEARCO /s/ A. VELSTRA
- ---------------- --------------
E. I. Fearco A. Velstra
Chief Executive Officer Managing Director
Template Software, Inc. Template Software Benelux B.V.
<PAGE> 1
EXHIBIT 10.14
OFFICE BUILDING LEASE
FOR
TEMPLATE SOFTWARE, INC.
CRYSTAL SQUARE THREE
Suite 700
Arlington, Virginia 22202
CHARLES E. SMITH MANAGEMENT, INC.
2345 Crystal Drive
Crystal City
Arlington, Virginia 22202
Charles E. Smith Companies
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TABLE OF CONTENTS
SPECIFIC AND GENERAL PROVISIONS
PAGE
----
1. SPECIFIC PROVISIONS ............................................... 1
2. RENT .............................................................. 4
2.1 Base Annual Rent ............................................ 4
2.2 Additional Rent ............................................. 4
(a) Real Estate Taxes ...................................... 4
(b) Operating Expenses ...................................... 4
(c) CPI ..................................................... 4
(d) Changes in Landlord's Fiscal Year ....................... 4
2.3 Additional Rent Estimates and Adjustments ................... 4
2.4 Rent Adjustment Limit ....................................... 5
2.5 Survival of Rent Obligations ................................ 5
2.6 Pro Rata Share .............................................. 5
2.7 Prorated Rent ............................................... 5
2.8 Applications of Rent ........................................ 5
2.9 Late Payment Fee ............................................ 5
2.10 Other Tenant Costs and Expenses ............................. 5
3. CONSTRUCTION OF PREMISES AND OCCUPANCY ............................ 6
3.1 Tenant Plans, Construction and Rent Liability ............... 6
3.2 Possession .................................................. 6
3.3 Occupancy Permits ........................................... 6
4. SUBLETTING AND ASSIGNMENT ......................................... 6
4.1 Consent ..................................................... 6
4.2 Recapture of Premises ....................................... 6
4.3 Excess Rent ................................................. 7
4.4 Tenant Liability ............................................ 7
5. SERVICES AND UTILITIES ............................................ 7
5.1 Building Standard Services and Utilities .................... 7
5.2 Overtime Services ........................................... 7
5.3 Excessive Electrical Usage .................................. 7
5.4 Excessive Heat Generation ................................... 7
5.5 Security .................................................... 8
6. USE AND UPKEEP OF PREMISES ........................................ 8
6.1 Use ......................................................... 8
6.2 Illegal and Prohibited Uses ................................. 8
6.3 Insurance Rating ............................................ 8
6.4 Alterations ................................................. 8
6.5 Maintenance By Landlord ..................................... 9
6.6 Signs & Advertising ......................................... 9
6.7 Excessive Floor Load ........................................ 9
6.8 Moving & Deliveries ......................................... 9
6.9 Rules and Regulations ....................................... 9
6.10 Tenant Maintenance & Conditions of Premises Upon Surrender... 10
6.11 Tenant Equipment ............................................ 10
7. ACCESS ............................................................ 10
7.1 Landlord's Access ........................................... 10
7.2 Restricted Access ........................................... 10
8. LIABILITY ......................................................... 10
8.1 Personal Property ........................................... 10
8.2 Criminal Acts of Third Parties .............................. 10
8.3 Public Liability ............................................ 10
8.4 Tenant Insurance ............................................ 10
9. DAMAGE ............................................................ 11
9.1 Damages Caused by Tenant .................................... 11
9.2 Fire or Casualty Damage ..................................... 11
9.3 Untenantability ............................................. 11
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10. CONDEMNATION ...................................................... 11
10.1 Landlord Rights to Award ................................ 11
10.2 Tenant Right to File Claim .............................. 12
11. BANKRUPTCY ........................................................ 12
11.1 Events of Bankruptcy .................................... 12
11.2 Landlord's Remedies ..................................... 12
12. DEFAULTS & REMEDIES ............................................... 13
12.1 Default ................................................. 13
12.2 Remedies ................................................ 13
12.3 Landlord's Right to Relet ................................ 13
12.4 Recovery of Damages ..................................... 13
12.5 Waiver .................................................. 13
12.6 Anticipatory Repudiation ................................ 14
12.7 Tenant Abandonment of Premises .......................... 14
13. SUBORDINATION ..................................................... 14
13.1 Subordination ........................................... 14
13.2 Estoppel Certificate .................................... 14
13.3 Attornment .............................................. 15
13.4 Mortgagee Rights ........................................ 15
14. TENANT HOLDOVER ................................................... 15
14.1 With Landlord Consent ................................... 15
14.2 Without Landlord Consent ................................ 15
15. SECURITY DEPOSIT .................................................. 16
16. QUIET ENJOYMENT ................................................... 16
17. SUCCESSORS ........................................................ 16
18 WAIVER OF JURY TRIAL .............................................. 16
19. REASONABLENESS OF LANDLORD AND TENANT ............................. 16
20. PRONOUNS & DEFINITIONS ............................................ 16
21. NOTICES ........................................................... 16
21.1 Addresses for Notices ..................................... 16
21.2 Effective Date of Notice .................................. 16
22. EXHIBITS; SPECIAL PROVISIONS ...................................... 16
22.1 Incorporation in Lease .................................... 16
22.2 Conflicts ................................................. 17
23. CAPTIONS .......................................................... 17
24. ENTIRE AGREEMENT, MODIFICATION .................................... 17
25. SEVERABILITY ...................................................... 17
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This Lease, made this 15th day of February, 1996, between THIRD BALL
ASSOCIATES LIMITED PARTNERSHIP, a Virginia limited partnership, (hereinafter
referred to as "Landlord"), and TEMPLATE SOFTWARE, INC., a Virginia
corporation, (hereinafter referred to as "Tenant").
Landlord, for and in consideration of the covenants and agreements set
forth hereinafter, leases to Tenant, and Tenant leases from Landlord, the
premises described, for the use set forth and for the term and at the rent
reserved herein.
1. SPECIFIC PROVISIONS
1.1 DEMISED PREMISES
(a) SPACE DESCRIPTION: Suite 702.
(b) FLOOR AREA: Approximately 1,739 square feet (Washington D.C.
Association of Realtors Standard Floor Area Measure in
effect at the time of execution of this Lease).
(c) BUILDING: CRYSTAL SQUARE THREE
(d) ADDRESS: 1735 Jefferson Davis Highway
Arlington, Virginia 22202
1.2 TERM OF LEASE: Three (3) years and Six (6) months, commencing on
February 1, 1996 ("Lease Commencement Date"), and expiring on July
31, 1999, both dates inclusive.
1-3 BASE ANNUAL RENT: Forty-Six Thousand Eighty-Three and 48/100 Dollars
($46,083.48), payable in equal monthly installments of Three
Thousand Eight Hundred Forty and 29/100 Dollars ($3,840.29),
hereinafter referred to as "base monthly rent", for the first year.
Thereafter, see Section 26.1.
1.4 BASE YEAR: "Base Year" shall mean fiscal year of Landlord ending
December 31, 1996.
1.5 ADDITIONAL RENT: Payable in equal monthly installments, commencing
on February 1, 1997, consisting of the following:
(a) Tenant's pro rata share equal to Eighty-One Hundredths of One
Percent (.81%) of any increase in Real Estate Taxes over the
Base Year Real Estate Taxes; and
(b) Tenant's pro rata share equal to Eighty-One Hundredths of One
Percent (.81%) of any increase in Operating Expenses over the
Base Year Operating Expenses; and
(c) Not Applicable.
1
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1.6 SECURITY DEPOSIT: Three Thousand Eight Hundred Forty and 29/100 Dollars
($3,840.29).
1.7 (a) DATE TENANT APPROVED PRELIMINARY PLANS TO BE FURNISHED:
Not Applicable.
(b) WORKING DAYS TO PREPARE WORKING DRAWINGS AND COST
ESTIMATE: Not Applicable.
(c) WORKING DAYS TO SUBSTANTIALLY COMPLETE CONSTRUCTION OF
DEMISED PREMISES: Not Applicable.
1.8 STANDARD BUILDING OPERATING DAYS AND HOURS:
8:00 AM to 6:00 PM Monday - Friday
8:00 AM to 1:00 PM Saturday
1.9 USE OF PREMISES:
General office use in keeping with the quality and nature of this first
class office building.
1.10 (a) ADDRESS FOR NOTICES TO TENANT:
Template Software, Inc.
1735 Jefferson Davis Highway
Suite 702
Arlington, Virginia 22202
(b) ADDRESS FOR NOTICES TO LANDLORD:
Third Ball Associates Limited Partnership
c/o Charles E. Smith Management, Inc.
2345 Crystal Drive
Arlington, Virginia 22202
ADDRESS FOR PAYMENT OF RENT:
Third Ball Associates Limited Partnership
c/o Charles E. Smith Management, Inc.
P.O. Box 641472
Pittsburgh, PA 15264-1472
1.11 SPECIAL PROVISIONS:
Rent Section 26
Waiver of Rent Section 27
Landlord's Improvements Section 28
Accrual of Rent Obligation Section 29
Construction of Premises and Occupancy Section 30
Parking Section 31
Reasonableness of Landlord and Tenant Section 32
Signage and Directory Section 33
Subletting and Assignment Section 34
Use and Upkeep of Premises Section 35
Defaults and Remedies Section 36
Tenant Holdover Section 37
Execution of Document Section 38
2
<PAGE> 6
1.12 EXHIBITS TO LEASE:
Exhibit "A" - Not Applicable
Exhibit "B" - Not Applicable
Exhibit "C" - Building Rules and Regulations
Exhibit "D" - Not Applicable
IN WITNESS WHEREOF, Landlord has caused this Lease, comprised of
Specific Provisions, General Provisions, Special Provisions and Exhibits to
be signed and sealed by one or more of its Officers, General Partners,
Trustees, or Agents, and Tenant has caused this Lease, as described above,
to be signed in its corporate name by its duly authorized officer and its
corporate seal to be hereto affixed and duly attested by its Secretary.
WITNESS: LANDLORD: THIRD BALL ASSOCIATES
LIMITED PARTNERSHIP
/s/ BY /s/ (SEAL)
------------------------------- -------------------------------
Agent
ATTEST: TENANT: TEMPLATE SOFTWARE,
INC.
CORPORATE /s/ BY /s/ Kimberly Osgood (SEAL)
SEAL ---------------------------- -------------------------------
Secretary Name: Kimberly Osgodd
Title: VP-Administration
3
<PAGE> 7
GENERAL PROVISIONS
2. RENT
2.1 BASE ANNUAL RENT. Tenant shall pay monthly installments of Base
Annual Rent specified in Section 1.3 in advance without deduction or demand, on
the first day of each and every calendar month throughout the entire term of the
Lease, as specified in Section 1.2. to and at the office of Landlord's Agent,
Charles E Smith Management, Inc., 2345 Crystal Drive, Arlington, Virginia
22202, or to such other person or at such other place as Landlord may hereafter
designate in writing.
2.2 ADDITIONAL RENT. For purposes of computing additional rent
hereunder, the Base Year as used in this Section 2 is stipulated in Section 1.4.
If dollar amounts for Base Year real estate taxes and operating expenses are
stipulated under Section 1.4, such dollar amounts shall be used in calculating
additional rent for the purposes of this Lease and shall prevail regardless of
actual historical dollar amounts for the Base Year. Commencing on the date
specified in Section 1.5, and continuing throughout the term of this Lease,
Tenant shall pay to Landlord as additional rent each of the following:
(a) REAL ESTATE TAXES. Tenant's pro rata share, as indicated in
Section 1.5(a), of any increase in real estate taxes during each fiscal year of
Landlord over the Base Year real estate taxes. The term "real estate taxes"
shall mean all taxes, general and special, levied or assessed on the land and
the building improvements of which the Demised Premises is a part, and on any
land and/or improvements now or hereafter owned by Landlord that provide the
building or the Demised Premises with parking or other services.
(b) OPERATING EXPENSES. Tenant's pro rata share, as indicated
in Section 1.5 (b), of any increase in operating expenses during each fiscal
year of Landlord over the Base Year operating expenses.
(i) The term "operating expenses" shall mean any and all
expenses incurred by Landlord in connection with the servicing, operation,
maintenance and repair of the building and related interior and exterior
appurtenances of which the Demised Premises is a part, and the cost of any
services incurred in order to achieve a reduction of or to minimize the increase
in operating expenses, including without limitation management fees, capital
expenditures for equipment or systems installed to reduce or minimize increases
in operating expenses and capital expenditures required by any governmental
ordinance, or depreciation or amortization based on the useful life expectancy
of such equipment or systems or expenditures, the cost of contesting the
validity or amount of real estate taxes, and periodic increases in ground rent
payments under any ground Lease existing at the execution of this Lease. Certain
of these expenses may be apportioned among two or more buildings in the same
complex or locality owned by Landlord and/or managed by Landlord's Agent.
(ii) Operating expenses shall not include any of the
following, except to the extent that such costs and expenses are included in
operating expenses as described in Subsection 2.2(b)(i) above: capital
expenditures and depreciation of the building; painting or decorating of tenant
space; interest and amortization of mortgages; ground rent; compensation paid to
officers or executives of Landlord; taxes as measured by the net income of
Landlord from the operation of the building; increases in real estate taxes; and
brokerage commissions.
(c) CPI. A percentage of the Base Annual Rent equal to the
percent stipulated in section 1.5(c) of the percentage increase in the Index now
known as "United States Bureau of Labor Statistics, Consumer Price Index for
Urban Wage Earners and Clerical Workers," (CPI-W) for Washington, DC-MD-VA, all
items Index (1982-84=100) (hereinafter referred to as the "Index"), between the
last published Index published for each calendar year and the Index for the same
period in the year stipulated in Section 1.5(c) (hereinafter "base period"). If
such Index shall be discontinued or revised without substitution of a comparable
successor Index, the parties shall attempt to agree upon a substitute formula.
If the parties are unable to agree upon a substitute formula, then the matter
shall be determined by arbitration in accordance with the rules of the American
Arbitration Association then prevailing. Any substitute formula determined by
arbitration shall include all of the same items included in the Index effective
at the execution of this Lease and shall be so designed as to achieve a result
as close as possible to the result that would have been achieved if the
discontinued Index were available. Costs of any such arbitration shall be shared
equally by Tenant and Landlord.
(d) Landlord shall have the right to change its fiscal year from
time to time. If Landlord changes its fiscal year during the term of this Lease,
thereby creating a fiscal year with fewer than twelve (12) months (hereinafter
"short year"), the real estate taxes and operating expenses for the short year
shall be determined on an annualized basis by taking the monthly average of the
actual real estate taxes and operating expenses, respectively, and multiplying
each by twelve. The amounts determined by this method shall be used in
determining the increases described in Subsections 2.2(a) and (b) for the "short
year".
2.3 ADDITIONAL RENT ESTIMATES AND ADJUSTMENTS.
(a) In order to provide for current monthly payments of
additional rent, Landlord shall submit to Tenant prior to January 1st of each
year a statement of Landlord's estimate of the amount of the increases described
in Section 2.2 above together with the amount of Tenant's additional rent which
is estimated to result from such increases. Commencing on the date stipulated in
Section 1.5, and continuing throughout the remaining term of this Lease, Tenant
shall pay each month one-twelfth (1/12th) of Tenant's pro rata share of
Landlord's estimate of the increase in each year for (i) real estate taxes and
(ii) operating expenses, over such items for the Base Year. In addition, Tenant
shall pay each month one-twelfth (1/12th) of Landlord's estimate of the annual
rent increase due to the percentage increase in the Consumer Price Index over
the Base Period.
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(b) If payment of additional rent begins on a date other than
January 1st under this Lease, in order to provide for current payments of
additional rent through December 31st of that partial calendar year, Landlord
shall submit to Tenant a statement of Landlord's estimate of Tenant's additional
rent for that partial year, stated in monthly increments, resulting from the
increases described in Section 2.2 above. Tenant shall make these payments of
estimated additional rent together with its installments of base monthly rent.
(c) After the end of each calendar year, Landlord will as soon
as practicable submit to Tenant a statement of the actual increases incurred in
real estate taxes and operating expenses for the fiscal year ended during such
calendar year over such costs for the Base Year and the actual increase
attributable to the increase in the Consumer Price Index over the Base Period.
Such statement shall also indicate the amount of Tenant's excess payment or
underpayment based on Landlord's estimate. If additional rent paid by Tenant
during the preceding calendar year shall be in excess of, or less than, the
aggregate of its share of the actual increase incurred by Landlord for real
estate taxes and operating expenses, and the actual increase attributable to the
increase in the Consumer Price Index, Landlord and Tenant agree to make the
appropriate adjustment following the submission of Landlord's statement. Tenant
shall either pay any additional rent due with the installment of rent due for
the month following submission of Landlord's statement, or pay any additional
rent due within thirty (30) days if the Lease term has expired or is otherwise
terminated. Tenant shall deduct its excess payment, if any, from the installment
of rent for such month, or following the final year of the Lease term, Tenant
shall be reimbursed for any excess payments made.
(d) Within ten (10) days after receipt of Landlord's statement
showing actual figures for the year, Tenant shall have the right to request
copies of real estate bills and an unaudited statement of "operating expenses of
the building" prepared by Landlord's certified public accountant, which shall be
supplied to Tenant within a reasonable time after Tenant's written request.
Unless Tenant asserts specific error(s) within thirty (30) days after Landlord
has complied with Tenant's request, Tenant shall have no right to contest the
statement of actual figures for the year submitted by Landlord. No such request
shall extend the time for payments as set forth in this Section 2.3 above. If
Tenant has given proper notice, and if it shall be determined that there is an
error in Landlord's statement, Tenant shall be entitled to a credit for any
overpayment, which shall be applied to the next installment of rent or refunded
to a Tenant who has vacated the premises, or Tenant shall be billed for any
underpayment and shall remit any amount owing to Landlord within ten (10) days
of receipt of such statement.
(e) In the event Tenant questions the validity of the
statement of operating expenses submitted by Landlord, Tenant shall have the
right to examine or have its accountant examine at the office of Landlord's
accountant the books and records from which such statement has been prepared. No
such examination shall extend the time for payments due in accordance with this
Section 2.3, however, Tenant shall pay upon demand a reasonable sum to reimburse
Landlord for the costs of services of Landlord's accountant in cooperating and
assisting in the examination. If any error amounting to more than five (5)
percent in the operating expenses statement is found, Landlord shall bear its
accountant's costs as aforesaid.
2.4 RENT ADJUSTMENT LIMIT. Notwithstanding any adjustments to rent as
provided for above, in no event shall the total rent to be paid by tenant in any
month during the term of this Lease or any extension thereof be less than the
base monthly rent stipulated in Section 1.3.
2.5 SURVIVAL OF RENT OBLIGATION. The obligation of Tenant with
respect to the payment of rent, or additional rent as defined in Sections 2.2
and 2.10, accrued and unpaid during the term of the Lease, shall survive the
expiration or earlier termination of the Lease.
2.6 PRO RATA SHARE. Tenant's "pro rata share" stipulated in Section
1.5(a) and (b) represents the ratio that the area of the Demised Premises bears
to the total rentable area of office space contained in the building.
2.7 PRORATED RENT. Any rent or additional rent payable for one or
more full calendar months in a partial calendar year at the beginning or end of
the Lease term shall be prorated based upon the number of months. Any rent or
additional rent payable for a portion of a month shall be prorated based upon
the number of days in the applicable calendar month.
2.8 APPLICATION OF RENT. No payment by Tenant or receipt by Landlord
of lesser amounts of rent or additional rent than those herein stipulated shall
be deemed to be other than on account of the earliest unpaid stipulated rent. No
endorsement or statement on any check or any letter accompanying any check or
payment as rent shall 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 rent or pursue any other remedy provided in this Lease. Any
credit due to Tenant hereunder by reason of overpayment of additional rent shall
first be applied to any damages or rent owed to Landlord by Tenant if Tenant
shall be in default when said credit shall be owed.
2.9 LATE PAYMENT FEE. In the event any installment of rent or
additional rent due hereunder is not paid within ten (10) calendar days after it
is due, then Tenant shall also pay to Landlord as additional rent a late payment
fee equal to five percent (5%) of such delinquent rent for each and every month
or part thereof such rent remains unpaid.
2.10 OTHER TENANT COSTS & EXPENSES. All costs and expenses which
Tenant assumes or agrees to pay to Landlord pursuant to this Lease, including
without limitation costs of construction and alterations, shall be deemed
additional rent and, in the event of nonpayment thereof, Landlord shall have all
the rights and remedies herein provided for in case of nonpayment of rent,
including assessment of late payment fees.
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3. CONSTRUCTION OF PREMISES AND OCCUPANCY
3.1 TENANT PLANS, CONSTRUCTION AND RENT LIABILITY. Tenant shall
deliver to Landlord for its approval, by the date specified in Section 1.7(a),
preliminary plans approved in writing by Tenant showing its partition,
electrical, telephone and all other requirements set forth in Tenant Plans
Guidelines (which shall have been provided by Landlord to Tenant). Tenant
preliminary plans shall permit the preparation of working drawings and cost
estimate, and shall be certified by Tenant's architects or engineers to be in
compliance with applicable building and fire codes. Landlord's approval of
Tenant plans or work does not constitute certification by Landlord that said
plans or work meet the applicable requirements of any building codes, laws, or
regulations, nor shall it impose any liability whatsoever upon Landlord. If
Tenant's plans are not in compliance with applicable building and fire codes,
they shall have working drawings prepared. Nothing contained in this Section
3.1, nor any delay in completing the Demised Premises, shall in any manner
affect the commencement date of this Lease set forth in Section 1.2 or Tenant's
liability for the payment of rent from such commencement date, expect as
follows. If Landlord requires longer than the number of working days
stipulated in Section 1.7(b) to prepare working drawings and prepare the cost
estimate following receipt of Tenant's approved preliminary drawings, or if
Landlord requires longer than the number of working days stipulated in Section
1.7(c) to substantially complete construction improvements in the Demised
Premises, then the date for payment of rent covenanted and reserved to be paid
herein shall be put off by one day for each extra day Landlord requires for the
foregoing preparation of working drawings and cost estimate and/or substantial
completion of construction improvements. For purposes of this Section 3.1,
substantial completion of construction improvements shall mean when all work to
be performed by Landlord pursuant to the approved working drawings has been
completed, except for minor items of work and minor adjustments of equipment
and fixtures that can be completed after occupancy of the Demised Premises
without causing undue interference with Tenant's reasonable use of the Demised
Premises (i.e., so-called "punch-list" items). In the event Tenant's plans
Specify any improvements that are not building standard, however, the delivery
and installation of which precludes Landlord from completing the Demised
Premises for Tenant's occupancy by the commencement date hereof, or in the
event any work to be performed by Tenant or Tenant's contractors delays
Tenant's occupancy by the commencement date hereof, Tenant shall nevertheless
remain liable for the payment of rent from such commencement date.
3.2 POSSESSION. If Landlord shall be unable to tender
possession of the Demised Premises on the date of the commencement of term
hereof, set forth in Section 1.2, by reason of: (a) the fact that the premises
are located in a building being constructed and which has not been sufficiently
completed to make the premises ready for occupancy; (b) the holding over or
retention of possession of any tenant or occupant; or (c) for any other reason
beyond control of Landlord, Landlord shall not be subject to any liability for
the failure to tender possession on said date. In the case of holding over,
provided Landlord shall promptly institute suit for recovery of the premises
and diligently pursue the same, Landlord shall have no responsibility for any
delay in tendering possession of the Demised Premises. Under such
circumstances the rent reserved and covenanted to be paid herein shall not
commence until possession of the Demised Premises is tendered to Tenant. No
such failure to give possession on the date of commencement of the term shall
in any other respect affect the validity of this Lease or the obligations of
Tenant hereunder, nor shall same be construed to extend the termination date of
this Lease set forth in Section 1.2. If permission is given to Tenant to enter
into possession of the Demised Premises prior to the date specified as the
commencement of the term of this Lease, Tenant covenants and agrees that such
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this Lease, except that Tenant shall be responsible for payment
of rent, in advance, at the rate of 1/30th of the base monthly rent set forth
in Section 1.3 for each day of such occupancy prior to the date for the
commencement of the term of this Lease.
3.3 OCCUPANCY PERMITS. Tenant shall be responsible for obtaining
occupancy permits and any other permits or licenses necessary for its lawful
occupancy of the Demised Premises.
4. SUBLETTING AND ASSIGNMENT
4.1 CONSENT. Tenant will not sublet the Demised Premises or any part
thereof or transfer possession or occupancy thereof to any person, firm or
corporation, or transfer or assign this Lease, without the prior written
consent of Landlord, which consent shall be in Landlord's sole discretion to
give or withhold. No subletting or assignment hereof shall be effected by
operation of law or in any other manner unless with prior written consent of
Landlord. Tenant further agrees that any permitted subletting of the Demised
Premises shall be subject to the provisions of Section 4.3. No assignment
shall be made except for the entire premises demised by this Lease. Tenant
further agrees that any permitted assignment of the Lease may be conditioned
upon payment of consideration to be agreed upon by Landlord and Tenant. Any
subletting or conditioned upon payment of consideration to be agreed upon
by Landlord and Tenant. Any subletting or assignment consented to by Landlord
shall be evidenced in writing in a form acceptable to Landlord. Consent by
Landlord to any assignment or subletting by Tenant shall not operate as a
waiver of the necessity for obtaining Landlord's consent in writing to any
subsequent assignment or subletting; nor shall the collection or acceptance of
rent from any such assignee, subtenant or occupant constitute a waiver or
release of Tenant of any covenant or obligation contained in this Lease. In
the event that Tenant defaults under this Lease in the payment or rent or
additional rent, Tenant hereby assigns to Landlord the rent due from any
subtenant of Tenant and hereby authorizes each such subtenant to pay said rent
directly to Landlord.
4.2 RECAPTURE OF PREMISES. In the event Tenant desires to sublet the
Demised Premises or assign the Lease, Tenant shall give the Landlord written
notice of Tenant's intended subtenant or assignee in order to secure Landlord's
written consent in accordance with Section 4.1. Within ninety (90) days of
receipt of said notice, Landlord shall have the right: (i) to terminate this
Lease by giving Tenant not less than thirty (30) days' notice in the case of an
assignment of the entire Lease or a subletting of more than fifty percent (50%)
of the Demised Premises; or (ii) to terminate this Lease and simultaneously to
enter into a new Lease with
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Tenant for that portion of the Demised Premises Tenant may desire to retain upon
the same terms, covenants and conditions of the existing Lease as applicable to
the space retained. If Landlord exercises its right to terminate this Lease,
Tenant agrees that Landlord shall have access to all or a portion of the Demised
Premises sixty (60) days prior to the effective termination date for remodeling
or redecorating purposes.
4.3 EXCESS RENT. In the event Landlord does not exercise its right to
terminate this Lease, and Landlord has granted its written consent, Tenant may
sublet all or a portion of the Demised Premises. Any rent accruing to Tenant as
the result of such sublease, which is in excess of the pro rata share of rent
then being paid by Tenant for the portion of the Demised Premises being sublet,
shall be paid by Tenant to Landlord monthly as additional rent.
4.4 TENANT LIABILITY. In the event of any subletting of the Demised
Premises or assignment of this Lease by Tenant, with or without Landlord's
consent, Tenant shall remain liable to Landlord for payment of the rent
stipulated herein and all other covenants and conditions contained herein.
5. SERVICES AND UTILITIES
5.1 BUILDING STANDARD SERVICES AND UTILITIES. Landlord shall furnish
sufficient electric current for lighting and office equipment, such as
typewriters, calculators, small copiers and similar items, subject to the
limitations of Section 5.3, water for lavatory and drinking purposes, lavatory
supplies, fluorescent tube replacements, automatically operated elevator service
and nightly cleaning service in accordance with Landlord's prevailing practices,
as they may be established from time to time, except that Landlord shall not be
responsible for cleaning Tenant kitchens or private bathrooms, Tenant rugs,
carpeting and drapes. Landlord further agrees to furnish heating and cooling
during the appropriate seasons of the year, between the hours and on the days
set forth in Section 1.8 (exclusive of legal public holidays as defined in
Section 6103 (a) and (c) of Title 5 of the United States Code, as it may be
hereafter be amended, with holidays falling on Saturday observed on the
preceding Friday and holidays falling on Sunday observed on the following
Monday). All of the aforesaid services shall be provided without cost to Tenant
except as such expenses may be included in calculating the additional rent
pursuant to the provisions of Sections 2.2 and 2.3. Landlord shall not be liable
for failure to furnish, or for suspension or delays in furnishing, any of such
services caused by breakdown, maintenance or repair work, strike, riot, civil
commotion, governmental regulations or any other cause or reason whatever beyond
the control of Landlord. Suspension or interruption of services shall not result
in any abatement of rent, be deemed an eviction or relieve Tenant of performance
of Tenant's obligations under this Lease.
5.2 OVERTIME SERVICES. Should Tenant require heating and cooling
services beyond the hours and/or days stipulated in Section 1.8, upon receipt of
at least 72 hours prior written notice from Tenant, Landlord will furnish such
additional service at the then prevailing hourly rates, as established by
Landlord from time to time; provided, further, that there will be a minimum
charge of four (4) hours each time overtime services are required.
5.3 EXCESSIVE ELECTRICAL USAGE.
(a) Tenant will not install or operate in the Demised Premises
any heavy duty electrical equipment or machinery without first obtaining prior
written consent of Landlord. Landlord may, among other conditions, require as a
condition to its consent for the installation of such equipment or machinery,
payment by Tenant as additional rent for excess consumption of electricity that
may be occasioned by the operation of said equipment or machinery. Landlord may
make periodic inspections of the Demised Premises at reasonable times to
determine that Tenant's electrically operated equipment and machinery complies
with the provisions of this Section and Section 5.4.
(b) The total average consumption of electricity, including
lighting, in excess of five (5) watts per square foot for the Demised Premises
shall be deemed excessive. Additionally, any individual piece of electrically
operated machinery or equipment having a name plate rating in excess of two (2)
kilowatts shall also be deemed as requiring excess electric current.
(c) Landlord may require that one or more separate meters be
installed to record the consumption or use of electricity, or shall have the
right to cause a reputable independent electrical engineer to survey and
determine the quantity of electricity consumed by such excessive use. The cost
of any such survey or meters and of installation, maintenance and repair thereof
shall be paid for by Tenant. Tenant agrees to pay Landlord (or the utility
company, if direct service is provided by the utility company), promptly upon
demand therefor, for all such electric consumption and demand as shown by said
meters, or a flat monthly charge determined by the survey, as applicable, at the
rates charged for such service by the local public utility company. If Tenant's
cost of electricity based on meter readings is to be paid to Landlord, Tenant
shall pay a service charge related thereto.
5.4 EXCESSIVE HEAT GENERATION. Landlord shall not be liable for its
failure to maintain comfortable atmospheric conditions in all or any portion of
the Demised Premises due to heat generated by any equipment, machinery or
additional lighting installed by Tenant (with or without Landlord's consent)
that exceeds design capabilities for the building of which the Demised Premises
are a part. If Tenant desires additional cooling to offset excessive heat
generated by such equipment or machinery, Tenant shall pay for auxiliary cooling
equipment, and its operating costs including without limitation electricity,
gas, oil and water, or for excess electrical consumption by the existing cooling
system, as appropriate.
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5.5 SECURITY. Any security measures that Landlord may undertake are
for protection of the building only and shall not be relied upon by Tenant to
protect Tenant, Tenant's property, or employees, or their property.
6. USE AND UPKEEP OF PREMISES
6.1 USE. Tenant shall use and occupy the Demised Premises for the
purposes specified in Section 1.9 and only in accordance with applicable zoning
and other municipal regulations and for no other purpose whatsoever.
6.2 ILLEGAL AND PROHIBITED USES. Tenant will not use or permit the
Demised Premises or any part thereof to be used for any disorderly, unlawful or
extra hazardous purpose and will not manufacture any commodity therein. Tenant
will not use or permit the Demised Premises to be used for any purposes that
interfere with the use and enjoyment by other tenants of the building nor which,
in Landlord's opinion, impair the reputation or character of the building of
which the Demised Premises form a part. Tenant shall refrain from and
discontinue such use upon receipt of written notice from Landlord or no later
than three (3) days after mailing thereof
6.3 INSURANCE RATING. Tenant will not do or permit anything to be
done in the Demised Premises or the building of which they form a part or bring
or keep anything therein which shall in any way increase the rate of fire or
other insurance in said building, or on the property kept therein, or obstruct,
or interfere with the rights of other tenants, or in any way injure or annoy
them, or those having business with them, or conflict with them, or conflict
with the fire laws or regulations, or with any insurance policy upon said
building or any part thereof, or with any statutes, rules or regulations enacted
or established by the appropriate governmental authority.
6.4 ALTERATIONS.
(a) Tenant will not make any alterations, installations,
changes, replacements, repairs, additions or improvements (structural or
otherwise) in or to the Demised Premises or any part thereof, without the prior
written consent of Landlord. All Tenant plans and specifications shall be
submitted to Landlord for prior approval. Landlord may, among other things,
condition its consent upon Tenant's agreement that any construction up-gradings
required by any governmental authority as a the result of Tenant's work, either
in the Demised Premises or in any other part of the building, will be paid for
by Tenant. Tenant shall not install any equipment of any kind or nature
whatsoever which will or may necessitate any changes, replacements or additions
to the water system, plumbing system, heating system, air-conditioning system or
the electrical system of the Demised Premises without the prior written consent
of the Landlord. Tenant shall not install or use in the building any air
conditioning unit, engine, boiler, generator, machinery, heating unit, stove,
water cooler, ventilator, radiator or any other similar apparatus without the
prior written consent of Landlord, and then only as Landlord may direct. Tenant
shall not modify or interfere with the heating, ventilating and air-conditioning
supply, return or control systems without the prior written consent of Landlord,
and then only as Landlord may direct. Landlord may condition its consent upon
Tenant's payment of all costs to make such changes, replacement or
modifications. Landlord's consent to any work by Tenant or approval of Tenant
plans or specifications shall not be deemed a certification that such work
complies with applicable building codes, laws or regulations, nor shall it
impose any liability whatsoever upon Landlord.
(b) All of Tenant's approved work shall be done in accordance
with Landlord's Supplemental Rules and Regulations for Contractors and shall be
done by duly licensed contractors in accordance with all applicable laws, codes,
ordinances, rules and regulations, and Tenant shall obtain at its cost any
required permits, licenses or inspections for performance of its work. Tenant
must obtain an executed waiver of lien from each contractor or vendor that will
perform or furnish to Tenant work, labor, services or materials for any
alterations, installations, replacements, additions or improvements in or to the
Demised Premises, prior to the commencement of such work. Notwithstanding the
aforesaid, if any mechanic's lien shall at any time, whether before, during or
after the Lease term, be filed against any part of the building by reason to
work, labor, services or materials performed for or furnished to Tenant, Tenant
shall forthwith cause the lien to be discharged of record or bonded off to the
satisfaction of Landlord. If Tenant shall fail to cause such lien to be
discharge or bonded off within five (5) days after being notified or the filing
thereof, then, in addition to any other right to remedy of Landlord, Landlord
may discharge the lien by paying the amount claimed to be due. The amount paid
by Landlord, and all costs and expenses, including reasonable attorney's fees
incurred by Landlord in procuring the discharge of the lien, shall be due and
payable by Tenant to Landlord as additional rent on the first day of the next
following month, or if the Lease term has expired, upon demand.
(c) All alterations,installations,including without limitation
wall to wall carpet and drapery and drapery accessories, changes, replacements,
repairs, additions, or improvements to or within the Demised Premises (whether
with or without Landlord's consent), shall at the election of Landlord remain
upon the Demised Premises and be surrendered with the Demised Premises at the
expiration of this Lease without disturbance, molestation or injury. Should
Landlord elect that alterations, installations, changes, replacements, repairs,
additions to or improvements made by or for Tenant upon the Demised Premises be
removed upon termination of this Lease or upon termination of any renewal period
hereof, Tenant hereby agrees that Landlord shall have the right to cause same to
be removed at Tenant's sole cost and expense. Tenant hereby agrees to reimburse
Landlord for the cost of such removal together with the cost of repairing any
damage
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resulting therefrom, and the cost of restoring the premises to its condition at
the commencement of the term of this Lease as initially improved by Landlord.
Approximately sixty (60) days prior to Tenant's scheduled vacation of the
Demised Premises, Landlord and Tenant shall meet to decide what items shall be
removed and what items shall remain. At such time Tenant shall deposit with
Landlord an amount equal to the estimated costs of removal and/or restoration of
the Demised Premises, which work shall be performed by or for Landlord at
Tenant's expense.
(d) In the event that either Landlord or Tenant, during the
term hereby demised, shall be required by the order or decree of any court, or
any other governmental authority, or by law, code or ordinance, to repair,
alter, remove, reconstruct, or improve any part of the Demised Premises or of
the building of which said premises are a part, then Tenant shall make or Tenant
shall be required to permit Landlord to perform such repairs, alterations,
removals, reconstructions, or improvements without effect whatsoever to the
obligations or covenants of Tenant herein contained, and Tenant hereby waives
all claims for damages or abatement of rent because of such repairing,
alteration, removal, reconstruction, or improvement.
6.5 MAINTENANCE BY LANDLORD. Landlord shall maintain all public or
common areas located in the building, including external and structural parts of
the building that do not comprise a part of the Demised Premises and are not
Leased to others. Such maintenance shall be provided without cost to Tenant
except as such expenses may be included in calculating the additional rent
pursuant to the provisions of Sections 2.2 and 2.3.
6.6 SIGNS & ADVERTISING. No sign, advertisement or notice shall be
inscribed, painted or affixed on any part of the outside of the building, or
inside of the Demised Premises where it may be visible from the public areas of
the building, except on the directories and doors of offices, and then only in
such size, color and style as Landlord shall approve. Landlord shall have the
right to prohibit any advertisement or publication of Tenant on-or off-premises
which in Landlord's opinion tends to impair the reputation or character of the
building, Landlord or its agent. Tenant shall refrain from and discontinue such
advertisement or publication upon receipt of written notice from Landlord or no
later than three (3) days after mailing thereof
6.7 EXCESSIVE FLOOR LOAD. Landlord shall have the right to prescribe
the weight and method of installation and position of safes, computer equipment,
or other heavy fixtures or equipment. Tenant will not install in the Demised
Premises any fixtures, equipment or machinery that will place a load upon the
floor exceeding the designed floor load capacity of the building. Landlord may
prescribe the placement and positioning of all such objects within the building,
and such objects shall be placed upon platforms, plates or footings of such size
as Landlord shall prescribe if necessary. All damage done to the building by
installing or removing a safe or any other article of Tenant's office equipment,
or due to its being in the Demised Premises, shall be repaired at the expense of
Tenant.
6.8 MOVING & DELIVERIES.
(a) Moving in or out of the building is prohibited on days and
hours specified in Section 1.8. Tenant shall provide Landlord with forty-eight
(48) hours advanced written notice of any move and obtain Landlord's approval
therefor in order to facilitate scheduling use of freight elevators and loading
area.
(b) No freight, furniture or other bulky matter of any
description shall be received into the building or carried in the elevators,
except as authorized by Landlord. All moving of furniture, material and
equipment shall be under the direct control and supervision of Landlord, who
shall, however, not be responsible for any damage to or charges for moving same.
Tenant shall promptly remove from the public area adjacent to said building any
of Tenant's property delivered or deposited there.
(c) Any and all damage or injury to the Demised Premises or
the building caused by moving the property of Tenant into or out of the Demised
Premises shall be repaired at the sole cost of Tenant. Deliveries from lobby and
freight areas requiring use of hand carts shall be restricted to freight
elevators. All hand carts used in delivery, receipt or movement of freight,
supplies, furniture, or fixtures shall be equipped with rubber tires and side
guards. Tenant shall cooperate identifying delivery contractors and movers
causing damage to the building.
6.9 RULES AND REGULATIONS. Tenant shall, and shall insure that
Tenant's agents, employees, invitees and guests, faithfully keep, observe and
perform the Building Rules and Regulations set forth in Exhibit C, attached
hereto and made a part hereof, and such other reasonable rules and regulations
as Landlord may make, which shall not substantially interfere with the intended
use of the Demised Premises, which in Landlord's judgment are needful for the
general well being, operation and maintenance of the Demised Premises and the
building of which they are a part, together with their appurtenances, unless
waived in writing by Landlord. In addition to any other remedy provided for
herein, Landlord shall have the right to impose a fine of S200 per incident for
violations of Building Rules and Regulations. Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce
such rules and regulations, or the terms, conditions or covenants contained in
any other Lease, as against any other tenant, and Landlord shall not be liable
to Tenant for violation of the same by any other tenant, its employees, agents,
business invitees, licensees, customers, clients family members or guests.
Further, it shall be in Landlord's reasonable judgment to determine whether
Tenant is in compliance with the Rules and Regulations.
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6.10 TENANT MAINTENANCE & CONDITIONS OF PREMISES UPON SURRENDER.
Tenant will keep the Demised Premises and the fixtures and equipment therein in
good order and condition, will suffer no waste or injury thereto, and will, at
the expiration or other termination of the term hereof, surrender and deliver up
the same in like good order and condition as the premises shall be at the
commencement of the term of this Lease, subject to the provisions of Section
6.4(c), ordinary wear and tear excepted.
6.11 TENANT EQUIPMENT. Maintenance and repair of equipment such as
special light fixtures, kitchen fixtures, auxiliary heating, ventilation, or
air-conditioning equipment, private bathroom fixtures and any other type of
special equipment together with related plumbing or electrical services, or
Tenant rugs, carpeting and drapes within the Demised Premises, whether installed
by Tenant or by Landlord on behalf of Tenant, shall be the sole responsibility
of Tenant, and Landlord shall have no obligation in connection therewith.
Notwithstanding the provisions hereof, in the event that repairs required to be
made by Tenant become immediately necessary to avoid possible injury or damage
to persons or property, Landlord may, but shall not be obligated to, make
repairs to Tenant equipment at Tenant's expense. Within ten (10) days after
Landlord renders a bill for the cost of said repairs, Tenant shall reimburse
Landlord.
7. ACCESS
7.1 LANDLORD'S ACCESS. Landlord, its agent or employees, shall have
the right to enter the Demised Premises at all reasonable times (a) to make
inspections or to make such repairs and maintenance to the Demised Premises or
repairs and maintenance to other premises as Landlord may deem necessary; (b)
to exhibit the premises to prospective tenants during the last six (6) months of
the term of this Lease; and (c) for any purpose whatsoever relating to safety,
protection or preservation of the building of which the Demised Premises form a
part.
7.2 RESTRICTED ACCESS. No additional locks, other devices or systems
which would restrict access to the Demised Premises shall be placed upon any
doors without the prior consent of Landlord. Landlord's consent to installation
of anti-crime warning devices or security systems shall not be unreasonably
withheld; provided Landlord shall not be required to give such consent unless
Tenant provides Landlord with a means of access to the demised premises for
emergency and routine maintenance purposes. Unless access to the Demised
Premises is provided during the hours when cleaning service is normally
rendered, Landlord shall not be responsible for providing such service to the
Demised Premises or to those portions thereof which are inaccessible. Such
inability by Landlord to provide cleaning services to inaccessible areas shall
not entitle Tenant to any adjustment in rent.
8. LIABILITY
8.1 PERSONAL PROPERTY. All personal property or Tenant in the Demised
Premises or in the building of which the Demised Premises is a part shall be at
the sole risk of Tenant. Landlord shall not be liable for any damage thereto or
for the theft or misappropriation thereof, unless such damage, theft or
misappropriation is directly attributable to the negligence of Landlord, its
agents or employees. Landlord shall not be liable for any accident to or damage
to property of Tenant resulting from the use or operation of elevators or of the
heating, cooling, electrical or plumbing apparatus, unless caused by and due to
the negligence of Landlord, its agents or employees. Landlord shall not, in any
event, be liable for damages to property resulting from water, steam or other
causes. Tenant hereby expressly releases Landlord from any liability incurred or
claimed by reason of damage to Tenant's property, unless said damages are proved
to be the direct result of negligence of Landlord, its agents or employees.
Landlord shall not be liable in damages, nor shall this Lease be affected, for
conditions arising or resulting, and which affect the building of which the
Demised Premises is a part, due to construction on contiguous premises.
8.2 CRIMINAL ACTS OF THIRD PARTIES. Landlord shall not be liable in
any manner to Tenant, its agents, employees, invitees or visitors for any injury
or damage to Tenant, Tenant's agents, employees, invitees, or visitors, or their
property, caused by the criminal or intentional misconduct of third parties or
of Tenant, Tenant's employees, agents, invitees, or visitors. All claims against
Landlord for any such damage or injury are hereby expressly waived by Tenant,
and Tenant hereby agrees to hold harmless and indemnify Landlord from all such
damages and the expense of defending all claims made by Tenant's employees,
agents, invitees, or visitors arising out of such acts.
8.3 PUBLIC LIABILITY. Landlord assumes no liability or responsibility
whatsoever with respect to the conduct and operation of the business to be
conducted upon the Demised Premises. Landlord shall not be liable for any
accident to or injury to any person or persons or property in or about the
Demised Premises which are caused by the conduct and operation of said business
or by virtue of equipment or property of Tenant in said premises. Tenant agrees
to hold Landlord harmless against all such claims, and indemnify Landlord from
all damages and the expense of defending all such claims.
8.4 TENANT INSURANCE.
(a) Tenant at its cost shall maintain as named insured, during
the term of this Lease, public liability and property damage insurance with at
least a single combined liability and property damage limit of $1,000,000.00,
insuring against all liability of Tenant and its authorized representatives
arising out of and in connection with Tenant's use or occupancy of the premises.
All public liability insurance and property damage insurance shall insure
performance by Tenant of the indemnity provisions of Section 8.1, 8.2 and 8.3.
Landlord and Landlord's Agent shall be named as additional insureds. The policy
shall contain cross-liability endorsements, and an assumed contractual liability
endorsement that refers expressly to this Lease.
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(b) Tenant at its cost shall maintain as named insured, during
the term of this Lease, fire and extended coverage insurance on the Demised
Premises and its contents, including any Leasehold improvements made by Tenant,
in an amount sufficient so that no co-insurance will be payable in case of loss.
(c) Tenant shall increase its insurance coverage as required
not more frequently than each three (3) years, if in the opinion of the
mortgagee of the building or Landlord's insurance agent the amount of public
liability and property damage insurance coverage at that time is not adequate.
(d) All insurance required under this Lease shall be insurance
companies authorized to do business in the jurisdiction where the building of
which the Demised Premises is a part is located. Such companies shall have a
policyholder rating of at least "A" and be assigned a financial size category of
at least "Class XIV" as rated in the most recent edition of "Best's Key Rating
Guide" for insurance companies. Each policy shall contain an endorsement
requiring 30 days' written notice from the insurance company to Landlord before
cancellation or any charge in the coverage, scope or amount of any policy. Each
policy, or a certificate showing it is in effect, together with evidence of
payment of premiums, shall be deposited with Landlord at least thirty (30) days
prior to the expiration date of any policy.
(e) Notwithstanding the fact that any liability of Tenant to
Landlord may be covered by Tenant's insurance, Tenant's liability shall in no
way be limited by the amount of its insurance recovery.
9. DAMAGE
9.1 DAMAGES CAUSED BY TENANT. Subject to the provision of Section
9.2, all injury to the Demised Premises and other portions of the building of
which it is a part, caused by Tenant, its agents, employees, invitees and
visitors, will be repaired by Landlord at the expense of Tenant, except as
otherwise provided in Section 6.11, or repaired by Tenant with Landlord's
approval in accordance with Section 6. Tenant shall reimburse Landlord for such
repairs within ten (10) days of receipt or invoice from Landlord of the costs.
At its election, Landlord may regard the same as additional rent, in which event
the cost shall become additional rent payable with the installment of rent next
becoming due after notice is received by Tenant from Landlord. This provision
shall be construed as an additional remedy granted to Landlord and not in
limitation of any other rights and remedies which Landlord has or may have in
said circumstances.
9.2 FIRE OR CASUALTY DAMAGE. In the event of damage or destruction of
the Demised Premises by fire or any other casualty without the fault or neglect
of Tenant, its agents, employees, invitees or visitors, this Lease shall not be
terminated, but structural damage to the premises including demising partitions
and doors shall be promptly and fully repaired and restored as the case may be
by Landlord at its own cost and expense. Due allowance, however, shall be given
for reasonable time required for adjustment and settlement of insurance claims,
and for such other delays as may result from government restrictions, and
controls on construction, if any, and for strikes, national emergencies and
other conditions beyond the control of Landlord. Restoration by Landlord shall
not include replacement of furniture, equipment or other items that do not
become part of the building or any improvements to the Demised Premises in
excess of those provided for as building standard items as of the commencement
date of this Lease. Tenant shall be responsible for the repair and restoration
of the Demised Premises and Tenant's property beyond Landlord's obligation at no
cost to Landlord, in accordance with the provisions of Section 6. for which it
shall maintain adequate insurance pursuant to Section 8.4 herein. In the event
of fire or casualty damage to the Demised Premises caused by the fault or
neglect of Tenant, its agents, employees, invitees or visitors, Landlord shall
restore structural damages as described herein at Tenant's cost and expense. It
is agreed that in any of the aforesaid events, this Lease shall continue in full
force and effect.
9.3 UNTENANTABILITY. If the condition referred to in Section 9.2 is
such so as to make the entire premises untenantable, then the rental which
Tenant is obligated to pay hereunder shall abate as of the date of the
occurrence until the premises have been fully and completely restored by
Landlord. Any unpaid or prepaid rent for the month in which said condition
occurs shall be prorated. If the premises are partially damaged or destroyed,
then during the period that Tenant is deprived of the use of the damaged portion
of said premises, Tenant shall be required to pay rental covering only that part
of the premises that it is able to occupy, based on the portion of the total
rent which the amount of square foot area remaining that can be occupied bears
to the total square foot area of all premises covered by this Lease. In the
event the premises are substantially or totally destroyed by fire or other
casualty so as to be entirely untenantable, and it shall require more than
ninety (90) days from the date of said fire or other casualty for Landlord to
complete restoration of same, then Landlord, upon written notice to Tenant, may
terminate this Lease, in which case the rent shall be apportioned and paid to
the date of said Fire or other casualty. Due allowance, however, shall be given
for reasonable time required for adjustment and settlement of insurance claims,
and for such other delays as may result from government restrictions, and
controls on construction, if any, and or strikes, national emergencies and other
conditions beyond the control of Landlord. No compensation, or claim, or
diminution of rent will be allowed or paid by Landlord, by reason of
inconvenience, annoyance, or injury to business, arising from the necessity or
repairing the Demised Premises or any portion of the building of which they arc
a part.
10. CONDEMNATION
10.1 LANDLORD RIGHTS TO AWARD. Tenant agrees that if the whole or a
substantial part of the Demised Premises shall be taken or condemned for public
or quasi-public use or purpose by any competent authority, Tenant shall have no
claim against Landlord and shall not have any claim or right to any portion of
the amount that may be awarded as damages or paid as a result of any such
condemnation. All rights of
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Tenant to damages therefor, if any, are hereby assigned by Tenant to Landlord.
Upon such condemnation or taking, the term of this Lease shall cease and
terminate from the date of such government taking or condemnation. If a portion
of the building or the Demised Premises is taken or condemned, and the remainder
in Landlord's opinion is not economically usable, Landlord shall notify Tenant
of the termination of this Lease effective as of the date of such governmental
taking or condemnation. Tenant shall have no claim against Landlord for the
value of any unexpired term of this Lease. If less than a substantial part of
the Demised Premises is taken or condemned by any governmental authority for
public or quasi-public use or purpose and the remainder is usable by Tenant, the
rent shall be equitably adjusted on the date when title vests in such
governmental authority and the Lease shall otherwise continue in full force and
effect. For the purposes of this Section 10, a substantial part of the Demised
Premises shall be considered to have been taken if more than fifty percent (50%)
of the Demised Premises are unusable by Tenant.
10.2 TENANT RIGHT TO FILE CLAIM. Nothing In Section 10.1 shall
preclude Tenant from filing a separate claim against the condemning authority
for the undepreciated value of its Leasehold improvements and relocation
expenses, provided that any award to Tenant will not result in a diminution of
any award to Landlord.
11. BANKRUPTCY
11.1 EVENTS OF BANKRUPTCY. The following shall be Events of Bankruptcy
under this Lease:
(a) Tenant's becoming insolvent, as the term is defined in Title
11 of the United States Code, entitled Bankruptcy, 11 U.S.C Sec. 101 et seq.
(the "Bankruptcy Code"), or under the insolvency laws of any State, District,
Commonwealth or Territory of the United States ("Insolvency Laws");
(b) The appointment of a receiver or custodian for any or all
of Tenant's property or assets, or the institution of a foreclosure action upon
any of Tenant's real or personal property,
(c) The filing of a voluntary petition under the provisions of
the Bankruptcy Code or Insolvency Laws;
(d) The filing of an involuntary petition against Tenant as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which is either not
dismissed within thirty (30) days of filing, or results in the issuance of an
order for relief against the debtor, whichever is later, or
(e) Tenant's making or consenting to an assignment for the
benefit of creditors of a common law composition of creditors.
11.2 LANDLORD'S REMEDIES.
(a) Termination of Lease. Upon occurrence of an Event of
Bankruptcy, Landlord shall have the right to terminate this Lease by giving
written notice to Tenant; provided, however, that this Section 11.2(a) shall
have no effect while a notice in which Tenant is the subject debtor under the
Bankruptcy Code is pending, unless Tenant or its Trustee is unable to comply
with the provisions of Section 11.2(d) and (e) below. At all other times this
Lease shall automatically cease and terminate, and Tenant shall be immediately
obligated to quit the premises upon the giving of notice pursuant to this
Section 11.2(a). Any other notice to quit, or notice of Landlord's intention to
re-enter is hereby expressly waived. If Landlord elects to terminate this Lease,
everything contained in this Lease on the part of Landlord to be done and
performed shall cease without prejudice, subject, however, to the rights of
Landlord to recover from Tenant all rent and any other sums accrued up to the
time of termination or recovery of possession by Landlord, whichever is later,
and any other monetary damages or loss of reserved rent sustained by Landlord.
(b) Suit for Possession. Upon termination of this Lease pursuant
to Section 11.2(a), Landlord may proceed to recover possession under and by
virtue of the provisions of the laws of any applicable jurisdiction, or by such
other proceedings, including reentry and possession, as may be applicable.
(c) Non-Exclusive Remedies. Without regard to any action by
Landlord as authorized by Section 11.2(a) and (b) above, Landlord may at its
discretion exercise all the additional provisions set forth below in Section 12.
(d) Assumption or Assignment by Trustee. In the event Tenant
becomes the subject debtor in a case pending under the Bankruptcy Code,
Landlord's right to terminate this Lease pursuant to Section 11.2(a) shall be
subject to the rights of the Trustee in Bankruptcy to assume or assign this
Lease. The Trustee shall not have the right to assume or assign this Lease
unless the Trustee (i) promptly cures all defaults under this Lease, (iii)
promptly compensates Landlord for monetary damages, incurred as a result of such
default, and (iii) provides adequate assurance of future performance on the part
of Tenant as debtor in possession or on the part of the assignee Tenant.
(e) Adequate Assurance of Future Performance. Landlord and Tenant
hereby agree in advance that adequate assurance of future performance, as used
in Section 11.2(d) above, shall mean that all of the following minimum criteria
must be met: (i) Tenant's gross receipts in the ordinary course of business
during the thirty-day period immediately preceding the initiation of the case
under the Bankruptcy Code must be at least two times greater than the next
payment of rent due under this Lease; (ii) Both the average and median of
Tenant's gross receipts in the ordinary course of business during the six-month
period immediately preceding the initiation of the case under the Bankruptcy
Code must be at least two times greater than the next payment of rent due under
this Lease; (iii) Tenant must pay its estimated pro rata share of cost of all
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services provided by Landlord (whether directly or through agents or contractors
and whether or not previously included as part of the base rent), in advance of
the performance or provision of such services; (iv) The Trustee must agree that
Tenant's business shall be conducted in a first class manner, and that no
liquidating sales, auctions, or other non-first class business operations shall
be conducted on the premises; (v) The Trustee must agree that the use of the
premises as stated in this Lease will remain unchanged and that no prohibited
use shall be permitted; and (vi) The Trustee must agree that the assumption or
assignment of this Lease will not violate or affect the rights of other tenants
in the building.
(f) Failure to Provide Adequate Assurance. In the event Tenant
is unable to (i) cure its defaults, (ii) reimburse the Landlord for its monetary
damages, (iii) pay the rent due under this Lease, and all other payments
required of Tenant under this Lease on time (or within five (5) days), or (iv)
meet the criteria and obligations imposed by Section 11.2(e) above, Tenant
agrees in advance that it has not met its burden to provide adequate assurance
of future performance, and this Lease may be terminated by Landlord in
accordance with Section 11.2(a) above.
12. DEFAULTS & REMEDIES
12.1 DEFAULT. It Is agreed that Tenant shall be in default if: Tenant
shall fail to pay the rent, or any installments thereof as aforesaid, at the
time shall become due and payable and/or any additional rent as herein provided
although no demand shall have been made for the same; or Tenant shall violate or
fail or neglect to keep and perform any of the covenants, conditions and
agreements, or rules and regulations herein contained on the part of Tenant to
be kept and performed.
12.2 REMEDIES. In each and every such event set forth in Section 12.1
above, from thenceforth and at all times thereafter, at the option of Landlord,
Tenant's right of possession shall thereupon cease and terminate, and Landlord
shall be entitled to the possession of the Demised Premises and to re-enter the
same without demand of rent or demand of possession of said premises and may
forthwith proceed to recover possession of the Demised Premises by process of
law, any notice to quit being hereby expressly waived by Tenant. In the event of
such re-entry by process of law or otherwise, Tenant nevertheless agrees to
remain answerable for any and all damage, deficiency or loss of rent which
Landlord may sustain by such re-entry, including reasonable attorney's fees and
court costs. If, under the provisions hereof, seven (7) days summons or other
applicable summary process shall be served, and a compromise or settlement
therefor shall be made, such action shall not be constituted as a waiver of any
breach of any covenant, condition or agreement herein contained. No waiver of
any breach of any covenant, condition or agreement, herein contained, on one or
more occasions shall operate as a waiver of the covenant, condition or agreement
itself, or of any subsequent breach thereof. No provision of this Lease shall be
deemed to have been waived by Landlord unless such waiver shall be in writing
signed by Landlord.
12.3 LANDLORD'S RIGHT TO RELET. Should this Lease be terminated before
the expiration of the term of this Lease by reason of Tenant's default as
provided in Section 11 or 12, or if Tenant shall abandon or vacate the premises
before the expiration or termination of the term of this Lease, the Demised
Premises may be relet by Landlord for such rent and upon such terms as are
reasonable under the circumstances. If the full rent reserved under this Lease
(and any of the costs, expenses or damages indicated below) shall not be
realized by Landlord, Tenant shall be liable for all damages sustained by
Landlord, including, without limitation, deficiency in rent, reasonable
attorney's fees, other collection costs, brokerage fees, and expenses of placing
the premises in first-class rentable condition. Landlord, in putting the
premises in good order or preparing the same for rerental may, at Landlord's
option, make such alterations, repairs, or replacements in the premises, and the
making of such alterations, repairs, or replacements in the premises as
Landlord, in Landlord's sole judgment, considers advisable and necessary for the
purpose of reletting the premises, and the making of such alternations, repairs,
or replacements shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Landlord shall in no event be liable in any
way whatsoever for failure to relet the premises, or in the event that the
premises are relet, for failure to collect the rent thereof under such
reletting. In no event shall Tenant be entitled to receive any excess ,if any,
of such net rent collected over the sums payable by Tenant to Landlord
hereunder.
12.4 RECOVERY OR DAMAGES. Any damage or loss of rent sustained by
Landlord may be recovered by Landlord, at Landlord's option, in separate
actions, from time to time, as said damage shall have been ascertained or, at
Landlord's option, may be deferred until the expiration of the term of this
Lease (in which event Tenant hereby agrees that the cause of action shall not be
deemed to have accrued until the date of expiration of said term). The
provisions contained in this paragraph shall be in addition to and shall not
prevent the enforcement of any claim Landlord may have against Tenant for
anticipatory breach of the unexpired term of this Lease. All rights and remedies
of Landlord under this Lease shall be cumulative and shall not be exclusive of
any rights and remedies provided to Landlord under applicable law. In the event
Tenant becomes the subject debtor in a case under the Bankruptcy Code, the
provisions of this Section 12.4 may be limited by the limitations of damage
provisions of the Bankruptcy Code.
12.5 WAIVER. If under the provisions hereof Landlord shall institute
proceedings and a compromise or settlement thereof shall be made, the same shall
not constitute a waiver of any covenant, rule or regulation herein contained nor
of any of Landlord's rights hereunder. No waiver by Landlord of any breach of
any covenant, condition, agreement, rule or regulation herein contained shall
operate as a waiver of such covenant, condition, agreement, rule or regulation
itself, or of any subsequent breach thereof.
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12.6 ANTICIPATORY REPUDIATION. If, prior to the commencement of the
term of this Lease, Tenant notifies Landlord of or otherwise unequivocally
demonstrates as intention to repudiate this Lease, Landlord may, at its option,
consider such anticipatory repudiation a breach of this Lease. In addition to
any other remedies available to it hereunder or at law or in equity, Landlord
may retain all rent paid upon execution of the Lease and the security deposit,
if any, shall be applied to Landlord's damages: reletting, loss of rent, etc. It
is agreed between the parties that for the purpose of calculating Landlord's
damages, in a building which has other available space at the time of Tenant's
breach, the premises covered by this Lease shall be deemed the last space
rented, even though the premises may be rerented prior to such other vacant
space. Tenant shall pay in full for all tenant improvements constructed or
installed within the Demised Premises to the date of the breach, and for
materials ordered at its request for the Demised Premises.
12.7 TENANT ABANDONMENT OF PREMISES.
(a) Abandonment. If the Demised Premises shall be deserted or
vacated by Tenant for thirty (30) consecutive days or more without notice to
Landlord, and Tenant shall have failed to make the current rental payment, the
premises may be deemed abandoned. Landlord may consider Tenant in default under
this Lease and may pursue all remedies available to it under this Lease or at
law.
(b) Landlord Right to Enter and to Relet. If Tenant vacates or
abandons the premises as defined above, Landlord may, at its option, enter into
the premises without being liable for any prosecution therefor or for damages by
reason thereof. In addition to any other remedy, Landlord, as agent of Tenant,
may relet the whole or any part of the premises for the whole or any part of the
then unexpired Lease term. For the purposes of such reletting, Landlord may make
any alterations or modifications of the premises considered desirable in its
sole judgment.
(c) Rights to Dispose of Tenant Property. If Tenant vacates or
abandons the premises as defined above, any property that Tenant leaves on the
premises shall be deemed to have been abandoned and may either be retained by
Landlord as the property of Landlord or may be disposed of at public or private
sale in accordance with applicable law as Landlord sees fit. The proceeds of any
public or private sale of Tenant's property, or the then current fair market
value of any property retained by Landlord, shall be applied by Landlord against
(i) the expenses of Landlord for removal, storage or sale of the property, (ii)
the arrears of rent or future rent payable under this Lease; and (iii) any other
damages to which Landlord may be entitled hereunder.
(d) Transfer of Tenant Property to Creditors. If Tenant vacates
or abandons the premises, as defined above, Landlord may, upon presentation of
evidence of a claim valid upon its face of ownership or of a security interest
in any of Tenant's property abandoned in the premises, turn over such property
to the claimant with no liability to Tenant.
13. SUBORDINATION
13.1 SUBORDINATION. This Lease is subject and subordinate to all
ground or underlying Leases and to all mortgages and/or deeds of trust and/or
other security interests which may now or hereafter affect the real property of
which the Demised Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be required to
effect this subordination. Notwithstanding the foregoing, in confirmation of
such subordination, Tenant shall at Landlord's request execute and deliver to
Landlord within ten (10) business days after Landlord's request, any requisite
or appropriate certificate, subordination agreement or other document that may
be reasonably requested by Landlord or any other party requiring such
certificate, subordination agreement or document. If Tenant fails to execute
such certificate, subordination agreement or other document within said ten (10)
day period, Tenant by such failure irrevocably constitutes and appoints Landlord
as its special attorney-in-fact to execute such certificate, subordination
agreement or other document on Tenant's behalf. Notwithstanding the foregoing
subordination, Tenant agrees that any landlord under any ground or underlying
Lease, and any mortgagee or trustee under any security agreement to which this
Lease is now, or may hereafter, become subject or subordinate, may elect to
continue this Lease and Tenant agrees that in such event neither the
cancellation nor termination of any ground or underlying Lease, nor the
foreclosure under any mortgage or deed of trust, nor the sale at foreclosure,
nor the transfer by a deed in lieu of foreclosure, shall, by operation of law or
otherwise, result in cancellation or termination of this Lease or the
obligations of Tenant hereunder and this Lease shall continue as a direct Lease
between Tenant and such landlord, mortgagee, purchaser or trustee.
13.2 ESTOPPEL CERTIFICATES. Tenant shall execute and return within ten
(10) business days any certificate that Landlord may request from time to time,
stating that this Lease is unmodified and in full force and effect, or in full
force and effect as modified, and stating the modification. The certificate also
shall state (a) the amount of base monthly rent and the dates to which the rent
has been paid in advance; (b) the amount of any security deposit or prepaid
rent; (c) that there is no present default on the part of Landlord, or attach a
memorandum stating any such instance of default; (d) that Tenant has no right to
setoff and no defense or counterclaim against enforcement of its obligations
under this Lease; (e) that Tenant has no other notice of any sale, transfer or
assignment of this Lease or of the rentals; (f) that all work required of
Landlord has been completed and that the work is accepted as satisfactory; (g)
that Tenant is in full and complete possession of the Demised Premises; (h) the
date on which rent commenced and the date to which it is paid; (i) that Tenant
has not advanced any amounts to or on behalf of Landlord which have not been
reimbursed; (j) that Tenant understands that this Lease has been collaterally
assigned to Landlord's mortgagee as security for a loan to Landlord; (k) that
rent may not be prepaid without the prior written approval of Landlord's
mortgagee; and
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(1) such other items as Landlord may reasonably request. Failure to deliver the
certificate within the ten (10) business days shall be conclusive upon Tenant
for the benefit of Landlord and any successor to Landlord that this Lease is in
full force and effect and has not been modified EXCEPT AS MAY BE REPRESENTED BY
THE PARTY requesting the certificate. If Tenant fails to deliver the certificate
within the ten (10) business days. Tenant by such failure irrevocably
constitutes and appoints Landlord as its special attorney-in-fact to execute and
deliver the certificate to any third party.
13.3 ATTORNMENT. Tenant covenants and agrees that, in the event of any
foreclosure under any mortgage or deed of trust, or any renewal, modification,
consolidation, replacement or extension thereof, or in the event of any
acceptance of any deed in lieu of foreclosure, which may now or hereafter affect
the real property of which the Demised Premises are a part, Tenant shall attorn
to the party secured by such mortgage or deed of trust, or any renewal,
modification, consolidation, replacement or extension thereof, and to any
purchaser at any foreclosure sale or party taking a deed in lieu of foreclosure.
Tenant covenants and agrees to attorn to any successor to Landlord's interest in
any ground or underlying Lease. In any case, such landlord or successor under
such ground or underlying Lease or such secured party or purchaser at
foreclosure sale or party taking a deed in lieu of foreclosure shall not be
bound by any prepayment on the part of Tenant of any rent for more than one
month in advance, so that rent shall be payable under this Lease in accordance
with its terms, from the date of the termination or transfer of the ground or
underlying Lease or the foreclosure under such mortgage or deed of trust, or the
date of foreclosure sale or transfer by deed in lieu of foreclosure, as if such
prepayment had not been made. Further, such landlord or successor in interest
shall not be liable for damages for any act or omission of Landlord or any prior
landlord or be subject to any offsets or defenses which Tenant may have against
Landlord or any prior landlord. Tenant shall, upon request of such landlord or
successor landlord, execute and deliver an instrument or instruments confirming
Tenant's attornment.
13.4 MORTGAGEE RIGHTS.
(a) Tenant shall, at its own expense, comply with all
reasonable notices of Landlord's mortgagee or other financial institution
providing funds which are secured by a mortgage or deed of trust placed on the
whole or any part of the real property of which the Demised Premises are a part,
respecting all matters of occupancy, use, condition or maintenance of the
Demised Premises, provided the same shall not unreasonably interfere with the
conduct of Tenant's business nor materially limit or affect the rights of the
parties under this Lease. Notwithstanding acceptance and execution of this Lease
by the parties hereto, the terms hereof shall be deemed automatically modified,
if so required, for the purpose of complying with or fulfilling the reasonable
requirements of any mortgagee or trustee named or secured by a mortgage or deed
of trust that may now or hereafter be placed upon or secured by the real
property of which the Demised Premises are a part or any part thereof, or any
other financial institution providing funds to finance or refinance the real
property of which the Demised Premises are a part, provided, however, that such
modifications(s) shall not be in material derogation or diminution of any of the
rights of the parties hereunder, nor materially increase any of the obligations
or liabilities of the parties hereunder.
(b) Tenant agrees to give Landlord's mortgagee and any trustee
named or secured by a mortgage or deed of trust a copy of any notice of default
served upon Landlord by Tenant, 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 addresses of such mortgagees and trustees. Notice shall be
provided to the mortgagees and trustees by registered mail. Tenant further
agrees that if Landlord shall have failed to cure such default within the cure
period provided in this Lease, if any, then the mortgagees and/or trustees shall
have an additional thirty (30) 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 if within such thirty (30) days any mortgagee and/or trustee 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 this Lease shall not be
terminated while such remedies are being diligently pursued.
14. TENANT HOLDOVER
14.1 WITH LANDLORD CONSENT. If Tenant continues, with the knowledge
and written consent of Landlord obtained at least thirty (30) days prior to the
expiration of the term of this Lease, to remain in the premises after the
expiration of the term of this Lease, then and in that event, Tenant shall, by
virtue of this holdover agreement, become a tenant by the month at the rent
stipulated by Landlord in said holdover agreement, commencing said monthly
tenancy with the first day next after the end of the term above demised. Tenant
shall give to Landlord at least thirty (30) days' written notice of any
intention to quit said premises. Tenant shall be entitled to thirty (30) days'
written notice to quit said premises, except in the event of nonpayment of rent
in advance or of the breach of any other covenant by Tenant, in which event
Tenant shall not be entitled to any notice to quit, the usual thirty (30) days'
notice to quit being hereby expressly waived.
14.2 WITHOUT LANDLORD CONSENT. In the event that Tenant, without the
consent of Landlord, shall hold over the expiration of the term hereby created,
then Tenant hereby waives all notice to quit and agrees to pay to Landlord for
the period that Tenant is in possession after the expiration of this Lease, a
monthly rent which is three times the total rent (base monthly rent, as
stipulated in Section 1.3, plus additional rent, as stipulated in Section 1.5)
applicable to the last month of this Lease. Tenant expressly agrees to hold
Landlord harmless from all loss and damages, direct and consequential, which
Landlord may suffer in defense of claims by other parties against Landlord
arising out of the holding over by Tenant, including without limitation
attorneys' fees which may be incurred by Landlord in defense of such claims.
Acceptance of rent by Landlord subsequent to the expiration of the term of this
Lease shall not constitute consent to any holding over. Landlord shall have the
right to apply all payments received after the expiration date of this Lease or
any renewal thereof toward payment for use and occupancy of the premises
subsequent to the expiration of the term and toward any other sums owed by
Tenant to Landlord. Landlord, at its option, may forthwith re-
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enter and take possession of said premises without process, or by any legal
process in force. Notwithstanding the foregoing, Tenant's holdover without
Landlord consent due to acts of God, riot, or war shall be at the total rent
applicable to the last month of the term for the duration of the condition (but
not to exceed ten days), but such continued occupancy shall not create any
renewal of the term of this Lease or a tenancy from year-to-year, and Tenant
shall be liable for any loss and damages suffered by Landlord as described
above.
15. SECURITY DEPOSIT
15.1 Tenant shall deposit with Landlord simultaneously with the
execution of this Lease, the amount stipulated in Section 1.6 as a security
deposit. Provided Tenant is not in default in the payment of rent or any other
charges due Landlord, and further provided the Demised Premises are left in good
condition, reasonable wear and tear excepted, as described in Section 6.10, said
deposit (which shall not bear interest to Tenant) shall be returned to Tenant
within thirty (30) days after the termination of this Lease. If Tenant is in
default or if the premises are not left in good condition, then the security
deposit shall be applied to the extent available on account of sums due Landlord
or the cost of repairing damages to the Demised Premises. In the event of the
sale or transfer of Landlord's interest in the building, Landlord shall have the
right to transfer the security deposit to such purchaser or transferee, in which
event Tenant shall look only to the new Landlord for the return of the security
deposit and Landlord shall thereupon be released from all liability to Tenant
for the return of such security deposit.
16. QUIET ENJOYMENT
16.1 So long as Tenant shall observe and perform the covenants and
agreements binding on it hereunder, Tenant shall at all times during the term
herein granted, peacefully and quietly have and enjoy possession of the premises
without any encumbrance or hindrance by, from or through Landlord, except as
provided for elsewhere under this Lease. Nothing in this Section shall prevent
Landlord from performing alterations or repairs on other portions of the
building not Leased to Tenant, nor shall performance of such alterations or
repairs be construed as a breach of this covenant by Landlord.
17. SUCCESSORS
17.1 All rights, remedies and liabilities herein given to or imposed
upon either of the parties hereto, shall extend to their respective heirs,
executors, administrators, successors, and assigns. This provision shall not be
deemed to grant Tenant any right to assign this Lease or to sublet the premises.
18. WAIVER OF JURY TRIAL
18.1 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other one or in respect of any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant hereunder,
Tenants's use or occupancy of the Demised Premises, and/or any claim of "injury
or damage."
19. LIMITATION OF LIABILITY
19.1 Notwithstanding anything to the contrary contained in this Lease,
if any provision of this Lease expressly or impliedly obligates Landlord not to
unreasonably withhold its consent or approval, an action for declaratory
judgment or specific performance will be Tenant's sole right and remedy in any
dispute as to whether Landlord has breached such obligation.
20. PRONOUNS & DEFINITIONS
20.1 Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number, in
any place or places herein in which the context may require such substitution or
substitutions. Landlord and Tenant herein for convenience have been referred to
in the neuter form.
20.2 Wherever the word "premises" is used in this Lease, it shall
refer to the Demised Premises described in Section 1.1, unless the context
clearly requires otherwise.
21. NOTICES
21.1 ADDRESSES FOR NOTICES. All notices required or desired to be
given hereunder by either party to the other shall be personally delivered or
given by certified or registered mail and addressed as specified in Section
1.10. Either party may, by like written notice, designate a new address to which
such notices shall be directed.
21.2 EFFECTIVE DATE OF NOTICE. Notice shall be deemed to be effective
when personally delivered or received or rejected unless otherwise stipulated
herein.
22. EXHIBITS; SPECIAL PROVISIONS
22.1 INCORPORATION IN LEASE. It is agreed and understood that any
Exhibits and Special Provisions referred to in Sections 1.11 and 1.12,
respectively, and attached hereto, form an integral part of this Lease and are
hereby incorporated by reference.
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22.2 Conflicts. If there is a conflict between a Special Provision
hereto and the Specific Provisions or General Provisions of this Lease, the
Special Provision shall govern.
23. CAPTIONS
23.1 All Section and paragraph captions herein are for the convenience
of the parties only, and neither limit nor amplify the provisions of this Lease.
24. ENTIRE AGREEMENT; MODIFICATION
24.1 This Lease, all Exhibits hereto, and Special Provisions
incorporated herein by reference contain all the agreements and conditions made
between the parties and may not be modified orally or in any other manner than
by an agreement in writing, signed by the parties hereto.
25. SEVERABILTY
25.1 The unenforceability, invalidity, or illegality or any provision
herein shall not render any other provision herein unenforceable, invalid, or
illegal.
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26. RENT
26.1 On the first day of the second Lease year and of each subsequent
Lease year, the Base Annual Rent shall be increased by Three Percent (3%) of the
Base Annual Rent in effect during the previous Lease year. The escalated Base
Annual Rent so determined shall be the "Base Annual Rent" for all purposes of
this Lease, including the calculation of the increase in Base Annual Rent for
the subsequent Lease year. The increase in Base Annual Rent shall be calculated
without regard to any waiver of rent or rent credit provided to Tenant.
26.2 In Subsection 2.2(b)(i), in the fifth line, change 'installed
to' to "which actually"; in the sixth line, after 'expenses' insert ", but only
to the extent of the savings realized therefrom," and after 'expenditures'
insert ", not exceeding $10,000 amortized annually," and change the first 'or'
to "using"; and in the eighth line, after 'taxes' insert a period and delete the
remainder of the sentence.
26.3 Subsection 2.2(c) is deleted entirely; in subsection 2.3(a), the
last sentence of the paragraph is deleted entirely; in Subsection 2.3(c), in the
third line, insert a period after 'Year' and delete the rest of the sentence; in
the seventh and eighth lines, delete 'and the actual increase attributable to
the increase in the Consumer Price Index'.
27. WAIVER OF RENT
27.1 Provided Tenant is not then in default under any of the terms and
conditions of this Lease, then notwithstanding anything to the contrary in
Section 2.1, Landlord agrees to waive One Hundred Eighty-Six and 00/100 Dollars
($186.00) of Base Annual Rent due in each and every month of the initial Lease
term. Notwithstanding anything herein, the Base Annual Rent escalation payable
pursuant to Section 26.1 shall be calculated without regard to any waiver of
rent or rent credit provided to Tenant.
28. LANDLORD'S IMPROVEMENTS
28.1 Provided Tenant is not then in default of any of the terms or
conditions of this Lease, on Tenant's behalf, Landlord agrees to remodel the
demised premises in accordance with plans to be approved by both Tenant and
Landlord. Provided Tenant is not then in default of any of the terms or
conditions of this Lease, Landlord shall contribute to the cost of such Tenant
remodeling the sum of Eighteen Thousand Forty and 00/100 Dollars ($18,040.00),
with the understanding that any costs in excess thereof will be paid by Tenant.
Such excess costs shall be paid in full by Tenant simultaneously with the
approval by Landlord and Tenant of Tenant's working drawings and Landlord's
estimate of extra costs. Provided Tenant is not then in default of any of the
terms or conditions of this Lease, any remainder of said contribution shall be
credited against Tenant's rent obligations hereunder, apportioned equally and
applied once a month over the term hereof.
28.2 The Construction Schedule attached to this Lease as Exhibit "D"
is incorporated herein and describes the obligations of Landlord and Tenant, and
the respective time periods of performance thereof, for the preparation, review
and approval of Preliminary Plans, Working Drawings and estimates, and the
substantial completion of construction of the Demised Premises. Tenant shall
deliver, or cause to be delivered, to Landlord by the dates and within the time
periods specified, the Preliminary Plans and subsequent approvals specified on
Exhibit D. Any delay by Tenant in the timely performance of its obligations as
set forth on Exhibit D shall not affect the Lease Commencement Date set forth in
Section 1.2 and shall be a Tenant delay as set forth in Section 3 of the Lease.
In Section 3.1 of the Lease, any reference to Section 1.7 or any subsection
thereof shall be deemed to refer to Exhibit D and the corresponding subsection
thereof.
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<PAGE> 22
28.3 In Section 3.1, in the second line, after 'plans' insert,
"prepared by Landlord at Landlord's expense,"; in the fifth line, after
'estimate' insert "prepared by Landlord at Landlord's expense." and delete the
remainder of the sentence; delete the third and fourth sentences entirely; and
in the tenth line, before the second 'Landlord' delete the preceding part of
the sentence and after 'prepared' insert "at Landlord's expense".
28.4 Notwithstanding anything to the contrary in Section 3.3,
Landlord, with Tenant's cooperation, will obtain the necessary occupancy
permit.
29. PARKING
29.1 Landlord agrees to arrange for parking in the garage of the
building described in Section 1.1 for up to Eight (8) automobiles of Tenant or
Tenant's employees at the prevailing monthly rate for such service.
30. REASONABLENESS OF LANDLORD AND TENANT
30.1 Notwithstanding anything to the contrary, whenever Landlord's or
Tenant's consent or approval is required hereunder, it shall not be
unreasonably withheld, conditioned or delayed.
31. CANCELLATION OPTION
31.1 Provided Tenant is not then in default of any of the terms or
conditions of this Lease, Tenant shall have the right, upon written notice to
Landlord on or before February 16, 1996, to cancel this Lease and the
Landlord shall return the deposit within seven (7) days.
32. EXCESS ELECTRICITY
32.1 Tenant agrees to pay monthly additional rent for the cost of
electricity consumed by supplemental HVAC units in the operation of Suite 700.
The cost shall be established after a survey by Landlord's agent to determine
the approximate number of hours each unit is operated monthly, or by
installation of a check meter, and may be adjusted from time to time to account
for changes in the rates charged by the utility company or imposition of taxes
related thereto.
33. SIGNAGE AND DIRECTORY
33.1 Landlord shall maintain in the lobby of the building a directory
board which shall include the name of Tenant and any other names reasonably
requested by Tenant in proportion to the number of square feet leased by Tenant
in the building pursuant to this Lease. Landlord shall also provide building
standard signage for the suite entry door to the demised premises.
34. SUBLETTING AND ASSIGNMENT
34.1 In Section 4.1, in the third line, after 'Landlord' insert a
period and delete the remainder of the sentence.
19
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35. USE AND UPKEEP OF PREMISES
35.1 In Subsection 6.4(c), in both the third and sixth lines, after
'Premises' insert "after the Lease Commencement Date"; in the eighth line,
after 'expense' insert "; provided Landlord so advised Tenant when Tenant
requested Landlord's consent thereto."; and delete the last two sentences in
their entirety.
36. DEFAULTS AND REMEDIES
36.1 Notwithstanding anything to the contrary in Sections 2.1 and
12.1, if Tenant defaults in the payment of rent, or defaults in the
performance of any other covenants, conditions and agreements, or rules and
regulations herein contained, Landlord shall give Tenant written notice of
such default. If Tenant fails to cure any rent (or additional rent) default
within ten (10) days, or fails to cure any other default within twenty (20)
days after such notice (or if such other default is of such nature that it
cannot be completely cured within said twenty (20) days, if Tenant fails to
commence to cure within said twenty (20) days and thereafter proceed with
reasonable diligence and in good faith), then Landlord, in addition to all
other rights set forth in this Lease, may terminate this Lease on not less
than ten (10) days notice to Tenant. On the date specified in such notice, the
term of this Lease shall terminate, and Tenant shall then quit and surrender
the premises to Landlord. If this Lease shall have been so terminated by
Landlord, Landlord may at any time thereafter take possession of the demised
premises by any lawful means and remove Tenant or other occupants and their
effects. Nevertheless, in the event Tenant fails to pay rent or otherwise
defaults in the performance of any of the covenants, conditions and agreements
or rules and regulations herein contained, more than two (2) times in any
twelve (12) month period, Landlord shall not be required during the remainder
of the term of this Lease to send written notice before proceeding with its
remedies under Section 12. Tenant acknowledges that the purpose of the
preceding sentence is to prevent repetitive defaults by Tenant under the
Lease, which work a hardship upon Landlord and deprive Landlord of the timely
performance by Tenant hereunder.
37. TENANT HOLDOVER
37.1 In Section 14.2, in the fourth line, change 'three' to "two".
38. EXECUTION OF DOCUMENT
38.1 In the event Tenant does not execute and return this document by
the close of business on January 31, 1996, then Landlord may market the subject
space to others without further notice to Tenant.
20
<PAGE> 1
EXHIBIT 10.15
OFFICE BUILDING LEASE
FOR
TEMPLATE SOFTWARE, INC.
CRYSTAL SQUARE THREE
Suite 702
Arlington, Virginia 22202
CHARLES E. SMITH MANAGEMENT, INC.
2345 Crystal Drive
Crystal City
Arlington, Virginia 22202
[LOGO]
Charles E. Smith Companies
<PAGE> 2
TABLE OF CONTENTS
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SPECIFIC AND GENERAL PROVISIONS
<TABLE>
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1. SPECIFIC PROVISIONS.................................................. 1
2. RENT ................................................................ 4
2.1 Base Annual Rent .......................................... 4
2.2 Additonal Rent ............................................ 4
(a) Real Estate Taxes...................................... 4
(b) Operating Expenses..................................... 4
(c) CPI.................................................... 4
(d) Changes in Landlord's Fiscal Year...................... 4
2.3 Additional Rent Estimates and Adjustments ................. 4
2.4 Rent Adjustment Limit ..................................... 5
2.5 Survival of Rent Obligations .............................. 5
2.6 Pro Rata Share ............................................ 5
2.7 Prorated Rent ............................................. 5
2.8 Applications of Rent ...................................... 5
2.9 Late Payment Fee .......................................... 5
2.10 Other Tenant Costs and Expenses ........................... 5
3. CONSTRUCTION OF PREMISES AND OCCUPANCY............................... 6
3.1 Tenant Plans, Construction and Rent Liability.............. 6
3.2 Possession ................................................ 6
3.3 Occupancy Permits ......................................... 6
4. SUBLETTING AND ASSIGNMENT............................................ 6
4.1 Consent ................................................... 6
4.2 Recapture of Premises ..................................... 6
4.3 Excess Rent ............................................... 7
4.4 Tenant Liability .......................................... 7
5. SERVICES AND UTILITIES............................................... 7
5.1 Building Standard Services and Utilities .................. 7
5.2 Overtime Services ......................................... 7
5.3 Excessive Electrical Usage ................................ 7
5.4 Excessive Heat Generation ................................. 7
5.5 Security .................................................. 8
6. USE AND UPKEEP OF PREMISES........................................... 8
6.1 Use ....................................................... 8
6.2 Illegal and Prohibited Uses ............................... 8
6.3 Insurance Rating .......................................... 8
6.4 Alterations ............................................... 8
6.5 Maintenance By Landlord ................................... 9
6.6 Signs & Advertising ....................................... 9
6.7 Excessive Floor Load ...................................... 9
6.8 Moving & Deliveries ....................................... 9
6.9 Rules and Regulations ..................................... 9
6.10 Tenant Maintenance & Conditions of Premises Upon Surrender. 10
6.11 Tenant Equipment .......................................... 10
7. ACCESS............................................................... 10
7.1 Landlord's Access ......................................... 10
7.2 Restricted Access ......................................... 10
8. LIABILITY............................................................ 10
8.1 Personal Property ......................................... l0
8.2 Criminal Acts of Third Parties ............................ 10
8.3 Public Liability .......................................... 10
8.4 Tenant Insurance .......................................... 10
9. DAMAGE .............................................................. 11
9.1 Damages Caused by Tenant .................................. 11
9.2 Fire or Casualty Damage ................................... 11
9.3 Untenantability ........................................... 11
</TABLE>
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<TABLE>
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10. CONDEMNATION ....................................................... 11
10.1 Landlord Rights to Award .................................... 11
10.2 Tenant Right to File Claim .................................. 12
11. BANKRUPTCY ......................................................... 12
11.1 Events of Bankruptcy ........................................ 12
11.2 Landlord's Remedies ......................................... 12
12. DEFAULTS & REMEDIES ................................................ 13
12.1 Default ..................................................... 13
12.2 Remedies .................................................... 13
12.3 Landlord's Right to Relet ................................... 13
12.4 Recovery of Damages ......................................... 13
12.5 Waiver ...................................................... 13
12.6 Anticipatory Repudiation .................................... 14
12.7 Tenant Abandonment of Premises .............................. 14
13. SUBORDINATION ...................................................... 14
13.1 Subordination .............................................. 14
13.2 Estoppel Certificate ....................................... 14
13.3 Attornment ................................................. 15
13.4 Mortgagee Rights ........................................... 15
14. TENANT HOLDOVER .................................................... 15
14.1 With Landlord Consent ...................................... 15
14.2 Without Landlord Consent ................................... 15
15. SECURITY DEPOSIT ................................................... 16
16. QUIET ENJOYMENT .................................................... 16
17. SUCCESSORS ......................................................... 16
18. WAIVER OF JURY TRIAL ............................................... 16
19. REASONABLENESS OF LANDLORD AND TENANT .............................. 16
20. PRONOUNS & DEFINITIONS ............................................. 16
21. NOTICES ............................................................ 16
21.1 Addresses for Notices ...................................... 16
21.2 Effective Date of Notice ................................... 16
22. EXHIBITS; SPECIAL PROVISIONS ....................................... 16
22.1 Incorporation in Lease...................................... 16
22.2 Conflicts................................................... 17
23. CAPTIONS............................................................ 17
24. ENTIRE AGREEMENT; MODIFICATION...................................... 17
25. SEVERABILITY ....................................................... 17
</TABLE>
-ii-
<PAGE> 4
This Lease, made this 15th day of February, 1996 between THIRD BALL
ASSOCIATES LIMITED PARTNERSHIP, a Virginia limited partnership, (hereinafter
referred to as "Landlord"), and TEMPLATE SOFTWARE, INC., a Virginia corporation,
(hereinafter referred to as "Tenant").
Landlord, for and in consideration of the covenants and agreements set
forth hereinafter, leases to Tenant, and Tenant leases from Landlord, the
premises described, for the use set forth and for the term and at the rent
reserved herein.
1. SPECIFIC PROVISIONS
1.1 DEMISED PREMISES
(a) SPACE DESCRIPTION: Suite 700.
(b) FLOOR AREA: Approximately 4,510 square feet (Washington D.C.
Association of Realtors Standard Floor Area Measure in
effect at the time of execution of this Lease).
(c) BUILDING: CRYSTAL SQUARE THREE
(d) ADDRESS: 1735 Jefferson Davis Highway
Arlington, Virginia 22202
1.2 TERM OF LEASE: Three (3) years, commencing on August 1, 1996 ("Lease
Commencement Date"), and expiring on July 31, 1999, both dates
inclusive.
1.3 BASE ANNUAL RENT: One Hundred Nineteen Thousand Five Hundred Fourteen
and 96/100 Dollars ($119,514.96), payable in equal monthly installments
of Nine Thousand Nine Hundred Fifty-Nine and 58/100 Dollars
($9,959.58), hereinafter referred to as "base monthly rent", for the
first year. Thereafter, see Section 26.1.
1.4 BASE YEAR: "Base Year" shall mean fiscal year of Landlord ending
December 31, 1996.
1.5 ADDITIONAL RENT: Payable in equal monthly installments, commencing on
August 1, 1997, consisting of the following:
(a) Tenant's pro rata share equal to Two and One Tenth Percent (2.1%)
of any increase in Real Estate Taxes over the Base Year Real
Estate Taxes; and
(b) Tenant's pro rata share equal to Two and One Tenth Percent (2.1%)
of any increase in Operating Expenses over the Base Year
Operating Expenses; and
(c) Not Applicable.
1
<PAGE> 5
1.6 SECURITY DEPOSIT: Nine Thousand Nine Hundred Fifty-Nine and 58/100
Dollars ($9,959.58).
1.7 (a) DATE TENANT APPROVED PRELIMINARY PLANS TO BE FURNISHED: See Exhibit
"D".
(b) Working days to prepare Working Drawings and cost estimate: See
Exhibit "D".
(c) Working days to substantially complete construction of demised
premises: See Exhibit "D".
1.8 STANDARD BUILDING OPERATING DAYS AND HOURS:
8:00 AM to 6:00 PM Monday - Friday
8:00 AM to 1:00 PM Saturday
1.9 USE OF PREMISES:
General office use in keeping with the quality and nature of this first
class office building.
1.10 (a) Address for Notices to Tenant:
Template Software, Inc.
1735 Jefferson Davis Highway
Suite 700
Arlington, Virginia 22202
(b) Address for Notices to Landlord:
Third Ball Associates Limited Partnership
c/o Charles E. Smith Management, Inc.
2345 Crystal Drive
Arlington, Virginia 22202
Address for Payment of Rent:
Third Ball Associates Limited Partnership
c/o Charles E. Smith Management, Inc.
P.O. Box 641472
Pittsburgh, PA 15264-1472
1.11 SPECIAL PROVISIONS:
<TABLE>
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Rent Section 26
Waiver of Rent Section 27
Landlord's Improvements Section 28
Parking Section 29
Reasonableness of Landlord and Tenant Section 30
Cancellation Option Section 31
Excess Electricity Section 32
Signage and Directory Section 33
Subletting and Assignment Section 34
Use and Upkeep of Premises Section 35
Defaults and Remedies Section 36
Tenant Holdover Section 37
Execution of Document Section 38
</TABLE>
2
<PAGE> 6
1.12 EXHIBITS TO LEASE:
Exhibit "A" - Not Applicable
Exhibit "B" - Not Applicable
Exhibit "C" - Building Rules and Regulations
Exhibit "D" - Construction Schedule
IN WITNESS WHEREOF, Landlord has caused this Lease, comprised of
Specific Provisions, General Provisions, Special Provisions and Exhibits to be
signed and sealed by one or more of its Officers, General Partners, Trustees, or
Agents, and Tenant has caused this Lease, as described above, to be signed in
its corporate name by its duly authorized officer and its corporate seal to be
hereto affixed and duly attested by its Secretary.
WITNESS: LANDLORD: THIRD BALL ASSOCIATES
LIMITED PARTNERSHIP
/s/ BY /s/ (SEAL)
- --------------------------------------- ------------------------------
Agent
ATTEST: TENANT: TEMPLATE SOFTWARE, INC.
CORPORATE /s/ BY /s/ (SEAL)
----------------------------- ------------------------------
SEAL Secretary Name: Kimberly Osgood
Title: VP-Administration
3
<PAGE> 7
GENERAL PROVISIONS
2. RENT
2.1 BASE ANNUAL RENT. Tenant shall pay the first monthly installment of Base
Annual Rent upon execution of this Lease. Tenant shall pay the remaining monthly
installments of Base Annual Rent specified in Section 1.3 in advance without
deduction or demand, on the first day of each and every calendar month
throughout the entire term of the Lease, as specified in Section 1.2, to and at
the office of Landlord's Agent, Charles E. Smith Management, Inc., 2345 Crystal
Drive, Arlington, Virginia 22202, or to such other person or at such other place
as Landlord may hereafter designate in writing.
2.2 ADDITIONAL RENT. For purposes of computing additional rent hereunder,
the Base Year as used in this Section 2 is stipulated in Section 1.4. If dollar
amounts for Base Year real estate taxes and operating expenses are stipulated
under Section 1.4, such dollar amounts shall be used in calculating additional
rent for the purposes of this Lease and shall prevail regardless of actual
historical dollar amounts for the Base Year. Commencing on the date specified in
Section 1.5, and continuing throughout the term of this Lease. Tenant shall pay
to Landlord as additional rent each of the following:
(a) REAL ESTATE TAXES. Tenant's pro rata share, as indicated in Section
1.5(a), of any increase in real estate taxes during each fiscal year of Landlord
over the Base Year real estate taxes. The term "real estate taxes" shall mean
all taxes, general and special, levied or assessed on the land and the building
improvements of which the Demised Premises is a part, and on any land and/or
improvements now or hereafter owned by Landlord that provide the building or the
Demised Premises with parking or other services.
(b) OPERATING EXPENSES. Tenant's pro rata share, as indicated in
Section 1.5 (b), of any increase in operating expenses during each fiscal year
of Landlord over the Base Year operating expenses.
(i) The term "operating expenses" shall mean any and all expenses
incurred by Landlord in connection with the servicing, operation, maintenance
and repair of the building and related interior and exterior appurtenances of
which the Demised Premises is a part, and the cost of any services incurred in
order to achieve a reduction of or to minimize the increase in operating
expenses, including without limitation, management fees, capital expenditures
for equipment or systems installed to reduce or minimize increases in operating
expenses and capital expenditures required by any governmental ordinance, or
depreciation or amortization based on the useful life expectancy of such
equipment or systems or expenditures, the cost of contesting the validity or
amount of real estate taxes, and periodic increases in ground rent payments
under any ground Lease existing at the execution of this Lease. Certain of these
expenses may be apportioned among two or more buildings in the same complex or
locality owned by Landlord and/or managed by Landlord's Agent.
(ii) Operating expenses shall not include any of the following,
except to the extent that such costs and expenses are included in operating
expenses as described in Subsection 2.2(b)(i) above: capital expenditures and
depreciation of the building; painting or decorating of tenant space; interest
and amortization of mortgages; ground rent; compensation paid to officers or
executives of Landlord; taxes as measured by the net income of Landlord from the
operation of the building; increases in real estate taxes; and brokerage
commissions.
(c) CPI. A percentage of the Base Annual Rent equal to the percent
stipulated in section 1.5(c) of the percentage increase in the Index now known
as "United States Bureau of Labor Statistics, Consumer Price Index for Urban
Wage Earners and Clerical Workers," (CPI-W) for Washington, DC-MD-VA, all items
Index (1982-84=100) (hereinafter referred to as the "Index"), between the last
published Index published for each calendar year and the Index for the same
period in the year stipulated in Section 1.5(c) (hereinafter "base period"). If
such index shall be discontinued or revised without substitution of a comparable
successor Index, the parties shall attempt to agree upon a substitute formula.
If the parties are unable to agree upon a substitute formula, then the matter
shall be determined by arbitration in accordance with the rules of the American
Arbitration Association then prevailing. Any substitute formula determined by
arbitration shall include all of the same items included in the Index effective
at the execution of this Lease and shall be so designed as to achieve a result
as close as possible to the result that would have been achieved if the
discontinued Index were available. Costs of any such arbitration shall be shared
equally by Tenant and Landlord.
(d) Landlord shall have the right to change its fiscal year from time
to time. If Landlord changes its fiscal year during the term of this Lease,
thereby creating a fiscal year with fewer than twelve (12) months (hereinafter
"short year"), the real estate taxes and operating expenses for the short year
shall be determined on an annualized basis by taking the monthly average of the
actual real estate taxes and operating expenses, respectively, and multiplying
each by twelve. The amounts determined by this method shall be used in
determining the increases described in Subsections 2.2(a) and (b) for the "short
year".
2.3 ADDITIONAL RENT ESTIMATES AND ADJUSTMENTS.
(a) In order to provide for current monthly payments of additional
rent, Landlord shall submit to Tenant prior to January 1st of each year a
statement of Landlord's estimate of the amount of the increases described in
Section 2.2 above together with the amount of Tenant's additional rent which is
estimated to result from such increases. Commencing on the date stipulated in
Section 1.5, and continuing throughout the remaining term of this Lease, Tenant
shall pay each month one-twelfth (1/12th) of Tenant's pro rata share of
Landlord's estimate of the increase in each year for (i) real estate taxes and
(ii) operating expenses, over such items for the Base Year. In addition, Tenant
shall pay each month one-twelfth (1/12th) of Landlord's estimate of the annual
rent increase due to the percentage increase in the Consumer Price Index over
the Base Period.
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<PAGE> 8
(b) If payment of additional rent begins on a date other than January
1st under this Lease, in order to provide for current payments of additional
rent through December 31st of that partial calendar year, Landlord shall submit
to Tenant a statement of Landlord's estimate of Tenant's additional rent for
that partial year, stated in monthly increments, resulting from the increases
described in Section 2.2 above. Tenant shall make these payments of estimated
additional rent together with its installments of base monthly rent.
(c) After the end of each calendar year, Landlord will as soon as
practicable submit to Tenant a statement of the actual increases incurred in
real estate taxes and operating expenses for the fiscal year ended during such
calendar year over such costs for the Base Year and the actual increase
attributable to the increase in the Consumer Price Index over the Base Period.
Such statement shall also indicate the amount of Tenant's excess payment or
underpayment based on Landlord's estimate. If additional rent paid by Tenant
during the preceding calendar year shall be in excess of, or less than, the
aggregate of its share of the actual increase incurred by Landlord for real
estate taxes and operating expenses, and the actual increase attributable to the
increase in the Consumer Price Index. Landlord and Tenant agree to make the
appropriate adjustment following the submission of Landlord's statement. Tenant
shall either pay any additional rent due with the installment of rent due for
the month following submission of Landlord's statement, or pay any additional
rent due within thirty (30) days if the Lease term has expired or is otherwise
terminated. Tenant shall deduct its excess payment, if any, from the installment
of rent for such month, or following the final year of the Lease term, Tenant
shall be reimbursed for any excess payments made.
(d) Within ten (10) days after receipt of Landlord's statement showing
actual figures for the year. Tenant shall have the right to request copies of
real estate bills and an unaudited statement of "operating expenses of the
building" prepared by Landlord's certified public accountant, which shall be
supplied to Tenant within a reasonable time after Tenant's written request.
Unless Tenant asserts specific error(s) within thirty (30) days after Landlord
has complied with Tenant's request, Tenant shall have no right to contest the
statement of actual figures for the year submitted by Landlord. No such request
shall extend the time for payments as set forth in this Section 2.3 above. If
Tenant has given proper notice, and if it shall be determined that there is an
error in Landlord's statement, Tenant shall be entitled to a credit for any
overpayment, which shall be applied to the next installment of rent or refunded
to a Tenant who has vacated the premises, or Tenant shall be billed for any
underpayment and shall remit any amount owing to Landlord within ten (10) days
of receipt of such statement.
(e) In the event Tenant questions the validity of the statement of
operating expenses submitted by Landlord, Tenant shall have the right to examine
or have its accountant examine at the office of Landlord's accountant the books
and records from which such statement has been prepared. No such examination
shall extend the time for payments due in accordance with this Section 2.3,
however. Tenant shall pay upon demand a reasonable sum to reimburse Landlord for
the costs of services of Landlord's accountant in cooperating and assisting in
the examination. If any error amounting to more than five (5) percent in the
operating expenses statement is found, Landlord shall bear its accountant's
costs as aforesaid.
2.4 RENT ADJUSTMENT LIMIT. Notwithstanding any adjustments to rent as
provided for above, in no event shall the total rent to be paid by tenant in any
month during the term of this Lease or any extension thereof be less than the
base monthly rent stipulated in Section 1.3.
2.5 SURVIVAL OR RENT OBLIGATION. The obligation of Tenant with respect to
the payment of rent, or additional rent as defined in Sections 2.2 and 2.10,
accrued and unpaid during the term of the Lease, shall survive the expiration or
earlier termination of the Lease.
2.6 PRO RATA SHARE. Tenant's "pro rata share" stipulated in Section 1.5(a)
and (b) represents the ratio that the area of the Demised Premises bears to the
total rentable area of office space contained in the building.
2.7 PRORATED RENT. Any rent or additional rent payable for one or more full
calendar months in a partial calendar year at the beginning or end of the Lease
term shall be prorated based upon the number of months. Any rent or additional
rent payable for a portion of a month shall be prorated based upon the number of
days in the applicable calendar month.
2.8 APPLICATION OR RENT. No payment by Tenant or receipt by Landlord of
lesser amounts of rent or additional rent than those herein stipulated shall be
deemed to be other than on account of the earliest unpaid stipulated rent. No
endorsement or statement on any check or any letter accompanying any check or
payment as rent shall 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 rent or pursue any other remedy provided in this Lease. Any
credit due to Tenant hereunder by reason of overpayment of additional rent shall
first be applied to any damages or rent owed to Landlord by Tenant if Tenant
shall be in default when said credit shall be owed.
2.9 LATE PAYMENT FEE. In the event any installment of rent or additional
rent due hereunder is not paid within ten (10) calendar days after it is due,
then Tenant shall also pay to Landlord as additional rent a late payment fee
equal to five percent (5%) of such delinquent rent for each and every month or
part thereof such rent remains unpaid.
2.10 OTHER TENANT COSTS & EXPENSES. All costs and expenses which Tenant
assumes or agrees to pay to Landlord pursuant to this Lease, including without
limitation costs of construction and alterations, shall be deemed additional
rent and, in the event of nonpayment thereof, Landlord shall have all the rights
and remedies herein provided for in case of nonpayment of rent, including
assessment of late payment fees.
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<PAGE> 9
3. CONSTRUCTION OF PREMISES AND OCCUPANCY
3.1 TENANT PLANS, CONSTRUCTION AND RENT LIABILITY. Tenant shall deliver to
Landlord for its approval, by the date specified in Section 1.7(a), preliminary
plans approved in writing by Tenant showing its partition, electrical, telephone
and all other requirements set forth in Tenant Plans Guidelines (which shall
have been provided by Landlord to Tenant). Tenant preliminary plans shall permit
the preparation of working drawings and cost estimate, and shall be certified
by Tenant's architects or engineers to be in compliance with applicable building
and fire codes. Landlord's approval of Tenant plans or work does not constitute
certification by Landlord that said plans or work meet the applicable
requirements of any building codes, laws, or regulations, nor shall it impose
any liability whatsoever upon Landlord. If Tenant's plans are not in compliance
with applicable building and fire codes, they shall not be deemed acceptable to
Landlord. If Tenant's plans are acceptable to Landlord, Landlord shall have
working drawings prepared. Nothing contained in this Section 3.1, nor any delay
in completing the Demised Premises, shall in any manner affect the commencement
date of this Lease set forth in Section 1.2 or Tenant's liability for the
payment of rent from such commencement date, except as follows. If Landlord
requires longer than the number of working days stipulated in Section 1.7(b) to
prepare working drawings and prepare the cost estimate following receipt of
Tenant's approved preliminary drawings, or If Landlord requires longer than the
number of working days stipulated in Section 1.7(c) to substantially complete
construction improvements in the Demised Premises, then the date for payment of
rent covenanted and reserved to be paid herein shall be put off by one day for
each extra day Landlord requires for the foregoing preparation of working
drawings and cost estimate and/or substantial completion of construction
improvements. For purposes of this Section 3.1, substantial completion of
construction improvements shall mean when all work to be performed by Landlord
pursuant to the approved working drawings has been completed, except for minor
items of work and minor adjustments of equipment and fixtures that can be
completed after occupancy of the Demised Premises without causing undue
interference with Tenant's reasonable use of the Demised Premises (i.e.,
so-called "punch-list" items). In the event Tenant's plans specify any
improvements that are not building standard, however, the delivery and
installation of which precludes Landlord from completing the Demised Premises
for Tenant's occupancy by the commencement date hereof, or in the event any work
to be performed by Tenant or Tenant's contractors delays Tenant's occupancy by
the commencement date hereof, Tenant shall nevertheless remain liable for the
payment of rent from such commencement date.
3.2 POSSESSION. If Landlord shall be unable to tender possession of the
Demised Premises on the date of the commencement of term hereof, set forth in
Section 1.2, by reason of; (a) the fact that the premises are located in a
building being constructed and which has not been sufficiently completed to make
the premises ready for occupancy; (b) the holding over or retention of
possession of any tenant or occupant; or (c) for any other reason beyond control
of Landlord. Landlord shall not be subject to any liability for the failure to
tender possession on said date. In the case of holding over, provided Landlord
shall promptly institute suit for recovery of the premises and diligently pursue
the same, Landlord shall have no responsibility for any delay in tendering
possession of the Demised Premises. Under such circumstances the rent reserved
and covenanted to be paid herein shall not commence until possession of the
Demised Premises is tendered to Tenant. No such failure to give possession on
the date of commencement of the term shall in any other respect affect the
validity of this Lease or the obligations of Tenant hereunder, nor shall same be
construed to mend the termination date of this Lease set forth in Section 1.2.
If permission is given to Tenant to enter into possession of the Demised
Premises prior to the date specified as the commencement of the term of this
Lease, Tenant covenants and agrees that such occupancy shall be deemed to be
under all the terms, covenants, conditions and provisions of this Lease, except
that Tenant shall be responsible for payment of rent, in advance, at the rate of
1/30th of the base monthly rent set forth in Section 1.3 for each day of such
occupancy prior to the date for the commencement of the term of this Lease.
3.3 OCCUPANCY PERMITS. Tenant shall be responsible for obtaining occupancy
permits and any other permits or licenses necessary for its lawful occupancy of
the Demised Premises.
4. SUBLETTING AND ASSIGNMENT
4.1 CONSENT. Tenant will not sublet the Demised Premises or any part thereof
or transfer possession or occupancy thereof to any person, firm or corporation,
or transfer or assign this Lease, without the prior written consent of Landlord,
which consent shall be in Landlord's sole discretion to give or withhold. No
subletting or assignment hereof shall be effected by operation of law or in any
other manner unless with prior written consent of Landlord. Tenant further
agrees that any permitted subletting of the Demised Premises shall be subject to
the provisions of Section 4.3. No assignment shall be made except for the entire
premises demised by this Lease. Tenant further agrees that any permitted
assignment of the Lease may be conditioned upon payment of consideration to be
agreed upon by Landlord and Tenant. Any subletting or assignment consented to by
Landlord shall be evidenced in writing in a form acceptable to Landlord. Consent
by Landlord to any assignment or subletting by Tenant shall not operate as a
waiver of the necessity for obtaining Landlord's consent in writing to any
subsequent assignment or subletting; nor shall the collection or acceptance of
rent from any such assignee, subtenant or occupant constitute a waiver or
release of Tenant of any covenant or obligation contained in this Lease. In the
event that Tenant defaults under this Lease in the payment or rent or additional
rent, Tenant hereby assigns to Landlord the rent due from any subtenant of
Tenant and hereby authorizes each such subtenant to pay said rent directly to
Landlord.
4.2 RECAPTURE OF PREMISES. In the event Tenant desires to sublet the Demised
Premises or assign the Lease, Tenant shall give the Landlord written notice of
Tenant's intended subtenant or assignee in order to secure Landlord's written
consent in accordance with Section 4.l. Within ninety(90)days of receipt of said
notice, Landlord shall have the right: (i) to terminate this Lease by giving
Tenant not less than thirty (30) days' notice in the case of an assignment of
the entire Lease or a subletting of more than fifty percent (50%) of the Demised
Premises; or (ii) to terminate this Lease and simultaneously to enter into a new
Lease with
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Tenant for that portion of the Demised Premises Tenant may desire to retain
upon the same terms, covenants and conditions of the existing Lease as
applicable to the space retained. If Landlord exercises its right to terminate
this Lease, Tenant agrees that Landlord shall have access to all or a portion of
the Demised Premises sixty (60) days prior to the effective termination date for
remodeling or redecorating purposes.
4.3 EXCESS RENT. In the event Landlord does not exercise its right to
terminate this Lease, and Landlord has granted its written consent, Tenant may
sublet all or a portion of the Demised Premises. Any rent accruing to Tenant as
the result of such sublease, which is in excess of the pro rata share of rent
then being paid by Tenant for the portion of the Demised Premises being sublet,
shall be paid by Tenant to Landlord monthly as additional rent.
4.4 TENANT LIABILITY. In the event of any subletting of the Demised Premises
or assignment of this Lease by Tenant, with or without Landlord's consent,
Tenant shall remain liable to Landlord for payment of the rent stipulated herein
and all other covenants and conditions contained herein.
5. SERVICES AND UTILITIES
5.1 BUILDING STANDARD SERVICES AND UTILITIES. Landlord shall furnish
sufficient electric current for lighting and office equipment, such as
typewriters, calculators, small copiers and similar items, subject to the
limitations of Section 5.3, water for lavatory and drinking purposes, lavatory
supplies, fluorescent tube replacements, automatically operated elevator service
and nightly cleaning service in accordance with Landlord's prevailing practices,
as they may be established from time to time, except that Landlord shall not be
responsible for cleaning Tenant kitchens or private bathrooms, Tenant rugs,
carpeting and drapes. Landlord further agrees to furnish heating and cooling
during the appropriate seasons of the year, between the hours and on the days
set forth in Section 1.8 (exclusive of legal public holidays as defined in
Section 6103 (a) and (c) of Title 5 of the United States Code, as it may be
hereafter be amended, with holidays failing on Saturday observed on the
preceding Friday and holidays falling on Sunday observed on the following
Monday). All of the aforesaid services shall be provided without cost to Tenant
except as such expenses may be included in calculating the additional rent
pursuant to the provisions of Sections 2.2 and 2.3. Landlord shall not be liable
for failure to furnish, or for suspension or delays in furnishing any of such
services caused by breakdown, maintenance or repair work, strike, riot, civil
commotion, governmental regulations or any other cause or reason whatever beyond
the control of Landlord. Suspension or interruption of services shall not result
in any abatement of rent, be deemed an eviction or relieve Tenant of performance
of Tenant's obligations under this Lease.
5.2 OVERTIME SERVICES. Should Tenant require heating and cooling services
beyond the hours and/or days stipulated in Section 1.8, upon receipt of at least
72 hours prior written notice from Tenant, Landlord will furnish such additional
service at the then prevailing hourly rates, as established by Landlord from
time to time; provided, further, that there will be a minimum charge of four (4)
hours each time overtime services are required.
5.3 EXCESSIVE ELECTRICAL USAGE.
(a) Tenant will not install or operate in the Demised Premises any
heavy duty electrical equipment or machinery without first obtaining prior
written consent of Landlord. Landlord may, among other conditions, require as a
condition to its consent for the installation of such equipment or machinery,
payment by Tenant as additional rent for excess consumption of electricity that
may be occasioned by the operation of said equipment or machinery. Landlord may
make periodic inspections of the Demised Premises at reasonable times to
determine that Tenant's electrically operated equipment and machinery complies
with the provisions of this Section and Section 5.4.
(b) The total average consumption of electricity, including lighting,
in excess of five (5) watts per square foot for the Demised Premises shall be
deemed excessive. Additionally, any individual piece of electrically operated
machinery or equipment having a name plate rating in excess of two (2) kilowatts
shall also be deemed as requiring excess electric current.
(c) Landlord may require that one or more separate meters be installed
to record the consumption or use of electricity, or shall have the right to
cause a reputable independent electrical engineer to survey and determine the
quantity of electricity consumed by such excessive use. The cost of any such
survey or meters and of installation, maintenance and repair thereof shall be
paid for by Tenant. Tenant agrees to pay Landlord (or the utility company, if
direct service is provided by the utility company), promptly upon demand
therefor, for all such electric consumption and demand as shown by said meters,
or a flat monthly charge determined by the survey, as applicable, at the rates
charged for such service by the local public utility company. If Tenant's cost
of electricity based on meter readings is to be paid to Landlord, Tenant shall
pay a service charge related thereto.
5.4 EXCESSIVE HEAT GENERATION. Landlord shall not be liable for its failure
to maintain comfortable atmospheric conditions in all or any portion of the
Demised Premises due to heat generated by any equipment, machinery or additional
lighting installed by Tenant (with or without Landlord's consent) that exceeds
design capabilities for the building of which the Demised Premises are a part.
If Tenant desires additional cooling to offset excessive heat generated by such
equipment or machinery, Tenant shall pay for auxiliary cooling equipment, and
its operating costs including without limitation electricity, gas, oil and
water, or for excess electrical consumption by the existing cooling system, as
appropriate.
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5.5 SECURITY. Any security measures that Landlord may undertake are for
protection of the building only and shall not be relied upon by Tenant to
protect Tenant, Tenant's property, or employees, or their property.
6. USE AND UPKEEP OF PREMISES
6.1 USE. Tenant shall use and occupy the Demised Premises for the purposes
specified in Section 1.9 and only in accordance with applicable zoning and other
municipal regulations and for no other purpose whatsoever.
6.2 ILLEGAL AND PROHIBITED USES. Tenant will not use or permit the Demised
Premises or any part thereof to be used for any disorderly, unlawful or extra
hazardous purpose and will not manufacture any commodity therein. Tenant will
not use or permit the Demised Premises to be used for any purposes that
interfere with the use and enjoyment by other tenants of the building nor which,
in Landlord's opinion, impair the reputation or character of the building of
which the Demised Premises form a part. Tenant shall refrain from and
discontinue such use upon receipt of written notice from Landlord or no later
than three (3) days after mailing thereof.
6.3 INSURANCE RATING. Tenant will not do or permit anything to be done in
the Demised Premises or the building of which they form a part or bring or keep
anything therein which shall in any way increase the rate of fire or other
insurance in said building, or on the property kept therein, or obstruct, or
interfere with the rights of other tenants, or in any way injure or annoy them,
or those having business with them, or conflict with them, or conflict with the
fire laws or regulations, or with any insurance policy upon said building or any
part thereof, or with any statutes, rules or regulations enacted or established
by the appropriate governmental authority.
6.4 ALTERATIONS.
(a) Tenant will not make any alterations, installations, changes,
replacements, repairs, additions or improvements (structural or otherwise) in or
to the Demised Premises or any part thereof, without the prior written consent
of Landlord. All Tenant plans and specifications shall be submitted to Landlord
for prior approval. Landlord may, among other things, condition its consent upon
Tenant's agreement that any construction up-gradings required by any
governmental authority as a the result of Tenant's work, either in the Demised
Premises or in any other part of the building, will be paid for by Tenant.
Tenant shall not install any equipment of any kind or nature whatsoever which
will or may necessitate any changes, replacements or additions to the water
system, plumbing system, heating system, air-conditioning system or the
electrical system of the Demised Premises without the prior written consent of
the Landlord. Tenant shall not install or use in the building any air
conditioning unit, engine, boiler, generator, machinery, heating unit, stove,
water cooler, ventilator, radiator or any other similar apparatus without the
prior written consent of Landlord, and then only as Landlord may direct. Tenant
shall not modify or interfere with the heating, ventilating and air-conditioning
supply. return or control systems without the prior written consent of Landlord,
and then only as Landlord may direct. Landlord may condition its consent upon
Tenant's payment of all costs to make such changes, replacement or
modifications. Landlord's consent to any work by Tenant or approval of Tenant
plans or specifications shall not be deemed a certification that such work
complies with applicable building codes, laws or regulations, nor shall it
impose any liability whatsoever upon Landlord.
(b) All of Tenant's approved work shall be done in accordance with
Landlord's Supplemental Rules and Regulations for Contractors and shall be done
by duly licensed contractors in accordance with all applicable laws, codes,
ordinances, rules and regulations, and Tenant shall obtain at its cost any
required permits, licenses or inspections for performance of its work. Tenant
must obtain an executed waiver of lien from each contractor or vendor that will
perform or furnish to Tenant work, labor, services or materials for any
alterations, installations, replacements, additions or improvements in or to the
Demised Premises, prior to the commencement of such work. Notwithstanding the
aforesaid, if any mechanic's lien shall at any time, whether before, during or
after the Lease term, be filed against any part of the building by reason to
work, labor, services or materials performed for or furnished to Tenant, Tenant
shall forthwith cause the lien to be discharged of record or bonded off to the
satisfaction of Landlord. If Tenant shall fail to cause such lien to be
discharge or bonded off within five (5) days after being notified of the filing
thereof, then, in addition to any other right to remedy of Landlord, Landlord
may discharge the lien by paying the amount claimed to be due. The amount paid
by Landlord, and all costs and expenses, including reasonable attorney's fees
incurred by Landlord in procuring the discharge of the lien, shall be due and
payable by Tenant to Landlord as additional rent on the first day of the next
following month, or if the Lease term has expired, upon demand.
(c) All alterations, installations, including without limitation wall
to wall carpet and drapery and drapery accessories, changes, replacements,
repairs, additions, or improvements to or within the Demised Premises (whether
with or without Landlord's consent), shall at the election of Landlord remain
upon the Demised Premises and be surrendered with the Demised Premises at the
expiration of this Lease without disturbance, molestation or injury. Should
Landlord elect that alterations, installations, changes, replacements, repairs,
additions to or improvements made by or for Tenant upon the Demised Premises be
removed upon termination of this Lease or upon termination of any renewal period
hereof, Tenant hereby agrees that Landlord shall have the right to cause same to
be removed at Tenant's sole cost and expense. Tenant hereby agrees to reimburse
Landlord for the cost of such removal together with the cost of repairing any
damage
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resulting therefrom, and the cost of restoring the premises to its condition at
the commencement of the term of this Lease as initially improved by Landlord.
Approximately sixty (60) days prior to Tenant's scheduled vacation of the
Demised Premises, Landlord and Tenant shall meet to decide what items shall be
removed and what items shall remain. At such time Tenant shall deposit with
Landlord an amount equal to the estimated costs of removal and/or restoration of
the Demised Premises, which work shall be performed by or for Landlord at
Tenant's expense.
(d) In the event that either Landlord or Tenant, during the term hereby
demised, shall he required by the order or decree of any court, or any other
governmental authority, or by law, code or ordinance, to repair, alter, remove
reconstruct, or improve any part of the Demised Premises or of the building of
which said premises are a part, then Tenant shall make or Tenant shall be
required to permit Landlord to perform such repairs, alterations, removals,
reconstructions, or improvements without effect whatsoever to the obligations or
covenants of Tenant herein contained, and Tenant hereby waives all claims for
damages or abatement of rent because of such repairing, alteration, removal,
reconstruction, or improvement.
6.5 MAINTENANCE BY LANDLORD. Landlord shall maintain all public or common
areas located in the building, including external and structural parts of the
building that do not comprise a part of the Demised Premises and are not Leased
to others. Such maintenance shall be provided without cost to Tenant except as
such expenses may be included in calculating the additional rent pursuant to the
provisions of Sections 2.2 and 2.3.
6.6 SIGNS & ADVERTISING. No sign, advertisement or notice shall be
inscribed, painted or affixed on any part of the outside of the building, or
inside of the Demised Premises where it may be visible from the public areas of
the building, except on the directories and doors of offices, and then only in
such size, color and style as Landlord shall approve. Landlord shall have the
right to prohibit any advertisement or publication of Tenant on-or off-premises
which in Landlord's opinion tends to impair the reputation or character of the
building, Landlord or its agent. Tenant shall refrain from and discontinue such
advertisement or publication upon receipt of written notice from Landlord or no
later than three (3) days after mailing thereof.
6.7 EXCESSIVE FLOOR LOAD. Landlord shall have the right to prescribe the
weight and method of installation and position of safes, computer equipment, or
other heavy fixtures or equipment. Tenant will not install in the Demised
Premises any fixtures, equipment or machinery that will place a load upon the
floor exceeding the designed floor load capacity of the building. Landlord may
prescribe the placement and positioning of all such objects within the building,
and such objects shall be placed upon platforms, plates or footings of such size
as Landlord shall prescribe if necessary. All damage done to the building by
installing or removing a safe or any other article of Tenant's office equipment,
or due to its being in the Demised Premises, shall be repaired at the expense of
Tenant.
6.8 MOVING & DELIVERIES.
(a) Moving in or out of the building is prohibited on days and hours
specified in Section 1.8. Tenant shall provide Landlord with forty-eight (48)
hours advanced written notice of any move and obtain Landlord's approval
therefor in order to facilitate scheduling use of freight elevators and loading
area.
(b) No freight, furniture or other bulky matter of any description
shall be received into the building or carried in the elevators, except as
authorized by Landlord. All moving of furniture, material and equipment shall be
under the direct control and supervision of Landlord, who shall, however, not be
responsible for any damage to or charges for moving same. Tenant shall promptly
remove from the public area adjacent to said building any of Tenant's property
delivered or deposited there.
(c) Any and all damage or injury to the Demised Premises or the
building caused by moving the property of Tenant into or out of the Demised
Premises shall be repaired at the sole cost of Tenant. Deliveries from lobby and
freight areas requiring use of hand carts shall be restricted to freight
elevators. All hand carts used in delivery, receipt or movement of freight,
supplies, furniture, or fixtures shall be equipped with rubber tires and side
guards. Tenant shall cooperate identifying delivery contractors and movers
causing damage to the building.
6.9 RULES AND REGULATIONS. Tenant shall, and shall insure that Tenant's
agents, employees, invitees and guests, faithfully keep, observe and perform the
Building Rules and Regulations set forth in Exhibit C, attached hereto and made
a part hereof, and such other reasonable rules and regulations as Landlord may
make, which shall not substantially interfere with the intended use of the
Demised Premises, which in Landlord's judgment are needful for the general well
being, operation and maintenance of the Demised Premises and the building of
which they are a part, together with their appurtenances, unless waived in
writing by Landlord. In addition to any other remedy provided for herein,
Landlord shall have the right to impose a fine of $200 per incident for
violations of Building Rules and Regulations. Nothing contained in this Lease
shall be construed to impose upon Landlord any duty or obligation to enforce
such rules and regulations, or the terms, conditions or covenants contained in
any other Lease, as against any other tenant, and Landlord shall not be liable
to Tenant for violation of the same by any other tenant, its employees, agents,
business invitees, licensees, customers, clients family members or guests.
Further, it shall be in Landlord's reasonable judgment to determine whether
Tenant is in compliance with the Rules and Regulations.
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6.10 TENANT MAINTENANCE & CONDITIONS OF PREMISES UPON SURRENDER. Tenant will
keep the Demised Premises and the fixtures and equipment therein in good order
and condition, will suffer no waste or injury thereto, and will, at the
expiration or other termination of the term hereof, surrender and deliver up the
same in like good order and condition as the premises shall be at the
commencement of the term of this Lease, subject to the provisions of Section
6.4(c), ordinary wear and tear excepted.
6.11 TENANT EQUIPMENT. Maintenance and repair of equipment such as special
light fixtures, kitchen fixtures, auxiliary heating, ventilation, or
air-conditioning equipment, private bathroom fixtures and any other type of
special equipment together with related plumbing or electrical services, or
Tenant rugs, carpeting and drapes within the Demised Premises, whether installed
by Tenant or by Landlord on behalf of Tenant, shall be the sole responsibility
of Tenant, and Landlord shall have no obligation in connection therewith.
Notwithstanding the provisions hereof, in the event that repairs required to be
made by Tenant become immediately necessary to avoid possible injury or damage
to persons or property, Landlord may, but shall not he obligated to, make
repairs to Tenant equipment at Tenant's expense. Within ten (10) days after
Landlord renders a bill for the cost of said repairs, Tenant shall reimburse
Landlord.
7. ACCESS
7.1 LANDLORD'S ACCESS. Landlord, its agent or employees. shall have the
right to enter the Demised Premises at all reasonable times (a) to make
inspections or to make such repairs and maintenance to the Demised Premises or
repairs and maintenance to other premises as Landlord may deem necessary; (b)
to exhibit the premises to prospective tenants during the last six (6) months of
the term of this Lease; and (c) for any purpose whatsoever relating to safety,
protection or preservation of the building of which the Demised Premises form a
part.
7.2 RESTRICTED ACCESS. No additional locks, other devices or systems which
would restrict access to the Demised Premises shall be placed upon any doors
without the prior consent of Landlord. Landlord's consent to installation of
anti-crime warning devices or security systems shall not be unreasonably
withheld; provided Landlord shall not be required to give such consent unless
Tenant provides Landlord with a means of access to the demised premised for
emergency and routine maintenance purposes. Unless access to the Demised
Premises is provided during the hours when cleaning service is normally
rendered, Landlord shall not be responsible for providing such service to the
Demised Premises or to those portions thereof which are inaccessible. Such
inability by Landlord to provide cleaning services to inaccessible areas shall
not entitle Tenant to any adjustment in rent.
8. LIABILITY
8.1 PERSONAL PROPERTY. All personal property of Tenant in the Demised
Premises or in the building of which the Demised Premises is a part shall be at
the sole risk of Tenant. Landlord shall not be liable for any damage thereto or
for the theft or misappropriation thereof, unless such damage, theft or
misappropriation is directly attributable to the negligence of Landlord, its
agents or employees. Landlord shall not be liable for any accident to or damage
to property of Tenant resulting from the use or operation of elevators or of the
heating, cooling, electrical or plumbing apparatus, unless caused by and due to
the negligence of Landlord, its agents or employees. Landlord shall not, in any
event, be liable for damages to property resulting from water, steam or other
causes. Tenant hereby expressly releases Landlord from any liability incurred or
claimed by reason of damage to Tenant's property, unless said damages are proved
to be the direct result of negligence of Landlord, its agents or employees.
Landlord shall not be liable in damages, nor shall this Lease be affected, for
conditions arising or resulting, and which affect the building of which the
Dernised Premises is a part, due to construction on contiguous premises.
8.2 CRIMINAL ACTS OF THIRD PARTIES. Landlord shall not be liable in any
manner to Tenant, its agents, employees, invitees or visitors for any injury or
damage to Tenant, Tenant's agents, employees, invitees, or visitors, or their
property, caused by the criminal or intentional misconduct of third parties or
of Tenant, Tenant's employees, agents, invitees, or visitors. All claims against
Landlord for any such damage or injury are hereby expressly waived by Tenant,
and Tenant hereby agrees to hold harmless and indemnify Landlord from all such
damages and the expense of defending all claims made by Tenant's employees,
agents, invitees, or visitors arising out of such acts.
8.3 PUBLIC LIABILITY. Landlord assumes no liability or responsibility
whatsoever with respect to the conduct and operation of the business to be
conducted upon the Demised Premises. Landlord shall not be liable for any
accident to or injury to any person or persons or property in or about the
Demised Premises which are caused by the conduct and operation of said business
or by virtue of equipment or property of Tenant in said premises. Tenant agrees
to hold Landlord harmless against all such claims, and indemnify Landlord from
all damages and the expense of defending all such claims.
8.4 TENANT INSURANCE.
(a) Tenant at its cost shall maintain as named insured, during the term
of this Lease, public liability and property damage insurance with at least a
single combined liability and property damage limit of $1,000,000.00, insuring
against all liability of Tenant and its authorized representatives arising out
of and in connection with Tenant's use or occupancy of the premises. All public
liability insurance and property damage insurance shall insure performance by
Tenant of the indemnity provisions of Section 8.1, 8.2 and 8.3. Landlord and
Landlord's Agent shall be named as additional insureds. The policy shall contain
cross-liability endorsements, and an assumed contractual liability endorsement
that refers expressly to this Lease.
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(b) Tenant at its cost shall maintain as named insured, during the term
of this Lease, fire and extended coverage insurance on the Demised Premises and
its contents, including any Leasehold improvements made by Tenant, in an amount
sufficient so that no co-insurance will be payable in case of loss.
(c) Tenant shall increase its insurance coverage as required not more
frequently than each three (3) years, if in the opinion of the mortgagee of the
building or Landlord's insurance agent the amount of public liability and
property damage insurance coverage at that time is not adequate.
(d) All insurance required under this Lease shall be insurance companies
authorized to do business in the jurisdiction where the building of which the
Demised Premises is a part is located. Such companies shall have a policyholder
rating of at least "A" and be assigned a financial size category of a least
"Class XIV" as rated in the most recent edition of "Best's Key Rating Guide" for
insurance companies. Each policy shall contain an endorsement requiring 30 days'
written notice from the insurance company to Landlord before cancellation or any
charge in the coverage, scope or amount of any policy. Each policy, or a
certificate showing it is in effect, together with evidence of payment of
premiums, shall be deposited with Landlord at least thirty (30) days prior to
the expiration date of any policy.
(e) Notwithstanding the fact that any liability of Tenant to Landlord
may he covered by Tenant's insurance, Tenant's liability shall in no way be
limited by the amount of its insurance recovery.
9. DAMAGE
9.1 DAMAGES CAUSED BY TENANT. Subject to the provision or Section 9.2, all
injury to the Demised Premises and other portions of the building of which it is
a part, caused by Tenant, its agents, employees, invitees and visitors, will be
repaired by Landlord at the expense of Tenant, except as otherwise provided in
Section 6.11, or repaired by Tenant with Landlord's approval in accordance with
Section 6. Tenant shall reimburse Landlord for such repairs within ten (10) days
of receipt of invoice from Landlord of the costs. At its election, Landlord may
regard the same as additional rent, in which event the cost shall become
additional rent payable with the installment of rent next becoming due after
notice is received by Tenant from Landlord. This provision shall be construed as
an additional remedy granted to Landlord and not in limitation of any other
rights and remedies which Landlord has or may have in said circumstances.
9.2 FIRE OR CASUALTY DAMAGE. In the event of damage or destruction of the
Demised Premises by fire or any other casualty without the fault or neglect of
Tenant, its agents, employees, invitees or visitors, this Lease shall not be
terminated, but structural damage to the premises including demising partitions
and doors shall be promptly and fully repaired and restored as the case may be
by Landlord at its own cost and expense. Due allowance, however, shall be given
for reasonable time required for adjustment and settlement of insurance claim,
and for such other delays as may result from government restrictions, and
controls on construction. if any, and for strikes, national emergencies and
other conditions beyond the control of Landlord. Restoration by Landlord shall
not include replacement of furniture, equipment or other items that do not
become part of the building or any improvements to the Demised Premises in
excess of those provided for as building standard items as of the commencement
date of this Lease. Tenant shall be responsible for the repair and restoration
of the Demised Premises and Tenant's property beyond Landlord's obligation at no
cost to Landlord, in accordance with the provisions of Section 6, for which it
shall maintain adequate insurance pursuant to Section 8.4 herein. In the event
of fire or casualty damage to the Demised Premises caused by the fault or
neglect of Tenant, its agents, employees, invitees or visitors, Landlord shall
restore structural damages as described herein at Tenant's cost and expense. It
is agreed that in any of the aforesaid events, this Lease shall continue in full
force and effect.
9.3 UNTENANTABILITY. If the condition referred to in Section 9.2 is such so
as to make the entire premises untenantable, then the rental which Tenant is
obligated to pay hereunder shall abate as of the date of the occurrence until
the premises have been fully and completely restored by Landlord. Any unpaid or
prepaid rent for the month in which said condition occurs shall be prorated. If
the premises are partially damaged or destroyed, then during the period that
Tenant is deprived of the use of the damaged portion of said premises, Tenant
shall be required to pay rental covering only that Part of the premises that it
is able to occupy, based on the portion of the total rent which the amount of
square foot area remaining that can be occupied bears to the total square foot
area of all premises covered by this Lease. In the event the premises are
substantially or totally destroyed by fire or other casualty so as to be
entirely untenantable, and it shall require more than ninety (90) days from the
date of said fire or other casualty for Landlord to complete restoration of
same, then Landlord, upon written notice to Tenant, may terminate this Lease, in
which case the rent shall be apportioned and paid to the date of said fire or
other casualty. Due allowance, however, shall be given for reasonable time
required for adjustment and settlement of insurance claims, and for such other
delays as may result from government restrictions, and controls on construction,
if any, and or strikes, national emergencies and other conditions beyond the
control of Landlord. No compensation, or claim, or diminution of rent will be
allowed or paid by Landlord, by reason or inconvenience, annoyance, or injury to
business, arising from the necessity of repairing the Demised Premises or any
portion or the building of which they are a part.
10. CONDEMNATION
10.1 LANDLORD RIGHTS TO AWARD. Tenant agrees that if the whole or a
substantial part of the Demised Premises shall be taken or condemned for public
or quasi-public use or purpose by any competent authority. Tenant shall have no
claim against Landlord and shall not have any claim or right to any portion of
the amount that may be awarded as damages or paid as a result of any such
condemnation. All rights of
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Tenant to damages therefor, if any, are hereby assigned by Tenant to Landlord.
Upon such condemnation or taking, the term of this Lease shall cease and
terminate from the date of such government taking or condemnation. If a portion
of the building or the Demised Premises is taken or condemned, and the remainder
in Landlord's opinion is not economically usable, Landlord shall notify Tenant
of the termination of this Lease effective as of the date of such governmental
taking or condemnation. Tenant shall have no claim against Landlord for the
value of any unexpired term of this Lease. If less than a Substantial part of
the Demised Premises is taken or condemned by any governmental authority for
public or quasi-public use or purpose and the remainder is usable by Tenant, the
rent shall be equitably adjusted on the date when title vests in such
governmental authority and the Lease shall otherwise continue in full force and
effect. For the purposes of this Section 10, a substantial part of the Demised
Premises shall be considered to have been taken if more than fifty percent (50%)
of the Demised Premises are unusable by Tenant.
10.2 TENANT RIGHT TO FILE CLAIM. Nothing In Section 10.1 shall preclude
Tenant from filing a separate claim against the condemning authority for the
undepreciated value of its Leasehold improvements and relocation expenses,
provided that any award to Tenant will not result in a diminution of any award
to Landlord.
11. BANKRUPTCY
11.1 EVENTS OF BANKRUPTCY. The following shall be Events of Bankruptcy under
this Lease:
(a) Tenant's becoming insolvent, as the term is defined in Title 11 of
the United States Code, entitled Bankruptcy. 11 U.S.C Sec. 101 et seq. (the
"Bankruptcy Code"), or under the insolvency laws of any State, District.
Commonwealth or Territory of the United States ("Insolvency Laws");
(b) The appointment of a receiver or custodian for any or all of
Tenant's property or assets, or the institution of a foreclosure action upon any
of Tenant's real or personal property,
(c) The filing of a voluntary petition under the provisions of the
Bankruptcy Code or Insolvency Laws;
(d) The filing or an involuntary petition against Tenant as the subject
debtor under the Bankruptcy Code or Insolvency Laws, which is either not
dismissed within thirty (30) days of filing. or results in the issuance of an
order for relief against the debtor, whichever is later, or
(e) Tenant's making or consenting to an assignment for the benefit of
creditors of a common law composition of creditors.
11.2 Landlord's Remedies.
(a) Termination of Lease. Upon occurrence of an Event of Bankruptcy,
Landlord shall have the right to terminate this Lease by giving written notice
to Tenant; provided, however, that this Section 11.2(a) shall have no effect
while a notice in which Tenant is the subject debtor under the Bankruptcy Code
is pending, unless Tenant or its Trustee is unable to comply with the provisions
of Section 11.2(d) and (e) below. At all other times this Lease shall
automatically cease and terminate, and Tenant shall be immediately obligated to
quit the premises upon the giving of notice pursuant to this Section 11.2(a).
Any other notice to quit, or notice of Landlord's intention to re-enter is
hereby expressly waived. If Landlord elects to terminate this Lease, everything
contained in this Lease on the part of Landlord to be done and performed shall
cease without prejudice, subject, however, to the rights or Landlord to recover
from Tenant all rent and any other sums accrued up to the time of termination or
recovery of possession by Landlord, whichever is later, and any other monetary
damages or loss of reserved rent sustained by Landlord.
(b) Suit for Possession. Upon termination of this Lease pursuant to
Section 11.2(a), Landlord may proceed to recover possession under and by virtue
of the provisions of the laws of any applicable jurisdiction, or by such other
proceedings, including reentry and possession, as may be applicable.
(c) Non-Exclusive Remedies. Without regard to any action by Landlord as
authorized by Section 11.2(a) and (b) above, Landlord may at its discretion
exercise all the additional provisions set forth below in Section 12.
(d) Assumption or Assignment by Trustee. In the event Tenant becomes
the subject debtor in a case pending under the Bankruptcy Code, Landlord's right
to terminate this Lease pursuant to Section 11.2(a) shall be subject to the
rights of the Trustee in Bankruptcy to assume or assign this Lease. The Trustee
shall not have the right to assume or assign this Lease unless the Trustee (i)
promptly cures all defaults under this Lease, (ii) promptly compensates Landlord
for monetary damages, incurred as a result of such default, and (iii) provides
adequate assurance of future performance on the part of Tenant as debtor in
possession or on the part of the assignee Tenant.
(e) Adequate Assurance of Future Performance. Landlord and Tenant
hereby agree in advance that adequate assurance of future performance, as used
in Section 11.2(d) above, shall mean that all of the following minimum criteria
must be met: (i) Tenant's gross receipts in the ordinary course of business
during the thirty-day period immediately preceding the initiation of the case
under the Bankruptcy Code must be at least two times greater than the next
payment of rent due under this Lease; (ii) Both the average and median of
Tenant's gross receipts in the ordinary course of business during the six-month
period immediately preceding the initiation of the case under the Bankruptcy
Code must be at least two times greater than the next payment of rent due under
this Lease; (iii) Tenant must pay its estimated pro rata share of cost of all
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services provided by Landlord (whether directly or through agents or contractors
and whether or not previously included as part of the base rent), in advance of
the performance or provision of such services; (iv) The Trustee must agree that
Tenant's business shall be conducted in a first class manner, and that no
liquidating sales, auctions, or other non-first class business operations shall
be conducted on the premises; (v) The Trustee must agree that the use of the
premises as stated in this Lease will remain unchanged and that no prohibited
use shall be permitted; and (vi) The Trustee must agree that the assumption or
assignment of this Lease will not violate or affect the rights of other tenants
in the building.
(f) Failure to Provide Adequate Assurance. In the event Tenant is
unable to (i) cure its defaults. (ii) reimburse the Landlord for its monetary
damages, (iii) pay the rent due under this Lease, and all other payments
required of Tenant under this Lease on time (or within five (5) days), or (iv)
meet the criteria and obligations imposed by Section 11.2(c) above, Tenant
agrees in advance (hat it has not met its burden to provide adequate assurance
of future performance. and this Lease may be terminated by Landlord in
accordance with Section 11.2(a) above.
12. DEFAULTS & REMEDIES
12.1 DEFAULT. It is agreed that Tenant shall be in default if: Tenant shall
fail to pay the rent, or any installments thereof as aforesaid, at the time
shall become due and payable and/or any additional rent as herein provided
although no demand shall have been made for the same; or Tenant shall violate or
fail or neglect to keep and perform any of the covenants, conditions and
agreements, or rules and regulations herein contained on the part of Tenant to
be kept and performed.
12.2 REMEDIES. In each and every such event set forth in Section 12.1 above,
from thenceforth and at all times thereafter, at the option of Landlord.
Tenant's right or possession shall thereupon cease and terminate, and Landlord
shall be entitled to the possession of the Demised Premises and to re-enter the
same without demand of rent or demand of possession of said premises and may
forthwith proceed to recover possession of the Demised Premises by process of
law, any notice to quit being hereby expressly waived by Tenant. In the event of
such re-entry by process of law or otherwise, Tenant nevertheless agrees to
remain answerable for any and all damage, deficiency or loss of rent which
Landlord may sustain by such re-entry, including reasonable attorney's fees and
court costs. If, under the provisions hereof, seven (7) days summons or other
applicable summary process shall be served, and a compromise or settlement
therefor shall be made, such action shall not be constituted as a waiver of any
breach of any covenant, condition or agreement herein contained. No waiver of
any breach of any covenant, condition or agreement, herein contained, on one or
more occasions shall operate as a waiver of the covenant, condition or agreement
itself, or of any subsequent breach thereof. No provision of this Lease shall be
deemed to have been waived by Landlord unless such waiver shall be in writing
signed by Landlord.
12.3 LANDLORD'S RIGHT TO RELET. Should this Lease be terminated before the
expiration of the term of this Lease by reason of Tenant's default as provided
in Section 11 or 12, or if Tenant shall abandon or vacate the premises before
the expiration or termination of the term of this Lease, the Demised Premises
may be relet by Landlord for such rent and upon such terms as are reasonable
under the circumstances. If the full rent reserved under this Lease (and any of
the costs, expenses or damages indicated below) shall not be realized by
Landlord, Tenant shall be liable for all damages sustained by Landlord,
including, without limitation, deficiency in rent, reasonable attorney's fees,
other collection costs, brokerage fees, and expenses of placing the premises in
first-class rentable condition. Landlord, in putting the premises in good order
or preparing the same for rerental may, at Landlord's option, make such
alterations, repairs, or replacements in the premises, and the making of such
alterations, repairs, or replacements in the premises as Landlord, in Landlord's
sole judgment, considers advisable and necessary for the purpose of reletting
the premises, and the making of such alternations, repairs, or replacements
shall not operate or be construed to release Tenant from liability hereunder as
aforesaid. Landlord shall in no event be liable in any way whatsoever for
failure to relet the premises, or in the event that the premises are relet, for
failure to collect the rent thereof under such reletting. In no event shall
Tenant be entitled to receive any excess, if any, of such net rent collected
over the sums payable by Tenant to Landlord hereunder.
12.4 RECOVERY OR DAMAGES. Any damage or loss of rent sustained by Landlord
may be recovered by Landlord, at Landlord's option, in separate actions, from
time to time, as said damage shall have been ascertained or, at Landlord's
option, may be deferred until the expiration of the term of this Lease (in which
event Tenant hereby agrees that the cause of action shall not be deemed to have
accrued until the date of expiration or said term). The provisions contained in
this paragraph shall be in addition to and shall not prevent the enforcement of
any claim Landlord may have against Tenant for anticipatory breach of the
unexpired term of this Lease. All rights and remedies of Landlord under this
Lease shall be cumulative and shall not be exclusive of any rights and remedies
provided to Landlord under applicable law. In the event Tenant becomes the
subject debtor in a case under the Bankruptcy Code, the provisions of this
Section 12.4 may be limited by the limitations of damage provisions of the
Bankruptcy Code.
12.5 WAIVER. If under the provisions hereof Landlord shall institute
proceedings and a compromise or settlement thereof shall be made, the same shall
not constitute a waiver of any covenant, rule or regulation herein contained nor
of any of Landlord's rights hereunder. No waiver by Landlord of any breach of
any covenant, condition, agreement, rule or regulation herein contained shall
operate as a waiver of such covenant, condition, agreement, rule or regulation
itself, or of any subsequent breach thereof
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12.6 ANTICIPATORY REPUDIATION. If, prior to the commencement of the term of
this Lease, Tenant notifies Landlord of or otherwise unequivocally demonstrates
as intention to repudiate this Lease, Landlord may. at its option, consider such
anticipatory repudiation a breach of this Lease. In addition to any other
remedies available to it hereunder or at law or in equity, Landlord may retain
all rent paid upon execution of the Lease and the security deposit, if any,
shall be applied to Landlord's damages: reletting, loss of rent, etc. It is
agreed between the parties that for the purpose of calculating Landlord's
damages, in a building which has other available space at the time of Tenant's
breach, the premises covered by this Lease shall be deemed the last space
rented, even though the premises may be rerented prior to such other vacant
space. Tenant shall pay in full for all tenant improvements constructed or
installed within the Demised Premises to the date of the breach, and for
materials ordered at its request for the Demised Premises.
12.7 TENANT ABANDONMENT OF PREMISES.
(a) Abandonment. If the Demised Premises shall be deserted or vacated
by Tenant for thirty (30) consecutive days or more without notice to Landlord,
and Tenant shall have failed to make the current rental payment, the premises
may be deemed abandoned. Landlord may consider Tenant in default under this
Lease and may pursue all remedies available to it under this Lease or at law.
(b) Landlord Right to Enter and to Relet. If Tenant vacates or abandons
the premises as defined above, Landlord may, at its option, enter into the
premises without being liable for any prosecution therefor or for damages by
reason thereof. In addition to any other remedy, Landlord, as agent of Tenant,
may relet the whole or any part of the premises (b) the whole or any part of the
then unexpired Lease term. For the purposes of such reletting, Landlord may make
any alterations or modifications of the premises considered desirable in its
sole judgment.
(c) Rights to Dispose of Tenant Property. If Tenant vacates or abandons
the premises as defined above, any property that Tenant leaves on the premises
shall be deemed to have been abandoned and may either be retained by Landlord as
the property of Landlord or may be disposed of at public or private sale in
accordance with applicable law as Landlord sees fit. The proceeds of any public
or private sale of Tenant's property, or the then current fair market value of
any property retained by Landlord, shall be applied by Landlord against (i) the
expenses of Landlord for removal, storage or sale of the property; (ii) the
arrears of rent or future rent payable under this Lease; and (iii) any other
damages to which Landlord may be entitled hereunder.
(d) Transfer of Tenant Property to Creditors. If Tenant vacates or
abandons the premises, as defined above, Landlord may, upon presentation of
evidence of a claim valid upon its face of ownership or of a security interest
in any of Tenant's property abandoned in the premises, turn over such property
to the claimant with no liability to Tenant.
13. SUBORDINATION
13.1 SUBORDINATION. This Lease is subject and subordinate to all ground or
underlying Leases and to all mortgages and/or deeds of trust and/or other
security interests which may now or hereafter affect the real property of which
the Demised Premises form a part, and to all renewals, modifications,
consolidations, replacements and extensions thereof. This clause shall be
self-operative and no further instrument of subordination shall be required to
effect this subordination. Notwithstanding the foregoing, in confirmation of
such subordination, Tenant shall at Landlord's request execute and deliver to
Landlord within ten (10) business days after Landlord's request, any requisite
or appropriate certificate, subordination agreement or other document that may
be reasonably requested by Landlord or any other party requiring such
certificate, subordination agreement or document. If Tenant fails to execute
such certificate, subordination agreement or other document within said ten (10)
day period, Tenant by such failure irrevocably constitutes and appoints Landlord
as its special attorney-in-fact to execute such certificate, subordination
agreement or other document on Tenant's behalf. Notwithstanding the foregoing
subordination, Tenant agrees that any landlord under any ground or underlying
Lease, and any mortgagee or trustee under any security agreement to which this
Lease is now, or may hereafter, become subject or subordinate, may elect to
continue this Lease and Tenant agrees that in such event neither the
cancellation nor termination of any ground or underlying Lease, nor the
foreclosure under any mortgage or deed of trust, nor the sale at foreclosure,
nor the transfer by a deed in lieu of foreclosure, shall, by operation or law or
otherwise, result in cancellation or termination of this Lease or the
obligations of Tenant hereunder and this Lease shall continue as a direct Lease
between Tenant and such landlord, mortgagee, purchaser or trustee.
13.2 ESTOPPEL CERTIFICATES. Tenant shall execute and return within ten (10)
business days any certificate that Landlord may request from time to time,
stating that this Lease is unmodified and in full force and effect, or in full
force and effect as modified, and stating the modification. The certificate also
shall state (a) the amount of base monthly rent and the dates to which the rent
has been paid in advance; (b) the amount of any security deposit or prepaid
rent; (c) that there is no present default on the part of Landlord, or attach a
memorandum stating any such instance of default; (d) that Tenant has no right to
setoff and no defense or counterclaim against enforcement of its obligations
under this Lease; (e) that Tenant has no other notice of any sale, transfer or
assignment of this Lease or of the rentals; (f) that all work required of
Landlord has been completed and that the work is accepted as satisfactory; (g)
that Tenant is in full and complete possession of the Demised Premises; (h) the
date on which rent commenced and the date to which it is paid; (i) that Tenant
has not advanced any amounts to or on behalf of Landlord which have not been
reimbursed; (j) that Tenant understands that this Lease has been collaterally
assigned to Landlord's mortgagee as security for a loan to Landlord; (k) that
rent may not be prepaid without the prior written approval of Landlord's
mortgagee; and
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(l) such other items as Landlord may reasonably request. Failure to deliver the
certificate within the ten (10) business days shall be conclusive upon Tenant
for the benefit of and any successor to Landlord that this Lease is in full
force and effect and has not been modiifed except as may be represented by the
part requesting the certificate. If Tenant fails to deliver the certificate
within the ten (10) business days, Tenant by such failure irrevocably
constitutes and appoints Landlord as its special attorney-in-fact to execute and
deliver the certificate to any third party.
13.3 ATTORNMENT. Tenant covenants and agrees that, in the event of any
foreclosure under any mortgage or deed of trust, or any renewal, modification,
consolidation, replacement or extension thereof, or in the event of any
acceptance of any deed in lieu of foreclosure, which may now or hereafter affect
the real property of which the Demised Premises are a part. Tenant shall attorn
to the party secured by such mortgage or deed of trust, or any renewal,
modification, consolidation, replacement or extension thereof, and to any
purchaser at any foreclosure sale or party taking a deed in lieu of foreclosure.
Tenant covenants and agrees to attorn to any successor to Landlord's interest in
any ground or underlying Lease. In any case, such landlord or successor under
such ground or underlying Lease or such secured party or purchaser at
foreclosure sale or party taking a deed in lieu of foreclosure shall not be
bound by any prepayment on the part of Tenant of any rent for more than one
month in advance, so that rent shall be payable under this Lease in accordance
with its terms, from the date of the termination or transfer of the ground or
underlying Lease or the foreclosure under such mortgage or deed of trust, or the
date of foreclosure sale or transfer by deed in lieu of foreclosure, as if such
prepayment had not been made. Further, such landlord or successor in interest
shall not be liable for damages for any act or omission of Landlord or any prior
landlord or be subject to any offsets or defenses which Tenant may have against
Landlord or any prior landlord. Tenant shall, upon request of such landlord or
successor landlord, execute and deliver an instrument or instruments confirming
Tenant's attornment.
13.4 MORTGAGEE RIGHTS.
(a) Tenant shall, at its own expense, comply with all reasonable
notices of Landlord's mortgagee or other financial institution providing funds
which are secured by a mortgage or deed of trust placed on the whole or any part
or the real property of which the Demised Premises are a part, respecting all
matters of occupancy, use, condition or maintenance of the Demised Premises,
provided the same shall not unreasonably interfere with the conduct of Tenant's
business nor materially limit or affect the rights of the parties under this
Lease. Notwithstanding acceptance and execution of this Lease by the parties
hereto, the terms hereof shall be deemed automatically modified, if so required,
for the purpose of complying with or fulfilling the reasonable requirements of
any mortgagee or trustee named or secured by a mortgage or deed of trust that
may now or hereafter be placed upon or secured by the real property of which the
Demised Premises are a part or any part thereof, or any other financial
institution providing funds to finance or refinance the real property of which
the Demised Premises are a part, provided, however, that such modifications(s)
shall not be in material derogation or diminution of any of the rights of the
parties hereunder, nor materially increase any of the obligations or liabilities
of the parties hereunder.
(b) Tenant agrees to give Landlord's mortgagee and any trustee named or
secured by a mortgage or deed of trust a copy of any notice of default served
upon Landlord by Tenant, 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 addresses of such mortgagees and trustees. Notice shall be
provided to the mortgagees and trustees by registered mail. Tenant further
agrees that if Landlord shall have failed to cure such default within the cure
period provided in this Lease, if any, then the mortgagees and/or trustees shall
have an additional thirty (30) 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 it within such thirty (30) days any mortgagee and/or trustee 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 this Lease shall not be
terminated while such remedies are being diligently pursued.
14. TENANT HOLDOVER
14.1 WITH LANDLORD CONSENT. If Tenant continues, with the knowledge and
written consent of Landlord obtained at least thirty (30) days prior to the
expiration of the term of this Lease, to remain in the premises after the
expiration of the term of this Lease, then and in that event. Tenant shall, by
virtue of this holdover agreement, become a tenant by the month at the rent
stipulated by Landlord in said holdover agreement, commencing said monthly
tenancy with the first day next after the end of the term above demised. Tenant
shall give to Landlord at least thirty (30) days' written notice of any
intention to quit said premises. Tenant shall be entitled to thirty (30) days'
written notice to quit said premises, except in the event of nonpayment of rent
in advance or of the breach of any other covenant by Tenant, in which event
Tenant shall not be entitled to any notice to quit, the usual thirty (30) days'
notice to quit being hereby expressly waived.
14.2 WITHOUT LANDLORD CONSENT. In the event that Tenant, without the consent
of Landlord, shall hold over the expiration of the term hereby created, then
Tenant hereby waives all notice to quit and agrees to pay to Landlord for the
period that Tenant is in possession after the expiration of this Lease, a
monthly rent which is three times the total rent (base monthly rent, as
stipulated in Section 1.3, plus additional rent, as stipulated in Section 1.5)
applicable to the last month of this Lease. Tenant expressly agrees to hold
Landlord harmless from all loss and damages, direct and consequential, which
Landlord may suffer in defense of claims by other parties against Landlord
arising out of the holding over by Tenant, including without limitation
attorneys' fees which may be incurred by Landlord in defense of such claims.
Acceptance of rent by Landlord subsequent to the expiration of the term of this
Lease shall not constitute consent to any holding over. Landlord shall have the
right to apply all payments received after the expiration date of this Lease or
any renewal thereof toward payment for use and occupancy of the premises
subsequent to the expiration of the term and toward any other sums owed by
Tenant to Landlord. Landlord, at its option, may forthwith re-
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enter and take possession of said premises without process, or by any legal
process in force. Notwithstanding the foregoing, Tenant's holdover without
Landlord consent due to acts of God, riot, or war shall be at the total rent
applicable to the last month of the term for the duration of the condition (but
not to exceed ten days), but such continued occupancy shall not create any
renewal of the term of this Lease or a tenancy from year-to-year, and Tenant
shall be liable for any loss and damages suffered by Landlord as described
above.
15. SECURITY DEPOSIT
15.1 Tenant shall deposit with Landlord simultaneously with the execution
of this Lease, the amount stipulated in Section 1.6 as a security deposit.
Provided Tenant is not in default in the payment of rent or any other charges
due Landlord, and further provided the Demised Premises are left in good
condition, reasonable wear and tear excepted, as described in Section 6.10, said
deposit (which shall not bear interest to Tenant) shall be returned to Tenant
within thirty (30) days after the termination of this Lease. If Tenant is in
default or if the premises are not left in good condition then, the security
deposit shall be applied to the extent available on account of sums due Landlord
or the cost of repairing damages to the Demised Premises. In the event of the
sale or transfer or Landlord's interest in the building, Landlord shall have the
right to transfer the security deposit to such purchaser or transferee, in which
event Tenant shall look only to the new Landlord for the return of the security
deposit and Landlord shall thereupon be released from all liability to Tenant
for the return of such security deposit.
16. QUIET ENJOYMENT
16.1 So long as Tenant shall observe and perform the covenants and
agreements binding on it hereunder, Tenant shall at all times during the term
herein granted, peacefully and quietly have and enjoy possession of the premises
without any encumbrance or hindrance by, from or through Landlord, except as
provided for elsewhere under this Lease. Nothing in this Section shall prevent
Landlord from performing alterations or repairs on other portions of the
building not Leased to Tenant, nor shall performance of such alterations or
repairs be construed as a breach of this covenant by Landlord.
17. SUCCESSORS
17.1 All rights, remedies and liabilities herein given to or imposed upon
either of the parties hereto, shall extend to their respective heirs, executors,
administrators, successors, and assigns. This provision shall not be deemed to
grant Tenant any right to assign this Lease or to sublet the premises.
18. WAIVER OF JURY TRIAL
18.1 Landlord and Tenant hereby waive trial by jury in any action,
proceeding or counterclaim brought by either of the parties hereto against the
other one or in respect of any matter whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant hereunder,
Tenants's use or occupancy of the Demised Premises, and/or any claim of "injury
or damage."
19. LIMITATION OF LIABILITY
19.1 Notwithstanding anything to the contrary contained in this Lease, if
any provision of this Lease expressly or implicitly obligates Landlord not to
unreasonably withhold its consent or approval, an action for declaratory
judgment or specific performance will be Tenant's sole right and remedy in any
dispute as to whether Landlord has breached such obligation.
20. PRONOUNS & DEFINITIONS
20.1 Feminine or neuter pronouns shall be substituted for those of the
masculine form, and the plural shall be substituted for the singular number, in
any place or places herein in which the context may require such substitution
or substitutions. Landlord and Tenant herein for convenience have been referred
to in the neuter form.
20.2 Wherever the word 'premises' is used in this Lease, it shall refer to
the Demised Premises described in Section 1.1. unless the context clearly
requires otherwise.
21. NOTICES
21.1 ADDRESSES FOR NOTICES. All notices required or desired to be given
hereunder by either party to the other shall be personally delivered or given by
certified or registered mail and addressed as specified in Section 1.10. Either
party may, by like written notice, designate a new address to which such notices
shall be directed.
21.2 EFFECTIVE DATE OF NOTICE. Notice shall be deemed to be effective when
personally delivered or received or rejected unless otherwise stipulated herein.
22. EXHIBITS; SPECIAL PROVISIONS
22.1 INCORPORATION IN LEASE. It is agreed and understood that any Exhibits
and Special Provisions referred to in Sections 1.11 and 1.12, respectively,
and attached hereto, form an integral part of this Lease and are hereby
incorporated by reference.
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22.2 Conflicts. if there is a conflict between a Special Provision hereto
and the Specific Provisions or General Provisions of this Lease, the Special
Provision shall govern.
23. CAPTIONS
23.1 All Section and paragraph captions herein are for the convenience of
the parties only, and neither limit nor amplify the provisions of this Lease.
24. ENTIRE AGREEMENT; MODIFICATION
24.1 This Lease, all Exhibits hereto, and Special Provisions incorporated
herein by reference contain all the agreements and conditions made between the
parties and may not be modified orally or in any other manner than by an
agreement in writing, signed by the parties hereto.
25. SEVERABILITY
25.1 The unenforceability, invalidity, or illegality of any provision herein
shall not render any other provision herein unenforceable, invalid, or illegal.
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26. RENT
26.1 On the first day of the second Lease year and of each subsequent Lease
year, the Base Annual Rent shall be increased by Three Percent (3%) of the Base
Annual Rent in effect during the previous Lease year. The escalated Base Annual
Rent so determined shall be the "Base Annual Rent" for all purposes of this
Lease, including the calculation of the increase in Base Annual Rent for the
subsequent Lease year. The increase in Base Annual Rent shall be calculated
without regard to any waiver of rent or rent credit provided to Tenant.
26.2 In Subsection 2.2(b)(i), in the fifth line,, change 'installed to' to
"which actually"; in the sixth line, after 'expenses' insert ", but only to the
extent of the savings realized therefrom," and after 'expenditures' insert ",
not exceeding $10,000 amortized annually," and change the first 'or' to "using";
and in the eighth line, after 'taxes' insert a period and delete the remainder
of the sentence.
26.3 Subsection 2.2(c) is deleted entirely; in subsection 2.3(a), the last
sentence of the paragraph is deleted entirely; in Subsection 2.3(c), in the
third line, insert a period after 'Year' and delete the rest of the sentence; in
the seventh and eighth lines, delete 'and the actual increase attributable to
the increase in the Consumer Price Index'.
27. WAIVER OF RENT
27.1 Provided Tenant is not then in default under any of the terms and
conditions of this Lease, then notwithstanding anything to the contrary in
Section 2.1, Landlord agrees to waive Ninety-Nine and 00/100 Dollars ($99.00) of
Base Annual Rent due in each and every month of the initial Lease term.
Notwithstanding anything herein, the Base Annual Rent escalation payable
pursuant to Section 26.1 shall be calculated without regard to any waiver of
rent or rent credit provided to Tenant.
28. LANDLORD'S IMPROVEMENTS
28.1 Provided Tenant is not then in default of any of the terms or
conditions of this Lease, on Tenant's behalf, Landlord agrees to remodel the
demised premises in accordance with plans to be approved by both Tenant and
Landlord. Provided Tenant is not then in default of any of the terms or
conditions of this Lease, Landlord shall contribute to the cost of such Tenant
remodeling the sum of Six Thousand Nine Hundred Fifty-Six and 00/100 Dollars
($6,956.00), with the understanding that any costs in excess thereof will be
paid by Tenant. Such excess costs shall be paid in full by Tenant simultaneously
with the approval by Landlord and Tenant of Tenant's working drawings and
Landlord's estimate of extra costs. Provided Tenant is not then in default of
any of the terms or conditions of this Lease, any remainder of said contribution
shall be credited against Tenant's rent obligations hereunder, apportioned
equally and applied once a month over the term hereof.
29. ACCRUAL OF RENT OBLIGATION
29.1 Tenant shall be obligated for the payment of rent on the Lease
Commencement Date, regardless of any time required to construct, alter or
redecorate the demised premises to Tenant's requirements.
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30. CONSTRUCTION OF PREMISES AND OCCUPANCY
30.1 In Section 3.1, in the second line, delete ', by the date specified in
Subsection 1.7(a), and after 'plans' insert ", prepared by Landlord at
Landlord's expense and"; in the fifth line, after 'estimate' insert "prepared by
Landlord at Landlord's expense." and delete the remainder of the sentence;
delete the third and forth sentences entirely; in the tenth line, after
'prepared' insert "at Landlord's expense"; and in the thirteenth line, after
'date' insert a period and delete the rest of the paragraph.
30.2 Notwithstanding anything to the contrary in Section 3.3, Landlord, with
Tenant's cooperation, will obtain the necessary occupancy permit.
31. PARKING
31.1 Landlord agrees to arrange for parking in the garage of the building
described in Section 1.1 for up to three (3) automobiles of Tenant or Tenant's
employees at the prevailing monthly rate for such service.
32. REASONABLENESS OF LANDLORD AND TENANT
32.1 Notwithstanding anything to the contrary, whenever Landlord's or
Tenant's consent or approval is required hereunder, it shall not be unreasonably
withheld, conditioned or delayed.
33. SIGNAGE AND DIRECTORY
33.1 Landlord shall maintain in the lobby of the building a directory board
which shall include the name of Tenant and any other names reasonably requested
by Tenant in proportion to the number of square feet leased by Tenant in the
building pursuant to this Lease. Landlord shall also provide building standard
signage for the suite entry door to the demised premises.
34. SUBLETTING AND ASSIGNMENT
34.1 In Section 4.1, in the third line, after 'Landlord' insert a period and
delete the remainder of the sentence.
35. USE AND UPKEEP OF PREMISES
35.1 In Subsection 6.4(c), in both the third and sixth lines, after
'Premises' insert "after the initial remodeling of the demised premises,"; in
the eighth line, after 'expense' insert "; provided Landlord so advised Tenant
when Tenant requested Landlord's consent thereto."; and delete the last two
sentences in their entirety.
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36. DEFAULTS AND REMEDIES
36.1 Notwithstanding anything to the contrary in Sections 2.1 and 12.1, if
Tenant defaults in the payment of rent, or defaults in the performance of any
other covenants, conditions and agreements, or rules and regulations herein
contained, Landlord shall give Tenant written notice of such default. If Tenant
fails to cure any rent (or additional rent) default within ten (10) days, or
fails to cure any other default within twenty (20) days after such notice (or if
such other default is of such nature that it cannot be completely cured within
said twenty (20) days, if Tenant fails to commence to cure within said twenty
(20) days and thereafter proceed with reasonable diligence and in good faith),
then Landlord, in addition to all other rights set forth in this Lease, may
terminate this Lease on not less than ten (10) days notice to Tenant. On the
date specified in such notice, the term of this Lease shall terminate, and
Tenant shall then quit and surrender the premises to Landlord. If this Lease
shall have been so terminated by Landlord, Landlord may at any time thereafter
take possession of the demised premises by any lawful means and remove Tenant or
other occupants and their effects. Nevertheless, in the event Tenant fails to
pay rent or otherwise defaults in the performance of any of the covenants,
conditions and agreements or rules and regulations herein contained, more than
two (2) times in any twelve (12) month period, Landlord shall not be required
during the remainder of the term of this Lease to send written notice before
proceeding with its remedies under Section 12. Tenant acknowledges that the
purpose of the preceding sentence is to prevent repetitive defaults by Tenant
under the Lease, which work a hardship upon Landlord and deprive Landlord of the
timely performance by Tenant hereunder.
37. TENANT HOLDOVER
37.1 In Section 14.2, in the fourth line, change 'three' to "two".
38. EXECUTION OF DOCUMENT
38.1 In the event Tenant does not execute and return this document by the
close of business on January 31, 1996, then Landlord may market the subject
space to others without further notice to Tenant.
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<PAGE> 1
EXHIBIT 10.16
OFFICE LEASE AGREEMENT
by and between
VINTAGE PARK TWO LIMITED PARTNERSHIP
and
TEMPLATE SOFTWARE, INC.
TABLE OF CONTENTS
SECTION 1. Definitions
SECTION 2. Completion of Leased Premises; Term
SECTION 3. Rent; Additional Charges; Operating Expenses
SECTION 4. Common Areas
SECTION 5. Services and Utilities
SECTION 6. Upkeep of Premises
SECTION 7. Use of Premises
SECTION 8. Rules and Regulations
SECTION 9. Alterations
SECTION 10. Signs
SECTION 11. Insurance
SECTION 12. Fire and Casualty
SECTION 13. Condemnation
SECTION 14. Assignment and Subletting
SECTION 15. Default
SECTION 16. Bankruptcy
SECTION 17. Landlord's Performance of Tenant's Obligations
SECTION 18. Security Deposit
SECTION 19. Subordination
SECTION 20. Attornment
SECTION 21. Quiet Enjoyment
SECTION 22. Right of Access
SECTION 23. Limit on Liability
SECTION 24. Certificates
SECTION 25. Surrender
SECTION 26. Holdover
SECTION 27. Commissions
SECTION 28. General Provisions
<PAGE> 2
OFFICE LEASE AGREEMENT
This OFFICE LEASE AGREEMENT (hereinafter referred to as this "Lease")
dated as of the 25th day of April 1996, is by and between VINTAGE PARK TWO
LIMITED PARTNERSHIP, a Virginia limited partnership (hereinafter referred to as
"Landlord"), and TEMPLATE SOFTWARE, INC., a _______________ corporation
(hereinafter referred to as "Tenant").
WITNESSETH; Upon and subject to the terms of this Lease, Landlord
hereby leases to Tenant, and Tenant hereby leases from Landlord, the Leased
Premises (as defined below), for the Term (as defined below), except that
Landlord reserves and Tenant shall have no right in and to (a) the ownership and
use of the exterior faces of all perimeter walls of the Building (as defined
below), EXCEPT AS PROVIDED IN SECTION 10 BELOW, (b) the ownership and use of the
roof of the Building, or (c) the ownership and use of the air space above the
Building.
1. Definitions.
(a) Special Lease Definitions. As used in this Lease, the following
words and phrases shall have the meanings indicated:
(1) Advance Deposit. $53,936.00 (an amount equal to one (1)
month's Basic Rent), the receipt of which is hereby acknowledged by Landlord.
The Advance Deposit shall be applied by Landlord toward the Basic Rent initially
due under this Lease.
(2) (A) Basic Rent. $647,232.00 per annum ($16.00 per rentable
square foot, net of electric) during the year commencing on the Lease
Commencement Date as set forth below in Section 1 (a)(6). Beginning on December
1, 1997 and each December 1st thereafter during the Term, the Basic Rent the in
effect shall be increased by three percent (3%). Tenant's obligation to pay
separately for electric service for the Leased Premises is set forth in Section
5(a)(1) below.
(B) Abatement. Notwithstanding the foregoing, Tenant shall
be entitled to the abatement of Basic Rent otherwise due until December 7, 1996
on which date Basic Rent shall commence becoming due.
(3) Building. The existing office building known as Two Vintage
Park located at 45365 Vintage Park Plaza, Dulles, Virginia 20166, including the
underlying land.
(4) (A) Initial Term. The period commencing on the Lease
Commencement Date and ending December 6, 2006, unless sooner terminated in
accordance with the provisions hereof.
(B) Renewal Term. In addition to the foregoing, Tenant shall
have the right to renew this Lease for a period of five (5) additional years on
the same terms and conditions of this Lease except that the initial rate of
Basic Rent during such Renewal Term shall be equivalent to 95% of the then
market rate for the Building but in no event less than the rate of Basic Rent,
including the schedule escalation, then scheduled to take effect under Section 1
(a)(2)(A) above, provided Tenant notifies Landlord in writing at least eighteen
(18) months prior to the expiration of the Initial Term.
Upon receipt of Tenant's notice to renew and promptly after the
determination by Landlord of the "market" Basic Rent, Landlord shall send
written notice to Tenant thereof and shall advise Tenant of any adjustment to
the Basic Rent. In the event Tenant disagrees with Landlord's determination of
"market", Tenant may, but only within forty-five (45) days after receipt of
Landlord's notice, require by written notice to Landlord that the determination
of the fair "market" rental be made by brokers. In such event each party shall
select a qualified real estate broker with at least ten (10) years experience in
leasing office buildings in the city or submarket in which the Leased Premises
are located (in this case, the Dulles, Virginia area).
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The two brokers shall give their opinion of the fair market rental within thirty
(30) days of their retention. In the event the opinions of the two (2) brokers
differ and, after good faith efforts over the succeeding twenty (20) day period,
they cannot mutually agree, the brokers shall immediately and jointly appoint a
third broker with the qualifications specified above who shall make his/her
determination of the fair market rental rate. Such third (3rd) broker, within
twenty (20) days of his/her appointment, shall make a determination of the fair
market rental rate and, of the three (3) determinations, average the two (2)
closest determinations, and such average as determined by this third broker
shall be final and binding on Landlord and Tenant. Each party shall pay its own
costs for its real estate broker. The parties shall equally share the costs of
any third broker. The parties shall immediately confirm the "market" Basic Rent
so determined, in writing.
(5) Landlord's Notice Address. Notices to be sent to Landlord hereunder
shall be sent to:
Vintage Park Two Limited Partnership
c/o Lerner Corporation, Managing Agent
11501 Huff Court
North Bethesda, Maryland 20895-1094
Attention: Senior Counsel.
All rental payments should be forwarded to:
Vintage Park Two Limited Partnership
c/o Lerner Corporation
11501 Huff Court
North Bethesda, Maryland 20895-1094
Attention: Accounts Receivable.
(6) Lease Commencement Date. The earlier of substantial completion of
the work to be performed under Section 2 below or October 1, 1996, except as
otherwise provided in Section 2.
(7) (A)(1) Leased Premises. The space in the Building which is outlined
on the floor plan attached as Exhibit A to this Lease and is designated as Suite
100. The agreed square footage of the Leased Premises, including core space, is
40,452 rentable square feet as measured in accordance with the standard method
of measurement of the WDCAR.
(2) Common Area Usage. Tenant shall also have the right to
utilize the Common Area rear atrium for a break area, at no additional rent
(but, for purposes of the provisions in this Lease relating to insurance,
indemnification and default, Tenant's use of such rear atrium area shall be
deemed use of the Leased Premises). All furniture or other items placed in such
rear atrium area by Tenant would need to be approved by Landlord. It is
understood that this area would be Common Area for the Building and could be
utilized by Building occupants.
(B) Right of Refusal. Tenant shall have the right of first refusal
on all space currently available or which may become available on the second
(2nd) floor of the Building. Space currently available on the second (2nd) floor
includes suites consisting of 7,227 rentable square feet and 2,456 rentable
square feet. The remaining space on the second (2nd) floor is occupied by
Billcom and U.S. Customs, as shown on the attached floor plans in EXHIBIT A. If
either the Landlord receives a bona-fide third party offer or Tenant desires to
lease either or both the referenced currently available 7,227 rentable square
feet and/or the space currently occupied by U.S. Customs BEFORE NOVEMBER 30,
1997, Tenant shall have five (5) days to exercise its right of first refusal and
such space shall be leased on the same terms and conditions as the Leased
Premises with prorated allowances, including a prorated buildout allowance
equivalent to the initial buildout cost amortized on a straight-line basis over
the Initial Term; and, if either the Landlord receives a bona-fide third party
offer or Tenant desires to lease either or both the referenced currently
available 7,227
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rentable square feet and/or the space currently occupied by U.S. Customs between
December 1, 1997 and November 30, 1998, Tenant shall have five (5) days to
exercise its right of first refusal and such space shall be leased to Tenant on
the same terms and conditions as the Leased Premises with prorated allowances,
including a prorated buildout allowance equivalent to the initial buildout cost
amortized on a straight-line basis over the Initial Term, but the base rent
applicable to such expansion space shall be the then escalated rate under the
lease plus one dollar ($1.00) per rentable square foot. After the aforesaid
periods in connection with the currently available 7,227 rentable square feet
and the space currently occupied by U.S. Customs, and in connection with the
remaining space on the second (2nd) floor, if Landlord receives a bona-fide
third party offer on any space on the second (2nd) floor, Tenant shall have five
(5) days to accept those terms and conditions and enter into a lease amendment.
Any expansion space leased by Tenant shall be taken co-terminous with the
initial premises and the rent commencement date on any expansion space shall be
the earlier of occupancy or ninety (90) days from Tenant's exercise of its right
of refusal.
(8) Leasing Brokers. Diamond Property Company and The Rome Group, Inc.
(9) Operating Expense Increases. Effective as of the initial
anniversary of the Lease Commencement Date, Tenant will pay as an Additional
Charge hereunder Tenant's Proportionate Share of Operating Expenses paid or
incurred each calendar year in excess of 1996 actual Operating Expenses,
adjusted to reflect ninety five percent (95%) occupancy, payable as more fully
provided in Section 3(b) hereof.
(A) Security Deposit. $53,936.00 (an amount equal to one (1) month's
Basic Rent) payable in cash upon Lease execution; and, Tenant shall also provide
Landlord an irrevocable and automatically renewing letter of credit, in a form
and from a local bank acceptable to Landlord, in the amount of $300,000.00
(i.e., such letter of credit shall automatically renew unless the issuing bank
otherwise notifies Landlord at least 30 days prior to its scheduled expiration).
(8) Security Covenants. Additionally, Tenant warrants and represents
that it shall make a minimum expenditure of at least $120,000.00, in addition to
the Tenant Improvement allowance referenced in Section 2(c) below, on furniture,
fixtures, equipment, computers, computer wiring and telephone systems, which
shall be located within the Leased Premises. Invoices confirming the foregoing
expenditures shall be provided to Landlord and, in the event such minimum
expenditures are not made (by December 1, 1996), the aforesaid letter of credit
shall be increased to a total amount of $350,000.00 (such replacement letter of
credit being due by December 31, 1996). The letter credit shall be required for
not less than the initial twenty-four (24) months of the Term, at which point
the letter of credit requirement in subsection (A) above shall lapse, provided
that no Event of Default has occurred and remains continuing under this Lease.
The requirement for such letter of credit shall terminate prior to twenty-four
(24) months provided the following conditions are met: (1) there has been no
Event of Default which has occurred and remains continuing under this Lease, and
(2) Template provides Landlord audited financial statements from an independent
Certified Public Accountant which verifies that Tenant's shareholders' equity is
at least three million dollars ($3,000,000.00). This shareholder equity
requirement could be accomplished through company operating results, a public
offering or a private placement. Finally, in the event any additional space is
leased pursuant to Section 1(a)(7)(B) above, the cash deposits required herein
shall also apply to the expansion premises, on a prorata basis.
(11) Tenant's Notice Address. To the Leased Premises, Attn: E. Linwood
Pearce, Chief Executive Officer; except before the Lease Commencement Date, to:
13100 Worldgate Drive, Suite 340
Herndon, Virginia 22070
Attn: E. Linwood Pearce, Chief Executive Officer
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(12) Tenant's Proportionate Share. 49.6% (the agreed percentage
that the square footage of the Leased Premises bears to the total square footage
of all rentable space contained in the Building).
(b) General Definitions. As used in this Lease, the following words and
phrases shall have the meanings indicated:
(1) Additional Charges. All amounts payable by Tenant to Landlord
under this Lease other than the Basic Rent, including amounts referred to as
"additional rent." All Additional Charges shall be deemed to be additional rent
and all remedies applicable to non-payment of Basic Rent shall be applicable
thereto.
(2) Common Areas. All areas and facilities of the Building provided
by Landlord for the mutual, non-exclusive use of all tenants of the Building,
including, but not limited to, all parking areas, sidewalks, driveways, and
landscape areas of the Building, such Common Areas to be under the exclusive
control of Landlord.
(3) Event of Default. Any of the events set forth in Section 15
shall be deemed a default under this Lease.
(4) Landlord's Building Standard Work. N/A.
(5) Lease Year. The period commencing on the Lease Commencement
Date and ending on the last day of the calendar year in which said Lease
Commencement Date occurs shall constitute the first "Lease Year" as such term is
used herein. Each successive full calendar year during the Term thereafter shall
constitute a "Lease Year" and any portion of the Term remaining after the last
full calendar year shall constitute the last "Lease Year" for the purposes of
this Lease.
(6) The word "mortgage" shall mean any mortgage or deed of trust,
and the word "mortgagee" shall mean the holder of any mortgage or the
beneficiary of any deed of trust.
(7) For purposes hereof, the term "Operating Expenses" shall mean
all costs and expenses paid or incurred by Landlord in connection with the
ownership, management, leasing, operation, servicing and maintenance of the
Building including, but not limited to, employees' wages, salaries and welfare
and fringe benefits; payroll taxes; business and franchise taxes; Real Estate
Taxes; premiums for fire and casualty, liability, workmen's compensation and
other insurance; electricity (FOR THE COMMON AREAS), gas, oil, sewer, water, and
other fuel or utility charges; telephone services; exterminating services;
detection and security services; parking lot and sidewalk repaving and trash and
snow removal; landscaping services; repairs, maintenance, additions,
replacements and improvements made by Landlord to the Building (properly
depreciating any capital improvements); building, janitorial and cleaning
supplies; uniforms and dry cleaning; window cleaning; contracts for the
servicing and maintenance of elevators, boilers, HVAC, and other mechanical
equipment; administrative costs and overhead expenses; other miscellaneous
expenses which are management-related; and management and leasing fees and
commissions. For purposes of determining Tenant's share of Operating Expenses
which are not fixed and which vary depending upon Building occupancy levels,
such as char services, electricity, and management fees based upon rental, the
Proportionate Share of such expenses shall be adjusted utilizing as the
numerator the square footage of the Leased Premises and as the denominator the
square footage of office tenants in occupancy of the Building each Lease Year.
For purposes of determining Tenant's share of Operating Expenses which in
certain instances have been contracted for separately by other tenant's of the
Building, such as electricity and janitorial services, the Proportionate Share
of such expenses shall be adjusted utilizing as the numerator the square footage
of the Leased Premises and as the denominator the square footage of all
remaining office tenants of the Building which do not contract separately for
such services.
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Notwithstanding the foregoing, Operating Expenses shall
specifically exclude all expenses for: (i) capital improvements made to the
Building, unless the same are intended to reduce Operating Expenses and the same
are included in annual Operating Expenses amortized over their useful life; (ii)
painting, redecorating or other work which Landlord performs for any other
tenant or prospective tenant in the Building; (iii) expenses for repairs and
other work occasioned by fire, windstorm or other insured casualty, (iv)
construction defects in the Building, (v) leasing commissions, legal fees and
advertising expenses in connection with leasing and procuring new tenants for
the Building; (vi) accounting fees and legal expenses incurred in enforcing the
terms of any Lease of space in the Building; (vii) interest or amortization
payments on any mortgage or mortgages which are liens on the land or Building or
on any ground Lease; (viii) rental payable by Landlord with respect to the land
and/or Building; (ix) the cost of performing any services for other tenants in
excess of the services required to be provided to Tenant by Landlord under this
Lease; (x) the cost of providing after hours HVAC to any tenant; (xi) the costs
of providing electricity to portions of the Building other than the common areas
if such costs are either reimbursed by other tenants or such electricity is
separately metered and billed directly by the electric authority to other
tenants; (xii) costs incurred by Landlord as a result of the negligence or
willful acts or omissions of Landlord, its agents, employees or contractors;
(xiii) salaries, expenses, fringe benefits and other compensation for executives
or other personnel above the grade of building manager; (xiv) costs of contracts
with related companies of Landlord if such contracts are not at rates
competitive with the rates of other local contractors providing such services
(although it is understood and agreed that the management fee may be and
currently is 4% of rentals); (xv) cost of repairs or replacements or
improvements incurred by reason of fire or other casualty or caused by the
exercise of the right of eminent domain whether or not insurance proceeds or
condemnation awards are recovered or adequate for such purposes; (xvi) costs
related to any employee if such employee performs work or services for other
than the Building, except for any bookkeeper or accountant (or other employee]
of Landlord to the extent of the pay relating to time spent serving the
Building; and (xvii) costs for services that are reimbursed under any warranty
or guarantee of any equipment.
(8) The word "person" shall mean a natural person, a partnership,
a corporation and any other form of business or legal association or entity.
(9) The words "Prime Rate" shall mean the prime rate of interest
charged from time to time by NationsBank, N.A. or its successor to its most
favored customers on commercial loans having a 90-day duration.
(10) Real Estate Taxes. All taxes, assessments, water and sewer
rents, if any, and other charges, if any, general, special or otherwise,
including all assessments for schools, public betterments and general or local
improvements, levied or assessed upon or with respect to the ownership of and/or
all other taxable interests in the Building imposed by any public or
quasi-public authority having jurisdiction. Except for taxes, fees, charges and
impositions described in the next succeeding sentence, Real Estate Taxes shall
not include any inheritance, estate, succession, transfer, gift, income or
profit tax or capital levy. If at any time during the Term the methods of
taxation shall be altered so that in addition to or in lieu of or as a
substitute for the whole or any part of any Real Estate Taxes levied, assessed
or imposed there shall be levied, assessed or imposed (i) a tax, license fee,
excise or other charge on the rents received by Landlord, or (ii) any other type
of tax or other imposition in lieu of, or as a substitute for, or in addition
to, the whole or any portion of any Real Estate Taxes, then the same shall be
included as Real Estate Taxes. A tax bill or true copy thereof, together with
any explanatory or detailed statement of the area or property covered thereby,
submitted by Landlord to Tenant shall be prima facie evidence of the amount of
taxes assessed or levied, as well as of the items taxed. In the event any
building adjacent to the Building in which Landlord has an interest is not
separately assessed and taxed, Landlord shall have the right to allocate a
proportionate share to each such building and Landlord's determination thereof
shall be binding on the parties hereto. If any real property tax or assessment
levied against the land,
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buildings or improvements covered hereby or the rents reserved therefrom, shall
be evidenced by improvement or other bonds, or in other form, which may be paid
in annual installments, only the amount paid or payable in any Lease Year shall
be included as Real Estates Taxes for that Lease Year for purposes of this
Section 1 (b) (12).
(11) Requirements. All laws, statutes, ordinances, orders,
rules, regulations and requirements of all federal, state and municipal
governments, and the appropriate agencies, offices, departments, boards and
commissions thereof, and the board of fire underwriters and/or the fire
insurance rating organization or similar organization performing the same or
similar functions, whether now or hereafter in force, applicable to the Building
or any part thereof and/or the Leased Premises, and notices from Landlord's
mortgagee, as to the manner of use or occupancy or the maintenance, repair or
condition of the Leased Premises and/or the Building, and the requirements of
the carriers of all fire insurance policies maintained by Landlord on the
Building, as well as the Rules and Regulations attached hereto as Exhibit C.
(12) Special Items. N/A.
(13) Term. The Initial Term and the extended term(s), if any, as
to which Tenant shall have effectively exercised any right to extend, but in any
event the Term shall end on any date when this Lease is sooner terminated.
2. Completion of Leased Premises: Term.
(a) Omitted.
(b) Plans. Tenant shall be solely responsible for generating all
plans and obtaining all permits for the construction of the Leased Premises,
including space plans and construction and engineering drawings. Landlord shall
approve all such plans which approval shall not be unreasonably withheld or
delayed. Landlord agrees to review and comment on all such plans within five (5)
business days of receipt. If approved, such plans (as well as any signage
drawings referenced in Section 10 below) shall be deemed acceptable to Landlord,
but Landlord's approval shall not be construed as indicating compliance with
code. If not approved by Landlord, Landlord shall likewise review revised plans
within five (5) business days. In any event, any changes and all such final
plans must be approved by Landlord. Once approved, Tenant shall provide Landlord
with one (1) set of paper sepias and five (5) sets of bluelines. Furthermore,
any and all changes and delays by Tenant which require redesign of the plans
shall not delay the Lease Commencement Date set forth in Section 1 (a)(6) above
(i.e., no later than October 1, 1996).
(c) (1) Construction. Tenant shall within the Leased Premises
construct the improvements as shown on the final plans approved in writing by
Landlord as required under subsection (b) above. In connection with such
improvements, and for purposes of completing the aforesaid space plans and the
construction drawings referenced in subsection (b) above, Landlord shall provide
to Tenant an allowance not to exceed twenty dollars ($20.00) per rentable square
foot of the Leased Premises (the "Construction Allowance"). Tenant shall utilize
a "Class - A" general contractor approved in writing by Landlord (Landlord
hereby approves Rand Construction). Tenant's general contractor shall comply
with Landlord's rules and regulations for construction. Landlord shall receive
no independent mark-up in connection with such construction. Also, during
construction of the Leased Premises, at no additional charge, Template Software,
Inc. shall have the right to use the vacant 2,456 rentable square feet on the
second (2nd) floor for storage purposes.
(2) Construction Procedures. Landlord's sole responsibility
relating to planning for and constructing the Leased Premises shall be that
Landlord shall provide Tenant an allowance of twenty dollars ($20.00) per
rentable square foot of the Leased Premises to defray Tenant's costs incurred
designing and installing improvements within the Leased Premises, payable as
follows. At the completion of all construction drawings and
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after issuance of all permits, Tenant shall in writing so notify Landlord, and
submit invoices and lien waivers from Tenant's architect and engineer, and
Landlord will pay Tenant's architect and engineer from the maximum allowance
amount within thirty (30) days of receipt of the foregoing items. At the end of
each month following commencement of construction, Tenant shall in writing
notify Landlord of the percentage of completion of construction, as verified by
Tenant's certified architect, and submit invoices and partial lien waivers by
Tenant's general and all sub-contractors indicating that the Leased Premises are
the indicated percentage complete, in a form reasonably satisfactory to Landlord
(or, the A.I.A. form which Landlord approves), and Landlord will pay Tenant's
general contractor that same percentage of the maximum allowance amount within
thirty (30) days of receipt of the foregoing items; such monthly progress
payments shall continue until substantial completion of the Leased Premises and
the establishment of a "punchlist" by Landlord and Tenant as required below; in
any event, Landlord shall retain ten (10%) percent of the maximum allowance
amount pending full completion and, upon full completion including punch-list
items and submission by Tenant of required invoices and Tenant's general's and
all subcontractor's certificates of completion and final notarized waivers of
lien in a form satisfactory to Landlord, Landlord will pay Tenant the balance
due hereunder. Tenant agrees to perform the work in a good and workmanlike
manner, in accordance with applicable building codes and A.D.A. Tenant shall, in
accordance with final plans, complete the punchlist, established mutually by
Landlord and Tenant at walk-thru, within sixty (60) days after walk-thru.
(d) Dates. Within 60 days after the Lease Commencement Date, Tenant
shall complete a "punchlist" prepared by Landlord at substantial completion, as
aforesaid, and Landlord and Tenant shall, at the request of either of them,
execute a written instrument setting forth the Lease Commencement Date and date
of expiration of the Term.
3. Rent and Additional Charges: Computation of Operating Expense
Increases.
(a) Payment of Rent and Additional Charges. Tenant shall pay the
Basic Rent in equal monthly installments in advance on the first day of each
month during the Term, except that if the Lease Commencement Date is not the
first day of a month, Basic Rent for the period commencing on the Lease
Commencement Date and ending on the last day of the month in which the Lease
Commencement Date occurs shall be pro-rated for each day at the rate of
one-thirtieth (1/30) of the full monthly installment of Basic Rent and paid on
the Lease Commencement Date. If any due and owing Basic Rent is underpaid as a
result of failure to make any required adjustment thereto or other cause, after
such required adjustment thereto or other cause, Tenant shall pay such
deficiency in its entirety along with the next monthly payment of Basic Rent.
Tenant shall also pay Tenant's Proportionate Share of Operating Expense
Increases as provided in Section 3(b) hereof. The Basic Rent and all Additional
Charges shall be paid promptly when due, in lawful money of the United States,
without notice or demand and without deduction, diminution, abatement,
counterclaim or setoff of any amount or for any reason whatsoever, to Landlord
at Landlord's Notice Address or at such other address or to such other person as
Landlord may from time to time designate. If Tenant makes any payment to
Landlord by check, the same shall be by check of Tenant only, and Landlord shall
not be required to accept the check of any other person, and any check received
by Landlord shall be deemed received subject to collection. If any check is
mailed by Tenant, Tenant shall post such check in sufficient time prior to the
date when payment is due so that such check will be received by Landlord on or
before the date when payment is due. Tenant shall assume the risk of lateness or
failure of delivery of the mails. If, during the Term, Landlord receives two or
more checks from Tenant which are returned by Tenant's bank for insufficient
funds or are otherwise returned unpaid, Tenant agrees that all checks thereafter
shall be either bank certified or bank cashier's checks. All bank service
charges resulting from any bad checks shall be borne by Tenant. The Rent
reserved under this Lease shall be the total of all Basic Rent and Additional
Charges, increased and adjusted as elsewhere herein
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provided, payable during the entire Term and, accordingly, the methods of
payment provided for herein, namely, annual and monthly rental payments, are for
convenience only and are made on account of the total Rent reserved hereunder.
(b) Computation of Operating Expense Increases.
(1) Following the expiration of each calendar year, Landlord
shall submit to Tenant a statement setting forth in reasonable detail the
Operating Expenses for the preceding calendar year and the amount, if any, due
to Landlord from Tenant for such calendar year on account of Operating Expense
Increases. Such statement shall constitute a final determination between
Landlord and Tenant for the period represented thereby, and if such statement
shows Operating Expense Increases due from Tenant to Landlord with respect to
the preceding calendar year, then (i) Tenant shall make payment of any unpaid
portion thereof within ten (10) days after receipt of such statement; and (ii)
Tenant shall also pay to Landlord, as additional rent, commencing as of the
first day of the month immediately following the rendition of such statement and
on the first day of each month thereafter until a new statement is rendered,
1/12th of One Hundred Five Percent (105%) of the total Operating Expense
Increases for the preceding calendar year; and (iii) Tenant shall also pay to
Landlord, as additional rent, within ten (10) days after receipt of such
statement, an amount equal to the difference between (a) the product obtained by
multiplying One Hundred and Five Percent (105%) of the total Operating Expense
Increases for the preceding calendar year by a fraction, the denominator of
which shall be 12 and the numerator of which shall be the number of months of
the current calendar year which shall have elapsed prior to the first day of the
month immediately following the rendition of such statement, and (b) the sum of
all previous Operating Expense payments (if any) made by Tenant with respect to
such prior months in the current calendar year. The payments required to be made
under (ii) and (iii) above shall be credited toward the Operating Expense
payment due from Tenant for the current calendar year, subject to adjustment as
and when the statement for such current calendar year is rendered by Landlord.
Commencing on the initial anniversary of the Lease Commencement Date, Operating
Expenses shall be escrowed as aforesaid assuming a 5% increase over the amount
stated in Section 1 (a)(9) in excess of which Tenant is responsible for
Operating Expense Increases.
(2) If the Lease Commencement Date is not the first day of a
calendar year, then the Operating Expense payment (if any) due hereunder for
such first calendar year shall be a proportionate share of said Operating
Expense payment for the entire calendar year, said proportionate share to be
based upon the length of time that the Term was in existence during such first
calendar year. Upon the date of expiration or termination of this Lease, whether
the same be the date hereinabove set forth for the expiration of the Term, or
any prior or subsequent date, a proportionate share of said Operating Expense
payment for the calendar year during which such expiration or termination occurs
shall immediately become due and payable by Tenant to Landlord, if it was not
theretofore already billed and paid. The said proportionate share shall be based
upon the length of time that the Term shall have been in existence during such
calendar year. Landlord shall, as soon as reasonably practicable, cause
statements of the Operating Expenses for that calendar year to be prepared and
furnished to Tenant. Landlord and Tenant shall thereupon make appropriate
adjustments of amounts then owing. Landlord's and Tenant's obligation to make
the adjustments referred to in subparagraphs (1) and (2) of this Section 3(b)
shall survive any expiration or termination of this Lease. Any delay or failure
of Landlord in billing any Operating Expense payment hereinabove provided shall
not constitute a waiver of or in any way impair the continuing obligation of
Tenant to pay such Operating Expense payment.
(3) Audit. Within six (6) months after receipt of the operating
statement from Landlord, Tenant shall have the right, at its expense, and at
reasonable times, to initiate an audit of Landlord's books and records relating
to the additional rental due under this Section, subject to the following.
Before conducting any audit, Tenant must pay the full amount of Operating
Expenses billed (under protest, if Tenant desires) and there must not be an
uncured monetary or otherwise material Event of Default that is continuing.
Tenant
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may review only those records of Landlord that are specifically related to
Operating Expenses cost. Without limiting the foregoing, Tenant may not review
any other leases or Landlord's tax returns or financial statements, in
conducting an audit, but otherwise Tenant shall be provided all reasonably
necessary documentation to conduct an accurate audit (including, subject to the
foregoing limitation, sufficient documentation to allow Tenant to verify proper
capitalization of costs that are properly amortized hereunder). Tenant must
utilize an individual or firm experienced in auditing commercial office building
records. The audit shall be conducted in Landlord's main office. Upon receipt
thereof, Tenant will deliver to Landlord a copy of the audit report and all
accompanying data. Tenant will not disclose the results of any audits conducted
hereunder to other tenants. Notwithstanding the foregoing, Tenant shall be
permitted to furnish the foregoing information to its attorneys, accountants and
auditors to the extent necessary to perform their respective services for
Tenant. The audit shall be conducted in accordance with generally accepted
auditing standards. Tenant may not conduct an audit more often than once each
Lease Year. Tenant may audit records with respect to each lease year only one
time. Finally, any audit shall not cover a period of time in excess of the two
(2) calendar years immediately preceding the audit.
(c) Interest. If Tenant fails to pay any Basic Rent or
Additional Charges within 10 days after the same becomes due and payable,
interest shall, at Landlord's option, accrue on the unpaid portion thereof at
the rate of one and one-half percent (1-1/2%) per month or one percentage point
above the Prime Rate in effect on such due date, whichever is higher, but in no
event at a rate higher than the maximum rate allowed by law, and shall be
payable on demand. Such interest shall be deemed additional rent hereunder and
shall be collectible as such.
(d) Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of any lesser amount than the amount stipulated to be paid hereunder
shall be deemed other than on account of the earliest stipulated Basic Rent or
Additional Charges; nor shall any endorsement or statement on any check or
letter be deemed an accord and satisfaction, and Landlord may accept any check
or payment without prejudice to Landlord's right to recover the balance due or
to pursue any other remedy available to Landlord.
(e) Late Payment Charge. If Tenant fails to pay any Basic Rent
or Additional Charges within 10 days after written notice if required in
Section 15(a)(1) below [and if not, within ten (10) days after due] the same
become due and payable, Tenant shall also pay to Landlord a late payment
service charge (to cover Landlord's administrative and overhead expenses of
processing late payments) equal to the greater of $100.00 or 2.5% of such
unpaid sum. Such payment shall be deemed liquidated damages and not a penalty,
but shall not excuse the timely payment of rent.
4. Common Areas.
Throughout the Term, Tenant and its agents, employees and business
invitees shall have the non-exclusive right, in common with others, to use the
Common Areas in the Building. Landlord shall have the right at any time, without
Tenant's consent, to change the arrangement or location of entrances,
passageways, doors, doorways, corridors, stairs, toilet rooms or other public
portions of the Building, or, if required by governmental authority, to change
the name, number or designation by which the Building is known. Landlord
reserves unto itself the full and complete ownership of all tangible personal
property installed by the Landlord in the Building which is of the type and
character that qualifies for any depreciation or Investment Tax Credit under the
Internal Revenue Code.
5. Services and Utilities.
(a) Types. Throughout the Term, Landlord agrees that, without
additional charge except as set forth below but subject to Section 1 (a)(9) and
23(b) hereof, it will furnish to Tenant the following services:
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(1) (A) Electricity for Common Areas;
(B) Electricity consumed within the Leased Premises will be
separately metered (if available) or submetered, and the electricity consumption
measured thereby shall be payable to Virginia Power or otherwise reimbursed by
Tenant. Any such meter or submeter or required electric panel shall be installed
by Landlord with the cost to come from the Construction Allowance referenced in
Section 2 above. Tenant shall pay Virginia Power or reimburse Landlord for
electricity consumed in connection with the Leased Premises at Virginia Power
rates. In the event a submeter is required, based on the results of submetering
the electricity consumed thereby, as determined from time to time through
submeter readings made by Landlord, Tenant shall pay Landlord monthly along with
Basic Rent the sum determined by the previous such submeter reading until
adjusted based on a subsequent submeter reading made by Landlord;
(2) Adequate supplies for toilet rooms;
(3) Normal and usual cleaning and char services after business
hours each day except on Saturdays, Sundays and legal holidays recognized by the
United States Government;
(4) Hot and cold running water in the bathrooms;
(5) Air cooling/heating, when required, between the hours of
8:00 A.M. and 6:30 P.M. Mondays through Fridays and between 8:00 A.M. and 1:00
P.M. on Saturdays, except on legal holidays recognized by the United States
Government. Landlord reserves the right to establish and collect a charge for
air cooling/heating utilized by Tenant during hours and/or days other than those
set forth above, but Landlord's failure to establish and/or collect such charge
shall not be deemed a waiver of Landlord's right to include all costs for air
cooling in the computation of increases in Landlord's Operating Expenses for
purposes of Section 1 (a)(9) hereof,
(6) a Building access control system and automatically operated
elevator service;
(7) All electric bulbs and fluorescent tubes in standard light
fixtures in the Leased Premises and in public areas;
(8) The right to 3.6 surface parking spaces per 1,000 square
feet of the Leased Premises at no charge throughout the Term (including a
prorata portion of the Building garage, of which one half shall be numbered or
marked a reserved for Tenant's sole use), five Tenant visitor spaces in close
proximity to the entrance; and
(9) Two(2) keys to the Leased Premises at not cost to Tenant,
all additional keys at the cost of Tenant.
(b) Access. Landlord shall have access to and reserves the right to
inspect, erect, use, connect to, maintain and repair pipes, ducts, conduits,
cables, plumbing, vents and wires, and other facilities in, to and through the
Leased Premises as and to the extent that Landlord may now or hereafter deem to
be necessary or appropriate for the proper operation and maintenance of the
Building (including the servicing of other tenants in the Building) and the
right at all times to transmit water, heat, air conditioning and electric
current through such pipes, conduits, cables, plumbing, vents and wires and the
right to interrupt the same in emergencies without eviction of Tenant or
abatement of Rent.
(c) Antenna Rights. Subject to Landlord's approval of the location
on the roof or surrounding grounds and the resultant appearance of the Building
to the public, as well as subject to use of Landlord's roofing contractor and a
prohibition on voiding Landlord's roofing warranties, Tenant shall have the
right, at no additional rent, at its sole installation, maintenance and removal
cost, to install a satellite dish (or antenna) on the roof or surrounding
grounds of the Building of a reasonable size but no more than 5- feet in
diameter. Landlord's approval may require Tenant to screen the satellite dish
(or antenna). Tenant is responsible for obtaining and providing documentation to
the Landlord of all applicable permits and approvals from the governmental body
having jurisdiction. Tenant shall not be liable for payment of any rent for use
of the roof or ground area for said satellite dish (or antenna). The dish (or
antenna) shall not interfere with Landlord's existing communications devices or
Building systems and shall not cause any damage to or interfere with similar
equipment which other tenants of the Building have installed on the roof or
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grounds. Tenant shall be responsible for the maintenance of the satellite dish
(or antenna) and the roof or ground area where the satellite dish (or antenna)
is installed. Upon the expiration of the Term, Tenant shall be responsible for
removing the satellite dish (or antenna) from its location and repairing any
damage caused by said removal. Tenant shall indemnify Landlord and hold Landlord
harmless from any and all liability, damages, cost and expenses, including
reasonable attorneys' fees, arising from or caused by the installation, use and
maintenance, presence or removal of the satellite dish (or antenna). Tenant
shall carry commercially reasonable property damage and liability insurance
relating to the installation, operation and use of the satellite dish (or
antenna). The foregoing right shall be personal to Tenant and not run to its
assignees or subtenants.
6. Upkeep of Premises. Subject to the provisions of Section 12 hereof,
Landlord agrees to maintain the Leased Premises and the Building in good order
and repair and in a first class manner consistent with office buildings in the
Dulles corridor throughout the Term, except that Tenant, and not Landlord, shall
be responsible for (i) maintaining any special air-conditioning equipment and
any other Special Items located in the Leased Premises, and (ii) reimbursing
Landlord for the full cost of any repairs to the Leased Premises caused by the
act or negligence of Tenant or its agent or employees, such reimbursement to be
collectible as additional rent hereunder immediately upon demand from Landlord.
7. Use of Leased Premises.
(a) General Offices. Tenant shall use and occupy the Leased Premises
solely for general office purposes, and shall not use or permit or suffer the
use of the Leased Premises for any other purpose whatsoever without the prior
written consent of Landlord. No outside storage will be allowed by Landlord.
(b) Covenants. Throughout the Term, Tenant covenants and agrees to:
(i) keep the Leased Premises in a neat and clean condition; (ii) pay before
delinquency any and all taxes, assessments and public charges levied, assessed
or imposed upon Tenant's business, upon the leasehold estate created by this
Lease or upon Tenant's fixtures, furnishings or equipment in the Leased
Premises; (iii) not use or permit or suffer the use of any portion of the Leased
Premises for any unlawful purpose; (iv) not use the plumbing facilities for any
purpose other than that for which they were constructed, or dispose of any
foreign substances therein; (v) not place a load on any floor exceeding the
floor load per square foot which such floor was designed to carry in accordance
with the plans and specifications of the Building, and not install, operate or
maintain in the Leased Premises any heavy item of equipment except in such
manner as to achieve a proper distribution of weight; (vi) not to strip,
overload, damage or deface the Leased Premises, or the hallways, stairways,
elevators, parking facilities or other public areas of the Building, or the
fixtures therein or used therewith, nor to permit any hole to be made in any of
the same; (vii) not to move any furniture or equipment into or out of the Leased
Premises except at such times and in such manner as Landlord may from time to
time designate; (viii) OMITTED; (ix) OMITTED; (x) not to install any other
equipment of any kind or nature which will or may necessitate any changes,
replacements or additions to, or in the use of, the water system, heating
system, plumbing system, air conditioning system or electrical system of the
Leased Premises or the Building, without first obtaining the written consent of
Landlord; and (xi) at all times to comply with the Requirements.
(c) Prohibitions. Tenant will not use or occupy the Leased Premises
in violation of any Requirement. If any governmental authority, after the
commencement of the Term, shall contend or declare that the Leased Premises are
being used for a purpose which is in violation of any Requirement, then Tenant
shall, upon five (5) days' notice from Landlord, immediately discontinue such
use of the Leased Premises. If thereafter the governmental authority asserting
such violation threatens, commences or continues criminal or civil proceedings
against Landlord for Tenant's failure to discontinue such use, in addition to
any and all rights, privileges and remedies given to Landlord under this Lease
for default therein, Landlord shall have the right to terminate this Lease
forthwith. Tenant shall indemnify and hold Landlord harmless of and from any and
all liability for any such violation or violations.
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8. Rules and Regulations.
Tenant and its agents and employees shall comply with and observe all
reasonable rules and regulations concerning the use, management, operation,
safety and good order of the Leased Premises and the Building which may from
time to time be promulgated by Landlord. Initial rules and regulations, which
shall be effective until amended by Landlord, are attached hereto as Exhibit C.
Tenant shall be deemed to have received notice of any amendment to the rules and
regulations when a copy of such amendment has been delivered to Tenant at the
Leased Premises or has been mailed to Tenant in the manner prescribed for the
giving of notices. Tenant shall comply with all fire protective rules and
regulations promulgated by the Landlord for the safety of the Building and its
occupants, including rules prescribing certain types of materials and
prohibiting other types of materials in the Building. Landlord shall not be
responsible to Tenant for any violation of the rules and regulations, or the
covenants or agreements contained in any other lease, by any other tenant of the
Building, or its agents or employees, and Landlord may waive in writing, or
otherwise, any or all of the rules or regulations in respect of any one or more
tenants.
9. Alterations.
Tenant will not make or permit anyone to make any alterations,
additions or improvements, structural or otherwise, in or to the Leased Premises
or the Building, without first obtaining the written consent of Landlord which
consent may be granted or withheld in Landlord's sole and absolute discretion.
In the event Landlord consents to any such alterations, etc., TENANT SHALL HAVE
THE RIGHT TO UTILIZE A CLASS-A GENERAL CONTRACTOR APPROVED BY LANDLORD IN
WRITING OR, IF TENANT REQUIRES LANDLORD TO PERFORM THE WORK, Tenant shall be
obligated to pay Landlord the cost thereof plus ten percent (10%) for overhead
and FIVE percent (5%) for profit, payable fifty percent (50%) upon commencement
and fifty percent (50%) upon completion. Such payments shall be deemed to be
Additional Charges hereunder. In the event Landlord grants such consent and
permits Tenant to contract out such work, such alterations shall be performed by
adequately insured contractors approved by Landlord and in a good and
workmanlike manner in accordance with all applicable Requirements, and Tenant
shall indemnify and hold harmless Landlord from and against any and all costs,
expenses, claims, liens and damages to person or property resulting from the
making of any such alterations, decorations, additions or improvements in or to
the Leased Premises or the Building. Tenant shall not permit a mechanic's lien
or liens to be placed upon the Leased Premises or the Building as a result of
any alterations or improvements made by it and agrees, if any such lien be filed
on account of the acts of Tenant, promptly to pay the same. In the event Tenant
fails to pay any such lien, it may be paid by Landlord without releasing Tenant
and the cost charged to Tenant as additional rent under this Lease. If any such
alterations, decorations, additions or improvements are made without the prior
written consent of Landlord, Landlord may correct or remove the same and Tenant
shall be liable for any and all costs and expenses incurred by Landlord in such
removal.
10. Signs.
Tenant shall not inscribe, paint, affix, or otherwise display any sign,
advertisement or notice on any part of the out side or inside of the Building.
Landlord shall provide, at the cost of Tenant, standard exterior signage to be
affixed at the entrance to the Leased Premises. Landlord shall also prepare and
install at Tenant's expense a name plate designating Tenant on the directory for
the Building. If any other signs, advertisements or notices are painted,
affixed, or otherwise displayed without the prior approval of Landlord, Landlord
shall have the right to remove the same, and Tenant shall be liable for any and
all costs and expenses incurred by Landlord in such removal.
IN ADDITION, TENANT SHALL, AT ITS SOLE INSTALLATION, MAINTENANCE AND REMOVAL
COST, HAVE THE RIGHT, PROVIDED TENANT HAS NOT VACATED OR IS NOT SUBLEASING MORE
THAN TWENTY-FIVE PERCENT (25%) 0F THE LEASED PREMISES, TO NON-EXCLUSIVE BUILDING
TOP FACADE SIGNAGE, SUBJECT TO LANDLORD'S DESIGN GUIDELINES AND APPROVAL AND
SUBJECT TO LOUDOUN COUNTY APPROVAL, IN A
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LOCATION APPROVED BY LANDLORD. TENANT SHALL CONTRACT WITH ONE OF LANDLORD'S
APPROVED SIGNAGE CONTRACTORS (ART DISPLAY COMPANY, PATRICK SIGNS, OR JACK STONE
SIGN CO.) TO MANUFACTURE AND INSTALL SUCH BUILDING TOP FACADE SIGNAGE, SUBJECT
TO REIMBURSEMENT OF THE INSTALLATION COSTS OF ANY METERING COST AND THE COST OF
ELECTRICITY UTILIZED TO LIGHT SUCH SIGN. TENANT AGREES, PRIOR TO INSTALLATION,
TO PROVIDE LANDLORD A COPY OF AN ANNUAL MAINTENANCE CONTRACT FOR SUCH BUILDING
TOP SIGNAGE (IN THE EVENT TENANT FAILS TO MAINTAIN SUCH SIGN, LANDLORD MAY
PERFORM SUCH MAINTENANCE SUBJECT TO REIMBURSEMENT BY TENANT). AS TO THE BUILDING
FACADE SIGNAGE, THE LANDLORD WILL PROVIDE EXCLUSIVITY DURING THE INITIAL TWELVE
(12) MONTHS OF OCCUPANCY. THEREAFTER, SUCH SIGNAGE SHALL BE ON A NON-EXCLUSIVE
BASIS, UNLESS TENANT LEASES APPROXIMATELY 20,000 RENTABLE SQUARE FEET ON THE
SECOND (2ND) FLOOR OF THE BUILDING. IN THE EVENT TENANT DOES NOT LEASE SUCH
ADDITIONAL PREMISES, LANDLORD WOULD HAVE THE RIGHT TO OFFER ADDITIONAL SIGNAGE
TO A TENANT OF GREATER THAN 20,000 RENTABLE SQUARE FEET, HOWEVER THE LETTER
HEIGHT OF SUCH ADDITIONAL SIGNAGE SHALL NOT EXCEED TWO THIRDS (2/3RDS) THE
HEIGHT OF THE TALLEST LETTER OF TENANT'S BUILDING TOP FACADE SIGNAGE. IN
ADDITION, TENANT SHALL, AT ITS COST, HAVE THE RIGHT TO SIGNAGE ON THE EXISTING
BUILDING ADDRESS MONUMENT SIGN AT THE ENTRANCE TO THE BUILDING. LANDLORD SHALL
INSTALL SUCH MONUMENT SIGNAGE, SUBJECT TO REIMBURSEMENT OF THE FABRICATION AND
INSTALLATION COSTS BY TENANT WHICH WILL BE DEDUCTED FROM TENANT'S ALLOWANCE
REFERENCED IN SECTION 2(c) ABOVE.
11. Insurance. (a) Types; Limits. Tenant, at Tenant's sole cost and
expense, shall obtain and maintain in effect at all times during the Term, a
policy of comprehensive general public liability insurance with broad form
property damage endorsement, naming Landlord, Lerner Corporation, and (at
Landlord's request) any mortgagee of the Building, any ground landlord and any
other agent as additional named insured(s), protecting Landlord, Lerner
Corporation, Tenant and any such mortgagee, ground landlord and agent against
any liability for bodily injury, death or property damage occurring upon, in or
about any part of the Building, the Leased Premises or any appurtenances
thereto, with such policies to afford protection to the limit of not less than
$2,000,000 with respect to bodily injury or death to any one person, to the
limit of not less than $2,000,000 with respect to bodily injury or death to any
number or persons in any one accident, and to the limit of not less than
$2,000,000 with respect to damage to the property of any one owner, and with a
deductible no greater than $500.00 for any single occurrence.
(b) Policies. The insurance policy required to be obtained by
Tenant under this Lease (i) shall be issued by an insurance company of
recognized responsibility licensed to do business in the jurisdiction in which
the Building is located, and (ii) shall be written as primary policy coverage
and not contributing with or in excess of any coverage which Landlord may carry.
Neither the issuance of any insurance policy required under this Lease, nor the
minimum limits specified herein with respect to Tenant's insurance coverage,
shall be deemed to limit or restrict in any way Tenant's liability arising under
or out of this Lease. With respect to each insurance policy required to be
obtained by Tenant under this Section, on or before the Lease Commencement Date,
and at least 30 days before the expiration of any expiring policy or certificate
previously furnished, Tenant shall deliver to Landlord a certificate of
insurance therefor, together with evidence of payment of all applicable
premiums. Each insurance policy required to be carried hereunder by or on behalf
of Tenant shall provide (and any certificate evidencing the existence of each
such insurance policy shall certify) that such insurance policy shall not be
cancelled unless Landlord shall have received 30 days' prior written notice of
such cancellation.
(c) Prohibitions. Tenant shall not do, permit or suffer to be done
any act, matter, thing or failure to act in respect of the Leased Premises
and/or the Building that will invalidate or be in conflict with fire insurance
policies covering the Building or any part thereof, and shall not do, or permit
anything to be done, in or upon the Leased Premises and/or the Building, or
bring or keep anything therein, which shall increase the rate of fire insurance
on the Building or on any property located therein. If, by reason of the failure
of Tenant to comply with the provisions of this subsection, the fire insurance
rate shall at any time be higher than it otherwise would be, then Tenant shall
reimburse Landlord on demand, for that part of all premiums for any insurance
coverage that shall have been charged because
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of such violation by Tenant and which Landlord shall have paid on account of an
increase in the rate or rates in its own policies of insurance.
(d) Hold Harmless: Subrogation. Tenant hereby agrees to indemnify
and hold harmless Landlord, Lerner Corporation and any mortgagee from and
against any and all claims, losses, actions, damages, liabilities and expenses
(including attorneys' fees) that (i) arise from or are in connection with
Tenant's possession, use, occupation, management, repair, maintenance or control
of the Leased Premises, or any portion thereof, or (ii) arise from or are in
connection with any act or omission of Tenant or Tenant's agents, employees or
invitees, or (iii) result from any default, breach, violation or non-performance
of this Lease or any provision herein by Tenant, or (iv) result in injury or
death to persons or damage to property sustained in or about the Leased
Premises. Tenant shall, at its own cost and expense, defend any and all actions,
suits and proceedings which may be brought against Landlord, Lerner Corporation,
and/or any mortgagee with respect to the foregoing or in which Landlord, Lerner
Corporation and/or any mortgagee may be impleaded. Tenant shall pay, satisfy and
discharge any and all judgments, orders and decrees which may be recovered
against Landlord, Lerner Corporation, and/or any mortgagee in connection with
the foregoing. Landlord, Lerner Corporation, and/or any mortgagee shall not be
liable or responsible for, and Tenant hereby releases Landlord, Lerner
Corporation, and/or any mortgagee from all liability or responsibility to Tenant
or any person claiming by, through or under Tenant, by way of subrogation or
otherwise, any injury, loss or damage to any property in or around the Leased
Premises or to Tenant's business irrespective of the cause of such injury, loss
or damage, and Tenant shall require its insurer(s) to include in all of Tenant's
insurance policies which could give rise to a right of subrogation against
Landlord, Lerner Corporation, and/or any mortgagee a clause or endorsement
whereby the insurer(s) shall waive any rights of subrogation against Landlord,
Lerner Corporation, and any mortgagee as well as other tenants or occupants of
the Building. Tenant hereby makes such waiver on behalf of its insurer, which
insurer, by insuring Tenant as contemplated under this Lease, shall be deemed to
have acknowledged the provisions of this subsection.
(e) LANDLORD INDEMNIFICATION. EXCEPT TO THE EXTENT DUE TO THE
NEGLIGENCE OR WILLFUL ACT OF TENANT, ITS EMPLOYEES, SERVANTS OR AGENTS, AND
NOTWITHSTANDING ANY OTHER PROVISION OF THIS LEASE, TENANT SHALL NOT BE LIABLE
FOR AND, EXCEPT TO THE EXTENT TENANT IS ENTITLED TO REIMBURSEMENT FROM INSURANCE
PROCEEDS, LANDLORD WILL INDEMNIFY AND SAVE HARMLESS TENANT OF AND FROM (a) ALL
FINES, SUITS, DEMANDS, LOSSES AND ACTIONS (INCLUDING REASONABLE ATTORNEY'S FEES)
FOR ANY INJURY TO PERSON OR DAMAGE TO OR LOSS OF PROPERTY ARISING FROM (i) THE
NEGLIGENCE OR WILLFUL MISCONDUCT OR MISMANAGEMENT OF THE BUILDING OR BREACH OF
THIS LEASE BY LANDLORD OR ITS AGENTS, EMPLOYEES, SERVANTS OR CONTRACTORS, OR
(ii) ANY WORK, ACT OR OMISSION, OR ANY CONDITION CREATED IN OR ABOUT THE LEASED
PREMISES DURING THE TERM OF THIS LEASE BY LANDLORD OR ITS AGENTS, EMPLOYEES,
SERVANTS OR CONTRACTORS, OR (iii) THE USE OR CONTROL OF THE BUILDING AND ITS
COMMON AREAS BY LANDLORD OR ITS AGENTS, EMPLOYEES, SERVANTS OR CONTRACTORS, AND
(b) ALL COSTS, EXPENSES AND LIABILITIES INCURRED IN OR IN CONNECTION WITH ANY
FINE, SUIT, DEMAND, LOSS OR ACTION RELATING TO LANDLORD'S OPERATION OF THE
BUILDING.
(f) LANDLORD'S INSURANCE. LANDLORD SHALL (AS PART OF OPERATING
EXPENSES), MAINTAIN INSURANCE ON THE BUILDING AGAINST FIRE AND THE RISKS COVERED
BY "EXTENDED COVERAGE" ON A "REPLACEMENT COST" BASIS OR CONTAINING A
"REPLACEMENT COST" ENDORSEMENT EITHER IN AN AMOUNT SUFFICIENT TO PREVENT
LANDLORD FROM BECOMING A CO-INSURER OR IN THE AMOUNTS AND TYPES REQUIRED UNDER
LANDLORD'S MORTGAGE. LANDLORD'S INSURANCE SHALL COVER ALL ITEMS IN THE BUILDING
EXCEPT TENANT IMPROVEMENTS, INCLUDING PLATE GLASS COVERAGE. LANDLORD SHALL ALSO
MAINTAIN A COMPREHENSIVE GENERAL LIABILITY INSURANCE POLICY, INCLUDING
CONTRACTUAL LIABILITY COVERAGE (OR WITH CONTRACTUAL LIABILITY ENDORSEMENT), ON
AN OCCURRENCE BASIS, IN AMOUNTS REQUIRED BY LANDLORD'S MORTGAGE.
12. Damage by Fire or Other Casualty.
Tenant shall give prompt notice to Landlord in case of any fire or
other damage to the Leased Premises. If the Leased Premises or the Building are
damaged by fire or other casualty,
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Landlord shall diligently and as soon as practicable after such damage occurs
(taking into account the time necessary to effectuate a satisfactory settlement
with Landlord's insurance company) repair such damage at its own expense, and
until such repairs have been completed the Basic Rent and Additional Charges
shall be abated in proportion to the part of the Leased Premises which is
rendered untenantable. However, if the Leased Premises or the Building are
damaged by fire or other casualty to such an extent that the damage cannot be
fully repaired within 120 days from the date such damage occurs, Landlord shall
have the right to terminate this Lease by giving notice of termination to the
Tenant within such 120-day period. Notwithstanding the foregoing, if the fire or
other casualty shall be caused by the carelessness, negligence or improper
conduct of Tenant or its agents or employees, Tenant shall remain liable for the
full amount of the Basic Rent and Additional Charges during the period of
restoration or until termination of this Lease.
13. Condemnation.
If the Leased Premises, or all or substantially all of the Building (or
the use or possession thereof), shall be taken in condemnation proceedings or by
exercise of any right of eminent domain, or by a private purchase in lieu
thereof, then this Lease shall terminate and expire on the date of such taking
or purchase and Tenant shall, in all other respects, keep, observe and perform
all the other terms, covenants and conditions of this Lease up to the date of
such taking. The net proceeds of any award or other compensation payable in
connection with such taking or purchase shall be paid to Landlord, and Tenant
hereby assigns to Landlord all of its right, title and interest in and to such
award or other compensation. Tenant shall have no claim against Landlord for the
value (if any) of personal property in the Leased Premises or the unexpired
Term, EXCEPT TENANT SHALL HAVE THE RIGHT TO MAKE A SEPARATE CLAIM AGAINST THE
CONDEMNING AUTHORITY SO LONG AS THE SAME DOES NOT AFFECT OR DIMINISH LANDLORD'S
CLAIM.
14. Assignment and Subletting.
(a) Prohibition. Neither Tenant nor its successors or assigns shall
transfer, assign, mortgage or encumber this Lease, by operation of law or
otherwise, or sublet or permit the Leased Premises, or any part thereof, to be
used by others, without the prior written consent of Landlord which shall not be
unreasonably withheld, conditioned or delayed, subject to the terms hereof. If
Tenant is a corporation, any transfer of any of Tenant's issued and outstanding
capital stock or any issuance of additional capital stock, as a result of which
the majority of the issued and outstanding capital stock of Tenant is held by a
corporation, firm, or person or persons who do not hold a majority of the issued
and outstanding capital stock of Tenant on the date hereof, shall be deemed an
assignment under this Section 14; except, Landlord's consent shall not be
required in connection with an assignment of this Lease or sublet of all or a
portion of the Leased Premises to any subsidiary, affiliate or controlled
corporation, or to any corporation into which Tenant may be converted or to with
which it may merge, or to a purchaser of substantially all of Tenant's assets,
or to any subsidiary or affiliated or parent company of Tenant, so long as such
successor uses the premises only for uses permitted under this Lease [and so
long as such successor possesses at least substantially equivalent net worth as
of the date of this Lease]. Notwithstanding the foregoing, in lieu of its
consent when required hereunder in connection with an assignment of this Lease
or a sublease of all or part of the Leased Premises to a non-affiliated entity,
EXCEPT FOR A SUBLEASE OF LESS THAN TWENTY PERCENT (20%) OF THE LEASED PREMISES
FOR A TERM EQUAL TO OR LESS THAN FIVE (5) YEARS, Landlord shall have the right,
exercisable within ten (10) days of Tenant's request, to recapture the Leased
Premises to be assigned, or portion to be sublet from Tenant and, in such event,
Tenant shall be released from liability proportionately. In the event of an
approved subletting of all or a portion of the Leased Premises, any profit, net
of subletting expenses, shall be shared equally by the parties, payable as
received. Any attempted transfer, assignment, subletting, mortgaging or
encumbering of this Lease in violation of the foregoing shall be void and confer
no rights upon any third person. No permitted assignment or subletting shall
relieve Tenant of any of its obligations under this
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Lease. In any event, all assignees or transferees shall be obligated to assume
in writing "Tenant's" obligations under this Lease.
(b) Rent. If, without complying with the provisions of subsection
(a) above, this Lease is transferred or assigned by Tenant, or if the Leased
Premises, or any part thereof, are sublet or occupied by anybody other than
Tenant, whether as a result of any act or omission by Tenant, or by operation of
law or otherwise, Landlord, whether before or after the occurrence of an Event
of Default, may, in addition to, and not in diminution of or substitution for,
any other rights and remedies under this Lease or pursuant to law to which
Landlord may be entitled as a result thereof, collect rent from the transferee,
assignee, subtenant or occupant and apply the net amount collected to the Basic
Rent and Additional Charges herein reserved, but no such transfer, assignment,
subletting, occupancy or collection shall be deemed a waiver of the provisions
of this Section or the acceptance of the transferee, assignee, subtenant, or
occupant as Tenant, or a release of Tenant from the further performance by
Tenant of its obligations under this Lease. Neither the consent by Landlord to
any transfer, assignment or subletting nor the references in any provision of
this Lease or in any rules and regulations to concessionaires and licensees
shall in anywise be construed to relieve Tenant from obtaining, in each
instance, the express consent in writing of Landlord to any further transfer,
assignment or subletting or to the granting of any concession or license for the
use of any part of the Leased Premises.
15. Default Provisions
(a) Events of Default. Each of the following events shall be deemed
to be a default under this Lease, and is referred to in this Lease as an "Event
of Default":
(1) A default by Tenant in the due and punctual payment of any
Basic Rent or Additional Charges which continues for more than five (5) days
after such Basic Rent or Additional Charges shall be due and payable [EXCEPT
TENANT SHALL BE ENTITLED TO TWO (2) WRITTEN NOTICES OF MONETARY DEFAULT PER EACH
TWELVE (12) MONTH PERIOD ALLOWING FIVE (5) ADDITIONAL DAYS TO CURE]; or
(2) The neglect or failure of Tenant to perform or observe any
of the terms, covenants or conditions contained in this Lease on Tenant's part
to be performed or observed (other than those referred to above in subsection
(1)) which is not remedied by Tenant within fifteen (15) days after Landlord
shall have given to Tenant written notice specifying such neglect or failure; or
(3) The assignment, transfer, mortgaging or encumbering of this
Lease or the subletting of the Leased Premises in a manner not permitted by
Section 14 hereof; or
(4) The taking of this Lease or the Leased Premises, or any
part thereof, upon execution or by other process of law directed against Tenant,
or upon or subject to any attachment at the insistence of any creditor of or
claimant against Tenant, which execution or attachment shall not be discharged
or disposed of within 30 days after the levy thereof; or
(5) The abandonment of the Leased Premises by Tenant.
(b) Remedies. Upon the occurrence of an Event of Default, Landlord
shall have the right, at its election, then or at any time thereafter while such
Event of Default shall continue, either:
(1) To give Tenant written notice that this Lease will
terminate on a date to be specified in such notice, which date shall not be less
than three (3) days after such notice, and on the date specified in such notice
Tenant's right to possession of the Leased Premises shall cease and this Lease
shall thereupon be terminated, but Tenant shall remain liable as provided below
in subsection (c); or
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(2) Without demand or notice, to re-enter and take possession
of the Leased Premises, or any part thereof, and repossess the same as of
Landlord's former estate and expel Tenant and those claiming through or under
Tenant and remove its or their effects, either by summary proceedings or by
action at law or in equity or by self-help (if necessary) or otherwise, without
being deemed guilty of any manner of trespass and without prejudice to any
remedies for arrears of rent or preceding breach of covenant. If Landlord elects
to re-enter under this subsection (2), Landlord may terminate this Lease, or,
from time to time, without terminating this Lease, may relet the Leased
Premises, or any part thereof, as agent for Tenant for such term or terms and at
such rental or rentals and upon such other terms and conditions as Landlord may
deem advisable, with the right to make alterations and repairs to the Leased
Premises. No such re-entry or taking of possession of the Leased Premises by
Landlord shall be construed as an election on Landlord's part to terminate this
Lease unless a written notice of such intention is given to Tenant under above
subsection (1) or unless the termination thereof be decreed by a court of
competent jurisdiction. Tenant waives any right to the service of any notice of
Landlord's intention to re-enter provided for by any present or future law.
Tenant also hereby grants Landlord a lien for any unpaid Rent on all OWNED
property of Tenant now or hereafter placed in the Leased Premises, WHICH LIEN
LANDLORD AGREES TO SUBORDINATE TO THE LIEN OF THE LENDER PROVIDING TENANT'S
PRIMARY LINE OF CREDIT PROVIDED THAT SUCH LENDER AGREES TO GIVE PRIOR WRITTEN
NOTICE TO LANDLORD AND REPAIR ANY DAMAGE IN CONNECTION WITH SUCH LENDER'S
REMOVAL OF ANY SUCH PROPERTY FROM THE BUILDING.
(c) Damages. If Landlord terminates this Lease pursuant to above
subsection (b), Tenant shall remain liable (in addition to accrued liabilities)
to the extent legally permissible for (i)(A) all Basic Rent and Additional
Charges provided for in this Lease until the date this Lease would have expired
had such termination not occurred plus the amount of any credit against Basic
Rent provided in this Lease adjusted to present value at the Prime Rate, all
accelerated to the date of any such termination, and (B) any and all expenses
incurred by Landlord in re-entering the Leased Premises, repossessing the same,
making good any default of Tenant, painting, altering or dividing the Leased
Premises, combining the same with any adjacent space for any new tenants,
putting the same in proper repair, reletting the same (including any and all
reasonable attorneys fees and disbursements and reasonable brokerage fees
incurred in so doing), and any and all expenses which Landlord may incur during
the occupancy of any new tenant; less (ii) the net proceeds of any reletting.
Tenant agrees to pay to Landlord the difference between items (i) and (ii) above
with respect to each month during the Term, at the end of such month. Any suit
brought by Landlord to enforce collection of such difference for any one month
shall not prejudice Landlord's right to enforce the collection of any difference
for any subsequent month. In addition to the foregoing, Tenant shall pay to
Landlord such sums as the court which has jurisdiction thereover may adjudge
reasonable as attorneys fees with respect to any successful law suit or action
instituted by Landlord to enforce the provisions of this Lease. Landlord shall
have the right, at its sole option, to relet the whole or any part of the Leased
Premises for the whole of the unexpired Term, or longer, or from time to time
for shorter periods, for any rental then obtainable, giving such concessions of
rent and making such special repairs, alterations, decorations and painting for
any new tenant as Landlord, in its sole and absolute discretion, may deem
advisable. Landlord's liability as aforesaid shall survive the institution of
summary proceedings and the issuance of any warrant thereunder. Landlord shall
be under no obligation to relet the Leased Premises.
(d) Liquidated Damages. If Landlord terminates this Lease pursuant
to above subsection (b), Landlord shall have the right, at any time, at its
option, to require Tenant to pay to Landlord, on demand, as liquidated and
agreed final damages in lieu of Tenant's liability under above subsection (c),
an amount equal to the difference, discounted to the date of such demand at the
rate of 5% per annum, between (i) the Basic Rent and Additional Charges,
computed on the basis of the then current annual rate of Basic Rent and
Additional Charges, which would have been payable from the date of such demand
to the date when this Lease would have expired, if it had not been terminated,
and (ii) the then fair market rental value of the Leased Premises for the same
period. Upon payment of such liquidated and agreed final damages, Tenant shall
be released from all further liability under this Lease with respect to the
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period after the date of such demand. If, after the Event of Default giving rise
to the termination of this Lease, but before presentation of proof of such
liquidated damages, the Leased Premises, or any part thereof, shall be relet by
Landlord for a term of one year or more, the amount of rent reserved upon such
reletting shall be deemed to be the fair rental value for the part of the Leased
Premises so relet during the term of such reletting.
16. Bankruptcy Termination Provision.
This Lease shall, at Landlord's option, terminate and expire, without
the performance of any act or the giving of any notice by Landlord, upon the
occurrence of any of the following events: (1) Tenant's admitting in writing its
inability to pay its debts generally as they become due, or (2) the commencement
by Tenant of a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar law, or (3) the entry of a decree or
order for relief by a court having jurisdiction in the premises in respect of
Tenant in an involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar law, and the continuance of any such
decree or order unstayed and in effect for a period of 30 consecutive days, or
(4) Tenant's making an assignment of all or a substantial part of its property
for the benefit of its creditors, or (5) Tenant's seeking or consenting to or
acquiescing in the appointment of, or the taking of possession by, a receiver,
trustee or custodian for all or a substantial part of its property, or (6) the
entry of a court order without Tenant's consent, which order shall not be
vacated, set aside or stayed within 30 days from the date of entry, appointing a
receiver, trustee or custodian for all or a substantial part of its property.
The provisions of this Section 16 shall be construed with due recognition for
the provisions of the federal bankruptcy laws, where applicable, but shall be
interpreted in a manner which results in a termination of this Lease in each and
every instance, and to the fullest extent and at the earliest moment, that such
termination is permitted under the federal bankruptcy laws, it being of prime
importance to the Landlord to deal only with Tenants who have, and continue to
have, a strong degree of financial strength and financial stability.
17. Landlord May Perform Tenant's Obligations.
If Tenant shall fail to keep or perform any of its obligations as
provided in this Lease in respect to (a) maintenance of insurance, (b) repairs
and maintenance of the Leased Premises, (c) compliance with the Requirements, or
(d) the making of any other payment or performance of any other obligation, then
Landlord may (but shall not be obligated to do so) upon the continuance of such
failure on Tenant's part for 10 days after written notice to Tenant (or after
such additional period, if any, as Tenant may reasonably require to cure such
failure if of a nature which cannot be cured within said 10 day period) and
without waiving or releasing Tenant from any obligation, and as an additional
but not exclusive remedy, make any such payment or perform any such obligation,
and all sums so paid by Landlord and all necessary incidental costs and
expenses, including attorneys fees, incurred by Landlord in making such payment
or performing such obligation, together with interest thereon at the rate
specified in Section 3(c) hereof from the date of payment, shall be deemed an
Additional Charge and shall be paid to Landlord on demand, or at Landlord's
option may be added to any installment of rent thereafter falling due, and if
not so paid by Tenant, Landlord shall have the same rights and remedies as in
the case of a default by Tenant in the payment of Rent.
18. Security Deposit. Tenant hereby deposits with Landlord the Security
Deposit, as security for the prompt, full and faithful performance by Tenant of
each and every provision of this Lease and of all obligations of Tenant
hereunder. If an Event of Default occurs, Landlord may use, apply or retain the
whole or any part of the Security Deposit (OR DRAW DOWN THE ENTIRE AMOUNT OF ANY
LETTER OF CREDIT) for the payment of (i) any Basic Rent or Additional Charges
which Tenant shall not have paid or which may become due after the occurrence of
such Event of Default, (ii) any sum expended by Landlord on Tenant's behalf in
accordance with the provisions of this Lease or (iii) any sum which Landlord may
expend or be required to expend by reason of Tenant's default, including
Tenant's default, including damages or
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deficiency in the reletting of the Leased Premises as provided in Section 15
hereof. The use, application or retention of the Security Deposit, or any
portion thereof, by Landlord shall not prevent Landlord from exercising any
other right or remedy provided by this Lease or by law and shall not operate as
a limitation on any recovery to which Landlord may otherwise be entitled. If any
portion of the Security Deposit is used, applied or retained by Landlord for the
purposes set forth above, Tenant agrees, within 10 days after a written demand
therefor is made by Landlord, to deposit cash (OR REPLACE ANY DRAWN DOWN LETTER
OF CREDIT) with Landlord in an amount sufficient to restore the Security Deposit
to its original amount. If Tenant shall fully and faithfully comply with all of
the provisions of this Lease, the Security Deposit, or any balance thereof,
shall be timely returned to Tenant after the expiration of the Term, without
interest. In the absence of evidence satisfactory to Landlord of any permitted
assignment of the right to receive the Security Deposit, or the remaining
balance thereof, Landlord may return the same to Tenant, regardless of one or
more assignments of Tenant's interest in this Lease or the Security Deposit. In
such event, upon the return of the Security Deposit (or balance thereof) to
Tenant, Landlord shall be completely relieved of liability under this Section
18. In the event of a transfer of Landlord's interest in the Leased Premises,
Landlord shall have the right to transfer the Security Deposit to the transferee
thereof. In such event, upon the delivery by Landlord to Tenant of such
transferee's written acknowledgement of its receipt of such Security Deposit,
Landlord shall be deemed to have been released by Tenant from all liability or
obligation for the return of such Security Deposit, and Tenant agrees to look
solely to such transferee for the return of the Security Deposit and the
transferee shall be bound by all provisions of this Lease relating to the return
of the Security Deposit. The Security Deposit shall not be mortgaged, assigned
or encumbered in any manner whatsoever by Tenant without the prior written
consent of Landlord. FINALLY, TENANT SHALL REPLACE ANY EXPIRING LETTER OF CREDIT
AT LEAST THIRTY (30) DAYS PRIOR TO EXPIRATION.
19. Subordination; Financing Requirements.
(a) Subordination. This Lease and Tenant's interest hereunder shall
be subject and subordinate to each and every ground or underlying lease now
existing or hereafter made of the Building and/or underlying land and to all
renewals, modifications, replacements and extensions thereof, and to the lien of
any mortgage now or hereafter placed upon the Building, and to all renewals,
modifications, replacements, consolidations and extensions thereof and to any
and all advances made thereunder and the interest thereon. Tenant agrees that
within five (5) days after written request therefor from Landlord, it will, from
time to time, execute and deliver any instrument or other document required by
any such landlord or mortgagee to subordinate this Lease and its interest in the
Leased Premises to such lease or the lien of any such mortgage. Tenant will also
upon request submit current financial statements and financial statements
covering the five (5) immediately preceding years, and Tenant will upon request
record this Lease or a short form thereof if required by Landlord's mortgagee or
other lending institution. Tenant hereby irrevocably constitutes and appoints
Landlord as Tenant's attorney-in-fact to execute, acknowledge and deliver any
and all such instruments for and on behalf of Tenant.
NOTWITHSTANDING THE FOREGOING, AT TENANT'S WRITTEN REQUEST,
LANDLORD SHALL USE REASONABLE EFFORTS TO OBTAIN FOR TENANT A NON-DISTURBANCE
AGREEMENT, ON THE FORM USED BY LANDLORD'S MORTGAGEE, TO THE EFFECT THAT IN THE
EVENT OF TERMINATION OF THIS LEASE OR FORECLOSURE OF ANY SUCH MORTGAGE, THE
LANDLORD UNDER THIS LEASE OR THE HOLDER OF ANY SUCH MORTGAGE WILL NOT ATTEMPT TO
TERMINATE THIS LEASE, MAKE TENANT A PARTY DEFENDANT TO ANY SUCH FORECLOSURE OR,
IN ANY OTHER WAY, FORECLOSURE OR OTHERWISE EXTINGUISH OR INTERFERE WITH THE
RIGHTS OF TENANT UNDER THIS LEASE, SO LONG AS TENANT IS NOT IN DEFAULT.
(b) Requirements. In the event that any bank, insurance company,
university, pension or welfare fund, savings and loan association, real estate
investment trust, business trust, or other financial institution providing
financing for the Building requires, as a condition of such financing, that
modifications to this Lease be obtained, and provided that such modifications
(i) are reasonable, (ii) do not adversely affect Tenant's use of the Leased
Premises as herein permitted, and (iii) do not increase the rentals and other
sums required to
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be paid by Tenant hereunder, Landlord shall submit such required modifications
to Tenant, and Tenant shall enter into and execute a written amendment hereto
incorporating such required modifications within ten (10) days after the same
have been submitted to Tenant by Landlord. If Tenant shall fail to so enter into
and execute such a written amendment, then Landlord shall thereafter have the
right, at its sole option, to cancel and terminate this Lease by giving Tenant
written notice of such termination, and Landlord shall thereupon be relieved
from any and all further liability or obligation hereunder.
20. Attornment.
In the event of (a) a transfer of Landlord's interest in the Leased
Premises, (b) the termination of any ground or underlying lease of the Building
and/or underlying land, or (c) the purchase of the Building or Landlord's
interest therein at a foreclosure sale or by deed in lieu of foreclosure under
any mortgage or pursuant to a power of sale contained in any mortgage, then in
any of such events, Tenant shall, at Landlord's request, attorn to and recognize
the transferee or purchaser of Landlord's interest or the landlord under the
terminated ground or underlying lease, as the case may be, as landlord under
this Lease for the balance then remaining of the Term, and thereafter this Lease
shall continue as a direct lease between such person, as "Landlord", and Tenant,
as "Tenant", but such landlord, transferee or purchaser shall not be liable for
any act or omission of Landlord prior to such lease termination or prior to such
person's succession to title, nor be subject to any offset, defense or
counterclaim accruing prior to such lease termination or prior to such person's
succession to title, nor be bound by any payment of Basic Rent or Additional
Charges prior to such lease termination or prior to such person's succession to
title for more than one month in advance. Tenant agrees that, within five (5)
days after written request therefor from Landlord, it will, from time to time,
execute and deliver any instrument or other document required by any mortgagee,
transferee, purchaser or other interested person to confirm such attornment
and/or such obligation to attorn. Tenant hereby irrevocably constitutes and
appoints Landlord as Tenant's attorney-in-fact to execute, acknowledge and
deliver any and all such instruments for and on behalf of Tenant.
21. Quiet Enjoyment.
Landlord covenants that Tenant, upon paying the Basic Rent and the
Additional Charges provided for in this Lease, and upon performing and observing
all of the terms, covenants, conditions and provisions of this Lease on Tenant's
part to be kept, observed and performed, shall quietly hold, occupy and enjoy
the Leased Premises during the Term without hindrance, ejection or molestation
by Landlord or any party lawfully claiming through or under Landlord.
22. Landlord's Right of Access.
Landlord may, during any reasonable time or times, before and after the
Lease Commencement Date, enter upon the Leased Premises, any portion thereof and
any appurtenance thereto (with laborers and materials, if required) for the
purpose of: (i) inspecting the same; (ii) making such repairs, replacements or
alterations which it may be required to perform under the provisions of this
Lease or which it may deem desirable for the Leased Premises or the Building,
including but not limited to repairs and improvements to space above, below
and/or on the same floor as the Leased Premises; and (iii) showing the Leased
Premises to prospective purchasers or tenants. Landlord agrees to give notice
prior to any such entry except that Landlord may enter without notice in the
case of an emergency. In making such an entry, Landlord agrees to use reasonable
efforts to avoid interfering with the regular and usual conduct of the Tenant's
business. If Tenant shall carpet over the floor of the Leased Premises, Landlord
shall have the right to cut such carpeting in order to make or install any
necessary electrical or telephone equipment or wiring to service other parts of
the Building, without being held liable therefor, provided Landlord shall have
the carpeting re-stitched in a workmanlike manner.
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23. Limitation on Landlord's Liability.
(a) Limitation. Except with respect to any damages resulting from
the willful or grossly negligent act or omission of Landlord, its agents and
employees, Landlord shall not be liable to Tenant, its employees, agents,
business invitees, licensees, customers, guests or trespassers for any damage or
loss to the property of Tenant or others located on the Leased Premises or for
any accident or injury to persons in the Leased Premises or the Building
resulting from: the necessity of repairing any portion of the Building; the use
or operation (by Tenant or any other person or persons whatsoever) of any
elevators, or heating, cooling, electrical or plumbing equipment or apparatus;
the termination of this Lease by reason of the destruction of the Building or
the Leased Premises; any fire, robbery, theft and/or any other casualty; any
leaking in any part or portion of the Leased Premises or the Building; any
water, wind, rain or snow that may leak into, or flow from, any part of the
Leased Premises or the Building; any acts or omissions of any occupant of any
space adjacent to or adjoining all or any part of the Leased Premises; any
water, gas, steam, fire, explosion, electricity or failing plaster; the
bursting, stoppage or leakage of any pipes, sewer pipes, drains, conduits,
ducts, appliances or plumbing works; the functioning or malfunctioning of the
fire sprinkler system; the functioning or malfunctioning of any security system
installed in the Building or any part thereof; or any other cause whatsoever.
(b) Force Majeure. Landlord shall not be required to perform any of
its obligations under Section 5(a) hereof or any other provision of this Lease,
nor be liable for loss or damage for failure to do so, nor shall Tenant be
released from any of its obligations under this Lease because of the Landlord's
failure to perform, where such failure arises from or through acts of God,
strikes, lockouts, labor difficulties, explosions, sabotage, accidents, riots,
civil commotions, acts of war, results of any warfare or warlike conditions in
this or any foreign country, fire and casualty, Requirements or other causes
beyond the reasonable control of Landlord. If Landlord is so delayed or
prevented from performing any of its obligations during the Term, the period of
such delay or such prevention shall be deemed added to the time herein provided
for the performance of any such obligation.
24. Certificates.
Tenant shall, without charge therefor, at any time and from time to
time, within 5 days after request therefor by Landlord, execute, acknowledge and
deliver to Landlord a written estoppel certificate certifying to Landlord, any
mortgagee, assignee of a mortgagee, or any purchaser of the Building, or any
other person designated by Landlord, as of the date of such estoppel
certificate, (i) that Tenant is in possession of the Leased Premises, (ii) that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that the Lease is in full force and effect as modified and
setting forth such modification); (iii) whether or not there are then existing
any set-offs or defenses against the enforcement of any right or remedy of
Landlord, or any duty or obligation of Tenant hereunder (and, if so, specifying
the same in detail); (iv) the dates through which Basic Rent and Additional
Charges have been paid; (v) that Tenant has no knowledge of any then uncured
defaults on the part of Landlord under this Lease (or if Tenant has knowledge of
any such uncured defaults, specifying the same in detail); (vi) that Tenant has
no knowledge of any event having occurred that authorizes the termination of
this Lease by Tenant (or if Tenant has such knowledge, specifying the same in
detail); and (vii) the amount of any Security Deposit held by Landlord. If
Tenant shall fail to so execute and deliver such a written estoppel certificate,
then Landlord shall thereafter have the right, at its sole option, to cancel and
terminate this Lease by giving Tenant written notice of such termination, and
Landlord shall thereupon be relieved from any and all further liability or
obligation hereunder.
25. Surrender of Leased Premises.
Tenant shall, on or before the last day of the Term, (i) peaceably and
quietly leave, surrender and yield up to the Landlord the Leased Premises, free
of subtenancies, broom clean and, subject to the provisions of Section 12
hereof, in good order and condition except for
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reasonable wear and tear, and (ii) at its expense, remove from the Leased
Premises all movable trade fixtures, furniture, equipment, and other personal
property, provided that Tenant shall promptly repair any damage caused by such
removal. Any of such property not so removed may, at Landlord's election and
without limiting Landlord's right to compel removal thereof, be deemed abandoned
and either may be retained by Landlord as its property or be disposed of,
without accountability, in such manner as Landlord may see fit. All affixed
installations, alterations, additions, betterments and improvements to the
Leased Premises made by either Landlord or Tenant, whether at Landlord's or
Tenant's expense, including, without limitation, all wiring, paneling,
partitions, floor coverings, lighting fixtures, built-in cabinets, bookshelves
affixed to walls, and the like shall become the property of Landlord when
installed and shall remain with the Leased Premises at the expiration or sooner
termination of the Term. The provisions of this Section shall survive any
expiration or termination of this Lease.
26. Holding Over.
If Tenant shall remain in possession of the Leased Premises after the
end of the Term, Tenant shall be deemed to be occupying the Leased Premises as a
tenant from month-to-month, at 150% of the Basic Rent in effect during the last
month of the Term and, subject to all the other conditions, provisions and
obligations of this Lease insofar as the same are applicable to a month-to-month
tenancy.
27. Leasing Commission.
Landlord and Tenant each represent and warrant to the other that,
except for the Leasing Brokers, neither of them has employed any broker in
carrying on the negotiations relative to this Lease. Landlord and Tenant shall
each indemnify and hold harmless the other from and against any claim or claims
for brokerage or other fees or commissions arising from or out of any breach of
the foregoing representation and warranty. Landlord recognizes that the Leasing
Brokers are entitled to the payment of a commission for services rendered in the
negotiation and obtaining of this Lease, and Landlord has agreed to pay such
commission pursuant to a separate agreement.
28. General Provisions.
(a) Binding Effect. The covenants, conditions, agreements, terms
and provisions of this Lease shall be binding upon and shall inure to the
benefit of the parties hereof and, subject to the provisions of Section 14
hereof, each of their respective personal representatives, successors and
assigns.
(b) Laws. It is the intention of the parties hereto that this Lease
(and the terms and provisions hereof) shall be construed and enforced in
accordance with the laws of the jurisdiction in which the Building is located.
(c) Waiver. No failure by Landlord to insist upon the strict
performance of any term, covenant, agreement, provision, condition or limitation
of this Lease or to exercise any right or remedy consequent upon a breach
thereof, and no acceptance by the Landlord of full or partial rent during the
continuance of any such breach, shall constitute a waiver of any such breach or
of any such term, covenant, agreement, provision, condition or limitation. No
term, covenant, agreement, provision, condition or limitation of this Lease to
be kept, observed or performed by Landlord or by Tenant, and no breach thereof,
shall be waived, altered or modified except by a written instrument executed by
Landlord or by Tenant, as the case may be. No waiver of any breach shall affect
or alter this Lease, but each and every term, covenant, agreement, provision,
condition and limitation of this Lease shall continue in full force and effect
with respect to any other existing or subsequent breach thereof. No failure by
Landlord to insist upon the strict performance of any term, covenant, agreement,
provision,
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<PAGE> 24
condition or limitation of a lease with any other tenant or to exercise any
right or remedy consequent thereof shall constitute a waiver of any similar
term, covenant, agreement, provision, condition or limitation contained in this
Lease unless the same be incorporated in a written instrument signed by Landlord
and making specific reference to this Lease and to the Tenant's obligations
hereunder.
(d) Notices. No notice, request, consent, approval, waiver or other
communication which may be or is required or permitted to be given under this
Lease shall be effective unless the same is in writing and is delivered in
person or sent by registered or certified mail, return receipt requested,
first-class postage prepaid, (1) if to Landlord, at Landlord's Notice Address,
or (2) if to Tenant, at Tenant's Notice Address, or at any other address that
may be given by one party to the other by notice pursuant to this subsection.
Such notices, if sent by registered or certified mail, shall be deemed to have
been given at the time of mailing.
(e) Entirety. It is understood and agreed by and between the
parties hereto that this Lease contains the final and entire agreement between
said parties, and that they shall not be bound by any terms, statements,
conditions or representations, oral or written, express or implied, not herein
contained. It is understood and agreed, however, that, subject to the terms of
Section 19(b) hereof, the terms hereof shall be modified, if so required, for
the purpose of complying with or fulfilling the requirements of any mortgagee
secured by a mortgage that may now be or hereafter become a lien on the
Building, provided, however, that such modification shall not be in substantial
derogation or diminution of any of the rights of the parties hereunder, nor
increase any of the obligations or liabilities of the parties hereunder.
(f) Waiver of Jury. Landlord and Tenant each hereby waives all
right to trial by jury in any claim, action, proceeding or counterclaim by
either Landlord or Tenant and/or Tenant's use or occupancy of the Leased
Premises.
(g) Waiver of Venue. Tenant hereby waives any objection to the
venue of any action filed by Landlord against Tenant in any state or federal
court of the jurisdiction in which the Building is located, and Tenant further
waives any right, claim or power, under the doctrine of forum non conveniens or
otherwise, to transfer any such action filed by Landlord to any other court.
(h) Corporations. If Tenant is a corporation, it shall,
concurrently with the signing of this Lease, furnish to Landlord certified
copies of the resolutions of its Board of Directors (or of the executive
committee of its Board of Directors) authorizing Tenant to enter into this
Lease; and it shall, if applicable, furnish to Landlord certified copies of the
resolutions of the Board of Directors (or of the executive committee of such
Board of Directors) of any corporate guarantor, authorizing such corporation to
guarantee the obligations of Tenant under this Lease; and it shall furnish to
Landlord evidence (reasonably satisfactory to Landlord and its counsel) that
Tenant is a duly organized corporation under the laws of the state of its
incorporation, is qualified to do business in the jurisdiction in which the
Building is located, is in good standing under the laws of the state of its
incorporation and has the power and authority to enter into this Lease, and that
all corporate action requisite to authorize Tenant to enter into this Lease has
been duly taken.
(i) Time of Essence. Time is of the essence in the performance of
all Tenant's obligations under this Lease.
(j) Words and Phrases. Wherever appropriate herein, the singular
includes the plural and the plural includes the singular and neuter gender
references shall refer to the gender of the particular party.
(k) Limit on Landlord's Liability. Notwithstanding any provision to
the contrary, Tenant shall look solely to the estate and property of Landlord in
and to the Building (or the proceeds received by Landlord on a sale of such
estate and property but not the proceeds of any financing or refinancing
thereof) in the event of any claim against Landlord arising out of or in
connection with this Lease, the relationship of Landlord and Tenant, or Tenant's
use of
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the Leased Premises, and Tenant agrees that the liability of Landlord arising
out of or in connection with this Lease, the relationship of Landlord and
Tenant, or Tenant's use of the Leased Premises, shall be limited to such estate
and property of Landlord (or sale proceeds). No other properties or assets of
Landlord shall be subject to levy, execution or other enforcement procedures for
the satisfaction of any judgment (or other judicial process) or for the
satisfaction of any other remedy of Tenant arising out of or in connection with
this Lease, the relationship of Landlord and Tenant or Tenant's use of the
Leased Premises, and if Tenant shall acquire a lien on or interest in any other
properties or assets by judgment or otherwise, Tenant shall promptly release
such lien on or interest in such other properties and assets by executing,
acknowledging and delivering to Landlord an instrument to that effect prepared
by Tenant's attorneys. No partnership relation shall be deemed created hereunder
between Landlord and Tenant. The foregoing provisions of this subsection shall
run to the benefit of Landlord, its successors, assigns, mortgagees and ground
lessors.
(1) Counterparts. This Lease maybe executed in several
counterparts, but all such counterparts shall constitute one and the same
instrument.
(m) Exhibits and Addendum. Exhibits A (Floor Plan of Leased
Premises), C (Rules and Regulations), and any Addendum, attached hereto, are
hereby incorporated herein.
(n) HAZARDOUS WASTE. Landlord represents and warrants that, to the
best of Landlord's knowledge, there is no hazardous material on the land or in
the Building, including its interior, systems or structure (collectively, the
"Property") and Landlord represents and warrants that, to the best of Landlord's
knowledge, it is in compliance and will comply throughout the Term with all
Requirements relating to the use, storage, disposal or transportation of
hazardous material. "Hazardous material" or "hazardous substance" shall mean (1)
asbestos or asbestos containing material, (ii) polychlorinated biphenyls in
concentrations greater than 50 parts per million, oil and petroleum products and
their derivatives, explosive substances, and radioactive, corrosive,
contaminating or polluting materials and (iv) any other material or substance,
whether solid, gaseous, or liquid, which may pose a present or potential hazard
to human health or the environment when improperly disposed of, treated, stored,
transported, or otherwise managed, including (a) hazardous wasted identified in
accordance with Section 3001 of the Federal Resource Conservation and Recovery
Act of 1976, as amended, and (b) hazardous waste or material identified by
regulation of any governmental authority regulating environmental or health
matters. In the event that any such hazardous material is present in the Leased
Premises or the Building, Landlord shall, in accordance with applicable laws and
regulations, remove such hazardous material and restore the Leased Premises to
its condition prior to Landlord's removal of the hazardous material. There shall
be an abatement or adjustment of rental for any period that Tenant is prevented
from using the Leased Premises as a result of the presence of hazardous material
therein or as a result of remedial measures in respect thereto taken by
Landlord, unless caused by Tenant, its agents, or employees. Landlord represents
and warrants, to the best of Landlord's knowledge, it has not received any
notice of violation of any hazardous substance laws in connection with the
Building or project.
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IN WITNESS WHEREOF, Tenant has caused this Lease, including the attached
Addendum, if any, to be signed and attested in its corporate name by its proper
corporate officers and its corporate seal to be affixed as of the day and year
first above written.
WITNESS LERNER LEGAL LANDLORD:
DEPARTMENT Vintage Park Two Limited Partnership,
APPROVED By its general partner:
Lerner Enterprises Limited Partnership
/s/ [Illegible] By: /s/ Theodore N. Lerner
- --------------------------------- -----------------------------------
Theodore N. Lerner, General Partner
By: /s/ Mark D. Lerner
-----------------------------------
Mark D. Lerner, General Partner
ATTEST: TENANT:
Template Software Inc.
By: /s/ [Illegible] By: /s/ E. Linwood Pearce
----------------------------- -----------------------------------
Vice President Administration E. Linwood Pearce
[Corporate Seal] Chief Executive Officer
25
<PAGE> 1
EXHIBIT 10.17
FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT, dated as
of the 22 day of October, 1996, is made by and between TEMPLATE SOFTWARE, INC.,
a Maryland corporation (the "Borrower") and SIGNET BANK, a Virginia banking
corporation formerly known as Signet Bank/Virginia (the "Lender").
RECITALS
A. The Lender previously extended credit to the Borrower pursuant to the
terms and conditions set forth in the Loan and Security Agreement executed
between them dated as of September 26, 1989, (as amended through the date
hereof, the "Agreement", together with the other documents defined therein as
"Loan Documents", the "Original Loan Documents").
B. The Borrower has requested that the Lender agree to certain
modifications to the Agreement, including increasing the revolving credit
facility, adding a term loan facility, and extending, the termination date of
the revolving facility, and the Lender has agreed to these and other
modifications as set forth in this Agreement, provided that such agreement is
contingent upon the complete execution of this Agreement and the satisfaction
of all conditions precedent set forth herein.
C. The Borrower and the Lender now desire to execute this Agreement to
set forth their agreements with respect to the credit facilities being made
available to the Borrower.
Accordingly, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the Lender and the Borrower agree as follows:
SECTION 1. Definitions. Certain terms used in this Agreement are
defined in this Section 1. These terms, and the additional terms defined above,
shall have the meanings assigned wherever the terms appear in this Agreement.
These meanings are also applicable to the singular and plural forms of the
terms defined.
"Account Receivable" means collectively and includes any of the
following, whether now owned or hereafter acquired by the Borrower: all present
and future rights to payments for goods sold or leased or for services
rendered, whether or not represented by instruments or chattel paper, and
whether or not earned by performance; all present and future rights to payments
arising out of the licensing of computer software and systems; all accounts,
contract rights, chattel paper, instruments and documents; proceeds of any
letter of credit of which the Borrower is a beneficiary; all forms of
obligations whatsoever owed to the Borrower, together with all instruments and
documents of title representing any of the foregoing; all rights in any
returned or repossessed goods; all rights, security and guaranties with respect
to any of the foregoing, including, without limitation, any right of stoppage
in transit; together with all property included within the definitions of
"accounts", "chattel paper", "documents" and "instruments" set forth in the
UCC.
"Act" means the Securities Act of 1933, as amended.
<PAGE> 2
"Administrative Fee" means the fee in the amount of $1,250.00 for each
calendar quarter (or partial calendar quarter) to be paid by the Borrower to
the Lender pursuant to Section 2.4 hereof in consideration of the expenses
incurred by the Lender in connection with administering the Loans and
monitoring the Collateral.
"Affiliate" means, with respect to any specified Person, any other
Person which, directly or indirectly, through one or more intermediaries,
controls or is controlled by, or is under common control with, such specified
Person. The term "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of management and policies of a
Person, whether through ownership of common stock, by contract, or otherwise.
"Agreement" means this First Amended and Restated Loan and Security
Agreement, as amended, modified or supplemented from time to time.
"Application" means an Irrevocable Standby Letter of Credit
Application and Agreement which shall be substantially in the form of Exhibit A
attached hereto.
"Bank" means any commercial banking corporation, savings bank or other
financial institution.
"Blue Sky Laws" means the securities laws of one or more states.
"Borrowing Base" means, at the time in question, the sum of (a) 85% of
Eligible Billed Government Receivables, (b) 85% of Eligible Billed Commercial
Receivables, (c) 75% of Eligible Billed Foreign Receivables, and (d) the
Over-Formula Amount, all as depicted in the Borrowing Base Certificate the
Lender has most recently received pursuant to Section 2.1(e) or Section
5.8(g) provided, however, that (i) the Borrowing Base shall be reduced by the
sum of the aggregate face amount of Letters of Credit outstanding on the date
the Borrowing Base is being calculated plus the aggregate amount of all drafts
drawn under or purporting to be drawn under the Letters of Credit that have
been paid by the Lender and for which the Lender has not been reimbursed
pursuant hereto, (ii) at all times the Borrowing Base shall remain subject to
verification by the Lender, and (iii) in no event shall the Borrowing Base
attributable to the Accounts Receivable described in clause (c) of this
definition of "Borrowing Base" exceed $500,000.00.
"Borrowing Base Certificate" means a certificate of the Borrower
substantially in the form attached hereto as Exhibit B (or such subsequent form
as the Lender shall require) containing a computation of the Borrowing Base as
of the date depicted therein and a certification that no Default or Event of
Default has occurred and is continuing.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required to close under the
laws of the State.
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"Capital Lease" means any lease which has been or should be
capitalized on the books of the lessee in accordance with GAAP.
"Cash Collateral Account" means each of the non-interest bearing bank
accounts which the Lender shall cause to be opened pursuant to Section 3.2
hereof. The initial Cash Collateral Account is account number 6520360923.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Closing" means the date on which the initial disbursement of the
Loans or the initial issuance of a Letter of Credit is made.
"Code" means the Internal Revenue Code of 1986, as amended and in
effect from time to time.
"Collateral" means collectively and includes all Equipment, General
Intangibles, Inventory, Accounts Receivable and all other property of the
Borrower in which a Lien is granted to the Lender pursuant to this Agreement or
any other Loan Document.
"Commercial Customer" means any Customer other than the Government.
"Commitment Fee" means the quarterly fee to be paid by the Borrower to
the Lender pursuant to Section 2.5 hereof in consideration of the commitment by
the Lender to make Revolving Loans hereunder. The Commitment Fee due for each
calendar quarter (or portion thereof) shall equal the product of the Commitment
Fee Rate in effect for such quarter (or portion thereof) multiplied by the
difference between $3,000,000.00 and the sum of the average daily principal
balance of the Revolving Loans during such quarter (or applicable portion
thereof) plus the average daily available face amount of all Letters of Credit
outstanding during such quarter (or applicable portion thereof).
"Commitment Fee Rate" means the rate, expressed as a percentage,
calculated by multiplying 3/8% by a fraction the numerator of which is the
number of days in the calendar quarter, or shorter period, for which the
Commitment Fee Rate is being calculated and the denominator of which is 360.
"Customer" means any Person obligated on an Account Receivable.
"Debt" means collectively and includes (a) indebtedness or liability
for borrowed money, or for the deferred purchase price of property or services;
(b) obligations as a lessee under a Capital Lease; (c) obligations to reimburse
the issuer of letters of credit or acceptances; (d) all guaranties,
endorsements (other than for collection or deposit in the ordinary course of
business), and other contingent obligations to purchase, to provide funds for
payment, to supply funds to invest in any Person, or otherwise to assure a
creditor against loss; and (e) obligations secured by any Lien on property
owned by the Person, whether or not the obligations have been assumed.
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<PAGE> 4
"Default" means any event which with the giving of notice, the lapse
of time, or both, would constitute an Event of Default.
"Default Rate" means, with respect to the Term Loan, a rate of
interest equal to 3% above the interest rate otherwise applicable to the Term
Loan and, in all other cases, a rate of interest equal to 3% above the interest
rate otherwise applicable to Revolving Loans.
"Eligible Billed Commercial Receivable" means any Eligible Billed
Receivable which does not arise out of a prime contract between the Borrower
and the Government; provided that, for so long as (i) more than 50% of the
Eligible Receivables due from any individual Commercial Customer or group of
Commercial Customers which are Affiliates of each other remains unpaid for more
than 90 days following the date of initial invoice to such Commercial
Customer(s) for such Eligible Receivables or (ii) any Commercial Customer or an
Affiliate of a Commercial Customer is obligated to the Borrower pursuant to a
promissory note or other agreement entered into by such Commercial Customer or
Affiliate in lieu of payment of an Account Receivable, then no Accounts
Receivable of such Commercial Customer(s) may be included as Eligible Billed
Commercial Receivables.
"Eligible Billed Foreign Receivable" means any Account Receivable that
the Lender has specifically approved in writing and that would qualify as an
Eligible Billed Receivable but for the fact that the Customer for such Account
Receivable is a foreign government or an entity organized and existing under
the laws of a country other than the United States or such Account Receivable
is not payable in U.S. Dollars or backed by a letter of credit acceptable to
the Lender.
"Eligible Billed Government Receivable" means any Eligible Billed
Receivable which arises out of a prime contract between the Borrower and the
Government.
"Eligible Billed Receivable" means any Eligible Receivable that has
been billed to the appropriate Customer and is aged less than 90 days from the
date of the initial invoice.
"Eligible Receivable" means any Account Receivable of the Borrower (a)
that represents valid obligations of a Customer to make payment to the Borrower
for goods shipped or delivered or services completed under valid, written
contracts of sale or service entered into by Borrower in the ordinary course of
its business; (b) on which the Customer is not an Affiliate, shareholder,
employee, director, or officer of the Borrower or a family member of any such
Person; (c) with respect to which the Borrower has no knowledge or notice of
any inability of the Customer to make full payment; (d) from the face amount of
which has been deducted all payments, set-offs, contras, amounts subject to
adverse claims made in writing to the Borrower, contractual allowances, bad
debt reserves, prompt payment discounts and other credits applicable thereto;
(e) that is subject to no Liens other than those permitted by this Agreement;
(f) that continues to be in full conformity with the representations and
warranties made by the Borrower to the Lender in this Agreement with respect
thereto; (g) with respect to which the Lender is and continues to be satisfied
with the credit standing of the Customer; (h) on which the Customer is not a
foreign government or an entity organized and existing under the
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<PAGE> 5
laws of a country other than the United States; (i) which is not an Excluded
Government Final Invoice Receivable; (j) which is not a Account Receivable the
payment for which flows through an escrow account from which any Person other
than the Borrower is entitled to payment; (k) which does not arise from a
contract on which the Borrower's performance is assured by a performance,
completion or other bond; (1) which is payable in U.S. Dollars (or if not is
backed by a letter of credit acceptable to the Lender); (m) which is not
subject to repurchase or return such as bill and hold, sale or return, sale on
approval, consignment, guaranteed sale, etc.; (n) which is not evidenced by
chattel paper or an instrument; and (o) which is not subject to any funding
contingency or could otherwise be classified as "at-risk" work; provided,
however, and without limiting any other provisions of this Agreement with
respect to the exclusion of Accounts Receivable from the category of Eligible
Receivables and the Borrowing Base, that if the Lender reasonably determines
that the collectability of any Account Receivable makes it unacceptable for
inclusion in the Borrowing Base and gives written notice to the Borrower
indicating the reasons for such determination, then such Account Receivable
shall thereafter be excluded from the category of Eligible Receivables. The
following are examples of Accounts Receivable (or portions thereof) that the
Lender does not normally find acceptable for inclusion in the Borrowing Base,
and no such Account Receivable (or the specified portion thereof) shall be
includable in the Borrowing Base without the advance written approval of the
Lender: (i) Accounts Receivable that the Lender does not consider to be trade
Accounts Receivable (such as lease payments or notes receivable from account
debtors given in satisfaction of prior Account Receivable obligations); (ii)
Accounts Receivable which, in the Lender's judgment, the Borrower should not
reasonably expect to collect within 90 days from the date of original invoice;
(iii) that portion of any Account Receivable constituting retainage that has
been withheld by the account debtor pending completion of the contract; and
(iv) that portion of any Account Receivable constituting a service charge or
similar charge imposed by the Borrower for the extension of credit to the
account debtor.
"Employee Benefit Plan" means any employee welfare benefit plan or
employee pension benefit plan, as those terms are defined in Sections 3(1) and
3(2) of ERISA, for the benefit of employees of the Borrower or any ERISA
Affiliate.
"Environmental Laws" means all federal, state or local laws, rules,
regulations or orders relating to air, water or noise pollution, employee
health and safety, or the production, storage, labeling, transportation or
disposition of waste or hazardous or toxic substances, including, but not
limited to CERCLA, the Toxic Substances Control Act of 1976, as amended, the
Resource Conservation Recovery Act of 1976, as amended, the Clean Air Act, as
amended, the Federal Water Pollution Control Act, as amended, or the
Occupational Safety and Health Act of 1970, as amended.
"Equipment" means collectively and includes all of the following,
whether now owned or hereafter acquired by the Borrower: equipment and
fixtures, including, without limitation, computer hardware, computer software
and systems, furniture, machinery, vehicles and trade fixtures, together with
any and all accessories, accessions, parts and appurtenances thereto,
substitutions therefor and replacements thereof, together with all other such
items which are included within the definitions of "equipment" and "fixtures"
as set forth in the UCC.
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<PAGE> 6
"Equity Infusion Amount" means the amount received by the Borrower
from the gross proceeds realized in connection with the Borrower's initial
public offering of its common stock after payment of underwriting fees,
brokerage commissions and all other costs customarily considered offering
expenses in connection with public offerings of securities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) which together with the Borrower would be treated as a "single
employer" within the meaning of Code Sections 414(b), (c), (m), (n) or (o).
"Event of Default" means any of the events specified as an "Event of
Default" under this Agreement, provided that any requirement for the giving of
notice, the lapse of time, or both, or any other condition, has been satisfied.
"Excluded Government Final Invoice Receivable" means any Account
Receivable relating to the last payment due to the Borrower under a prime
contract between the Borrower and the Government unless (a) such contract is a
"Fixed Price Contract" (as defined in Federal Acquisition Regulation Part 16.2,
or any successor regulation) which does not include any provision for progress
payments, incentive arrangements, or price redetermination or (b) the Lender
has consented in writing to the exclusion of such Account Receivable from the
category of Excluded Government Final Invoice Receivables.
"Excluded Affiliate" mean any Person listed on the Schedule of
Excluded Affiliates attached hereto.
"Financial Reporting Month" means a calendar month or such other
substantially equivalent financial reporting period adopted by the Borrower and
approved by the Lender.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" means collectively and includes all of the
following, whether now owned or hereafter acquired by the Borrower: choses in
action, causes of action and all other intangible property of every kind and
nature, including, without limitation, corporate or other business records,
inventions, designs, patents, patent applications, trademarks, trademark
applications, trade names, trade secrets, goodwill, registrations, copyrights,
licenses, franchises, customer lists, tax refunds, tax refund claims, rights of
claims against carriers and shippers, leases and rights to indemnification,
together with all property which is included within the definition of "general
intangibles" as set forth in the UCC.
"Government" means the United States of America or any agency or
instrumentality thereof.
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"Guarantor" means, individually and collectively, any guarantor of the
Obligations.
"Guaranty" means each guaranty agreement, in form and substance
satisfactory to the Lender, to be delivered by a Guarantor.
"Indemnitee" shall mean the Lender, its Affiliates, and its and their
respective directors, officers, employees, agents, successors and assigns.
"Intellectual Property" shall mean all letters patent, licenses, trade
names, trademarks, copyrights, inventions, service marks, trademark
registrations, service mark registrations and copyright registrations, whether
domestic or foreign and applications for any of the foregoing, and all
proprietary technology, know-how, trade secrets or other intellectual property
rights owned or used by the Borrower or any Subsidiary in the operation of
their respective businesses.
"Interest Payment Date" means the last day of each calendar month.
"Inventory" means collectively and includes all of the following,
whether now owned or hereafter acquired by the Borrower: all goods held or
intended for sale or lease by the Borrower, or furnished or to be furnished
under contracts of service, all raw materials, work in process, finished goods,
materials and supplies of every nature used or usable in connection with the
manufacture, packing, shipping, advertising or sale of any such goods, together
with all property included within the definition of "inventory" set forth in
the UCC.
"Letter of Credit" means any letter of credit issued for the benefit
of the Borrower hereunder pursuant to an Application submitted by the Borrower
and accepted by the Lender and, effective as of the date hereof, any
outstanding letter of credit issued by the Lender for the benefit of the
Borrower under the Original Agreement.
"License" shall mean any certificate, license, franchise, permit or
other authorization.
"Lien" means any mortgage, deed of trust, pledge, security interest,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority, or other security agreement, or preferential
arrangement, charge or encumbrance of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention agreement,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the UCC or
comparable law of any jurisdiction to evidence any of the foregoing).
"Loans" means the loans to be made to the Borrower by the Lender
pursuant to this Agreement.
"Loan Documents" means this Agreement, the Notes, and any other
document now or hereafter executed or delivered in connection with the
Obligations in evidence thereof or as security
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<PAGE> 8
therefor, including, without limitation, any guaranty, life insurance
assignment, pledge agreement, security agreement, deed of trust, mortgage,
promissory note or subordination agreement.
"Maturity Date" shall mean October 31, 1999.
"Maximum Amount" means, at any time, the lesser of (a) $3,000,000.00
plus the available face amount of Letters of Credit at such time or (b) the
then applicable Borrowing Base.
"Multiemployer Plan" means a multiemployer plan defined as such in
Section 400 1(a)(3) of ERISA.
"Note" means either the Revolving Note or the Term Note, depending
upon the context in which the term is used, and "Notes" means the Revolving
Note and the Term Note.
"Obligations" means the Loans, the Notes, all indebtedness and
obligations of the Borrower under this Agreement and the other Loan Documents,
as well as all other obligations and indebtedness of the Borrower to the
Lender, now existing or hereafter arising, of every kind and description,
whether or not evidenced by notes or other instruments, and whether such
obligations are direct or indirect, fixed or contingent, liquidated or
unliquidated, including, without limitation, any overdrafts in any deposit
account maintained by the Borrower with the Lender and all obligations of the
Borrower with respect to letters of credit issued by the Lender for the account
of the Borrower.
"Operating Account" means the demand deposit account of the Borrower
specified in the Target Balance Management Loan Rider as the "Account."
"Original Agreement Loans" means loans outstanding on the date hereof
under the Original Agreement.
"Over-Formula Amount" means $1,000,000.00 at any time when no Default
exists and the Tangible Net Worth of the Borrower equals or exceeds
$10,000,000.00 (as depicted in the balance sheet most recently received by the
Lender pursuant to Section 5.8 hereof) and $0.00 at all other times.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Investment" means an investment by the Borrower in a Person
which satisfies the following conditions: the investment is made in connection
with a business plan for such Person requiring the active participation of the
Borrower and such Person in the development or advancement of technology,
products, marketing initiatives or similar activities that are complimentary to
the Borrower's core business activities and such Person is an entity which,
under the laws of the jurisdiction of its formation, affords limited liability
to its owners.
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<PAGE> 9
"Permitted Liens" shall mean:
(a) any Liens for current taxes, assessments and other
governmental charges not yet due and payable or being contested in
good faith by the Borrower or one or more of its Subsidiaries by
appropriate proceedings and for which adequate reserves have been
established by the Borrower or one or more of its Subsidiaries as
reflected in the Borrower's or one or more of its Subsidiaries'
financial statements;
(b) any mechanic's, materialman's, carrier's, warehousemen's or
similar Liens for sums not yet due or being contested in good faith by
the Borrower or one or more of its Subsidiaries by appropriate
proceedings and for which adequate reserves have been established by
the Borrower or one or more of its Subsidiaries as reflected in the
Borrower's or one or more of its Subsidiaries' financial statements;
(c) Liens in favor of the Lender;
(d) easements, rights-of-way, restrictions and other similar
encumbrances on the real property or fixtures of the Borrower or one
or more of its Subsidiaries incurred in the ordinary course of
business which individually or in the aggregate are not substantial in
amount and which do not in any case materially detract from the value
of the property subject thereto or interfere with the ordinary conduct
of the business of the Borrower or any of its Subsidiaries;
(e) Liens (other than Liens imposed on any property of the
Borrower or one or more of its Subsidiaries or any ERISA Affiliate
pursuant to ERISA or section 412 of the Code) incurred or deposits
made in the ordinary course of business, including Liens in connection
with workers' compensation, unemployment insurance and other types of
social security and Liens to secure performance of tenders, statutory
obligations, trade contracts (other than for Debt), surety and appeal
bonds (in the case of appeal bonds such Lien shall not secure any
reimbursement or indemnify obligation in an amount greater than
$50,000), bids, leases that are not capitalized leases, performance
bonds, sales contracts and other similar obligations, deposits
securing liability to insurance carriers under insurance or
self-insurance arrangements, in each case, not incurred in connection
with the obtaining of credit or the payment of a deferred purchase
price, and which do not, in the aggregate, result in a material
adverse effect on the business, operations, assets or condition
(financial or otherwise) of the Borrower or one or more of its
Subsidiaries;
(f) Liens on Equipment existing on the date hereof and disclosed
on Schedule 6.1(c) attached hereto;
(g) Liens which are created in connection with Debt of the
Borrower permitted by Section 6.2(c) hereof, in which case such Liens
shall be subordinated to the Lender's Liens on terms satisfactory to
the Lender;
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<PAGE> 10
(h) Liens securing obligations of a Subsidiary to the Borrower or
another Subsidiary; and
(i) purchase-money Liens on any fixed assets provided that (i) any
property subject to any such purchase-money Lien is acquired by the
Borrower or any Subsidiary in the ordinary course of its respective
business and the purchase-money Lien on any such property is created
contemporaneously with such acquisition (ii) each such purchase-money
Lien shall attach only to the property so acquired; and (iii) the Debt
secured by all such purchase-money Liens shall not exceed $250,000.00
at any time outstanding in the aggregate.
"Person" means an individual, partnership, limited liability
partnership, limited liability company, corporation, business trust, joint
stock company, trust, unincorporated association, joint venture, governmental
authority or other entity of whatever nature.
"Prime Rate" means the rate of interest established from time to time
by the Lender and announced by the Lender as its prime rate. The Prime Rate is
not necessarily the lowest or most favorable rate of interest charged by the
Lender on extensions of credit to debtors.
"Principal Amount" means the aggregate outstanding principal balance
of the Revolving Loans.
"Proceeding" shall mean any action, suit or proceeding before any
Tribunal.
"Reportable Event" means any of the events described in Section
4043(b) of ERISA.
"Revolving Facility" means the line of credit established by the
Lender for the benefit of the Borrower in an amount not to exceed the Maximum
Amount to be used by the Borrower only for the purposes specified in Section
2.1(d).
"Revolving Loans" means Loans made by the Lender to the Borrower under
the Revolving Facility.
"Revolving Note" means the promissory note in form and substance
acceptable to the Lender in the original principal amount of $3,000,000.00 (as
it may be amended, modified supplemented or replaced from time to time)
evidencing the obligation of the Borrower to pay the Principal Amount together
with interest on the Principal Amount.
"State" means the Commonwealth of Virginia.
"Subsidiary" means a corporation now existing or hereafter formed of
which shares of stock having ordinary voting power to elect a majority of the
board of directors or other managers of such corporation are at the time owned,
or the management of which is otherwise controlled, directly or indirectly
through one or more intermediaries, or both, by the Borrower except for any
such corporation that is an Excluded Affiliate.
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<PAGE> 11
"Tangible Net Worth" means, at any date, all amounts which, in
accordance with GAAP, would be included under stockholders' equity on the
consolidated balance sheet of the Borrower and its Subsidiaries on such date;
provided that, in any event, such amounts are to be net of amounts carried on
the books of the Borrower and its Subsidiaries for (a) any write-up in the book
value of any assets resulting from a revaluation thereof subsequent to the date
of this Agreement; (b) treasury stock; (c) unamortized debt discount expense;
(d) any cost of investments in excess of net assets acquired at any time of
acquisition; (e) loans or advances to any Affiliate of the Borrower or
Subsidiary, or directors, officers, employees or shareholders of the Borrower,
any Affiliate of the Borrower, or any Subsidiary; (f) patents, patent
applications, copyrights, trademarks, trade names, good will, research and
development costs, organizational expenses, capitalized software development
costs and other like intangibles; and (g) any investments in securities which
are not actively traded on a national securities exchange.
"Target Balance Management Loan Rider" means the Target Balance
Management Loan Rider of even date herewith between the Borrower and the Lender
in the form of Exhibit C attached hereto, as such rider may be amended,
modified or supplemented from time to time.
"Tax Return" shall mean any federal, state and local income, excise,
property and other tax return or report.
"Term Loan" means the Loan made by the Lender to the Borrower in the
amount of up to $275,000.00 to be used by the Borrower only for the purposes
specified in Section 2.2 (b).
"Term Note" means the promissory note in form and substance acceptable
to the Lender in the original principal amount of up to $275,000.00 (as it may
be amended, modified supplemented or replaced from time to time) evidencing the
obligation of the Borrower to pay the principal amount of the Term Loan
together with interest on the Term Loan.
"Termination Date" means April 30, 1998, and any extension or
extensions thereof granted by the Lender in its sole discretion.
"Tribunal" means any federal, state, municipal, foreign, territorial,
or other court, arbitration panel or governmental body, subdivision, agency,
department, commission, board, bureau or instrumentality having jurisdiction
over the matter concerned.
"UCC" means the Uniform Commercial Code as adopted in the State and
all amendments thereto.
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<PAGE> 12
SECTION 2. Loans.
2.1. Revolving Facility Amount and Borrowing Procedure.
(a) Subject to the terms and conditions of this Agreement, the
Lender agrees to make Revolving Loans to the Borrower from time to time until
the Termination Date unless, after giving effect to any such Revolving Loan,
(i) the Principal Amount plus the available face amount of outstanding Letters
of Credit plus the aggregate amount of drafts drawn under or purporting to be
drawn under the Letters of Credit that have been paid by the Lender and for
which the Lender has not been reimbursed pursuant hereto would exceed the
Maximum Amount, or (ii) the Borrower then has, or as a result of such Revolving
Loan would have, an obligation to prepay any Revolving Loan, with Revolving
Loans to be repaid by Revolving Loans to be advanced on such date being
excluded from the Principal Amount for the purposes of all such calculations.
Subject to the foregoing limitations, the Borrower may borrow, repay without
penalty and re-borrow hereunder from the date hereof until the Termination
Date.
(b) Subject to the terms and conditions of this Agreement, the
Application applicable thereto and the other Loan Documents, the Lender agrees
to issue Letters of Credit under the Revolving Facility for the benefit of the
Borrower in an aggregate available face amount of up to $300,000.00; provided,
however, that the Principal Amount plus the available face amount of
outstanding Letters of Credit plus the aggregate amount of drafts drawn under
or purporting to be drawn under the Letters of Credit that have been paid by
the Lender and for which the Lender has not been reimbursed pursuant hereto
shall never exceed the Maximum Amount. The expiration date of each Letter of
Credit must be acceptable to the Lender, in its sole and absolute discretion,
but in no event shall be later than the Termination Date.
(c) If the Principal Amount, plus the available face amount of
outstanding Letters of Credit, plus the aggregate amount of drafts drawn under
or purporting to be drawn under the Letters of Credit that have been paid by
the Lender and for which Lender has not been reimbursed pursuant hereto exceeds
the Maximum Amount, the Borrower shall immediately prepay the Revolving Loans
to the extent necessary to reduce such excess. If after such prepayment the
available face amount of outstanding Letters of Credit plus the aggregate
amount of drafts drawn under or purporting to be drawn under the Letters of
Credit that have been paid by the Lender and for which the Lender has not been
reimbursed pursuant hereto exceeds the Maximum Amount, the Borrower shall
immediately deliver to the Lender such additional collateral as the Lender
shall deem necessary to adequately secure the Borrower's obligations with
respect to such Letters of Credit and unrepaid drawings.
(d) Effective as of the date of this Agreement, all Original
Agreement Loans shall become Revolving Loans under this Agreement. Except as
provided by the preceding sentence, the proceeds of the Revolving Loans shall
be used for business or commercial purposes, including supporting the issuance
by the Lender of Letters of Credit at the request of the Borrower, and for no
other purpose.
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<PAGE> 13
(e) Revolving Loans shall be made automatically in accordance with
the provisions of the Target Balance Management Loan Rider; provided, however,
that the Lender shall have no obligation to make such Revolving Loans if (i)
after the disbursement thereof, the Principal Amount plus the available face
amount of outstanding Letters of Credit plus the aggregate amount of drafts
drawn under or purporting to be drawn under the Letters of Credit that have
been paid by the Lender and for which the Lender has not been reimbursed
pursuant hereto would exceed the Maximum Amount or (ii) the Borrower then has,
or as a result of such Revolving Loan would have, an obligation to prepay any
Revolving Loan. In addition to automatic advances of Revolving Loans, the
Borrower may request that a Revolving Loan be made. Any request for a Revolving
Loan must be received by the Lender not later than 1:00 p.m. (Washington, D.C.
time) on the date on which the Revolving Loan is to be made. Each request must
specify the amount of the Revolving Loan and, at the option of the Lender,
shall be accompanied by a current Borrowing Base Certificate, which may be
transmitted by telecopy to the Lender at (703) 506-9553, or such other number
as the Lender may designate in written notice to the Borrower. If a Borrowing
Base Certificate is transmitted by telecopy, the Borrower shall maintain the
original of such Borrowing Base Certificate as a permanent record for so long
as any of the Obligations remain outstanding and shall allow the Lender to
inspect such Borrowing Base Certificate and shall provide copies of such
original to the Lender upon its request therefor. The proceeds of the Revolving
Loans will be credited to the Operating Account. Revolving Loans may be
requested by those individuals designated by the Borrower from time to time in
written instruments delivered to the Lender; provided, however, that the
Borrower shall remain liable with respect to any Revolving Loan disbursed by
the Lender in good faith hereunder, even if such a Revolving Loan is requested
by an individual who has not been so designated. The Borrower agrees to confirm
in writing from time to time, when and as requested by the Lender, the purpose
for which the proceeds of each Revolving Loan were used.
(f) Any request for a Letter of Credit to be issued must be made
by delivery to the Lender, not later than five (5) Business Days prior to the
date of issuance of such requested Letter of Credit, of a properly completed
and executed Application. The fee for each Letter of Credit shall be an amount
equal to an opening fee of $500 plus a non-refundable commission of 2% per
annum of the undrawn portion of the Letter of Credit, payable in advance upon
issuance and thereafter on each anniversary of the date of issuance of such
Letter of Credit. The Lender is authorized to advance on behalf of the Borrower
as a Revolving Loan all sums required to be paid by the Borrower to the Lender
in respect of any such Letter of Credit pursuant to the terms of the
Application (including the fee set forth above), provided that the Lender may,
but shall not be obligated to make such Revolving Loans if, after the
disbursement thereof, the Principal Amount plus the available face amount of
outstanding Letters of Credit plus the aggregate amount of drafts drawn under
or purporting to be drawn under the Letters of Credit that have been paid by
the Lender and for which the Lender has not been reimbursed pursuant hereto
would exceed the Maximum Amount or (ii) the Borrower then has, or as a result
of such Revolving Loan would have, an obligation to prepay any Revolving Loan.
The provisions of the Application are deemed incorporated in this Agreement by
this reference and shall be binding upon the Lender and Borrower as if fully
set forth herein. If a conflict exists between the terms of the Application and
any other Loan Document, the terms of the
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<PAGE> 14
Application shall control with respect to any Letter of Credit issued pursuant
to such Application but not as to other matters governed by this Agreement or
such Loan Document.
2.2 Term Loan Amount and Borrowing Procedure.
(a) Subject to the terms and conditions of this Agreement and
receipt of a written request therefor from an authorized officer of the
Borrower, the Lender agrees to make the Term Loan to the Borrower in the
aggregate principal amount of up to $275,000.00. The proceeds of the Term Loan
will be credited to the Operating Account. The obligation of the Borrower to
repay the Term Loan plus interest accrued thereon shall be evidenced by the
Term Note. The principal amount of the Term Loan shall be repaid in Thirty-Six
(36) equal monthly payments of $7,638.89 on the last day of each month,
beginning on November 30, 1996 and ending on the Maturity Date; provided that
the last such installment shall be in the amount sufficient to repay the Term
Loan in full. The obligation of the Lender to make the Term Loan is not a
revolving obligation and amounts borrowed under this Section 2.2 and repaid may
not be reborrowed.
(b) The proceeds of the Term Loan shall be used by the Borrower to
repay the existing subordinated debt described on the Schedule of Subordinated
Debt attached hereto and for no other purpose.
(c) The Borrower may prepay the Term Loan in whole or in part at
any time without premium or penalty. Any such prepayment shall be applied
against the scheduled principal payments in the inverse order of maturity and
shall not otherwise postpone or change the amount of any subsequent
installment.
2.3. Interest.
(a) Each Revolving Loan shall bear interest on the unpaid
principal balance thereof from time to time outstanding, for each day from the
date such Revolving Loan is made until it becomes due, at a per annum rate
equal to the Prime Rate. Payments of interest on each Revolving Loan shall be
made on each Interest Payment Date beginning on the Interest Payment Date next
succeeding the date of disbursement of such Revolving Loan. At the option of
the Lender, the Revolving Loans shall bear interest at the Default Rate,
payable on demand, for each day during any period of Default hereunder. Accrued
and unpaid interest due in respect of Original Agreement Loans as of the date
hereof shall be paid on the Interest Payment Date next succeeding the date
hereof.
(b) The Term Loan shall bear interest on the unpaid principal
balance thereof from time to time outstanding, for each day from the date the
Term Loan is made until it becomes due, at a per annum rate equal to the Prime
Rate plus 1/4%. Payments of interest on the Term Loan shall be made on each
Interest Payment Date beginning on the Interest Payment Date next succeeding
the date of disbursement of the Term Loan. At the option of the Lender, the
Term Loan shall bear interest at the Default Rate, payable on demand, for each
day during any period of Default hereunder.
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<PAGE> 15
2.4. Administrative Fee. The obligation of the Borrower to pay the
Administrative Fee shall commence on the date hereof and shall continue until
the Obligations have been fully and completely paid and discharged. Commencing
on December 31, 1996 and continuing on the last day of each subsequent calendar
quarter thereafter (i.e. March 31, June 30, September 30 and December 31) until
the Obligations have been fully and completely paid and discharged, the
Borrower shall pay the Administrative Fee due for the calendar quarter(or
partial calendar quarter) then ending. Any accrued and unpaid portion of this
fee shall be paid on the Termination Date and, if applicable, on the Maturity
Date. Any accrued and unpaid administrative fee due under the Original
Agreement as of the date hereof shall be paid on December 31, 1996.
2.5 Commitment Fee. The obligation of the Borrower to pay the
Commitment Fee shall commence on the date hereof and shall continue until the
Lender's obligation to make Revolving Loans has terminated and all Revolving
Loans and all other Obligations related thereto have been fully and completely
paid and discharged. Commencing on December 31, 1996 and continuing on the last
day of each subsequent calendar quarter thereafter (i.e. March 31, June 30,
September 30 and December 31) until the Lender's obligation to make Revolving
Loans has terminated and all Revolving Loans and all other Obligations related
thereto have been fully and completely paid and discharged, the Borrower shall
pay the Commitment Fee due for the quarter (or portion thereof) then ending.
Any accrued and unpaid portion of this fee shall be paid on the Termination
Date. Any accrued and unpaid commitment fee due under the Original Agreement as
of the date hereof shall be paid on December 31, 1996.
2.6. Payments and Computations. All payments hereunder (including
any payment or prepayment of principal, interest, fees and other charges) or
with respect to the Notes or the Loans shall be made in lawful money of the
United States of America, in immediately available funds, to the Lender at its
office at North Tower, 5th Floor, 7799 Leesburg Pike, Falls Church, Virginia
22043, or at such other place as the Lender may in writing designate, and shall
be applied, at the option of the Lender, first to accrued Obligations other
than principal and interest, next to accrued interest and then to principal. If
any payment of principal, interest or fees is not due on a Business Day, then
the due date will be extended to the next succeeding full Business Day and
interest and fees will be payable with respect to the extension. If any payment
of principal, interest or fees is not made within seven days of its due date,
the Borrower agrees to pay to the Lender a late charge equal to 5% of the
amount of the payment. The rate at which interest accrues on the unpaid
principal balance of any Loans for which the interest rate is based on the
Prime Rate shall be changed effective as of the date of any change in the Prime
Rate. Except where otherwise specifically provided, interest and fees shall be
computed on the basis of a year of 360 days and actual days elapsed. The Lender
may, but shall not be obligated to, debit the amount of any payment due under
this Agreement to any deposit account or loan account of the Borrower
maintained with the Lender.
2.7. Termination of Revolving Facility by Borrower. The Borrower
may terminate the Revolving Facility. provided for in this Agreement and
discontinue borrowing thereunder by giving not less than 30 Business Days'
prior written notice of such termination to the Lender. The termination of the
Revolving Facility shall not affect the rights of the Lender with respect to
any
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<PAGE> 16
Obligations arising prior or subsequent to such termination and the provisions
of this Agreement shall remain in full force and effect until the Obligations
have been fully and completely paid and discharged. Once the Obligations have
been fully and completely paid and discharged and all obligations of the Lender
to make Loans has terminated, the Lender will release its Liens in the
Collateral.
2.8. Extensions of Termination Date and Maturity Date. The Lender
may from time to time, in its sole discretion, extend the Termination Date and
the Maturity Date by giving written notice of such extension to the Borrower.
During any such periods of extension, the remaining terms and conditions of
this Agreement shall remain in full force and effect.
SECTION 3. Covenants, Representations and Other Terms Regarding
Collateral.
3.1. Security Interest. The Borrower hereby grants to the Lender,
its successors and assigns, a security interest in the Collateral, all
additions and accessions thereto and replacements thereof and all proceeds and
products thereof, all books of account and records, including all computer
software relating thereto, all policies of insurance on any property of the
Borrower and all proceeds of such policies, all of which shall secure the
Obligations.
3.2. Accounts Receivable.
(a) The Borrower represents and warrants as to each and every
Account Receivable, which is an account, now existing or hereafter arising,
that: (i) it is a bona fide existing obligation, valid and enforceable against
the Customer, for goods sold or leased or services rendered in the ordinary
course of business; (ii) it is subject to no dispute, defense or offset except
as disclosed in writing to the Lender; (iii) the supporting documents,
instruments, chattel paper and other evidences of indebtedness, if any,
delivered to the Lender are genuine, complete valid and enforceable in
accordance with their terms; (iv) it is not subject to any discount, allowance
or special terms of payment except as disclosed in writing to the Lender; and
(v) except to the extent the Assignment of Claims Act of 1940 or similar state
law may apply to an Account Receivable from the Government, it is not and shall
not be subject to any prohibition or limitation upon assignment.
(b) The Borrower shall immediately notify the Lender of: (i) any
dispute with a Customer relating to an Account Receivable due from such
Customer in excess of $25,000.00 and (ii) any bankruptcy, insolvency,
receivership, assignment for the benefit of creditors or suspension of business
of any Customer of which the Borrower has knowledge.
(c) It is intended that the Lender shall receive direct payments
in respect of Accounts Receivable from Customers, and the Lender shall have the
right to notify Customers of its security interest in the Accounts Receivable
and require payments to be made directly to the Lender. The Borrower will
notify each Customer of the Lender's security interest in the Accounts
Receivable and shall direct all Customers to make payments on Accounts
Receivable to the Cash Collateral Account designated by the Lender by printing
such direction on all invoices given to Customers.
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<PAGE> 17
(d) To facilitate its receipt of direct payments in respect of
Accounts Receivable from Customers, the Lender has caused one or more Cash
Collateral Accounts to be opened and maintained at the principal office of the
Lender. The Lender may open additional Cash Collateral Accounts as it may deem
necessary or desirable. The Cash Collateral Accounts will contain only cash
proceeds of the Accounts Receivable. Any cash proceeds (as such term is defined
in Section 9-306(1) of the UCC) received by the Lender directly from Customers
obligated to make payments under Accounts Receivable pursuant to clause (c) of
this Section 3.2 or from the Borrower pursuant to clause (e) of this Section
3.2, whether consisting of checks, notes, drafts, bills of exchange, money
orders, commercial paper or other proceeds received on account of any
Collateral, shall be promptly deposited in the Cash Collateral Accounts, and
until so deposited shall be held in trust by the Lender in recognition of the
Lender's security interest therein and shall not be commingled with any funds
of the Borrower not constituting proceeds of Collateral. The name in which the
Cash Collateral Accounts is carried shall clearly indicate that the funds
deposited therein are the property of the Borrower, subject to the security
interest of the Lender hereunder. Such proceeds, when deposited, shall continue
to be security for the Obligations and shall not constitute payment thereof
until applied as hereinafter provided. The Lender shall have sole dominion and
control over the funds deposited in the Cash Collateral Accounts, and such
funds may be withdrawn therefrom only by the Lender. Provided that no Default,
each Business Day the Lender (after final collection) will apply the funds in
the Cash Collateral Accounts to reduce the outstanding principal balance of the
Revolving Loans and will transfer any funds remaining in the Cash Collateral
Accounts after such principal curtailments to the Operating Account.
(e) The Borrower shall cause all payments from Customers in
respect of Accounts Receivable collected by it to be delivered to the Lender
forthwith upon receipt for deposit in the Cash Collateral Accounts, in the
original form in which received (with such endorsements or assignments as may
be necessary to permit collection thereof by the Lender) and until so delivered
such payments shall be held in trust by the Borrower in recognition of the
Lender's security interest therein and shall not be commingled with any funds
of the Borrower not constituting proceeds of Collateral. The Borrower hereby
appoints the Lender and any officer, employee or agent of the Lender as the
Lender may from time to time designate as attorneys-in-fact for the Borrower to
endorse and sign the name of the Borrower on all checks, drafts, money orders
or other media of payment so delivered and to perform all actions necessary or
desirable in the discretion of the Lender to effect the provisions of this
Section 3.2(e) and to carry out the intent hereof, to do any act which the
Borrower is required to do pursuant to the terms of this Section 3.2(e), and to
exercise such rights and powers as the Borrower might exercise with respect to
the Collateral, all at the cost and expense of the Borrower. Any endorsements
or assignments made pursuant to the foregoing power of attorney shall, for all
purposes. be deemed to have been made by the Borrower prior to any endorsement
or assignment thereof by the Lender. The Lender may use any convenient or
customary means for the purpose of collecting such checks, drafts, money orders
or other media of payment.
(f) To facilitate the direct collection of payments made in
respect of Accounts Receivable, the Lender shall have the right to take over
the Borrower's post office boxes or make other arrangements, with which the
Borrower shall cooperate, to receive the Borrower's mail.
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(g) The Borrower shall execute all other agreements, instruments
and documents and shall perform all further acts which the Lender may require
with respect to Accounts Receivable owing by the Government to ensure
compliance with the Assignment of Claims Act of 1940, as amended, and all
applicable regulations issued pursuant thereto.
3.3. Inventory and Equipment.
(a) All of the Inventory and Equipment will be kept only at such
places as the Borrower shall designate from time to time by written notice to
the Lender. The Borrower shall give the Lender prior written notice before
Inventory or Equipment is moved or delivered to a location other than such
designated places of business and the Lender's lien and security interest will
be maintained despite the location of the Inventory or Equipment. In connection
with any such move or change, the Borrower shall execute and deliver to the
Lender such financing statements as Lender shall require, in form and substance
reasonably satisfactory to the Lender, to maintain the perfection and priority
of the Lender's lien in such Equipment or Inventory. The Borrower shall not,
without the prior written consent of the Lender, move or deliver the Inventory
or Equipment to a location outside of the United States of America.
(b) The Borrower shall keep and maintain the Equipment in good
operating condition and repair. The Borrower shall not permit any of the
Equipment to become a fixture to any real estate unless subordination
agreements satisfactory to the Lender are obtained by any owner or mortgagee of
such real estate. The Borrower shall, immediately on demand therefor by the
Lender, deliver to the Lender any and all evidence of ownership of any of the
Equipment. None of the Equipment shall be sold, transferred, leased or
otherwise disposed of without the prior written consent of the Lender, except
for (i) sales or dispositions of Equipment which the Borrower determines in
good faith to be obsolete, and (ii) sales or dispositions of Equipment which is
contemporaneously replaced with Equipment of comparable value and utility.
(c) The Lender's security interest shall extend and attach to
Inventory which is presently in existence and is owned by the Borrower or in
which the Borrower purchases or acquires an interest at any time and from time
to time in the future, whether such Inventory is in transit or in the
Borrower's constructive, actual or exclusive occupancy or possession or not and
wherever the same may be located, including, without limitation, all Inventory
which may be located at the premises of the Borrower or upon the premises of
any carriers, forwarding agents, truckers, warehousemen, vendors, selling
agents, finishers, convertors or other third parties who may have possession of
the Inventory.
(d) Upon sale, exchange, lease or disposition of the Inventory or
Equipment, the security interest of the Lender shall without break in
continuity and without further formality or act continue in and attach to all
cash and non-cash proceeds of such sale, exchange, lease or disposition,
including Inventory returned or rejected by customers or repossessed by either
the Borrower or the Lender. As to any such sale, exchange, lease or
disposition, the Lender shall have all of the rights of an unpaid seller,
including stoppage in transit, replevin, detinue and reclamation.
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<PAGE> 19
(e) Except for sales or leases made in the ordinary course of
business, the Borrower shall not sell, lease, encumber or dispose of or permit
the sale, lease, encumbrance or disposal of any Inventory without the prior
written consent of the Lender.
3.4. Defense of Collateral. The Borrower, at its expense, will
defend the Collateral against any claims or demands adverse to the Lender's
security interest therein and will promptly pay, when due, all taxes or
assessments levied against the Borrower on the Collateral.
3.5. Information Regarding Collateral. The Borrower shall provide
the Lender such information as the Lender may from time to time reasonably
request with respect to the Collateral, including, without limitation,
statements describing, designating, identifying and evaluating all Collateral
and listing all sales and purchases of Inventory occurring within a designated
time period.
3.6. Insurance of Collateral. The Borrower shall have the Equipment
and Inventory insured against loss or damage by fire, theft, burglary,
pilferage, loss in transportation and such other hazards as the Lender shall
specify, by insurers satisfactory to the Lender, in amounts satisfactory to the
Lender and under policies containing loss payable clauses satisfactory to the
Lender. Each such policy shall, at the option of the Lender, contain a
provision that it may not be canceled or any of its terms amended, modified or
waived, without giving the Lender 30 days' prior written notice. At the request
of the Lender, all of such policies shall be deposited with the Lender. The
Borrower agrees that the Lender shall have a security interest in such policies
and the proceeds thereof, and, if any loss should occur, the proceeds may be
applied to the payment of the Obligations or to the replacement or restoration
of the Inventory or Equipment damaged or destroyed, as the Lender may elect or
direct. After the occurrence of a Default or an Event of Default, the Lender
shall have the right to file claims under any insurance policies, to receive,
receipt and give acquittance for any payments that may be made thereunder, and
to execute any and all endorsements, receipts, releases, assignments,
reassignments or other documents that may be necessary to effect the
collection, compromise or settlement of any claims under any of the insurance
policies.
3.7. Perfection of Security Interest. The Borrower shall perform
any and all steps in all relevant or appropriate jurisdictions as may be
necessary or reasonably requested by the Lender to perfect, maintain and
protect the Lender's security interest in the Collateral. The Borrower shall
pay taxes and costs of, or incidental to, any recording or filing of any
financing statements concerning the Collateral. The Borrower agrees that a
carbon, photographic, photostatic or other reproduction of this Agreement or of
a financing statement is sufficient as a financing statement; provided that
this shall not limit the obligations of the Borrower to execute separate or
subsequent financing statements with respect to the Collateral upon the
Lender's request.
3.8. Power of Attorney. The Borrower hereby appoints the Lender and
any officer, employee or agent of the Lender as the Lender may from time to
time designate as attorneys-in-fact for the Borrower to perform all actions
necessary or desirable in the discretion of the Lender to effect the provisions
of this Agreement and to carry out the intent hereof, to do any act which the
Borrower
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is required to do pursuant to the terms of this Agreement, and to exercise such
rights and powers as the Borrower might exercise with respect to the
Collateral, all at the cost and expense of the Borrower. The Borrower agrees
that neither the Lender nor any other such attorney-in-fact will be liable for
any acts of omission or commission, unless such acts were willful and
malicious, nor for any error of judgment or mistake of law or fact. This power
is coupled with an interest and is irrevocable so long as any Obligations are
outstanding. The Lender agrees that it shall not exercise any rights under this
Section prior to the occurrence of a Default.
3.9. Limitations on Obligations. It is expressly agreed by the
Borrower that, anything herein to the contrary notwithstanding, the Borrower
shall remain liable under each Account Receivable and contract giving rise to
each Account Receivable to observe and perform all the conditions and
obligations to be observed and performed by the Borrower thereunder, all in
accordance with and pursuant to the terms and provisions of each such Account
Receivable and contract. The Lender shall not have any obligation or liability
under any Account Receivable or contract by reason of or arising out of this
Agreement or the assignment of such Account Receivable or contract to the
Lender or the receipt by the Lender of any payment relating to the Account
Receivable pursuant hereto, nor shall the Lender be required or obligated in
any manner to perform or fulfill any of the obligations of the Borrower under
or pursuant to any Account Receivable or contract, or to make any payment, or
to make any inquiry as to the nature or the sufficiency of any payment received
by it or the sufficiency of any performance by any party under any Account
Receivable, or to present or file any claim, or to take any action to collect
or enforce any performance of the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.
3.10. Indemnification. In any suit, proceeding or action brought by
or against the Lender relating to the Collateral, the Borrower will save,
indemnify and keep the Lender harmless from and against all expense, loss or
damage suffered by reason of any defense, set-off, counterclaim, recoupment or
reduction of liability whatsoever of any obligor thereunder, arising out of a
breach by the Borrower of any obligation thereunder or arising out of any other
agreement, indebtedness or liability at any time owing to or in favor of such
obligor or its successors from the Borrower, and all such obligations of the
Borrower shall be and remain enforceable against and only against the Borrower
and shall not be enforceable against the Lender. The foregoing obligation of
the Borrower to indemnify the Lender shall survive the payment of the
Obligations and the termination of this Agreement but shall not extend to any
suit, proceeding or action arising out of the Lender's gross negligence or
willful misconduct.
SECTION 4. Representations and Warranties. As of the date hereof and
as of each date a Loan is requested hereunder, the Borrower represents and
warrants to the Lender:
4.1. Incorporation, Good Standing and Due Qualification. Each of
the Borrower and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation; has the corporate power and authority to own its assets and to
transact the business in which it is now engaged or in which it is proposed to
be engaged; and is
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duly qualified as a foreign corporation and in good standing under the laws of
each other jurisdiction in which such qualification is required.
4.2. Corporate Power and Authority. The execution, delivery and
performance by the Borrower of the Loan Documents have been duly authorized by
all necessary corporate action and do not and will not (a) require any consent
or approval of the stockholders of the Borrower; (b) contravene the Borrower's
charter or bylaws; (c) result in a material breach of or constitute a default
under any material agreement or instrument to which the Borrower is a party or
by which it or its properties may be bound or affected; (d) result in, or
require, the creation or imposition of any Lien, upon or with respect to any of
the properties now owned or hereafter acquired by the Borrower except as
specifically created by or permitted under the Loan Documents; and (e) to the
Borrower's best knowledge cause the Borrower to be in default under any law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award applicable to such corporation.
4.3. Legally Enforceable Agreement. This Agreement is, and each of
the other Loan Documents when delivered under this Agreement will be, legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms, except as such enforceability may be
limited by bankruptcy, insolvency, receivership or by general principles of
equity.
4.4. Financial Statement. The financial statements of the Borrower
which have been furnished to the Lender in connection with this Agreement are
complete and correct in all material respects in accordance with GAAP and
fairly present the financial condition of the Borrower, and, since the date of
each such statement, there has been no material adverse change in the condition
(financial or otherwise), business or operations of the Borrower.
4.5. Litigation. There is no pending or, to the Borrower's best
knowledge, threatened action or proceeding against or affecting the Borrower or
any Subsidiary before any Tribunal, which may, in any one case or in the
aggregate, materially adversely affect the financial condition, operations,
properties or business of the Borrower or such any Subsidiary.
4.6. Ownership and Liens. The Borrower and each Subsidiary has
title to all of its assets, including the Collateral, and none of the
Collateral or such assets, to the best of the Borrower's knowledge, is subject
to any Lien, except Liens permitted by this Agreement.
4.7. ERISA.
(a) Prohibited Transactions. No transaction has occurred
in connection with which the Borrower or any Subsidiary would be subject to a
liability for either a civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Code Section 4975.
(b) Plan Termination. There has been no termination of
an Employee Benefit Plan or trust created under any Employee Benefit Plan
that has or will give rise to liability to the PBGC
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<PAGE> 22
on the part of the Borrower or an ERISA Affiliate. No withdrawal or other
liability has been incurred under Title IV of ERISA with respect to any
Employee Benefit Plan by the Borrower or an ERISA Affiliate. The PBGC has not
instituted proceedings to terminate any Employee Benefit Plan.
(c) Accumulated Funding Deficiency. Full payment has been made of
all amounts which are required under the terms of each Employee Benefit Plan to
have been paid as contributions to such Employee Benefit Plan as of the last
day of the most recent fiscal year of such Employee Benefit Plan ended on or
before the date of this Agreement, and no accumulated funding deficiency (as
defined in Section 302 of ERISA and Code Section 412), whether or not waived,
exists with respect to any Employee Benefit Plan. The Borrower and each ERISA
Affiliate are current with all required installments under Code Section 412.
(d) Relationship of Benefits to Pension Plan Assets. The current
value of the benefit liabilities (as defined in Section 4001 (a)(16) of
ERISA) of each Employee Benefit Plan does not exceed the fair market value of
the assets of such Employee Benefit Plan. Neither the Borrower nor any ERISA
Affiliate is required to provide security to an Employee Benefit Plan under
Code Section 401(a)(29). No lien under Code Section 412(n) or Sections 312(f)
or 4068 of ERISA has been or is reasonably expected by the Borrower to be
imposed on the assets of the Borrower or any ERISA Affiliate.
(e) Multiemployer Plan. Neither the Borrower nor any ERISA
Affiliate participates in or contributes to or, since September 26, 1980 has
participated in or contributed to, any Multiemployer Plan.
(f) Compliance with ERISA. The Borrower and the ERISA Affiliates
are in compliance in all material respects with those provisions of ERISA which
are applicable to them. Any Employee Benefit Plan which is intended to be
"qualified" under Code Section 401 (a) is so qualified. No Reportable Event
has occurred with respect to any Employee Benefit Plan. Each Employee Benefit
Plan has been administered in compliance with ERISA and the applicable
provisions of the Code, and in accordance with its terms and any related
agreements or documents. The Borrower may terminate its contributions to any
other Employee Benefit Plan maintained by it without incurring any liability to
any person interested therein. There is no pending or, to the best knowledge
of the Borrower, threatened assessment, complaint, proceeding or investigation
of any kind before any Tribunal, including, but not limited to, the Internal
Revenue Service, the Department of Labor, the PBGC or any court of competent
jurisdiction, related to an Employee Benefit Plan, nor is there any basis
therefor. The Borrower and each ERISA Affiliate have complied with the
continuation coverage requirements of Code Section 4980B and Part 6 of Title I
of ERISA and any predecessor provisions thereto.
4.8. Taxes. The Borrower and each Subsidiary have (a) timely filed
or caused to be filed all Tax Returns required to be filed for all periods up
to and including the date hereof in each jurisdiction in which they are or have
been subject to taxation and such returns and reports are true and correct,
have timely filed all claims for refunds to which they are entitled and have
timely paid or caused to be paid in full all taxes which are due and payable to
any taxing authorities for such
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periods, (b) fully paid or accrued on their respective books an amount
sufficient to pay all taxes to the extent of known liabilities therefor which
are not yet due and payable, (c) made or caused to be made all withholdings of
taxes required to be made, and such withholdings have either been paid to the
appropriate governmental authority or set aside in separate accounts for such
purposes, and (d) otherwise satisfied, in all material respects, all legal
requirements applicable to them with respect to all aforementioned obligations
of all taxing jurisdictions, and neither the Internal Revenue Service nor any
other taxing authority is now asserting or, to the best knowledge of the
Borrower, threatening to assert against the Borrower or any Subsidiary any
deficiency or claim for additional taxes or any interest thereon or penalties
in connection therewith.
4.9. Debt. The Borrower is not in any manner directly or
contingently obligated with respect to any Debt which is not permitted by this
Agreement. The Borrower is not in default with respect to any such Debt.
4.10. Corporate Name: Chief Executive Office. During the five years
immediately preceding the date of this Agreement, neither the Borrower nor any
predecessor of the Borrower has used any corporate or fictitious name other
than its current corporate name. The chief executive office of the Borrower,
within the meaning of Section 9.103(3)(d) of the UCC is 45365 Vintage Park
Plaza, Suite 100, Dulles (Loudoun County), Virginia 20166.
4.11. Environmental and Safety Matters. The operation of the
business of the Borrower and all Subsidiaries does not violate any applicable
Environmental Laws. The Borrower and all Subsidiaries have timely obtained all
licenses and permits and timely filed all reports required to be filed under
any applicable Environmental Laws. Neither the Borrower nor any Subsidiary
has, and, to the best knowledge of the Borrower, no other Person has, stored
any chemical or hazardous substances, including any "Hazardous Substances,"
"Pollutants" or "Contaminants" (as such terms are defined in CERCLA), asbestos,
petroleum products, or polychlorinated biphenyls on, beneath or about any of
the owned or leased properties of the Borrower or any Subsidiary in violation
of any applicable legal requirements, including any Environmental Laws. Except
as otherwise disclosed to the Lender in writing prior to the date hereof, to
the best knowledge of the Borrower, there is no condition relating to or
resulting from the release or discharge into the soil, surface waters,
groundwaters, drinking water supplies, navigable waters, land, surface or
subsurface strata, ambient air or any other environmental medium which has
resulted or could result in any damage, loss, cost, expense, claim, demand,
order or liability to or against the Borrower or any Subsidiary by any Tribunal
or other third party relating to or resulting from the operation of its
business or otherwise related to any real property owned or leased of the
Borrower or any Subsidiary, irrespective of the cause of such condition.
Neither the Borrower nor any Subsidiary has received notice from any Tribunal
or private or public entity advising the Borrower or any Subsidiary that it is
potentially responsible for response costs with respect to a release or
threatened release of any Hazardous Substances. Neither the Borrower nor any
Subsidiary has and, to the best knowledge of the Borrower, no other Person has,
buried, dumped or otherwise disposed of any Hazardous Substances on, beneath or
about any property of the Borrower or any Subsidiary or on, beneath or about
any other property in violation of any applicable legal requirements, including
any Environmental Laws.
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<PAGE> 24
Neither the Borrower nor any Subsidiary has received notice of violation of any
Environmental Law or zoning or land use ordinance, law or regulation relating
to the operation of the business of the Borrower or any Subsidiary, nor is the
Borrower aware of any such violation.
4.12. Licenses. The Borrower and all Subsidiaries possess all
Licenses from federal, state and local governmental or regulatory authorities
that are necessary for the ownership, maintenance and operation of their
respective businesses as now conducted or as proposed to be conducted and the
ownership or leasing of their respective properties where the failure to
possess such Licenses would have a material adverse effect on the condition
(financial or otherwise), operations, business or property of such Borrower or
such Subsidiary. The Licenses are in full force and effect, and the Borrower
and each Subsidiary, as the case may be, are in compliance in all material
respects with all of such Licenses.
4.13. Intellectual Property. The Borrower and all Subsidiaries own
all right, title and interest in and to all Intellectual Property used in and
material to the operation of their respective businesses or, for such
Intellectual Property that is not owned, possesses adequate licenses or other
legally enforceable rights to use the same. The Borrower has no reason to
believe that any valid basis exists upon which a claim adversely affecting any
such Intellectual Property may be asserted against the Borrower or any
Subsidiary. To the best knowledge of the Borrower, no Person is infringing
upon the Intellectual Property used by the Borrower or any Subsidiary material
to the operation of their respective businesses. The Borrower has taken
appropriate steps to protect the secrecy, confidentiality and value of its and
all Subsidiaries' rights in and to such Intellectual Property and to prevent
others from using such Intellectual Property without consent.
4.14. Absence of Payments. None of the Borrower, any Subsidiary,
any of their respective directors, officers, agents or employees, or, to the
best knowledge of the Borrower, any other Person acting on behalf of any such
Person has made any unlawful contributions, payments, gifts or entertainment,
or made any unlawful expenditures relating to political activity, to government
officials or others.
4.15. Related Party Transactions. No present or former officer,
director, stockholder or Affiliate of the Borrower is a party to any
transaction or series of transactions with the Borrower which requires payments
by the Borrower to such officer, director, stockholder or Affiliate other than
normal and customary employment compensation and benefits.
4.16. Disclosure. All facts material to the financial condition,
results of operations, business, prospects and property of the Borrower and
each Subsidiary have heretofore been disclosed to the Lender. No
representation or warranty made by the Borrower in this Agreement or in any of
the other Loan Documents, or in any statement, certificate, exhibit or schedule
furnished or to be furnished to the Lender pursuant to this Agreement or any of
the other Loan Documents or in connection with the transactions contemplated
herein and therein, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein and therein not misleading.
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SECTION 5. Affirmative Covenants. The Borrower covenants and agrees
with the Lender that it will:
5.1. Maintenance of Existence. Preserve and maintain, and cause
each Subsidiary to preserve and maintain, its corporate existence and good
standing in the jurisdiction of its incorporation, and qualify and remain
qualified, and cause each Subsidiary to qualify and remain qualified, as a
foreign corporation in each jurisdiction in which to the best of Borrower's
knowledge such qualification is required.
5.2. Maintenance of Records. Keep, and cause each Subsidiary to
keep, adequate records and books of account, in which complete entries will be
made in accordance with GAAP, reflecting all financial transactions of the
Borrower and each Subsidiary, and maintain the principal records and books of
account of the Borrower and each Subsidiary, including those concerning the
Collateral, at the chief executive office of the Borrower.
5.3. Maintenance of Properties. Maintain, keep and preserve, and
cause each Subsidiary to maintain, keep and preserve, all of its properties
(tangible and intangible) necessary or useful in the proper conduct of its
business in good working order and condition, ordinary wear and tear excepted.
5.4. Conduct of Business. Continue, and cause each Subsidiary to
continue, to engage in an efficient and economical manner in a business of the
same general type as conducted by it on the date of this Agreement.
5.5. Maintenance of Insurance. Maintain, and cause each Subsidiary
to maintain, insurance with financially sound and reputable insurance companies
or associations in such amounts and covering such risks as are usually carried
by companies engaged in the same or a similar business and similarly situated,
including, without limitation, insurance covering the Inventory and Equipment
as required hereby.
5.6. Compliance with Laws. Comply, and cause each Subsidiary to
comply, in all material respects with all applicable laws, rules, regulations
and orders (including, without limitation, ERISA), such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property,
except as contested in good faith and through appropriate proceedings deemed
reasonably acceptable to the Lender.
5.7. Right of Inspection. At any reasonable time and from time to
time, permit the Lender or any agent or representative thereof to audit and
verify the Collateral, examine and make copies of and abstracts from the
records and books of account of, and visit the properties of, the Borrower and
any Subsidiary, and to discuss the affairs, finances and accounts of the
Borrower and any Subsidiary with any of their respective officers, directors or
shareholders and the Borrower's independent accountants; and in connection with
any such inspection, pay to the Lender upon
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demand its then current fee for such inspections to compensate the Lender for
the cost incurred and the commitment of resources required for conducting such
inspection.
5.8. Reporting Requirements. Furnish to the Lender:
(a) Quarterly Financial Statements. As soon as available
and in any event within forty-five (45) days after the end of each of the
quarters of each fiscal year of the Borrower, unaudited financial statements
consisting of consolidated and consolidating balance sheets of the Borrower and
Subsidiaries as of the end of such quarter and consolidated and consolidating
statements of income and retained earnings of the Borrower and Subsidiaries for
the period commencing at the end of the previous fiscal year and ending with
the end of such quarter, all in reasonable detail and stating in comparative
form the respective consolidated and consolidating figures for the
corresponding date and period in the previous fiscal year and all prepared in
accordance with GAAP. Such financial statements shall be certified by the
chief financial officer of the Borrower, the Treasurer of the Borrower or such
other financial officer of the Borrower as is acceptable to the Lender, to
present fairly the financial condition of the Borrower (subject to year-end
adjustment) and shall be accompanied by a calculation of the financial
covenants which are applicable to such financial statements pursuant to Section
5.12 hereof,
(b) Annual Financial Statements. As soon as available
and in any event within ninety (90) days after the end of each fiscal year of
the Borrower, audited financial statements consisting of consolidated and
consolidating balance sheets of the Borrower and Subsidiaries as of the end of
such fiscal year, consolidated and consolidating statements of income and
retained earnings of the Borrower and Subsidiaries for such fiscal year, and
consolidated and consolidating statement of cash flows of the Borrower and
Subsidiaries for such fiscal year, all in reasonable detail and stating in
comparative form the respective consolidated and consolidating figures for the
corresponding date and period in the prior fiscal year and all prepared in
accordance with GAAP. The consolidated statements shall be accompanied by an
opinion thereon acceptable to the Lender of an independent certified public
accountant firm selected by the Borrower and acceptable to the Lender and shall
also be accompanied by a calculation of the financial covenants certified by
the chief financial officer of the Borrower, the Treasurer of the Borrower or
such other financial officer of the Borrower as is acceptable to the Lender,
which are applicable to such financial statements pursuant to Section 5.12
hereof,
(c) Management Letters. Promptly upon receipt thereof,
copies of any reports submitted to the Borrower or any Subsidiary by
independent certified public accountants in connection with examination of the
financial statements of the Borrower or any Subsidiary made by such
accountants;
(d) Notice of Litigation. Promptly after the
commencement thereof, notice of all actions, suits and proceedings before any
Tribunal affecting the Borrower or any Subsidiary, which, in the reasonable
opinion of the Borrower, if determined adversely, could have a material adverse
effect on the financial condition, properties or operations of the Borrower or
such Subsidiary;
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<PAGE> 27
(e) Notice of Defaults and Events of Default. As soon as
possible and in any event within five (5) Business Days after the occurrence of
each Default and Event of Default, a written notice setting forth the details
of such Default or Event of Default and the action which is proposed to be
taken by the Borrower with respect thereto;
(f) Proxy Statements, Etc. Promptly after the sending or
filing thereof, copies of all proxy statements, financial statements and
reports which the Borrower or any Subsidiary sends to its stockholders, and
copies of all regular, periodic and special reports, and all registration
statements which the Borrower or any Subsidiary files with the Securities and
Exchange Commission or any governmental authority which may be substituted
therefor, or with any national securities exchange;
(g) Borrowing Base Certificate and Accounts Receivable
Detail. On or before the tenth (10th) day of each Financial Reporting Month, a
Borrowing Base Certificate appropriately completed and executed by the chief
financial officer of the Borrower, the Treasurer of the Borrower or such other
financial officer of the Borrower as is acceptable to the Lender and including
a computation of the Borrowing Base as of the last day of the previous
Financial Reporting Month, accompanied by (i) schedules of all outstanding
Accounts Receivable of the Borrower as of the last day of the previous
Financial Reporting Month showing the age of such Accounts Receivable in
intervals of not more than thirty (30) days, (ii) such other supporting
documents to the schedules as Lender may from time to time reasonably request,
and (iii) such invoices, instruments, chattel paper and other evidences of
indebtedness representing any Accounts Receivable, duly endorsed in blank or to
the Lender, as the Lender may request;
(h) Government Contract Audits. Promptly after the
Borrower's receipt thereof, notice of any final decision of a contracting
officer disallowing costs aggregating more than $25,000.00, which disallowed
costs arise out of any audit of the Borrower's contracts with the Government;
(i) Notice of Claimed Defaults. Immediately upon
becoming aware that the holder of any Debt or Lien has given notice or taken
any action with respect to a claimed breach, default or event of default, a
written notice specifying the notice given or action taken by such holder and
the nature of the claimed breach, default or event of default by the Borrower
thereunder, and the action being taken or proposed to be taken with respect
thereto; and
(j) Contract Backlog Report. If requested by the Lender,
reports relating to the Accounts Receivable included in any Borrowing Base
Certificate setting forth a description of contracts giving rise to such
Accounts Receivable, the percentage of completion of the work to be performed
with respect to such contracts, the amounts billed under such contracts and the
amounts remaining to be billed, in form and detail satisfactory to the Lender;
and
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(k) General Information. Such other information
respecting the condition or operations, financial or otherwise, of the Borrower
or any Subsidiary as the Lender may from time to time reasonably request.
5.9. Licenses. Keep, and cause each Subsidiary to keep, all
Licenses and all other agreements necessary to operate the business of such
Borrower or such Subsidiary in full force and effect and free from burdensome
restrictions and comply in all material respects with all terms and conditions
thereof.
5.10. ERISA. (a) Make, and cause each Subsidiary to make, prompt
payments of contributions required by the terms of each Employee Benefit Plan
and meet the minimum funding standards set forth under ERISA and the Code with
respect to each Employee Benefit Plan to which such standards apply; (b) notify
the Lender immediately of any fact, including, without limitation, any
Reportable Event, arising in connection with any Employee Benefit Plan which,
more likely than not, would constitute grounds for the termination thereof by
the PBGC or for the appointment by the appropriate United States district court
of a trustee to administer the Employee Benefit Plan; (c) notify the Lender
immediately of the intent by the Borrower to terminate any Employee Benefit
Plan; (d) notify the Lender immediately of the adoption of an amendment to any
Employee Benefit Plan (or of any other event) which causes any Employee Benefit
Plan to fail to have sufficient assets to qualify for a standard termination
under Section 4041 of ERISA or to require providing security under Code Section
401(a)(29); (e) promptly after receipt thereof, furnish to the Lender a copy of
any notice received by the Borrower or any Subsidiary from the PBGC relating to
the intention of the PBGC to terminate any Employee Benefit Plan or to appoint
a trustee to administer any Employee Benefit Plan; (f) promptly after receipt
thereof, furnish to the Lender a copy of any notice received by the Borrower or
any Subsidiary from the Internal Revenue Service relating to the intention of
the Internal Revenue Service to disqualify any Employee Benefit Plan or to
refuse to grant a favorable determination letter with regard to any Employee
Benefit Plan; (g) notify the Lender immediately of any lawsuit, claim for
damages or administrative proceeding in which an Employee Benefit Plan or a
fiduciary with respect thereto is a defendant; and (h) furnish to the Lender,
promptly upon its request therefor, such additional information concerning each
and every Employee Benefit Plan as may be reasonably requested, including, but
not limited to, the annual report required to be filed under ERISA and any
notices filed or proposed to be filed in connection with any of the foregoing.
5.11. Environmental Matters. Notify the Lender immediately of the
receipt by the Borrower or any Subsidiary of any notice from any Tribunal that
there has been a violation by the Borrower or any Subsidiary of any
Environmental Law and that remediation of such violation is necessary and
assume responsibility for, and control the process of, any response action,
penalties or correction associated with such violation.
Section 5.12. Financial Covenants.
(a) Minimum Tangible Net Worth Until Public Offering. Until the
financial period in which the Borrower consummates its planned initial public
offering of its common stock, maintain
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a Tangible Net Worth of not less than $ 1,000,000.00 as of the ending date of
the financial period depicted in each balance sheet required to be delivered to
the Lender under the terms of this Agreement.
(b) Minimum Tangible Net Worth After Public Offering. Effective
for the financial period in which the Borrower consummates its planned initial
public offering of its common stock and for each financial period thereafter,
maintain a Tangible Net Worth of not less than $ 1,000,000.00 plus 90% of the
Equity Infusion Amount as of the ending date of the financial period depicted
in each balance sheet required to be delivered to the Lender under the terms of
this Agreement.
SECTION 6. Negative Covenants. The Borrower agrees that it will not:
6.1. Liens. Create, incur, assume or permit to exist, or permit
any Subsidiary to create, incur, assume or permit to exist, any Lien upon or
with respect to any of its properties, now owned or hereafter acquired, except
Permitted Liens.
6.2. Debt. Create, incur, assume or permit to exist, or permit any
Subsidiary to create, incur, assume or permit to exist, any Debt, except (a)
the Obligations; (b) Debt in existence on the date of this Agreement and
depicted in Schedule 6.2 attached hereto; (c) Debt of the Borrower subordinated
to the Obligations on terms satisfactory to the Lender; (d) subject to the
limitations specified in Section 6.8 and 6.11 hereof, Debt of any Subsidiary to
the Borrower or another Subsidiary; (e) ordinary trade accounts payable; and
(f) Debt of the Borrower or any Subsidiary secured by purchase-money Liens
permitted by this Agreement.
6.3. Mergers, Etc. Merge or consolidate with a Person, or permit
any Subsidiary to do so, except that (a) any Subsidiary may merge into or
transfer assets to the Borrower, (b) any Subsidiary may merge into or
consolidate with or transfer assets to any other Subsidiary, and (c) the
Borrower may merge into an existing or to-be-formed Subsidiary as described in,
and subject to the conditions set forth in, that certain Waiver and Consent
executed between the Borrower and the Lender on October 3, 1996.
6.4. Leases. Create, incur, assume, or permit to exist, or permit
any Subsidiary to create, incur, assume or permit to exist, any obligation as
lessee for the rental or hire of any real or personal property, except as is
necessary in connection with such party's normal and customary business
activities.
6.5. Sale and Leaseback. Sell, transfer or otherwise dispose of,
or permit any Subsidiary to sell, transfer or otherwise dispose of, any real or
personal property to any Person and thereafter directly or indirectly lease
back the same or similar property.
6.6. Dividends . Declare or pay any dividends; purchase, redeem,
retire, or otherwise acquire for value any of its capital stock now or
hereafter outstanding; make any distribution of
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assets to its stockholders whether in cash, assets or obligations of the
Borrower; allocate or otherwise set apart any sum for the payment of any
dividend or distribution on, or for the purchase, redemption, or retirement of,
any shares of its capital stock; make any other distribution by reduction of
capital or otherwise in respect of any shares of its capital stock; or permit
any Subsidiary to purchase or otherwise acquire for value any stock of the
Borrower or another Subsidiary, except that if there is no Default at such time
(a) the Borrower may declare and deliver dividends and make distributions
payable solely in common stock of the Borrower and (b) the Borrower may
purchase or otherwise acquire shares of its capital stock by exchange for or
out of the proceeds received from a substantially concurrent issue of new
shares of its capital stock; provided that the Borrower shall not declare or
pay any dividends permitted under this Section 6.6 until the Lender has
received written notice from the Borrower at least five (5) Business Days in
advance of declaring or paying any such dividend and has also received such
other information as the Lender may have requested in order to verify the
amount of the proposed dividends and to determine that the conditions precedent
to the making of the requested dividends have been satisfied.
6.7. Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of or permit any Subsidiary to sell, lease, assign, transfer or
otherwise dispose of, any of its now owned or hereafter acquired assets
(including, without limitation, shares of stock and indebtedness of
Subsidiaries, Accounts Receivable and leasehold interests), except: (a) the
sale of Inventory in the ordinary course of business; (b) the sale or other
disposition of Equipment which the Borrower determines in good faith to be
obsolete; and (c) the sale, lease, assignment, or other transfer by any
Subsidiary of its assets to the Borrower.
6.8. Loans. Make, or permit any Subsidiary to make, any loan or
advance to any Person except for (a) loans or advances to employees, officers
or directors of the Borrower or any Subsidiary not exceeding at any time
outstanding the aggregate principal sum of (i) $25,000.00 plus (ii) reasonable
advances for anticipated business expenses of employees that would be
reimbursable to such employees under the Borrower's expense reimbursement
policy and (b) loans to Subsidiaries and Excluded Affiliates not exceeding at
any time outstanding the aggregate principal sum of $500,000.00.
6.9. Guaranties, Etc. Assume, guarantee, endorse or otherwise be
or become directly or contingently responsible or liable (including, but not
limited to, an agreement to purchase any obligation, stock, assets, goods or
services, or to supply or advance any funds, assets, goods or services, or to
maintain or cause such Person to maintain a minimum working capital or net
worth, or otherwise to assure the creditors of any Person against loss) for
obligations of any Person, except guaranties by endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business.
6.10. Acquisitions. Purchase or acquire, or permit any Subsidiary
to purchase or acquire, (a) all or substantially all of the assets of any
Person, or (b) any capital stock of or ownership interest in any other Person,
except that (i) the Borrower may merge into an existing or to-be-formed
Subsidiary as described in, and subject to the conditions set forth in, that
certain Waiver and Consent
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<PAGE> 31
executed between the Borrower and the Lender on October 3, 1996 and (ii) the
Borrower may make Permitted Investments so long as the aggregate consideration
for all such Permitted Investments paid by the Borrower after the date of this
Agreement does not exceed $30,000.00.
6.11. Transaction with Affiliate. Except as specifically permitted by
the terms of this Agreement, (including, without limitation, Section 6.8
hereof), enter into any transaction, including without limitation, the
purchase, sale or exchange of property or the rendering of any service, with
any Affiliate, or permit any subsidiary to enter into any transaction,
including, without limitation, the purchase, sale or exchange of property or
the rendering of any service, with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of the Borrower's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Borrower or such Subsidiary than would be applicable in a comparable
arm's-length transaction with a Person not an Affiliate.
6.12. Change of Chief Executive Office and Corporate Name. Move the
principal records and books of account of the Borrower or any Subsidiary,
including those concerning the Collateral from its chief executive office or
change its chief executive office or the name under which it does business
without (a) giving the Lender at least thirty (30) days prior written notice,
and (b) executing and delivering financing statements reasonably satisfactory
to the Lender prior to such move or change.
SECTION 7. Conditions of Lending. The making of the Loans and the
issuance of Letters of Credit shall be subject to the following conditions:
7.1. Conditions Precedent to Closing. The initial disbursement of a
Revolving Loan or the Term Loan or the initial issuance of a Letter of Credit
shall be subject to the following conditions precedent:
(a) The Loan Documents shall have been appropriately completed,
duty executed by the parties thereto, recorded and or filed where necessary and
delivered to the Lender, and all taxes and fees with respect to such recording
and filing shall have been paid by the Borrower.
(b) No Default or Event of Default shall have occurred and be
continuing.
(c) All representations and warranties contained herein shall be
true and correct at the date of the Closing.
(d) All legal matters incident to the Loans shall be satisfactory
to counsel for the Lender, and the Borrower agrees to execute and deliver to
the Lender such additional documents and certificates relating to the Loans as
the Lender may reasonably request.
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(e) If required by the Lender, the Lender shall have received an
opinion of counsel to the Borrower as to such matters as the Lender may
request, in form and substance satisfactory to the Lender and its counsel.
(f) The Lender shall have received a certification by an
acceptable provider of financing statement searches of all financing statements
of public record which relate or pertain to the Borrower and/or the Collateral,
financing statements in form and substance satisfactory to the Lender shall
have been properly filed in each office where necessary to perfect the Lender's
security interest in the Collateral, termination statements shall have been
filed with respect to any other financing statements covering all or any
portion of the Collateral (except with respect to Liens permitted by this
Agreement), and all taxes and fees with respect to such recording and filing
shall have been paid by the Borrower; provided that the Lender may choose to
waive this condition with respect to the filing of certain financing statements
or termination statements prior to Closing. The Lender shall also have received
a certification by an acceptable provider of judgments and tax lien searches of
the absence of any judgements or tax liens of public record against the
Borrower and/or the Collateral.
(g) If requested by the Lender, the Borrower shall have delivered
to the Lender (i) certified copies of evidence of all corporate actions taken
by the Borrower to authorize the execution and delivery of this Agreement, the
Notes and the other Loan Documents, (ii) a certificate of incumbency for the
officers of the Borrower executing the Loan Documents required herein, (iii) a
good standing certificate dated not more than 30 days prior to the date of the
Closing from the appropriate state official of any state in which the Borrower
is incorporated or qualified to do business, and (iv) such additional
supporting documents as the Lender or counsel for the Lender may reasonably
request.
(h) The Lender shall have received a Borrowing Base Certificate, a
listing and aging of Accounts Receivable, a listing of accounts payable of the
Borrower, a report setting forth the status of all contracts, all of which
shall be of a current date, shall be appropriately completed and duly executed
by the chief financial officer of the Borrower, the Treasurer of the Borrower
or such other financial officer of the Borrower as is acceptable to the Lender
and generally shall be in form and substance satisfactory to the Lender.
(i) The Lender shall have received and approved a current
financial statement of any Guarantor.
(j) The Lender shall have received evidence satisfactory to it
that the Borrower has obtained the insurance required by this Agreement.
(k) The Lender shall have received such landlord and mortgagee
waivers as it shall request with respect to any landlord or mortgagee which may
claim or have an interest in any of the Collateral.
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(l) The Borrower shall have executed all other agreements,
instruments and documents and shall have performed all acts which the Lender
may require with respect to Accounts Receivable owing by the Government to
ensure compliance with the Assignment of Claims Act of 1940, as amended, and
all applicable regulations issued pursuant thereto.
7.2. Conditions Precedent to Subsequent Disbursements. The
disbursement of subsequent Loans and the issuance of subsequent Letters of
Credit shall be subject to the following conditions precedent:
(a) No Default or Event of Default shall have occurred and be
continuing.
(b) No material adverse change shall have occurred in the
financial condition of the Borrower or any Guarantor.
(c) All representations and warranties contained herein shall be
true and correct at the date of such disbursement.
(d) No change shall have occurred in any law or regulations
thereunder or interpretations thereof which in the opinion of counsel for the
Lender would make it illegal for the Lender to make Loans or issue Letters of
Credit hereunder.
(e) If required by the Lender, the Borrower shall have delivered
to the Lender a current Borrowing Base Certificate, a listing and aging of
Accounts Receivable, a listing of accounts payable of the Borrower, a report
setting forth the status of all contracts, all of which shall be of a current
date, shall be appropriately completed and duly executed by the chief financial
officer of the Borrower, the Treasurer of the Borrower or such other financial
officer of the Borrower as is acceptable to the Lender and generally shall be
in form and substance satisfactory to the Lender.
(f) If previously waived by the Lender as a condition to Closing,
financing statements and/or termination statements shall have been filed in
each location where the Lender deems such filing necessary to perfect its
security interest in the Collateral or terminate a previously perfected
security interest in the Collateral.
(g) The Lender shall have received such landlord and mortgagee
waivers as it shall request from any landlord or mortgagee which, in the
reasonable judgment of the Lender, has an interest in any of the Collateral,
and all landlord and mortgagee waivers previously provided to the Lender by any
landlord or mortgagee which, in the reasonable judgment of the Lender, has an
interest in any of the Collateral shall remain in effect.
(h) The Borrower shall have executed all other agreements,
instruments and documents and shall have performed all acts which the Lender
may require with respect to Accounts Receivable owing by the Government to
ensure compliance with the Assignment of Claims Act of 1940, as amended, and
all applicable regulations issued pursuant thereto.
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SECTION 8. Default.
8.1. Events of Default. Each of the following shall constitute an
Event of Default under this Agreement:
(a) The failure of the Borrower to pay any Obligation to the
Lender including, without limitation, the principal of or interest on the Notes
or any of the Loans, when the same shall become due and payable, whether at
maturity, as a result of the Lender's demand for payment or otherwise;
provided, however, that any such failure (other than a failure to make a
payment due pursuant to Section 2.1 (c), as to which no notice and cure period
applies) shall constitute an Event of Default only if such failure is not cured
within ten (10) days after the date when the Lender's notice of such failure
(which notice may be a computer generated late payment notice) is deemed
effective pursuant to Section 9.3 hereof; or
(b) The refusal by the Borrower to permit the Lender to inspect,
examine, verify or audit the Collateral in accordance with the provisions of
this Agreement; or
(c) The failure of the Borrower to perform or observe any covenant
set forth herein (except any such failure resulting in the occurrence of
another Event of Default described in this Section) or to perform or observe
any other term, condition, covenant, warranty, agreement or other provision
contained in this Agreement or any of the other Loan Documents; provided that
if such failure is capable of cure, then such failure shall constitute an Event
of Default only if such failure is not cured within ten (10) days after the
date when a notice from the Lender specifying such failure is deemed effective
pursuant to Section 9.3 hereof; or
(d) The existence of any material inaccuracy in any representation
or warranty made by the Borrower or any statement or representation made in any
certificate, report or opinion delivered pursuant hereto or in connection with
any borrowing hereunder or the occurrence of any material breach thereof; or
(e) The occurrence of a default under and the acceleration of any
other obligation of the Borrower, any Subsidiary, or any Guarantor for the
payment of any Debt in excess of $100,000.00, unless and to the extent that the
declaration of default and acceleration is being contested in good faith in a
court of appropriate jurisdiction; or
(f) The making by the Borrower of an assignment for the benefit of
creditors, the filing by the Borrower of a petition in bankruptcy or a petition
or application to any Tribunal for the appointment of any receiver or trustee
for the Borrower or any substantial part of its property, or the commencement
by the Borrower of any proceeding relating to the Borrower under any
reorganization, arrangement, readjustments of debt, dissolution or liquidation
law or statute of any jurisdiction, whether now or hereafter in effect; or
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(g) The failure within 30 days after the filing of a bankruptcy
petition or the commencement of any proceeding against the Borrower seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, to have such proceeding dismissed, or the failure within 30 days
after the appointment, without the consent or acquiescence of the Borrower, of
any trustee, receiver or liquidator of the Borrower or of all or any
substantial part of the properties of the Borrower to have such appointment
vacated; or
(h) The occurrence of any of the events described in the two
immediately preceding clauses with respect to a Subsidiary or a Guarantor, or
any property of a Subsidiary or a Guarantor; or
(i) The entry of any judgment against the Borrower, any Subsidiary
or any Guarantor in excess of $100,000.00 or the attachment of any property of
the Borrower, any Subsidiary or any Guarantor having a value in excess of
$100,000.00 and the failure by the affected Person to pay, discharge, bond-off
or cause to be dismissed such judgement or attachment within 30 days, unless
and to the extent that the judgment or attachment is appealed in good faith to
a court of higher jurisdiction and the appeal remains pending; or
(j) The occurrence of a material adverse change in the financial
or business condition of the Borrower, a Subsidiary or a Guarantor; or
(k) The giving of notice to the Lender by any Guarantor purporting
to terminate or withdraw such Guarantor's liability with respect to all or any
part of the Obligations; or
(l) The death, disability or termination of legal existence of any
Guarantor; or
(m) The failure of Joseph Fox, Andrew Ferrentino and Linwood to
remain active in the management of the Borrower; or
(n) Until the Borrower consummates its planned initial public
offering, the failure of Joseph Fox, Andrew Ferrentino and Linwood Pearce to
own 100% of the outstanding voting capital stock of the Borrower; or
(o) The issuance to the Borrower or any Subsidiary of (i) a cure
notice or a show-cause notice relating to a possible termination for default
under any contract which is either a contract with the Government or is a
subcontract (at any tier) which is related to a contract between a third party
and the Government and, within thirty (30) calendar days after the date of such
notice, no written notification is received by the Borrower or such Subsidiary
from the cognizant Contracting Officer or Customer official stating that a
termination will not occur or (ii) a notice of actual termination for default
(complete or partial), under any such contract or subcontract; provided,
however, that no Event of Default shall be declared based upon clauses (i) or
(ii) of this Section 8.1(0) if the notice in question is issued at a time when
the Unearned Contract Value of the contract in question is less
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than $300,000.00 or subcontract in question is less than $50,000.00. The term
"Unearned Contract Value" shall mean the difference between (1) the then fully
funded dollar value of the contract or subcontract, whether or not earned, and
(2) the total amounts previously billed and properly billable for accepted end
items or services; or
(p) With respect to the Borrower or any Subsidiary, the occurrence
of any debarment or suspension from contracting or subcontracting with the
Government; or
(q) The occurrence of any of the following events: (i) the
termination of any Employee Benefit Plan in a distress termination under
Section 4041 (c) of ERISA or an involuntary termination under Section 4042 of
ERISA; (ii) the failure to maintain, or the filing of a request for a waiver
of, the minimum funding standard with respect to any Employee Benefit Plan;
(iii) the occurrence of any event which causes any Employee Benefit Plan to
cease to have sufficient assets at all times so as to qualify for a standard
termination under Section 4041 of ERISA; (iv) the occurrence of any event which
causes the unfunded liability with regard to all such Employee Benefit Plans in
the aggregate to become an amount in excess of $1,000; (v) the appointment of a
trustee by an appropriate United States district court to administer any
Employee Benefit Plan; or (vi) the institution of any proceedings by the PBGC
to terminate any such Employee Benefit Plan or to appoint a trustee to
administer any such Employee Benefit Plan; or
(r) The occurrence of an event of default under any other Loan
Document.
8.2. Remedies upon Default. Upon the occurrence of an Event of
Default, the following provisions shall be applicable:
(a) The Lender may, at its option, declare all Obligations,
whether incurred prior to, contemporaneous with, or subsequent to the date of
this Agreement, and whether represented in writing or otherwise, immediately
due and payable without presentment, demand, protest, notice of non-payment or
any other notice required by law relative thereto, all of which are hereby
expressly waived by the Borrower and terminate the Lender's obligation to make
Loans hereunder; provided, however, that upon the occurrence of an Event of
Default specified in Sections 8.l(f) or (g), all Obligations automatically
will be due and payable and the Lender's obligation to make Loans hereunder
will automatically terminate without further action by the Lender. If any of
the Obligations, including, without limitation, the Loans, shall be evidenced
by a demand instrument, the fight of the Lender to declare any and all
Obligations to be immediately due and payable, as well as the recitation of the
above events permitting the Lender to declare all Obligations due and payable,
shall not constitute an election by the Lender to waive its fight to demand
payment under a demand instrument at any time and in any event, as the Lender,
in its discretion, may deem appropriate. In addition, the Lender may exercise
all of its rights and remedies against the Borrower and any Collateral.
(b) The Lender may foreclose its lien and security interest in the
Collateral in any way permitted by law and shall have without limitation, the
remedies of a secured party under the UCC.
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The Lender may notify the account debtors obligated on any of the Collateral to
make payments thereon directly to the Lender, take control of the cash and
non-cash proceeds of any such Collateral and may enter the Borrower's premises
without legal process and without incurring liability to the Borrower and
remove the Collateral to such place or places as the Lender may deem advisable,
or the Lender may require the Borrower to assemble the Collateral and make the
Collateral available to the Lender at a convenient place and, with or without
having the Collateral at the time or place of sale, the Lender may sell or
otherwise dispose of all or any part of the Collateral whether in its then
condition or after further preparation or processing, either at public or
private sale or at any broker's board, in lots or in bulk, for cash or for
credit, at any time or place, in one or more sales, and upon such terms and
conditions as the Lender may elect. The Lender shall give not less than five
(5) Business Days prior written notice to the Borrower of the time and place of
any sale of the Collateral, which the Borrower hereby agrees constitutes
commercially reasonable notice. At any such sale the Lender may be the
purchaser.
(c) The Borrower recognizes that the Lender may be unable to
effect a public sale of all or a part of the Collateral by reason of certain
prohibitions contained in the Act and/or the Blue Sky Laws, but may be
compelled to resort to one or more private sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire the
Collateral for their own account, for investment and without a view to the
distribution or resale thereof. The Borrower understands that private sales so
made may be at prices and on other terms less favorable than if the Collateral
were sold at public sales, and agrees that the Lender has no obligation to
delay the sale of any of the Collateral for the period of time necessary to
permit the issuer of the Collateral (even if the issuer agrees) to register the
Collateral for sale under the Act or the Blue Sky Laws. The Borrower agrees
that private sales made under the foregoing circumstances shall be deemed to
have been made in a commercially reasonable manner.
(d) The proceeds from any sale of the Collateral by the Lender
shall first be applied to any costs and expenses in securing possession of the
Collateral, and to any expenses in connection with the sale. The net proceeds
will be applied toward the payment of the Obligations. Application of the net
proceeds as to particular Obligations or as to principal or interest shall be
in the Lender's absolute discretion. Any deficiency will be paid to the Lender
forthwith upon demand, and any surplus will be paid to the Borrower or in
accordance with law if the Borrower is not otherwise indebted to the Lender.
(e) To the extent that the Obligations are now or hereafter
secured by property other than the Collateral described herein or by the
guarantee, endorsement or property of any other Person, then the Lender shall
have the right to proceed against such other property, guarantee or endorsement
upon the occurrence of Event of Default, and the Lender shall have the right in
its sole discretion to determine which rights, security, liens, security
interests or remedies the Lender shall at any time pursue, relinquish,
subordinate, modify or take any other action with respect thereto, without in
any way modifying or affecting any of them or any of the Lender's rights
hereunder.
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<PAGE> 38
(f) The Lender is hereby authorized at any time or from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower) to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held, including any
certificate of deposit, and other indebtedness at any time owed by the Lender
to or for the credit of account of the Borrower against any and all of the
Obligations.
(g) THE BORROWER, HAVING KNOWLEDGE THAT IT MAY BE ENTITLED TO
NOTICE AND A HEARING PRIOR TO REPOSSESSION OF THE COLLATERAL, HEREBY WAIVES ANY
RIGHT THAT IT MAY HAVE UNDER EXISTING OR FUTURE LAW TO NOTICE OF FORECLOSURE
AND ANY OTHER ACT DESCRIBED HEREIN, TO ANY HEARING THAT MAY BE HELD RELATING TO
FORECLOSURE OR ANY OTHER SUCH ACTS, AND TO ANY NOTICE THAT MAY BE REQUIRED TO
BE GIVEN BY THE LENDER PRIOR TO SUCH HEARING. THE BORROWER HEREBY EXPRESSLY
RELEASES THE LENDER AND ITS AGENTS FROM ANY AND ALL LIABILITY RELATING TO SUCH
FORECLOSURE AND ANY OTHER ACTS DESCRIBED HEREIN.
(h) The Lender may itself perform or comply, or otherwise cause
performance or compliance with the obligations of the Borrower contained in
this Agreement, including, without limitation, the obligations of the Borrower
to defend and insure the Collateral. The expenses of the Lender incurred in
connection with such performance or compliance, together with interest thereon
at the Default Rate, shall be payable by the Borrower to the Lender on demand
and shall constitute Obligations.
SECTION 9. Miscellaneous.
9.1. Collection Cost. The Borrower shall pay all of the reasonable
costs and expenses incurred by the Lender in connection with the enforcement of
this Agreement and the other Loan Documents, including, without limitation,
reasonable attorneys' fees and expenses.
9.2. Effect on Original Loan Documents, Modification and Waiver.
(a) The Borrower acknowledges and agrees that its obligations
under the Original Loan Documents remain valid and enforceable obligations and
that the execution and delivery of this Agreement and the other Loan Documents
executed in connection herewith shall not be construed as a novation of any of
the Original Loan Documents. If any provision of this Agreement or any of the
other Loan Documents is avoided or found to be unenforceable, the corresponding
provision of the Original Loan Documents shall be automatically reinstated. The
Borrower further acknowledges and agrees that, as of the date hereof, it has no
offsets or defenses against the payment of any of its obligations under the
Original Loan Documents. As a specific inducement to the Lender without which
the Borrower acknowledges the Lender would not enter into this Agreement and
the other Loan Documents, the Borrower hereby waives any and all claims that it
may have against the Lender, as of the date hereof, arising out of or relating
to the Original Loan Documents, whether sounding in contract, tort or any other
basis.
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<PAGE> 39
(b) The terms and conditions pursuant to which the Lender is
making the Loans available to the Borrower and the other terms and conditions
generally related to the relationship between the Borrower and the Lender are
completely restated in this Agreement and the other Loan Documents executed in
connection herewith. Accordingly, the Original Loan Documents are superseded by
this Agreement and the other Loan Documents executed in connection herewith
except as provided in the immediately following sentence. Notwithstanding the
foregoing, the Original Loan Documents shall survive and remain in effect to
the extent they grant collateral to the Lender as security for the obligations
of the Borrower outstanding on the date hereof or are otherwise necessary to
support the grant of such collateral. In the event of a conflict between the
terms of the Original Loan Documents and the terms of this Agreement and the
other Loan Documents executed in connection herewith, the terms of this
Agreement and the other Loan Documents executed in connection herewith shall
control.
(c) This Agreement, the other Loan Documents executed in
connection herewith and the Original Loan Documents, subject, however, to the
limitations set forth in Sections 9.2(a) and (b), contain the entire agreement
between the parties.
(d) No modification or waiver of any provision of any of these
documents and no consent by the Lender to any departure therefrom by the
Borrower shall be effective unless such modification or waiver shall be in
writing and signed by an officer of the Lender with a title of assistant vice
president or any higher office, and the same shall then be effective only for
the period and on the conditions and for the specific instances and purposes
specified in such writing.
(e) No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in similar or
other circumstances.
(f) No failure or delay by the Lender in exercising any right,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies otherwise provided by law.
9.3. Notices. All notices, requests, demands or other
communications required or permitted by or in connection with this Agreement or
any other Loan Document, without implying the obligation to provide any such
notice, request, demand or other communication, shall be in writing addressed
to the appropriate address set forth below or to such other address as may be
hereafter specified by written notice by the Lender or the Borrower, as
applicable, forwarded in like manner. Any such notice, request, demand or other
communication shall be deemed to be effective one (1) day after dispatch if
sent by telegram, mailgram, Purolator Delivery, express mail, Federal Express
or any other commercially recognized overnight delivery service or two (2) days
after dispatch if sent by registered or certified mail, return receipt
requested. Notwithstanding the foregoing, all notices, requests, demands or
other communications shall be considered to be effective upon receipt if
accomplished by hand delivery.
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<PAGE> 40
To the Lender: North Tower, 5th Floor
7799 Leesburg Pike
Falls Church, VA 22043
Attention: Jean M. Reavis
To the Borrower: 45365 Vintage Park Plaza, Suite 100,
Dulles, Virginia 20166
Attention: Kimberly Osgold
--------------------
9.4. Counterparts. This Agreement may be executed by the parties
hereto individually or in any combination, in one or more counterparts, each of
which shall be an original and all of which together constitute one and the
same agreement.
9.5. Captions. The captions of the various sections and paragraphs
of this Agreement have been inserted only for the purpose of convenience; such
captions are not a part of this Agreement and shall not be deemed in any manner
to modify, explain, enlarge or restrict any of the provisions of this
Agreement.
9.6. Survival of Agreements. All agreements, representations and
warranties made herein shall survive the delivery of this Agreement and the
making and renewal of the Loans hereunder.
9.7. Fees and Expenses. Whether or not any Loans are made
hereunder, the Borrower shall pay on demand all costs and expenses incurred by
the Lender in connection with the preparation, negotiation, execution,
delivery, filing, recording and administration of this Agreement and any of the
documents executed or delivered in connection herewith, including, without
limitation, the reasonable fees and expenses of counsel to the Lender,
including in-house counsel for the Lender and local counsel who may be retained
by the Lender, with respect to this Agreement and such documents and any
amendments thereof and with respect to advising the Lender as to its rights and
responsibilities thereunder.
9.8. Use of Defined Terms. All terms defined in this Agreement
shall have the defined meanings when used in certificates, reports or other
documents made or delivered pursuant to this Agreement, unless the context
shall otherwise require.
9.9. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and bind the
respective parties hereto and their successors and assigns; provided, however,
that the Borrower may not assign its rights hereunder without the prior written
consent of the Lender.
(b) At any time and from time to time, the Lender may grant to one
or more Banks participating interests in the Lender's commitment to make
Revolving Loans hereunder or in any or all of the Loans or the Notes. In the
event of any such grant by the Lender of a participating interest
- 40 -
<PAGE> 41
to a Bank, whether or not upon notice to the Borrower, the Lender shall remain
responsible for the performance of its obligations hereunder, and the Lender
shall continue to deal solely and directly with the Borrower in connection with
the Lender's rights and obligations under this Agreement. Any agreement
pursuant to which the Lender may grant such a participation interest shall
provide that the Lender shall retain the sole right and responsibility to
enforce the obligations of the Borrower hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
provide that the Lender will not agree to any modification, amendment or waiver
of this Agreement which would have the effect increasing or decreasing the
Maximum Amount, extending the Termination Date, subjecting the Lender to any
additional obligation, reducing the principal of or rate of interest on any
Loan, or postponing the date fixed for any payment of principal of or interest
on any Loan or fees hereunder or under a Note without the consent of such Bank.
An assignment or other transfer which is not permitted by subsection (c) or (d)
below shall be given effect for purposes of this Agreement only to the extent
of a participating interest granted in accordance with this subsection (b).
(c) At any time, the Lender may assign to one or more Banks all,
or a proportionate part of all, of the Lender's rights and obligations under
this Agreement and the Notes, and such Bank shall assume such rights and
obligations, pursuant to an instrument executed by such Bank and the Lender,
with (and subject to) the consent of the Borrower; provided that if such Bank
is an affiliate of the Lender, the Borrower's consent shall not be required.
Upon execution and delivery of such an instrument and payment by such Bank to
the Lender of an amount equal to the purchase price agreed between the Lender
and such Bank, such Bank shall become a party to this Agreement and shall have
all the rights and obligations of the Lender to the extent of such Bank's
commitment to make Revolving Loans as set forth in such Bank's instrument of
assumption, and the Lender shall be released from its obligations hereunder to
a corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this subsection
(c), the Lender and the Borrower shall make appropriate arrangements so that,
if required, new Notes are issued to the Bank. If the Bank is not incorporated
under the laws of the United States of America or a state thereof, it shall,
prior to the first date on which interest or fees are payable hereunder for its
account deliver to the Borrower certification as to exemption from deduction or
withholding of any United States federal income taxes.
(d) The Lender may at any time assign all or any portion of its
rights under this Agreement and the Notes to a Federal Reserve Bank. No such
assignment shall release the Lender from its obligations hereunder.
(e) The Lender may furnish any information concerning the Borrower
in its possession from time to time to any Bank which is or may become a
participant or assignee under this Section 9.9 and may furnish such information
in response to credit inquiries consistent with general banking practice.
9.10. Accounting Terms. All accounting terms used herein which are
not otherwise expressly defined in this Agreement shall have the meanings
respectively given to them in
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<PAGE> 42
accordance with GAAP in effect on the date of this Agreement. Except as
otherwise provided herein, all financial computations made pursuant to this
Agreement shall be made in accordance with GAAP and all balance sheets and
other financial statements shall be prepared in accordance with GAAP. Except as
otherwise provided herein, whenever reference is made in any provision of this
Agreement to a balance sheet or other financial statement or the information
depicted therein for performing a financial computation, such terms shall mean
the most recent consolidated balance sheet or other financial statement
received by the Lender pursuant to the terms hereof.
9.11. Consent to Jurisdiction. The Borrower irrevocably submits to
the jurisdiction of any Virginia State court sitting in the County of Fairfax
or the United States District Court for the Eastern District of Virginia,
sitting in Alexandria, Virginia over any suit, action or proceeding arising out
of or relating to this Agreement. To the fullest extent it may effectively do
so under applicable law, the Borrower irrevocably waives and agrees not to
assert, by way of motion, as a defense or otherwise, any claim that it is not
subject to the jurisdiction of any such court, any objection that it may now or
hereafter have to the laying of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum.
9.12. Enforcement of Judgments. The Borrower agrees, to the fullest
extent it may effectively do so under applicable law, that a judgment in any
suit, action or proceeding of the nature referred to in Section 9.11 brought in
any such court shall be conclusive and binding upon the Borrower and may be
enforced in the courts of the United States of America or the Commonwealth of
Virginia (or any other courts to the jurisdiction of which the Borrower is or
may be subject) by a suit upon such judgment.
9.13. Waiver of Jury Trial. AS A SPECIFICALLY INDUCED BARGAIN FOR
THE LENDER TO ENTER INTO THIS AGREEMENT AND TO EXTEND CREDIT TO THE BORROWER,
THE BORROWER AND THE LENDER EACH HEREBY WAIVES TRIAL BY JURY WITH RESPECT TO
ANY ACTION, CLAIM, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS
AGREEMENT AND/OR THE CONDUCT OF THE RELATIONSHIP BETWEEN THE LENDER AND THE
BORROWER.
9.14. Service of Process. The Borrower consents to process being
served in any suit, action or proceeding of the nature referred to in Section
9.11 by mailing a copy thereof by registered or certified mail postage prepaid,
return receipt requested, to the Borrower's address specified in or designated
pursuant to Section 9.3. The Borrower agrees that such service (i) shall be
deemed in every respect effective service of process upon the Borrower in any
such suit, action or proceeding and (ii) shall, to the fullest extent permitted
by law, be taken and held to be valid personal service upon and personal
delivery to the Borrower.
9.15. No Limitation on Service or Suit. Nothing in this Section 9
shall affect the right of the Lender to serve process in any manner permitted
by law, or limit any right that the Lender may
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<PAGE> 43
have to bring proceedings against the Borrower in the courts of any
jurisdiction or to enforce in any lawful manner a judgment obtained in one
jurisdiction in any other jurisdiction.
9.16. Indemnification. At all times prior to and after the
consummation of the transactions contemplated by this Agreement, the Borrower
will indemnify and hold each Indemnitee harmless from and against all losses,
damages, claims, fines, costs and expenses (including, without limitation,
reasonable attorneys' fees, costs and expenses) incurred by any such
Indemnitee, whether direct or indirect, as a result of or arising from or
relating to any Proceedings by any Person, whether threatened or initiated,
asserting a claim for any legal or equitable remedy against any Indemnitee
arising from or in connection with this Agreement, the Notes or any of the
other Loan Documents, and any of the transactions contemplated herein or
therein, except to the extent such losses, damages, claims, fines, costs or
expenses are due to the willful misconduct or gross negligence of the Lender;
provided that in connection with such indemnification obligations, the Borrower
shall not be liable for any settlement effected by any Indemnitee without the
Borrower's prior consent (which the Borrower shall not unreasonably withhold,
delay or condition) and the Borrower shall have the right to participate at its
sole cost and expense in the defense of any proceeding for which such
indemnification may be sought. In the event of any Proceeding, the Lender shall
promptly and as soon as is practicable notify the Borrower of the existence of
such Proceeding, provided that the Lender's failure to do so shall not preclude
any Indemnitee from seeking indemnification hereunder. At the request of the
Lender, the Borrower will indemnify any Person to whom the Lender transfers or
sells all or any portion of its interest in the Loans or participations therein
on the terms set forth above. The obligations of the Borrower under this
Section 9.16 shall survive the termination of this Agreement and payment of the
Obligations.
9.17. No Partnership, Joint Venture or Agency. Neither this Agreement
nor any of the Loan Documents shall in any respect be interpreted, deemed or
construed as making the Lender a partner or joint venturer with the Borrower,
nor shall they be interpreted, deemed or construed as making the Lender the
agent of representative of the Borrower, and the Borrower agrees not to make
any contrary assertion, contention, claim or counterclaim in any action, suit
or other legal proceeding involving the Lender.
9.18. Interpretation.
(a) This Agreement and the rights and obligations of the parties
hereunder shall be construed and interpreted in accordance with the laws of the
Commonwealth of Virginia, excluding principles of conflict of laws.
(b) The Lender hereby acknowledges and agrees that this Agreement
shall be subject to and interpreted in accordance with all applicable legal,
regulatory and contractual obligations of the Borrower with respect to the
security, privacy or nondisclosure of certain information regarding the
business of the Borrower. By way of example and not limitation, the Lender
acknowledges and agrees that the Borrower may be prohibited from (i) disclosing
the location of certain information with respect to certain Accounts
Receivable, (ii) providing access to certain books and records and
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<PAGE> 44
(iii) permitting the Lender to inspect certain Collateral. The Lender hereby
agrees that the compliance of the Borrower with such legal, regulatory and
contractual obligations shall not give rise to an Event of Default hereunder,
even if such compliance conflicts with the representations, warranties,
covenants, agreements and conditions set forth herein.
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be signed by their duly authorized representatives all as of the
day and year first above written, with the specific intention that this
Agreement constitute a document under seal.
TEMPLATE SOFTWARE, INC., a Maryland
corporation
ATTEST By: /s/ ANDREW B. FERRENTINO
-------------------------------------
[SIG] Name: ANDREW B. FERRENTINO
- ---------------------------- -----------------------------------
[corporate seal]
Title: PRESIDENT
----------------------------------
SIGNET BANK, a Virginia banking corporation
By: /s/ JEAN M. REAVIS
-----------------------------------
Jean M. Reavis, Vice President
- 44 -
<PAGE> 1
EXHIBIT 10.18
NON BINDING HEADS OF AGREEMENT
This document forms the basis of an agreement between the parties
but is not intended to form a binding contract.
The parties:
Template Software Inc of Dulles, Virginia, USA
and Milestone Software GmbH of Neuss, Germany
DEFINITIONS
For the purpose of this agreement the following definitions shall hold true:
"Template" shall mean Template Software Inc of Dulles, Virginia, USA
"TSG" shall mean Template Software GmbH, a new joint venture company Inc in
Germany
"Milestone" shall mean Milestone Software GmbH
"Territory" shall mean Germany and Austria
PREAMBLE
Both parties have agreed that they wish to form a joint venture (TSG) to
represent Template's interests in the Territory and to market Template's
products, solutions and related services exclusively into the Territory. This
joint venture will be owned 51% by Template and 49% by Milestone and its sole
business purpose shall be the sale and marketing of Template's products,
solutions and related services. Milestone Software shall act as a sales agent
and preferred consultancy partner for TSG although TSG shall deal directly with
all 3rd parties and shall be free to enter into partnership relationships with
other companies. This document forms the basis of the Joint Venture Agreements
which will be entered into by the parties to effect the formation of TSG.
TERM
The initial term of the JV agreements between the parties shall be one year
from signature and they shall automatically renew for subsequent years unless
terminated in accordance with the cancellation terms of the agreements or the
purchase of Milestone's holding as provided for in the Exit Vehicle section
herein.
STRUCTURE OF TSG
The ownership of TSG shall be 51% Template, 49% Milestone.
The Board of directors shall consist of 4 people, Chairman: E. Linwood Pearce,
CEO of Template; other Directors: Richard H. Collard, Vice President of
European Operations for Template; Heinz-Dieter Dietrich, President of
Milestone; and one other to be advised representing Milestone.
Heinz-Dieter Dietrich shall take the role of General Manager of TSG and shall
be responsible for selecting his replacement subject to Board approval after 12
months.
All administrative services including Accounting, Personnel Management,
TAX/Audit, Secretarial Support, Office Premises (TSG shall be entitled to use
space in all Milestone offices), Administration shall be provided by Milestone
for a fixed charge per full time employee on a monthly basis. This charge shall
be 4066 DM per month initially and shall be agreed at the commencement of each
year.
Initial cash funding for TSG for at least the first year shall be provided by
Milestone.
All debts owing to Milestone shall be subordinate to debts to third parties--no
preference shall be given to Milestone.
Page 1 of 5
<PAGE> 2
Template Software and Milestone Heads of Agreement
Subject to Contract
The operating personnel shall be initially selected by Milestone. A minimum of
three professionals shall be hired initially, this number to grow in accordance
with revenue. Further hires will be selected by the management of TSG and
shall be subject to approval by the Board.
The Business Plan of TSG for the first year shall be in line with the Business
Plan submitted by Milestone appended to this document, subject to final
approval by the Board of Directors of TSG.
PRICING/COMMISSION STRUCTURE
The following transfer prices, commission payments and discounts shall operate.
Licence Sales
While the initial JV agreements are in force, without material amendment, TSG
shall pay licence fees to Template at a rate of 35% of the International List
Price ruling at the time of shipment to the End User, or other price as shall
have been previously agreed by Template. Payment shall be due to Template 30
days after receipt by TSG of the media containing the Template software. No
shipment shall be made unless TSG has procured a Software Licence executed by
the End User with Template.
For sales of licences where the order has been taken by Milestone (although
invoiced by TSG) a commission of 20% of the final invoice price shall be payable
to Milestone by TSG as a sales commission.
Training
TSG shall operate as an exclusive agent for the provision of training and
related services in the Territory. TSG shall ensure that all personnel involved
in training are properly accredited and have successfully attended the course
necessary to attain such accreditation.
Template shall provide services and consumables at the following rates to
support TSG in training in Template's products in the territory:
For the training of TSG's personnel consumables shall be supplied at cost
and the out of pocket expenses of the training personnel supplied by Template
shall be charged but there will be no charge for their time.
For the training of Milestone personnel consumables shall be supplied at cost,
training personnel shall be supplied at their cost to Template, on a daily
basis, and their out of pocket expenses shall be charged at cost.
For the training of End User customers consumables shall be supplied at cost,
training personnel shall be supplied at their cost to Template, on a daily
basis, and their out of pocket expenses shall be charged at cost and in
addition Template shall charge an additional fee such that Template makes a 20%
profit on the transaction.
Consultancy Services
Template shall provide TSG with a reasonable amount of consultancy support to
assist their pre sales effort at no charge to TSG save that TSG shall be
expected to meet the cost of internal travel and subsistence within the
Territory. In the event that extended support is necessary for example for the
building of prototypes for demonstration to End Users, then Template shall in
its sole discretion be entitled to charge TSG for the costs of the consultant's
time and out of pocket expenses. Long term consultancy for the development of
applications for which TSG shall receive payment from End Users will be
provided at Template's normal commercial rates.
Page 2 of 5
<PAGE> 3
Template Software and Milestone Heads of Agreement
Subject to Contract
MARKETING
Collateral
Template shall supply small quantities of all support documentation and
literature. TSG shall be responsible for translation and production of local
language literature which shall substantively provide the same information,
without embellishment, and shall be in style consistent with Template's house
style as defined by Template's marketing department.
Promotion
Template shall be responsible for global marketing at its own expense. TSG
shall be responsible for local promotion and marketing which shall be
consistent with Template's standard house style insofar as local practice
permits. Template will authorise TSG to use Template's logo, name and other
trademarks during the life of the agreements. Such right shall be immediately
revoked if the agreements are cancelled for any reason.
Licensing
Template shall provide TSG with free of charge copies of Template's licensed
products for use in marketing and sales activities and for use in building
demonstration prototypes which are not charged to the End User. The development
of chargeable pilots or applications for sale to the End User or paid work by
TSG consultants on the End User's site requires the purchase of a Development
Licence for each developer at normal rates. While licences purchased by TSG may
be used internally to develop multiple applications for End Users there must be
at least one Development Licence purchased for and assigned to each deployed
application for the purposes of application maintenance and support. This
licence may be purchased by either the End User or by TSG depending on who is
maintaining the application.
Runtime licence fees shall be payable for all deployed applications in
accordance with Templates standard licensing terms.
EXIT VEHICLE
It is agreed that Template shall have an option to purchase the share of TSG
held by Milestone in accordance with the following terms:
During the first year of operation Template shall only be able to buy out
Milestone at a price negotiated by agreement.
During the second year of operation Template may purchase the Milestone share at
a price equivalent to valuing TSG at 3 times sales revenue provided that the
acquisition of TSG at that price is not dilutive for Template.
During the 3rd year of operation Template may purchase the Milestone share at a
price equivalent to valuing TSG at 2 times sales revenue provided that the
acquisition of TSG at that price is not dilutive for Template.
For subsequent years Template may purchase the Milestone share at a price
equivalent to valuing TSG at 1 times sales revenue provided that the
acquisition of TSG at that price is not dilutive for Template. At any time the
parties may agree to the buy out at a price not provided by the above terms by
mutual agreement.
Page 3 of 5
<PAGE> 4
Template Software and Milestone Heads of Agreement
Subject to Contract
TERMINATION
Notwithstanding the provision of the Exit Vehicle clause of the agreement, the
JV agreements may be terminated by either party for cause on ninety days written
notice to the other for any of the following reasons (termination not to be
effective if the cause is corrected within the ninety day period):
If any of the parties become insolvent, petition for bankruptcy, apply for
protection from creditors, failure to pay debts when due.
If any of the parties materially fail in their duties as set out in this
agreement, such failure not being rectified within 90 days of notification by
the other party that such failure has occurred.
Effect of termination
Should the agreement be terminated in accordance with this clause then the
following actions will occur:
If termination is not due to the insolvency of Template, Template shall revoke
the right for TSG to offer Templates products solutions and related services,
revoke the right to use Template's trademarks, trading name etc. The right to
trade in the Territory using the name Template Software shall pass to Template.
In addition TSG shall pass to Template full information regarding all customers
and potential customers for Template's products, solutions and related services
in the territory. Template will take on the responsibility for ongoing support
for all existing customers.
AGREEMENT TIMETABLE
The timetable of events agreed by the parties to bring about the establishment
of the Joint Venture is as follows:
BY 14 OCTOBER 1996
Terms of Heads of Agreement shall be finally agreed and the document shall
be signed.
14 OCTOBER to 1ST DECEMBER
Drafting and negotiation of final contract terms.
From 14th October to 1st January 1997 Milestone Software shall act as Template's
representative in the Territory under the same basic terms and conditions as
provide by this document for TSG and in accordance with the Business Plan
appended to this document.
1ST DECEMBER
Signing of Joint Venture Contracts
1ST JANUARY 1997
TSG commences official trading.
Page 4 of 5
<PAGE> 5
Template Software and Milestone Heads of Agreement
Subject to Contract
signed
for and on behalf of Template Software US,
/s/ E. Linwood Pearce Date: 10/11/96
- ------------------------------------------ --------
E. Linwood Pearce, Chief Executive Officer
for and on behalf of Milestone Software GmbH
/s/ Heinz-Dieter Dietrich Date: 10/11/96
- -------------------------------- --------
Heinz-Dieter Dietrich, President
Attachments:
Template Standard Licensing Agreement
Milestone Business Plan for Template Germany
Page 5 of 5
<PAGE> 1
EXHIBIT 10.19
LETTER OF INTENT
November 20, 1996
Mr. Alain Kuhner
President
Krystal Ingenierie S.A.
13, rue Edmond Michelet
94276 Le Kremlin-Bicetre
Cedex, France
Dear Alain:
This non-binding letter of intent (the "Letter of Intent") outlines
the basic terms and conditions pursuant to which Krystal Ingenierie S.A.
("Krystal") would become a wholly-owned subsidiary of Template Software, Inc.
("Template").
1. FORM OF REORGANIZATION.
a. The parties intend that the combination of Template
and Krystal would be structured as a stock for stock exchange in which (i) all
of the shareholders of Krystal as identified on Schedule A (the "Krystal
Shareholders") would exchange their stock of Krystal for shares of Template
common stock, par value $.01 per share ("Template Common Stock"), and (ii) Mr.
Kuhner would assign to Template certain indebtedness (the "Assigned
Indebtedness") of Krystal in the aggregate amount of FF 3,914,331.36 in
exchange for shares of Template Common Stock (the "Reorganization").
b. The parties intend for the Reorganization to be
treated for tax purposes as a non taxable reorganization, to the extent
permissible under applicable law.
2. CONSIDERATION.
a. The total consideration for the 2500 shares of
Krystal Common Stock would be 48,064 shares (the "Exchange Shares") of Template
Common Stock. The total consideration for the Assigned Indebtedness would be
45,686 shares (the "Kuhner Shares", and together with the Exchange Shares, the
"Template Shares") of Template Common Stock. On the date of the closing of the
Reorganization (the "Closing Date"), (i) in exchange for 2500 shares of Common
Stock of Krystal, Template would issue and deliver to the Krystal Shareholders
the Exchange Shares pro rata in proportion to such shareholders' percentage
interest in Krystal, and (ii) in exchange for the assignment of the Assigned
Indebtedness, Template would issue and deliver to Mr. Kuhner the Kuhner Shares.
<PAGE> 2
b. The number of Template Shares to be issued would be
subject to appropriate adjustment to reflect any recapitalizations in the
nature of stock splits, combinations, share dividends or similar changes in
Template's capitalization ("Recapitalizations") between the date hereof and the
date of the applicable closing in respect of the Template Shares.
c. The parties acknowledge that the number of Template
Shares in paragraph 2(a) above is based on a valuation of $16 per share of
Template Common Stock. In the event that Template consummates an initial
public offering of its Common Stock (an "IPO") within six (6) months after the
Closing Date and the price at which such IPO is closed is less than $13 per
share (as adjusted for any Recapitalizations between the date hereof and the
closing of the IPO), then the aggregate number of Template Shares issuable to
the Krystal Shareholders and Mr. Kuhner in accordance with Section 2(a) above
would be increased to a number of shares of Template Common Stock determined in
accordance with the following formula:
1,218,750 = B
---------
A
where A is the price per share of Template Common Stock in the IPO and B is the
number of Template Shares issuable to the Krystal Shareholders and Mr. Kuhner
in connection with the Reorganization. Any excess Template Shares would be
issued to the Krystal Shareholders and Mr. Kuhner on a pro rata basis within
thirty (30) days following the closing of the IPO.
3. DUE DILIGENCE.
a. Prior to the Closing Date, Template and Krystal
(including their respective appropriate affiliates) shall have concluded such
legal, financial and other due diligence activities as the party conducting the
same shall deem appropriate and the results thereof shall be reasonably
satisfactory to the party conducting such activities.
b. The parties to this Letter of Intent acknowledge that
neither has been afforded full access to the information necessary to perform
their respective due diligence. Accordingly, upon the execution of this Letter
of Intent, Krystal shall grant to Template, and Template shall grant to the
Krystal Shareholders, such access to the business, assets and related records
of the other for a period that shall extend for no more than thirty (30) days.
4. CONFIDENTIALITY.
a. Template and Krystal acknowledge that, during the
course of such review, each would obtain access to certain proprietary and/or
confidential material ("Confidential Material"). Template and Krystal shall
not disclose Confidential Material to any third party other than professionals
advisors retained in connection with this transaction
2
<PAGE> 3
who agree to or have a similar duty of non-disclosure, and shall not use such
Confidential Information for any purpose other than evaluation of the proposed
Reorganization. In the event the parties do not consummate the transactions
contemplated by this Letter of Intent, the parties hereto shall return all
Confidential Material obtained through due diligence activities.
b. Unless by order of a court or other governmental
authority of competent jurisdiction, the parties hereto agree to keep all terms
of this Letter of Intent confidential until such time as the parties mutually
agree on disclosure thereof.
5. EXCLUSIVITY. In consideration of Template's due diligence
efforts, Krystal shall, upon execution hereof, for a period of one hundred
twenty (120) days, withdraw Krystal's business from the market, shall not
engage in any negotiations looking towards the sale or merger of such business
except with Template, and Template and Krystal shall negotiate in good faith
concerning the transactions contemplated by this Letter of Intent.
6. REORGANIZATION AGREEMENT.
a. Subject to Template's due diligence review, the
Reorganization would be more formally described in a Stock Purchase Agreement
by and among Template and the Krystal Shareholders (the "Reorganization
Agreement") which would also contain such additional terms, conditions,
representations, warranties, and covenants as are customary in such agreements
and as are mutually agreed upon. The Reorganization Agreement would be based
upon the essential terms and conditions set forth in this Letter of Intent, and
would contain such additional terms and conditions as are customarily found in
such agreements.
b. Subject to the parties' due diligence review, the
parties shall use their respective best efforts to enter into the
Reorganization Agreement within thirty (30) days after the date hereof.
c. At the Closing Date, there shall have been no
material adverse change in the assets, properties, operations, or condition
(financial or otherwise) of Krystal's business as compared to the condition of
same on the date of this Letter of Intent; and there shall be delivered to
Template a certificate to such effect, dated the Closing Date, signed on behalf
of Krystal by an officer of Krystal.
d. Pursuant to the Reorganization Agreement, Template
would have the right to use Krystal's existing leased office facility for a
period of three (3) months following the Closing Date.
7. BOARD AND SHAREHOLDER APPROVAL. It is expressly understood
that the terms of the Reorganization and this Letter of Intent are subject to
the approval of the board and shareholders of Template and Krystal.
3
<PAGE> 4
8. BROKER. The parties represent to each other that no broker
has been involved in the proposed transaction. Each party agrees to indemnify
the other against any brokerage claims.
9. LOCK-UP; STANDSTILL. In connection with any future IPO, each
of the Krystal Shareholders would agree not to sell any shares of Template
Common Stock within any period requested by Template's underwriters (not to
exceed 180 days following the closing of the IPO). Further, for a period of
one (1) year following the closing of an IPO, the Krystal Shareholders would
agree not to own, in the aggregate, more than two percent (2%) of the issued
and outstanding equity of Template.
10. GOVERNING LAW. The Reorganization Agreement and the
transactions contemplated thereby would be governed by the laws of the
Commonwealth of Virginia in the United States of America, except for matters
relating to the corporate existence and governance of Krystal and the taxation
of the Krystal Shareholders which would be governed by applicable French law.
This Letter of Intent is non-binding other than paragraphs 4 and 5
above which shall be binding on the parties hereto. Consummation of the
Reorganization is subject to the satisfactory completion of the parties' due
diligence and the execution of appropriate definitive documentation with
respect to the Reorganization, as well as the procurement of any required
approvals from French or U.S. governmental authorities.
4
<PAGE> 5
Please indicate your agreement with the non-binding terms of this
letter of intent by signing and returning a copy of this letter to me. This
agreement may be signed in counterparts.
Very truly yours,
TEMPLATE SOFTWARE, INC.
By:
------------------------------
E. Linwood Pearce
Chief Executive Officer
ACCEPTED AND AGREED TO
ON THIS 20TH DAY OF NOVEMBER, 1996:
SHAREHOLDERS:
- -------------
- -------------------------
Alain Kuhner
- -------------------------
Adriaan de Graaf
- -------------------------
Philippe Pointon
- -------------------------
Brigitte Kuhner
5
<PAGE> 6
SCHEDULE A
KRYSTAL SHAREHOLDERS
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES PERCENTAGE INTEREST
- ---- ---------------- -------------------
<S> <C> <C>
Alain Kuhner 2,497 99.8%
Adriaan de Graaf 1 .04%
Philippe Pointon 1 .04%
Brigitte Kuhner 1 .04%
Total Outstanding Shares: 2,500
</TABLE>
6
<PAGE> 1
EXHIBIT 11
TEMPLATE SOFTWARE, INC.
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended November 30, August 31,
----------------------- -----------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C> <C>
Net income (loss) $ (526,841) $ (275,489) $ 327,092 $ 189,287 $ 725,833
======== ======== ======= ======= =======
Weighted average shares of common
stock outstanding 2,168,957 2,181,785 2,182,260 2,182,016 2,182,994
Weighted average effect of common
stock equivalents (using the
treasury stock method
and the anticipated initial
public offering price of
$16.00 per share) -- -- 1,469,018 1,231,707 1,469,048
Common shares issued within one
year of initial filing 64,014 64,014 64,014 64,014 64,014
Common stock equivalents issued
within one year of initial filing 940,532 940,532 940,532 940,532 940,532
---------- ---------- ---------- ---------- ----------
3,173,503 3,186,331 4,655,824 4,418,269 4,656,558
========== ========== ========== ========== ==========
Net income (loss) per common
share $ (0.17) $ (0.09) $ 0.07 $ 0.04 $ 0.16
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF TEMPLATE SOFTWARE, INC.
1. Template Software, U.K. Limited (Incorporated in the United Kingdom)
The Company's share capital is 100 Pounds, divided into 100 Shares of
one Pound each.
All 100 Shares are held by Template Software, Inc.
2. Template Software, Limited (incorporated in the United Kingdom)
The Company's share capital is 100 Pounds, divided into 100 Shares of
one Pound each.
All 100 Shares are held by Template Software, Inc.
<PAGE> 1
[COOPERS & LYBRAND L.L.P. LETTERHEAD]
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated October 25, 1996, except for Note 9 for which the date is
November 20, 1996, on our audits of the consolidated financial statements and
financial statement schedule of Template Software, Inc. as of November 30, 1994
and 1995, and August 31, 1996, and for each of the three years in the period
ended November 30, 1995, and for the nine month period ended August 31, 1996.
We also consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data".
/s/ COOPERS & LYBRAND L.L.P.
-----------------------------
Coopers & Lybrand L.L.P.
McLean, Virginia
November 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 922
<SECURITIES> 0
<RECEIVABLES> 2,737
<ALLOWANCES> 184
<INVENTORY> 0
<CURRENT-ASSETS> 3,949
<PP&E> 962
<DEPRECIATION> 785
<TOTAL-ASSETS> 4,979
<CURRENT-LIABILITIES> 3,128
<BONDS> 270
0
308
<COMMON> 22
<OTHER-SE> 1,324
<TOTAL-LIABILITY-AND-EQUITY> 1,655
<SALES> 9,617
<TOTAL-REVENUES> 9,617
<CGS> 5,040
<TOTAL-COSTS> 2,350
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> 1,175
<INCOME-TAX> 449
<INCOME-CONTINUING> 726
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 726
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
<PAGE> 1
Exhibit 99.1
CONSENT OF NOMINEE FOR DIRECTOR
I consent to the use of my name as a future director of Template
Software, Inc., a Virginia corporation (the "Company"), under the heading
"Management" in the Prospectus constituting part of the Registration Statement
registering the offering of Common Stock, $0.01 par value, of the Company
expected to be filed with the Securities and Exchange Commission in October,
1996.
Alan B. Salisbury
---------------------
Alan B. Salisbury
October 14, 1996
<PAGE> 1
Exhibit 99.2
CONSENT OF NOMINEE FOR DIRECTOR
I consent to the use of my name as a future director of Template
Software, Inc., a Virginia corporation (the "Company"), under the heading
"Management" in the Prospectus constituting part of the Registration Statement
registering the offering of Common Stock, $0.01 par value, of the Company
expected to be filed with the Securities and Exchange Commission in October,
1996.
Duane A. Adams
-----------------
Duane A. Adams
October 14, 1996
